Table of Contents

As filed with the Securities and Exchange Commission on April 17, 2012

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, 2011
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)

Tito Botelho Martins, Chief Financial Officer
phone: +55 21 3814 8888
fax: +55 21 3814 8820
tito.martins@vale.com

Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices)

                 Securities registered or to be registered pursuant to Section 12(b) of the Act:

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, 2011 was:
3,256,724,482 common shares, no par value per share
2,108,579,618 preferred class A shares, no par value per share
12 golden shares, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý    No o

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 o    No ý

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 ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ý   International Financial Reporting Standards as issued by the International Accounting Standards Board o      Other o

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.

Item 17 o    Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No ý

   

---

TABLE OF CONTENTS

i

---

Table of Contents

FORM 20-F CROSS REFERENCE GUIDE

ii

---

Table of Contents

iii

---

Table of Contents

FORWARD-LOOKING STATEMENTS

             This annual report contains statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Many of those forward-looking statements can be identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "should," "plan," "intend," "estimate" and "potential," among others. Those statements appear in a number of places and include statements regarding our intent, belief or current expectations with respect to:

•

our direction and future operation;



•

the implementation of our principal operating strategies, including our potential participation in acquisition, divestiture or joint venture transactions or other investment opportunities;



•

the implementation of our financing strategy and capital expenditure plans;



•

the exploration of mineral reserves and development of mining facilities;



•

the depletion and exhaustion of mines and mineral reserves;



•

trends in commodity prices and demand for commodities;



•

the future impact of competition and regulation;



•

the payment of dividends or interest on shareholders' equity;



•

industry trends, including the direction of prices and expected levels of supply and demand;



•

other factors or trends affecting our financial condition or results of operations; and



•

the factors discussed under Risk factors.

             We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of various factors. These risks and uncertainties include factors relating to (a) the countries in which we operate, mainly Brazil and Canada, (b) the global economy, (c) capital markets, (d) the mining and metals businesses and their dependence upon global industrial production, which is cyclical by nature, and (e) the high degree of global competition in the markets in which we operate. For additional information on factors that could cause our actual results to differ from expectations reflected in forward-looking statements, see Risk factors. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments. All forward-looking statements attributed to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement.

---

             Vale S.A. is a stock corporation, or sociedade por ações, organized on January 11, 1943 and existing under the laws of the Federative Republic of Brazil for an unlimited period of time. Its head offices are located at Avenida Graça Aranha, No. 26, 20030-900 Rio de Janeiro, RJ, Brazil, and its telephone number is 55-21-3814-4477.

             In this report, references to "Vale" are to Vale S.A. References to "we," "us" or the "Company" are to Vale and, except where the context otherwise requires, its consolidated subsidiaries. References to our "preferred shares" are to our preferred class A shares. References to our "ADSs" or "American Depositary Shares" include both our common American Depositary Shares (our "common ADSs"), each of which represents one common share of Vale, and our preferred class A American Depositary Shares (our "preferred ADSs"), each of which represents one

1

---

Table of Contents

class A preferred share of Vale. American Depositary Shares are represented by American Depositary Receipts ("ADRs") issued by the depositary. References to our "HDSs" or "Hong Kong Depositary Shares" include both our common Hong Kong Depositary Shares (our "common HDSs"), each of which represents one common share of Vale, and our class A preferred Hong Kong Depositary Shares (our "preferred HDSs"), each of which represents one preferred Class A share of Vale. Hong Kong Depositary Shares are represented by Hong Kong Depositary Receipts ("HDRs") issued by the depositary. Unless otherwise specified, we use metric units.

             References to "real," "reais" or "R$" are to the official currency of Brazil, the real (singular) or reais (plural). References to "U.S. dollars" or "US$" are to United States dollars. References to "CAD" are to Canadian dollars, and references to "A$" are to Australian dollars.

RISK FACTORS

Risks relating to our business

The mining industry is highly exposed to the cyclicality of global economic activity and requires significant investments of capital.

             The mining industry is primarily a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand production capacity, build infrastructure and preserve the environment. The sensitivity to industrial production, together with the need for significant long-term capital investments, are important sources of risk for the financial performance and growth prospects of Vale and the mining industry generally.

Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability.

             China has been the main driver of global demand for minerals and metals over the last few years. In 2011, Chinese demand represented 63% of global demand for seaborne iron ore, 43% of global demand for nickel and 39% of global demand for copper. The percentage of our gross operating revenues attributable to sales to consumers in China was 32.4% in 2011. Although China largely withstood the global recession of 2008/2009, a 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, could also negatively impact our results.

Our business can be adversely affected by declines in demand for the products our customers produce, including steel (for our iron ore and coal business), stainless steel (for our nickel business) and agricultural commodities (for our fertilizer nutrients business).

             Demand for our iron ore, coal and nickel products depends on global demand for steel. Iron ore and iron ore pellets, which together accounted for 71.5% of our 2011 operating revenues, are used to produce carbon steel. Nickel, which accounted for 9.5% of our 2011 gross operating revenues, is used mainly to produce stainless and alloy steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectoral factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products. In addition, vertical backward integration of the steel industry and the use of scrap could reduce the global seaborne trade of iron ore.

             The demand for fertilizers is affected by global prices of agricultural commodities. A sustained decline in the price of one or more agricultural commodities could negatively impact our fertilizer nutrients business.

2

---

Table of Contents

The prices we charge, including prices for iron ore, nickel and copper, are subject to volatility.

             Our iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis for determining the customer price. Our prices for nickel and copper are based on reported prices for these metals on commodity exchanges such as the London Metal Exchange ("LME") and the New York Mercantile Exchange ("NYMEX"). Our prices and revenues for these products are consequently volatile, which may adversely affect our cash flow. Global prices for metals are subject to significant fluctuations and are affected by many factors, including actual and expected global macroeconomic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels, investments by commodity funds and others and actions of participants in the commodity markets.

Increased availability of alternative nickel sources or substitution of nickel from end-use applications could adversely affect our nickel business.

             Scrap nickel competes directly with primary nickel as a source of nickel for use in the production of stainless steel, and the choice between them is largely driven by their relative prices and availability. In 2011, the stainless steel scrap ratio remained relatively unchanged from 2010, at 43%. Nickel pig iron, a product developed by Chinese steel and alloy makers that utilizes lateritic nickel ores, competes with other nickel sources in the production of stainless steel. In 2011, estimated Chinese nickel pig iron and ferro-nickel production increased 67%, representing 16% of global nickel output. Demand for primary nickel may be negatively affected by the direct substitution of primary nickel with other materials in current applications. In response to high nickel prices or other factors, producers and consumers of stainless steel may partially shift from stainless steel with high nickel content (series 300) to stainless steels with either lower nickel content (series 200) or no nickel content (series 400), which would adversely affect demand for nickel.

We may not be able to adjust production volume in a timely or cost-efficient manner in response to changes in demand.

             During periods of high demand, our ability to rapidly increase production capacity is limited, which could render us unable to satisfy demand for our products. Moreover, we may be unable to complete expansions and greenfield projects in time to take advantage of rising demand for iron ore, nickel or other products. When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore, iron ore pellets or nickel from joint ventures or unrelated parties and reselling it, which would increase our costs and narrow our operating margins. If we are unable to satisfy excess customer demand in this way, we may lose customers. In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.

             Conversely, operating at significant idle capacity during periods of weak demand may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations. In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or previous labor or government agreements.

Regulatory, political, economic and social conditions in the countries in which we have operations or projects could adversely impact our business and the market price of our securities.

             Our financial performance may be negatively affected by regulatory, political, economic and social conditions in countries in which we have significant operations or projects, particularly Argentina, Australia, Brazil, Canada, Chile, China, Colombia, France, Guinea, Indonesia, Japan, Liberia, Malawi, Mozambique, New Caledonia, Norway, Oman, Peru, the United Kingdom and Zambia.

             Our operations depend on authorizations and concessions from governmental regulatory agencies in the countries in which we operate. For details about the authorizations and concessions upon which our operations depend, see Information on the Company—Regulatory matters. We are subject to laws and regulations in many jurisdictions that can change at any time, and changes in laws and regulations may require modifications to our technologies and operations and result in unanticipated capital expenditures.

3

---

Table of Contents

             Actual or potential political changes and changes in economic policy may undermine investor confidence, which may hamper investment and thereby reduce economic growth, and otherwise may adversely affect the economic and other conditions under which we operate in ways that could have a materially negative effect on our business.

Disagreements with local communities in which we operate could adversely impact our business and reputation.

             Disputes with communities in which we operate may arise from time to time. Although we contribute to local communities with taxes, job and business opportunities and social programs, community expectations are complex and involve multiple stakeholders with different interests. Some of our operations and reserves are located on or near lands owned or used by indigenous or aboriginal tribes or other groups. These indigenous peoples may have rights to review or participate in natural resource management, and we negotiate with them to mitigate impacts of our operations or to obtain access to their lands.

             Disagreements or disputes with local groups, including indigenous or aboriginal groups, could cause delays or interruptions to our operations, adversely affect our reputation or otherwise hamper our ability to develop our reserves and conduct our operations. Protesters have taken actions to disrupt our operations and projects, and they may continue to do so in the future. Although we vigorously defend ourselves against illegal acts, future attempts by protesters to harm our operations could adversely affect our business.

We could be adversely affected by changes in government policies, including the imposition of new taxes or royalties on mining activities.

             Mining is subject to government regulation in the form of taxes and royalties, which can have an important financial impact on our operations. In the countries where we are present, governments may impose new taxes, raise existing taxes and royalty rates, reduce tax exemptions and benefits, or change the basis on which taxes are calculated in a manner that is unfavorable to us. Governments that have committed to provide a stable taxation or regulatory environment may shorten the duration of those commitments.

Concessions, authorizations, licenses and permits are subject to expiration, to limitation on renewal and to various other risks and uncertainties.

             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 operation of our mines, which may be subject to fixed expiration dates or periodic review or renewal. While we anticipate that renewals will be given as and when sought, there is no assurance that such renewals will be granted as a matter of course and there is no assurance that new conditions will not be imposed in connection therewith. Fees for mining concessions might increase substantially due to the passage of time from the original issuance of each individual exploration license. If so, our business objectives might be impeded by the costs of holding or renewing our mining concessions. 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 mining concessions are justified by the results of operations to date, and 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 obtaining a mining concession. This retrocession requirement can lead to a substantial loss of part of the mineral deposit originally identified in our feasibility studies. For more information on mining concessions and other similar rights, see Regulatory matters.

4

---

Table of Contents

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, logistics capabilities and to expand the scope of the minerals we produce. Our projects are subject to a number of risks that may adversely affect our growth prospects and profitability, including the following:

•

We may encounter delays or higher than expected costs in obtaining the necessary equipment or services and in implementing new technologies to build and operate a project.



•

Our efforts to develop projects according to schedule may be hampered by a lack of infrastructure, including a reliable power supply.



•

Suppliers and contractors may fail to meet their obligations to us.



•

We may face unexpected weather conditions or other force majeure events.



•

We may fail to obtain, or experience delays or higher than expected costs in obtaining, the required permits and licenses to build a project.



•

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. Ineffective project management could mean that we are not able to perform the continuous operation of our activities. 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:

•

We may face unexpected weather conditions or other force majeure events.



•

Adverse mining conditions may delay and hamper our ability to produce the expected quantity of minerals and to meet specifications required by customers.



•

There may be accidents or incidents during business operations involving our mines, plants, railroads, ports and ships.



•

We may experience delays or interruptions in the transportation of our products, including with railroads, ports and ships.



•

Some of our development projects are located in regions where tropical diseases, AIDS and other contagious diseases are a major public health issue and pose health and safety risks to our employees. If we are unable to ensure the health and safety of our employees, our operations may be adversely affected.



•

Labor disputes may disrupt our operations from time to time.

5

---

Table of Contents

Rules governing ocean transport of iron ore fines could affect our operations.

             A portion of our production is in the form of non-concentrate iron ore. This type of ore has been occasionally compared to fines, which are small particles of ore. Current studies are analyzing whether these ores, when transported with a high moisture content, may begin to act like a fluid, although we have no record of such an event occurring. This might cause cargo to become less stable, presenting potential dangers to navigation. The operational risks depend on many factors, including the characteristics of the ore, the circumstances under which they are transported and the type of vessel used. To manage these risks, the shipping industry and maritime insurers generally follow rules adopted under the International Maritime Solid Bulk Cargoes (IMSBC) Code, but those rules do not currently specifically address the transportation of non-concentrate iron ore such as we produce in the Carajás mineral province in our Northern System. Potential changes to the rules are currently under consideration under the auspices of the International Maritime Organization (IMO). We believe that the safety of our shipping practices is evidenced by our long track record of safe operations, but regulatory changes could require us to modify our practices for handling or shipping our Carajás production, and these measures could increase our costs, require new investment, and even limit the volume of our exports of Carajás iron ore.

Our business could be adversely affected by the failure of our counterparties to perform their obligations.

             Customers, suppliers, contractors and other counterparties may fail to perform existing contracts and obligations, which may unfavorably impact our operations and financial results. The ability of suppliers and customers to perform their obligations may be adversely affected in times of financial stress and economic downturn. Suppliers are also subject to capacity constraints in times of high demand which may affect their ability to fulfill their commitments.

             We currently operate important parts of our pelletizing, bauxite, nickel, coal, copper and steel businesses through joint ventures with other companies. Important parts of our electricity investments and our oil and gas projects are operated through consortia. Our forecasts and plans for these joint ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide skilled and competent managerial personnel. If any of our partners fails to observe its commitments, the affected joint venture or consortium may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans. For more information about our joint ventures, see Information on the Company—Lines of business.

Our business is subject to environmental, health and safety incidents or accidents.

             Our operations involve the use, handling, discharge and disposal of hazardous materials into the environment and the use of natural resources, and the mining industry is generally subject to significant risks and hazards, including the potential for fire or explosion, gas leaks, escape of polluting substances or other hazardous materials, rockfall incidents in underground mining operations and incidents involving mobile equipment or machinery. This could occur by accident or by a breach of operating standards, and could result in a significant incident, including damage to or destruction of mineral properties or production facilities, personal injury or death, environmental damage, delays in production, monetary losses and possible legal liability. Vale has health, safety and environmental standards in place to mitigate the risk of such incidents or accidents. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or accidents, which could adversely affect our business or reputation.

Environmental, health and safety regulation, including regulation pertaining to climate change, may adversely affect our business.

             Nearly all aspects of our activities, products, services and projects around the world are subject to environmental, health and safety regulation, which may expose us to increased liability or increased costs. Such regulations require us to obtain environmental licenses, permits and authorizations for our operations, and to conduct environmental impact assessments in order to get approval for our projects and permission for initiating construction. Additionally, all significant changes to existing operations must also undergo the same

6

---

Table of Contents

procedures. Difficulties in obtaining permits may lead to construction delays or cost increases, and in some cases may lead us to postpone or even abandon a project. Environmental regulation also imposes standards and controls on activities relating to mineral research, mining, pelletizing activities, railway and marine services, ports, decommissioning, refining, distribution and marketing of our products. Such regulation may give rise to significant costs and liabilities. In addition, community activist groups and other stakeholders may increase demands for socially responsible and environmentally sustainable practices, which could entail significant costs and reduce our profitability. Private litigation relating to these or other matters may adversely affect our financial condition or cause harm to our reputation.

             Environmental regulation in many countries in which we operate has become stricter in recent years, and it is possible that more regulation or more aggressive enforcement of existing regulations will adversely affect us by imposing restrictions on our activities and products, creating new requirements for the issuance or renewal of environmental licenses, raising our costs or requiring us to engage in expensive reclamation efforts.

             Concern over climate change and efforts to comply with international undertakings could lead governments to impose limits on carbon emissions or carbon taxes and emissions trading schemes applicable to our operations, which could adversely affect our operating costs or our capital expenditure requirements. For example, the Brazilian government has adopted a decree under the carbon emissions law (Política Nacional de Mudanças Climáticas) that contemplates specific limits on carbon emissions to be established in 2012 and phased in through 2020, and the Australian government has introduced a carbon pricing mechanism that commences in July 2012.

Natural disasters may inflict severe damage to our operations and projects in the countries where we operate and/or may cause a negative impact in our sales to countries adversely affected by such disasters.

             Natural disasters, such as wind storms, 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. Moreover, although the physical impact of climate change on our business remains highly uncertain, we may experience changes in rainfall patterns, water shortages, rising sea levels, increased storm intensity and flooding as a result of climate change, which may adversely affect our operations. On January 11, 2012, we determined that force majeure had occurred under a number of our iron ore sales contracts due to high rainfall in the Brazilian states of Minas Gerais, Rio de Janeiro and Espírito Santo, which created serious challenges to the operations of our Southeastern and Southern Systems. The force majeure was lifted on January 23, 2012.

We may not have adequate insurance coverage for some business risks.

             Our businesses are generally subject to a number of risks and hazards, which could result in damage to, or destruction of, mineral properties, facilities and equipment. The insurance we maintain against risks that are typical in our business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost, or at all. As a result, accidents or other negative developments involving our mining, production or transportation facilities could have a material adverse effect on our operations.

Our reserve estimates may materially differ from mineral quantities that we may be able to actually recover; our estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.

             Our reported ore reserves are estimated quantities of ore and minerals that we have determined can be economically mined and processed under present and assumed future conditions to extract their mineral content. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and

7

---

Table of Contents

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. Estimates may vary, and results of our mining and production subsequent to the date of an estimate may lead to revisions of estimates. Reserve estimates and estimates of mine life may require revisions based on actual production experience and other factors. For example, fluctuations in the market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a restatement of reserves. Such restatement could affect depreciation and amortization rates, and have an adverse effect on our financial performance.

We may not be able to replenish our reserves, which could adversely affect our mining prospects.

             We engage in mineral exploration, which is highly speculative 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.

Drilling and production risks could adversely affect the mining process.

             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 over time as reserves deplete.

             Reserves are gradually depleted in the ordinary course of a given mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at increased depths. As a result, over time, we usually experience rising unit extraction costs with respect to each mine. Several of our mines have been operating for long periods, and we will likely experience rising extraction costs per unit in the future at these operations in particular.

Labor disputes may disrupt our operations from time to time.

             A substantial number of our employees, and some of the employees of our subcontractors, are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic negotiation. Negotiation may become more difficult in times of higher prices and consequently higher profits in the mining and metals industries, as labor unions may seek wage increases and other forms of additional compensation.

8

---

Table of Contents

             Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. For more information about labor relations, see Management and employees—Employees. Moreover, we could be adversely affected by labor disruptions involving unrelated parties that may provide us with goods or services.

We may face shortages of equipment, services and skilled personnel.

             The mining industry has faced worldwide shortages of mining and construction equipment, spare parts, contractors and other skilled personnel during periods of high demand for minerals and metals and intense development of mining projects. We may experience longer lead-times for mining equipment and problems with the quality of contracted engineering, construction and maintenance services. We compete with other mining companies for highly skilled management and staff with relevant industry and technical experience, and we may not be able to attract and retain such people. Shortages during peak periods could negatively impact our operations, resulting in higher production or capital expenditure costs, production interruptions, higher inventory costs, project delays and potentially lower production and revenues.

Higher energy costs or energy shortages would adversely affect our business.

             Energy costs are a significant component of our cost of production, representing 13.4% of our total cost of goods sold in 2011. To fulfill our energy needs, we depend on the following sources: oil by-products, which represented 37% of total energy needs in 2011, electricity (21%), coal (19%), natural gas (15%) and other energy sources (8%), using figures converted into tons of oil equivalent ("TOE").

             Fuel costs represented 9.3% of our cost of goods sold in 2011. Increases in oil and gas prices adversely affect margins in our logistics services, mining, iron ore pellets and nickel businesses.

             Electricity costs represented 4.1% of our total cost of goods sold in 2011. If we are unable to secure reliable access to electricity at acceptable prices, we may be forced to curtail production or may experience higher production costs, either of which would adversely affect our results of operations. We face the risk of energy shortages in the countries where we have operations and projects due to excess demand or weather conditions, such as floods or droughts.

             Electricity shortages have occurred throughout the world, and there can be no assurance that growth in power generation capacity in the countries in which we operate will be sufficient to meet future consumption increases. Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply of electricity for our operations. Through our subsidiary PT Vale Indonesia Tbk ("PTVI") (formerly known as PT International Nickel Indonesia Tbk), we process lateritic nickel ores using a pyrometallurgical process, which is energy-intensive. Although PTVI currently generates a majority of the electricity for its operations from its own hydroelectric power plants, low rainfall or other hydrological factors could adversely affect electricity production at PTVI's plants in the future, which could significantly increase the risk of higher costs or lower production volume.

Price volatility—relative to the U.S. dollar—of the currencies in which we conduct operations could adversely affect our financial condition and results of operations.

             A substantial portion of our revenues and debt is denominated in U.S. dollars, and changes in exchange rates may result in (i) losses or gains on our net U.S. dollar-denominated indebtedness and accounts receivable and (ii) fair value losses or gains on our currency derivatives used to stabilize our cash flow in U.S. dollars. In 2011, we had currency losses of US$1.382 billion, while in 2010 and 2009 we had currency gains of US$102 million and US$665 million, respectively. In addition, the price volatility of the Brazilian real, the Canadian dollar, the Australian dollar, the Indonesian rupiah and other currencies against the U.S. dollar affect our results since most of our costs of goods sold are denominated in currencies other than the U.S. dollar, principally the real (59% in 2011) and the Canadian dollar (15% in 2011), while our revenues are

9

---

Table of Contents

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 and may limit our ability to transfer or to convert certain currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. The central banks and governments of the countries in which we operate may institute restrictive exchange rate policies in the future and impose taxes on foreign exchange transactions.

The integration between the Company and those acquisition targets that are a key part of the Company's strategies might prove more difficult than anticipated.

             We may not be able to successfully integrate our acquired businesses. We have grown our business in part through acquisitions, and some of our future growth could depend on acquisitions. Integration of acquisition targets might take longer than expected and the costs associated with integration of acquisition targets might be higher than anticipated. In addition, if the focus on post-acquisition integration impacts the performance of our existing businesses, our results and operations may be adversely affected. Completed acquisitions could fail to achieve the increased revenues, cost savings or operational benefits that were anticipated at the time of their conception. Acquisitions could lead to the incurrence of substantial costs as a result of, for example, unforeseen liabilities arising from acquired businesses, inability to retain key staff, inconsistencies in standards, controls, procedures and policies between the Company and the acquisition target which could negatively affect our financial condition and results of operations. In addition, management attention could be diverted from ordinary responsibilities to integration issues.

We are involved in several legal proceedings that could have a material adverse effect on our business in the event of an outcome that is unfavorable to us.

             We are involved in several legal proceedings in which adverse parties have claimed substantial amounts. Although we are vigorously contesting them, the outcomes of these proceedings are uncertain and may result in obligations that could materially adversely affect our business and the value of our shares, ADSs and HDSs. In addition, under Brazilian law, a taxpayer intending to challenge a tax assessment in the judicial system must ordinarily provide the court with a bond or security in the amount of the assessment in order to suspend collection efforts. In some of our tax litigation cases, we may be required to post bond or some form of security with the court, and, depending on the nature, amount and scope of such a bond or pledge, this may have a significant financial impact on our business. For additional information, see Additional information—Legal proceedings.

Risks relating to our corporate structure

Our controlling shareholder has significant influence over Vale, and the Brazilian government has certain veto rights.

             As of March 31, 2012, Valepar S.A. ("Valepar") owned 52.7% of our outstanding common stock and 32.4% of our total outstanding capital. As a result of its share ownership, Valepar can control the outcome of some actions that require shareholder approval. For a description of our ownership structure and of the Valepar shareholders' agreement, see Share ownership and trading—Major shareholders.

             The Brazilian government owns 12 golden shares of Vale, granting it limited veto power over certain company actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining activities. For a detailed description of the Brazilian government's veto powers, see Additional information—Memorandum and articles of association—Common shares and preferred shares.

10

---

Table of Contents

Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.

             We operate in a global environment, and our activities straddle multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide. Our governance and compliance processes, which include the review of internal control over financial reporting, may not prevent future breaches of law, accounting or governance standards. We may be subject to breaches of our Code of Ethical Conduct, business conduct protocols and instances of fraudulent behavior and dishonesty by our employees, contractors or other agents. Our failure to comply with applicable laws and other standards could subject us to fines, loss of operating licenses and reputational harm.

It could be difficult for investors to enforce any judgment obtained outside Brazil against us or any of our associates.

             Our investors may be located in jurisdictions outside Brazil and could seek to bring actions against us or our directors or officers in the courts of their home jurisdictions. The Company is a Brazilian company, and the majority of our officers and directors are residents of Brazil. The vast majority of our assets and the assets of our officers and directors are likely to be located in jurisdictions other than the home jurisdictions of our investors. It might not be possible for the investors to effect service of process within their home jurisdictions on us or on our officers or directors who reside outside their home jurisdictions. In addition, foreign court orders will be enforceable in the courts of Brazil without a re-examination of the merits only if previously confirmed by the Brazilian Superior Court of Justice (Superior Tribunal de Justiça), which confirmation will only be granted if such judgment: (a) fulfills all formalities required for its enforceability under the laws of the country where it was issued; (b) was issued by a competent court after due service of process on the Company or after sufficient evidence of the Company's absence has been given, as required under applicable law; (c) is not subject to appeal; (d) was authenticated by a Brazilian consulate in the country in which it was issued and is accompanied by a sworn translation into the Portuguese language; and (e) is not contrary to Brazilian national sovereignty, public policy or good morals. Therefore, investors might not be able to recover against us or our directors and officers on judgments of the courts of their home jurisdictions predicated upon the laws of such jurisdictions.

Risks relating to our depositary shares

If ADR holders or HDR holders exchange ADSs or HDSs, respectively, for the underlying shares, they risk losing the ability to remit foreign currency abroad.

             The custodian for the shares underlying our ADSs and HDSs maintains a registration with the Central Bank of Brazil entitling it to remit U.S. dollars outside Brazil for payments of dividends and other distributions relating to the shares underlying our ADSs and HDSs or upon the disposition of the underlying shares. If an ADR holder or HDR holder exchanges its ADSs or HDSs for the underlying shares, it will be entitled to rely on the custodian's registration for U.S. dollars for only five business days from the date of exchange. Thereafter, an ADR holder or HDR holder may not be able to obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, the underlying shares unless it obtains its own registration under Resolution No. 2,689 of the National Monetary Council ("CMN"), which permits qualifying institutional foreign investors to buy and sell securities on the BM&FBOVESPA. For more information regarding these exchange controls, see Additional information—Exchange controls and other limitations affecting security holders. If an ADR holder or HDR holder attempts to obtain its own registration, it may incur expenses or suffer delays in the application process, which could delay the receipt of dividends or other distributions relating to the underlying shares or the return of capital in a timely manner.

             We cannot assure ADR holders or HDR holders that the custodian's registration or any registration obtained will not be affected by future legislative changes, or that additional restrictions applicable to ADR holders or HDR holders, the disposition of the underlying shares or the repatriation of the proceeds from disposition will not be imposed in the future.

11

---

Table of Contents

ADR holders and HDR holders may be unable to exercise preemptive rights relating to the shares underlying their ADSs and HDSs.

             ADR holders and HDR holders may not be able to exercise preemptive rights or other types of rights with respect to the underlying shares. The ability of ADR holders and HDR holders to exercise preemptive rights is not assured, particularly if the applicable law in the holder's jurisdiction (for example, the Securities Act in the United States or the Companies Ordinance in Hong Kong) requires that either a registration statement be effective or an exemption from registration be available with respect to those rights, as is in the case in the United States, or that any document offering preemptive rights be registered as a prospectus, as is the case in Hong Kong. We are not obligated to 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. We are also not obligated to extend the offer of preemptive rights to HDR holders through the depositary. For a more complete description of preemptive rights with respect to the underlying shares, see Additional information—Memorandum and articles of association—Preemptive rights.

ADR holders and HDR holders may encounter difficulties in the exercise of voting rights.

             ADR holders and HDR holders do not have the rights of shareholders. They have only the contractual rights set forth for their benefit under the deposit agreements. ADR holders and HDR holders are not permitted to attend shareholders' meetings, and they may only vote by providing instructions to the depositary. In the event that we fail to provide the depositary with voting materials on a timely basis, or the depositary does not provide sufficient time for ADR holders and HDR holders to submit voting instructions, ADR holders and HDR holders will not be able to vote. 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 respects, and investors in our securities should recognize that the protections and remedies available to them may be different from those to which they are accustomed in their home markets. We are subject to securities legislation in several countries, which have different rules, supervision and enforcement practices. The only corporate law applicable to us is the law of Brazil, with its specific substantive rules and judicial procedures. We are subject to corporate governance rules in several jurisdictions where our securities are listed, but as a foreign private issuer, we are not required to follow many of the corporate governance rules that apply to U.S. domestic issuers with securities listed on the New York Stock Exchange, and we are not subject to the U.S. proxy rules. Similarly, we have been granted waivers and exemptions from certain requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("HKEx Listing Rules"), the Codes on Takeovers and Mergers and Share Repurchases and the Securities and Futures Ordinance of Hong Kong that are generally applicable to issuers listed in Hong Kong.

PRESENTATION OF FINANCIAL INFORMATION

             We have prepared our financial statements in this annual report in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). We also publish financial statements in accordance with International Financial Reporting Standards ("IFRS"), which differ in certain respects from U.S. GAAP, and use IFRS in reports to Brazilian shareholders, in CVM filings, and in determining the legal minimum dividend under Brazilian law.

             Our financial statements and the other financial information in this annual report have been translated from Brazilian reais into U.S. dollars on the basis explained in Note 3 to our financial statements, unless we indicate otherwise.

12

---

Table of Contents

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.

Statement of income data

13

---

Table of Contents

Earnings per share

Balance sheet data

14

---

Table of Contents

I.  INFORMATION ON THE COMPANY

BUSINESS OVERVIEW

Summary

             We are the second-largest metals and mining company in the world and the largest in the Americas, based on market capitalization. We are the world's largest producer of iron ore and iron ore pellets and the world's second-largest producer of nickel. We are one of the world's largest producers of manganese ore and ferroalloys. We also produce copper, thermal and metallurgical coal, phosphates, potash, cobalt and platinum group metals ("PGMs"). To support our growth strategy, we are actively engaged in mineral exploration efforts in 27 countries around the globe. We operate large logistics systems in Brazil and other regions of the world, including railroads, maritime terminals and ports, which are integrated with our mining operations. In addition, we have a maritime freight portfolio to transport iron ore. Directly and through affiliates and joint ventures, we also have investments in energy and steel businesses.

             The following table presents the breakdown of our total gross operating revenues attributable to each of our main lines of business.

•

Bulk materials:



o

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, a maritime terminal and a port. The Southern System consists of three mining sites and two maritime terminals. We operate 10 pellet plants in Brazil and two in Oman, both of which have been ramping up since November 2011. We also have a 50% stake in a joint venture that owns three integrated pellet plants in Brazil and 25% stakes in two pellet companies in China.

15

---

Table of Contents

o

Manganese and ferroalloys.    We conduct our manganese mining operations through subsidiaries in Brazil, and we produce several types of manganese ferroalloys through subsidiaries in Brazil, France and Norway.



o

Coal.    We produce coal through Vale Moçambique, S.A. ("Vale Moçambique"), which operates assets in Mozambique, and Vale Australia Holdings Pty Ltd ("Vale Australia"), which operates coal assets in Australia through wholly owned subsidiaries and unincorporated joint ventures. Through our subsidiary Vale Coal Colombia Ltd. Sucursal Colombia ("Vale Colombia") we produce thermal coal in the Cesar department of Colombia. In Mozambique, we are ramping up the Moatize coal operation, which includes both metallurgical and thermal coal. We also have minority interests in Chinese coal and coke producers.



•

Base metals:



o

Nickel.    Our principal nickel mines and processing operations are conducted by our wholly owned subsidiary Vale Canada Limited ("Vale Canada"), which has mining operations in Canada and Indonesia. We are ramping up nickel operations at Onça Puma in Brazil and nickel operations in New Caledonia. We own and operate, or have interests in, nickel refining facilities in the United Kingdom, Japan, Taiwan, South Korea and China.



o

Copper.    In Brazil, we produce copper concentrates at Sossego in Carajás, in the state of Pará. In Canada, we produce copper concentrates, copper anodes and copper cathodes in conjunction with our nickel mining operations at Sudbury and Voisey's Bay. In Chile, we produce copper cathodes at the Tres Valles operation, located in the Coquimbo region.



o

Aluminum.    We hold a 22.0% interest in Norsk Hydro ASA ("Hydro"), a major aluminum producer. In the past, we engaged in bauxite mining, alumina refining and aluminum smelting through subsidiaries in Brazil, our interests in which we transferred to Hydro in February 2011. We still own minority interests in two bauxite mining businesses, Mineração Rio do Norte S.A. ("MRN") and Mineração Paragominas S.A. ("Paragominas"). We will transfer our remaining interest in Paragominas to Hydro in two equal tranches in 2014 and 2016. Both MRN and Paragominas are located in Brazil.



o

Cobalt.    We produce cobalt as a by-product of our nickel mining and processing operations in Canada and refine the majority of it at our Port Colborne facilities, in the Province of Ontario, Canada. We also produce cobalt as a by-product of our nickel operations in New Caledonia, currently in the ramp up phase.



o

PGMs.    We produce platinum-group metals as by-products of our nickel mining and processing operations in Canada. The PGMs are concentrated at our Port Colborne facilities and refined at our precious metals refinery in Acton, England.



o

Other precious metals.    We produce gold and silver as by-products of our nickel and copper mining and processing operations in Canada, and gold as a by-product of our copper mining in Brazil. Some of the precious metals from our Canadian operations are upgraded at our Port Colborne facilities, and all such precious metals are refined by unrelated parties in Canada.



•

Fertilizer nutrients:    We produce potash in Brazil, with operations in Rosario do Catete, in the state of Sergipe. Our main phosphate operations are conducted by our subsidiary Vale Fertilizantes S.A. ("Vale Fertilizantes"), which holds the majority of our fertilizer assets in Brazil and is the largest Brazilian producer of phosphate rock, phosphate and nitrogen fertilizers. In addition, we are ramping up operations at Bayóvar, a phosphate rock mine in Peru.

16

---

Table of Contents

•

Logistics:    We are a leading operator of logistics services in Brazil and other regions of the world, with railroads, maritime terminals and ports. Two of our four iron ore systems incorporate an integrated railroad network linked to automated port and terminal facilities, which provide rail transportation for our mining products, general cargo and passengers, bulk terminal storage, and ship loading services for our mining operations and for customers. We also own a majority stake in Sociedade de Desenvolvimento do Corredor de Nacala—S.A. ("SDCN"), with railroad concessions in Malawi and Mozambique, and have plans to construct a world-class logistics infrastructure to support our operations in Central and Eastern Africa. In addition, since 2010 we have an agreement for partial assignment, subject to government approvals, of a 756-kilometer railroad concession to provide support to our Rio Colorado potash project in Argentina. We conduct seaborne dry bulk shipping and provide tug boat services. We own and charter vessels to transport iron ore that we sell on a cost and freight ("CFR") basis to customers. Our tug boat services provide an efficient and safe towing service at our terminals in Brazil. We also own a 31.3% interest in Log-In Logística Intermodal S.A. ("Log-In"), which provides intermodal logistics services in Brazil, Argentina and Uruguay, and a 45.8% interest in MRS Logística S.A. ("MRS"), which transports our iron ore products from the Southern System mines to our Guaíba Island and Itaguaí maritime terminals, in the state of Rio de Janeiro.

Business strategy

             Our mission is to transform natural resources into prosperity and sustainable development. Our vision is to become the number one global natural resources company, creating long-term value through excellence and passion for people and the planet. We aim to increase our demand driver, mineral and geographical diversification and logistics capabilities. Iron ore and nickel will continue to be our main businesses while we boost the production capacity of our copper, coking coal and fertilizer nutrients businesses. To enhance our competitiveness, we will continue to invest in our railroads, maritime terminals, maritime freight portfolio and power generation capacity. We continue to seek opportunities to make strategic acquisitions and partnerships, while focusing on disciplined capital management in order to maximize return on invested capital and total return to shareholders. We also dispose of assets from time to time that we have determined to be non-strategic or in order to optimize the structure of our business portfolio, but no such divestitures occurred in 2011. Below are the highlights of our major business strategies.

Maintaining our leadership position in the global iron ore market

             We continue to consolidate our leadership in the global iron ore market. In 2011 and 2010, we had an estimated market share of 24.3% and 24.7%, respectively, of the total volume traded in the seaborne market. We are committed to maintaining our leadership position in the global iron ore market, by focusing our product line to capture industry trends, increasing our production capacity in line with demand growth, controlling costs, strengthening our logistics infrastructure of railroads, ports, shipping and distribution centers, and strengthening relationships with customers. Our diversified portfolio of high quality products, strong technical marketing strategy, efficient logistics and strong and long-standing relationships with major customers will help us achieve this goal. We have also encouraged steelmakers to develop steel projects in Brazil through joint ventures in which we may hold minority stakes, in order to create additional demand for our iron ore.

Achieving leadership in the nickel business

             We are the world's second-largest nickel producer, with large-scale, long-life and low-cost operations, a substantial resource base, diversified mining operations producing nickel from nickel sulfides and laterites, advanced technology and a robust growth profile. We have refineries in North America, Europe and Asia, which produce an array of products for use in most nickel applications. We are a leading producer of high-quality nickel products for non-stainless steel applications, such as plating, alloy steels, high nickel alloys and batteries, which represented 66% of our nickel sales in 2011. Our long-term goal is to strengthen our leadership in the nickel business.

17

---

Table of Contents

Expanding our copper businesses

             We operate the Sossego copper mine in Carajás, in the Brazilian state of Pará, and the Tres Valles copper mine in Chile. We also recover copper in conjunction with our nickel operations, principally at Sudbury and Voisey's Bay, in Canada. We believe that our copper projects, most of which are situated in Carajás, could be among the most competitive in the world in terms of investment cost per metric ton of ore. We are in the final phase of construction of the Salobo project to produce copper concentrate. We expect these copper mines to benefit from our infrastructure facilities serving the Northern System. We are developing the Konkola North copper mine in Zambia, Africa through a joint venture with African Rainbow Minerals Limited ("ARM"), which has an 80% stake in the project, with the remaining 20% stake held by Zambia Consolidated Copper Mines Ltd. We are also engaged in mineral exploration in several countries in order to increase our reserve base.

Investing in coal

             We are pursuing various opportunities to become a large global player in the coal business. We have coal operating assets and a portfolio of exploration projects in Mozambique, Australia and Colombia, and minority interests in two joint ventures in China. We intend to continue pursuing organic growth in the coal business through the expansion of the Moatize project in Mozambique, the development of more advanced coal exploration projects in Australia and Colombia, and mineral exploration initiatives in several countries.

Investing in fertilizer nutrients

             We are actively investing to become one of the world's largest producers of potash and phosphate rock in order to benefit from rising global consumption of agricultural products, which is expected to grow significantly in coming years, especially in emerging market countries. We expect per capita income growth and the growing use of biofuels to drive demand for fertilizers. In this context, Brazil is expected to play a key role in the global agricultural market, given its position as a global agricultural powerhouse and its growth potential, mainly due to its access to water and arable land.

             We operate a potash mine in Brazil (Taquari-Vassouras) and the Bayóvar phosphate rock operation in Peru, and, in 2010, we expanded our fertilizer nutrients operations through the acquisition of Brazilian phosphate and nitrogen operations, now consolidated under our wholly owned subsidiary Vale Fertilizantes. Our portfolio also includes potash projects in Argentina, Brazil and Canada, as well as several phosphate rock and potash mineral exploration projects around the world as part of our growth strategy. For more information, see—Significant changes in our business below.

Diversification and expansion of our resource base

             We are actively engaged in a mineral exploration program, with efforts in 27 countries around the globe. We are mainly seeking new deposits of coal, copper, iron ore, manganese ore, nickel, phosphates and potash. Mineral exploration is an important part of our organic growth strategy.

Enhancing our logistics capacity to support our bulk materials business

             We believe that the quality of our railway assets and extensive experience as a railroad and port operator, together with the lack of efficient transportation for general cargo in Brazil, position us as a leader in the logistics business in Brazil. We have been expanding the capacity of our railroads, primarily to meet the needs of our iron ore business.

             To support our commercial strategy for our iron ore business, we continue to invest in a dedicated maritime freight shuttle service from Brazil to Asia and in the development of distribution centers in Asia and the Middle East, in order to minimize freight costs and maximize flexibility, so as to enhance the competitiveness of our iron ore business in these regions.

             In order to position ourselves for future expansion of our coal production in Mozambique and leverage our presence in Africa, we acquired an additional 16% of SDCN, bringing our total stake in SDCN

18

---

Table of Contents

to 67% at year-end, and we plan to expand its capacity, by rehabilitating the existing railroad. New railroads will be constructed to develop the logistics corridor from our mine to a new port to be built at Nacala-à-Velha.

Optimizing our energy matrix

             Energy management and efficient supply have become a priority for us. As a large consumer of electricity, we believe that investing in power generation projects to support our operations will help protect us against volatility in the price of energy, regulatory uncertainties and the risk of energy shortages. Accordingly, we have developed hydroelectric power generation plants in Brazil, Canada and Indonesia, and we currently generate 48% of our worldwide electricity needs from our own plants, after accounting for the transfer of our aluminum production portfolio.

             We are seeking to develop a cleaner energy matrix by investing to develop clean energy sources such as biofuels and windpower, and focusing on reducing our carbon footprint.

Significant changes in our business

             We summarize below major acquisitions, divestitures and other significant developments since the beginning of 2011.

Index-based pricing for iron ore

             Starting in the first half of 2010, we reached agreements with all our iron ore customers to move contracts from annual benchmark pricing to index-based pricing to better reflect market fundamentals. The previous annual benchmark pricing system for iron ore, based on annual bilateral negotiations, was initially replaced by a system under which iron ore prices were established quarterly, based on a three-month average of price indices for the period ending one month before the beginning of the new quarter. Since the last quarter of 2011, we have also reached agreements with some customers to price our products on a quarterly basis using the current quarter's three-month average of price indices and, with other customers, using the monthly average of the price indices or spot prices. The move towards increased price flexibility brings more efficiency and transparency to iron ore pricing and allows for the recognition of quality differences, which helps encourage long-term investment. In addition, many customers value the ability to know beforehand the price to be paid in each quarter.

Consolidation of phosphate operations in Brazil

             On December 12, 2011, our wholly owned subsidiary Mineração Naque S.A. concluded a tender offer to acquire up to 100% of the publicly held shares of our subsidiary Vale Fertilizantes. As a result of the public offer, we acquired 211,014 common shares and 82,919,456 preferred shares of Vale Fertilizantes, representing 83.8% of the publicly held common shares and 94.0% of the publicly held preferred shares of Vale Fertilizantes, which correspond to 0.1% of the total common shares and 29.8% of the total preferred shares of Vale Fertilizantes. Both the common and preferred shares were acquired for R$25.00 per share, amounting to a total of R$2.1 billion (US$1.1 billion). Shortly thereafter, Vale Fertilizantes' registration as a publicly listed company in Brazil was cancelled. In January 2012, the shareholders of Vale Fertilizantes approved the redemption of the remaining free floating common and preferred shares. As a result, Vale holds 100% of the common shares and 100% of the preferred shares of Vale Fertilizantes.

Acquisition of Biopalma in Brazil

             In February 2011, we invested US$173.5 million to acquire control of Biopalma, in the Brazilian state of Pará. Biopalma will produce palm oil, a raw material used to make biodiesel, and most of the production will be used for a B20 mix (a blend of 20% biodiesel and 80% regular diesel) to power our fleet of locomotives, heavy-duty machinery and equipment. Our investment in producing biodiesel is part of our strategic emphasis on global sustainability and greenhouse gas emissions reduction.

19

---

Table of Contents

Acquisition of stake in Belo Monte energy project

             In June 2011, we acquired 9% of Norte Energia S.A. ("NESA"). NESA was established to develop and operate the Belo Monte hydroelectric plant in the Brazilian state of Pará. Vale reimbursed the seller for capital invested in NESA and will assume future capital investment commitments related to the acquired stake, which are estimated at US$1.6 billion. The acquisition is consistent with our strategy of reducing operational costs and minimizing energy price and supply risks.

Organic growth

             We have an extensive program of investments in the organic growth of our businesses. Our main investment projects are summarized under—Capital expenditures and projects. The most significant projects that have come on stream since the beginning of 2011 are summarized below:

•

Onça Puma—In March of 2011, we started the ramp-up of Onça Puma, a ferro-nickel operation (mine and processing plant) in the Brazilian state of Pará, built mostly on lateritic nickel deposits of saprolitic ore. Its nominal production capacity is 53,000 metric tons per year of nickel contained in ferro-nickel, its final product.



•

Oman—We started up production of direct reduction pellets in the industrial site of Sohar, Oman, with estimated aggregate capacity of 9.0 Mtpy. Each plant has capacity to produce 4.5 Mtpy. The first plant is producing at full capacity rates and the second plant has been ramping up since November 2011. The bulk terminal and a distribution center with the capacity to handle 40 Mt annually are fully operational.



•

Estreito—In 2011, four of the eight turbines of the Estreito hydroelectric power plant became operational. Estreito is our first hydroelectric power plant in the Northern region and is located in the Tocantins River, on the border of the Brazilian states of Maranhão and Tocantins. The plant will have an installed capacity of 1,087 megawatts. We have a 30% stake in the consortium that operates the plant.



•

Moatize—The first phase of the Moatize coal project began operations in August 2011. Total capacity is 11 Mtpy, 8.5 Mt of coking coal, chiefly premium hard coking coal, and 2.5 Mt of thermal coal. In November 2011, the Board of Directors approved Moatize II, which will increase coal production capacity in Mozambique to 22 Mtpy, as well as the implementation of the Nacala Corridor project, a world-class logistics railway and port infrastructure to support the expansion of production capacity at Moatize.



•

Karebbe—The Karebbe hydroelectric power plant in Sulawesi, Indonesia came on stream in September 2011 and is projected to add 90 megawatts of average generating capacity. The plant supplies power to our Indonesian operations, which reduces our production costs and enables the potential expansion of nickel matte production.

Aluminum portfolio management

             In February 2011, we transferred a substantial part of our aluminum businesses to Hydro, an integrated aluminum company with operations in Norway and other countries that is listed on the Oslo Stock Exchange and the London Stock Exchange (ticker symbol: NHY). We transferred our interests in Alumínio Brasileiro S.A. ("Albras"), Alumina do Norte do Brasil S.A. ("Alunorte") and Companhia de Alumina do Pará ("CAP"), with net debt of US$655 million, along with off-take rights and outstanding commercial contracts, for US$503 million in cash and shares in Hydro representing a 22% interest in its equity. As part of the transaction, we transferred the Paragominas bauxite mine and all of our other Brazilian bauxite mineral rights (apart from rights owned through our stake in MRN) to the newly incorporated company Paragominas, 60% of which we transferred to Hydro in exchange for US$578 million in cash. We will transfer our interest in Paragominas in two equal tranches in 2014 and 2016, each in exchange for US$200 million in cash, subject to certain contingent adjustments. In addition, under the agreement, we have appointed one director to Hydro's board.

20

---

Table of Contents

LINES OF BUSINESS

             Our principal lines of business consist of mining and logistics services. We also invest in energy to supply part of our consumption. This section presents information about operations, production, sales and competition and is organized as follows.

21

---

Table of Contents

22

---

Table of Contents

1.    Bulk materials

             Our bulk materials business includes iron ore mining, iron ore pellet production, manganese ore mining, ferroalloy production and coal production. Each of these activities is described below.

1.1    Iron ore

1.1.1    Operations

             We conduct our iron ore business in Brazil primarily at the parent-company level and through our wholly owned subsidiary Mineração Corumbaense Reunidas S.A. ("MCR"). Our mines, all of which are open-pit, and their related operations are mainly concentrated in three systems: the Southeastern System, the Southern System and the Northern System, each with its own transportation capabilities. We also conduct mining operations in the Midwestern System and through our joint venture Samarco Mineração S.A. ("Samarco").

Southeastern System

             The Southeastern System mines are located in the Iron Quadrangle region of the state of Minas Gerais, where they are divided into three mining sites: Itabira (comprised of two mines, with two major beneficiation plants), Minas Centrais (comprised of three mines, with three major beneficiation plants and one secondary plant) and Mariana (comprised of three mines, with four major beneficiation plants).

             The ore reserves in these mining sites have high ratios of itabirite ore relative to hematite ore. Itabirite ore has iron grade of 35-60% and requires concentration to achieve shipping grade.

             We conduct open-pit mining operations in the Southeastern System. At the three mining sites, we generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining sites. In 2011, we produced 64% of the electric energy consumed in the Southeastern System at our hydroelectric power plants.

             We own and operate integrated railroad and terminal networks in the three mining sites, which are accessible by road or by spur tracks of our EFVM railroad. The EFVM railroad connects these mines to the Tubarão port in Vitória, in the state of Espírito Santo. For a more detailed description of the networks, see—Logistics.

Southern System

             The Southern System mines are located in the Iron Quadrangle region of the state of Minas Gerais in Brazil. The mines of our subsidiary Minerações Brasileiras Reunidas S.A. ("MBR") are operated at the parent-company level pursuant to an asset lease agreement. The Southern System has three major mining sites: Minas Itabirito (comprised of four mines, with two major beneficiation plants and three secondary beneficiation plants); Vargem Grande (comprised of three mines and one major beneficiation plant); and Paraopeba (comprised of four mines and four beneficiation plants).

23

---

Table of Contents

             We beneficiate run-of-mine obtained from open pit mining operations into sinter feed, lump ore and pellet feed. In 2011, we produced 94% of the electric energy consumed in the Southern System at our hydroelectric power plants.

             The ore reserves in the mining sites have high ratios of itabirite ore relative to hematite ore. Itabirite ore has iron grade of 35-60% and requires concentration to achieve shipping grade. We generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining sites.

             We enter into freight contracts with MRS, an affiliate railway company in which we own a 45.8% stake, to transport our iron ore products at market prices from the mines to our Guaíba Island and Itaguaí maritime terminals in the state of Rio de Janeiro.

Northern System

             The Northern System mines, located in the Carajás mineral province of the Brazilian state of Pará, contain some of the largest iron ore deposits in the world. The reserves are divided into Serra Norte, Serra Sul and Serra Leste (northern, southern and eastern ranges) situated 35 kilometers apart. Since 1985, we have been conducting mining activities in the northern range, which is divided into three main mining bodies (N4W, N4E and N5). The Northern System has open-pit mines and an ore-processing plant. The mines are located on public lands for which we hold mining concessions.

             The ore reserves in the Northern System are comprised of hematite. Because of the high grade (66.7% on average) of the Northern System deposits, we do not need to operate a concentration plant at Carajás. The beneficiation process consists simply of sizing operations, including screening, hydrocycloning, crushing and filtration. Output from the beneficiation process consists of sinter feed and pellet feed. We obtain all of the electrical power for the Northern System at market prices from regional utilities.

             We operate an integrated railroad and maritime terminal network in the Northern System. After completion of the beneficiation process, our EFC railroad transports the iron ore to the Ponta da Madeira maritime terminal in the state of Maranhão. To support our Carajás operations, we have housing and other facilities in a nearby township. These operations are accessible by road, air and rail.

Midwestern System

             The Midwestern System is comprised of the mines of Urucum and Corumbá, located in the state of Mato Grosso do Sul.

             We conduct open-pit mining operations in the Midwestern System. The Urucum ore reserves contain a high ratio of hematite ore. In September 2009, we concluded the acquisition of the Corumbá mine, where we produce lump ores. At the Urucum and Corumbá mines, we generally process the run-of-mine by means of standard crushing and classification steps, producing lumps and fines.

             Iron ore products from the Urucum and Corumbá mines are delivered to customers by barges traveling along the Paraguay and Paraná rivers.

Samarco

             We own 50.0% of Samarco, which operates an integrated system comprised of a mine site, pipeline, three pellet plants and a port. Samarco's Alegria mine site, located in Mariana, Minas Gerais, is in the same region as our Mariana site in the Southeastern System.

             The ore reserves of Samarco are typically of itabirite type. Two beneficiation plants, located at the site, process the run-of-mine by means of standard crushing, milling and concentration steps, producing pellet feed and sinter feed.

24

---

Table of Contents

             Iron ore from Alegria and Fazendão, in our Southeastern System, supplies the Samarco pellet plants using a 396-kilometer pipeline, the longest pipeline in the world for the conveyance of iron ore. Samarco has its own port facilities to transport its production.

1.1.2    Production

             The following table sets forth information about our iron ore production.

25

---

Table of Contents

1.2    Iron ore pellets

1.2.1    Operations

             Directly and through joint ventures, we produce iron ore pellets in Brazil, Oman and China, as set forth in the following table. Our total estimated nominal capacity is 43.7 Mtpy, not including the nominal capacity of our joint ventures of 22.2 Mtpy from Samarco, 4.5 Mtpy from Hispanobras, 1.2 Mtpy from Zhuhai YPM and 1.2 Mtpy from Anyang Yu Vale Yongtong Pellet Co., Ltd. ("Anyang"). After ramping up our pellet plants in Oman, we will add 9.0 Mtpy of nominal capacity.

             In the Tubarão port area, in the Brazilian state of Espírito Santo, we operate our wholly owned pellet plants, Tubarão I and II, four plants we lease under operating leases and our jointly-owned plant, Hispanobras. We send iron ore from our Southeastern System mines to these plants and use our logistics infrastructure to distribute their final products.

             Our São Luís pellet plant, located in the Brazilian state of Maranhão, is part of the Northern System. We send Carajás iron ore to this plant and ship its production to customers through our Ponta da Madeira maritime terminal.

             The Fábrica and Vargem Grande pellet plants, located in the Brazilian state of Minas Gerais, are part of the Southern System. We send some of the iron ore from the Fábrica mine to the Fábrica plant, and iron ore from the Pico mine to the Vargem Grande plant. We transport pellets from the Vargem Grande plant using MRS, and pellets from the Fábrica plant using both MRS and EFVM.

             We started up a pelletizing operation in the Sohar industrial complex in Oman, in the Middle East. The two pellet plants will each have production capacity of 4.5 Mtpy, totaling 9 Mtpy of capacity for direct reduction pellets. The first plant is producing at full capacity rates and the second plant has been ramping up since November 2011. The pellet plants are located in an area where we will have a distribution center with capacity to handle 40 Mtpy.

             Samarco operates three pellet plants in two operating sites with nominal capacity of 22.3 Mtpy. The pellet plants are located in the Ponta Ubu unit, in Anchieta, Espírito Santo. In April 2011, our Board of Directors approved the construction of a fourth pellet plant with capacity of 8.3 Mtpy, increasing Samarco's iron ore pellet capacity to 30.5 Mtpy.

             The Zhuhai YPM pellet plant, in China, is part of the Yueyufeng Steelmaking Complex. It has port facilities, which we use to receive feed from our mines in Brazil. Zhuhai YPM's main customer is Zhuhai Yueyufeng Iron & Steel ("YYF"), which is also located in the Yueyufeng Steelmaking Complex. We also own a 25.0% interest in Anyang, which is a pelletizing operation in China with the capacity to produce 1.2 Mtpy that started production in March 2011.

26

---

Table of Contents

             We sell pellet feed to our pelletizing joint ventures at market prices. Historically, we have supplied all of the iron ore requirements of our wholly owned production pellet plants and joint ventures, except for Samarco, Zhuhai YPM and Anyang, to which we supply only part of their requirements. Of our total 2011 pellet production, 71.2% was blast furnace pellets and 28.8% was direct reduction pellets, which are used in steel mills that employ the direct reduction process rather than blast furnace technology.

             We sell iron ore to our pelletizing joint ventures. In 2011, we sold 4.5 million metric tons to Hispanobras, 12.0 million metric tons to Samarco and 1.2 million metric tons to Zhuhai YPM.

1.2.2 Production

             The following table sets forth information about our main iron ore pellet production.

1.3 Iron ore and iron ore pellets

1.3.1 Customers, sales and marketing

             We supply all of our iron ore and iron ore pellets (including our share of joint-venture pellet production) to the steel industry. Prevailing and expected levels of demand for steel products affect demand for our iron ore and iron ore pellets. Demand for steel products is influenced by many factors, such as global manufacturing production, civil construction and infrastructure spending. For further information about demand and prices, see Operating and financial review and prospects—Demand and prices.

             In 2011, China accounted for 44.1% of our iron ore and iron ore pellet shipments, and Asia as a whole accounted for 62.4%. Europe accounted for 18.9%, followed by Brazil with 13.4%. Our 10 largest customers collectively purchased 131.7 million metric tons of iron ore and iron ore pellets from us, representing 44.0% of our 2011 iron ore and iron ore pellet shipments and 46.0% of our total iron ore and iron ore pellet revenues. In 2011, no individual customer accounted for more than 10.0% of our iron ore and iron ore pellet shipments.

             In 2011, the Asian market (mainly Japan, South Korea and Taiwan) and the European market were the primary markets for our blast furnace pellets, while North America, the Middle East and North Africa were the primary markets for our direct reduction pellets.

             We strongly emphasize customer service in order to improve our competitiveness. We work with our customers to understand their main objectives and to provide them with iron ore solutions to meet specific customer needs. Using our expertise in mining, agglomeration and iron-making processes, we search for technical solutions that will balance the best use of our world-class mining assets and the satisfaction of our customers. We believe that our ability to provide customers with a total iron ore solution and the quality of our products are both very important advantages helping us to improve our competitiveness in relation to

27

---

Table of Contents

competitors who may be more conveniently located geographically. In addition to offering technical assistance to our customers, we operate sales support offices in Tokyo (Japan), Seoul (South Korea), Singapore, Dubai (UAE) and Shanghai (China), which support the sales made by our wholly owned subsidiary Vale International, located in St. Prex, Switzerland. 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.

1.3.2 Competition

             The global iron ore and iron ore pellet markets are highly competitive. The main factors affecting competition are price, quality and range of products offered, reliability, operating costs and shipping costs.

             Our biggest competitors in the Asian market are located in Australia and include subsidiaries and affiliates of BHP Billiton plc ("BHP Billiton") and Rio Tinto Ltd ("Rio Tinto"). Although the transportation costs of delivering iron ore from Australia to Asian customers are generally lower than ours as a result of Australia's geographical proximity, we are competitive in the Asian market for two main reasons. First, steel companies generally seek to obtain the types (or blends) of iron ore and iron ore pellets that can produce the intended final product in the most economic and efficient manner. Our iron ore has low impurity levels and other properties that generally lead to lower processing costs. For example, in addition to its high grade, the alumina grade of our iron ore is very low compared to Australian ores, reducing consumption of coke and increasing productivity in blast furnaces, which is particularly important during periods of high demand. When market demand is very strong, our quality differential is in many cases more valuable to customers than a freight differential. Second, steel companies often develop sales relationships based on a reliable supply of a specific mix of iron ore and iron ore pellets. We have a customer-oriented marketing policy and place specialized personnel in direct contact with our customers to help determine the blend that best suits each particular customer.

             In terms of reliability, our ownership and operation of logistics facilities in the Northern and Southeastern Systems help us ensure that our products are delivered on time and at a relatively low cost. In addition, we continue to develop a low-cost freight portfolio, aimed at enhancing our ability to offer our products in the Asian market at competitive prices and to increase our market share. To support this strategy, we ordered new ships, purchased used vessels and entered into medium- and long-term freight contracts.

             Our principal competitors in Europe are Kumba Iron Ore Limited, Luossavaara Kiirunavaara AB ("LKAB"), Société Nationale Industrielle et Minière ("SNIM") and Iron Ore Company of Canada ("IOC"), a subsidiary of Rio Tinto. We are competitive in the European market not only for the same reasons we are competitive in Asia, but also due to the proximity of our port facilities to European customers.

             The Brazilian iron ore market is also competitive. There are several small iron ore producers and new companies with developing projects, such as Anglo Ferrous Brazil, MMX, Ferrous Resources and Bahia Mineração. Some steel companies, including Gerdau S.A. ("Gerdau"), Companhia Siderúrgica Nacional ("CSN"), V&M do Brasil S.A. ("Mannesmann"), Usiminas and Arcelor Mittal, also have iron ore mining operations. Although pricing is relevant, quality and reliability are important competitive factors as well. We believe that our integrated transportation systems, high-quality ore and technical services make us a strong competitor in the Brazilian market.

             The demand for iron ore is seasonally stronger in the months of December, March and April. Demand also tends to be moderately weaker in the first half of each year relative to the second half.

             With respect to pellets, our major competitors are LKAB, Cliffs Natural Resources Inc., Arcelor Mittal Mines Canada (formerly Quebec Cartier Mining Co.), IOC and Gulf Industrial Investment Co.

28

---

Table of Contents

1.4 Manganese ore

             We conduct our manganese mining operations in Brazil through our wholly owned subsidiaries Vale Manganês S.A. ("Vale Manganês"), Vale Mina do Azul S.A. ("Vale Mina do Azul") and MCR.

             Our mines produce three types of manganese ore products:

•

metallurgical ore, used primarily for the production of ferroalloys;



•

natural manganese dioxide, suitable for the manufacture of electrolytic batteries; and



•

chemical ore, used in several industries for the production of fertilizer, pesticides and animal feed, and used as a pigment in the ceramics industry.

             We operate on-site beneficiation plants at our Azul mine and at the Urucum mines, which are accessible by road. The Azul and Urucum mines have high-grade ores (at least 40% manganese grade), while our Morro da Mina mine has low-grade ores (24% manganese grade). All of these mines obtain electrical power at market prices from regional electric utilities. The following table sets forth information about our manganese production.

1.5 Ferroalloys

             The following table sets forth the subsidiaries through which we conduct our ferroalloys business.

             We produce several types of manganese ferroalloys, such as high carbon and medium carbon ferro-manganese and ferro-silicon manganese. Our facilities have total nominal capacity of 651,000 metric tons per year. The production of ferroalloys consumes significant amounts of electricity, representing 11.7% of our total consumption in 2011. The electricity supply for our ferroalloy plant in the Brazilian states of Minas

29

---

Table of Contents

Gerais and Bahia and Mo I Rana, Norway are provided through long-term contracts. For information on the risks associated with potential energy shortages, see Risk factors.

             The following table sets forth information about our ferroalloys production.

1.6 Manganese ore and ferroalloys: sales and competition

             The markets for manganese ore and ferroalloys are highly competitive. Competition in the manganese ore market takes place in two segments. High-grade manganese ore competes on a global seaborne basis, while low-grade ore competes on a regional basis. For some ferroalloys, high-grade ore is mandatory, while for others high- and low-grade ores are complementary. The main suppliers of high-grade ores are located in South Africa, Gabon, Australia and Brazil. The main producers of low-grade ores are located in the Ukraine, China, Ghana, Kazakhstan, India and Mexico.

             The ferroalloy market is characterized by a large number of participants who compete primarily on the basis of price. The principal competitive factors in this market are the costs of manganese ore, electricity, logistics and reductants. We compete both with stand-alone producers and integrated producers that also mine their own ore. Our competitors are located principally in countries that produce manganese ore or steel. For further information about demand and prices, see Operating and financial review and prospects—Demand and prices.

1.7 Coal

1.7.1 Operations

             We produce metallurgical and thermal coal through our subsidiaries Vale Moçambique, which operates Moatize, and Vale Australia, which operates coal assets in Australia through wholly owned companies and unincorporated joint ventures, and thermal coal through our subsidiary Vale Colombia.

30

---

Table of Contents

             We also have a minority interest in two Chinese companies, Henan Longyu Energy Resources Co., Ltd. ("Longyu") and Shandong Yankuang International Coking Company Ltd. ("Yankuang"), as set forth in the following table.

             Integra Coal Operations (underground and open-cut).    The Integra Coal Operations are located 10 kilometers northwest of Singleton in the Hunter Valley of New South Wales, Australia. The operations are comprised of an underground coal mine that produces coal by longwall methods and an open-cut mine. Coal from the mines is processed at a coal handling and processing plant ("CHPP") with a capacity of 1,200 metric tons per hour, loaded onto trains at a purpose-built rail loadout facility for transport to the port of Newcastle, New South Wales, Australia.

             Carborough Downs.    Carborough Downs is located in the Central Bowen Basin in central Queensland, Australia, 15 kilometers east of the township of Moranbah and 180 kilometers southwest of the coastal city of Mackay. Carborough Downs mining leases overlie the Rangal Coal Measures of the Bowen Basin with the economic seams of Leichardt and Vermont. Both seams have coking properties and can be beneficiated to produce coking coal and pulverized coal injection ("PCI") products. The Leichardt seam is currently our main target for development and constitutes 100% of the current reserve and resource base. Carborough Downs coal is processed at the Carborough Downs CHPP, which is capable of processing 1,000 metric tons per hour, and which operates seven days per week. The product is loaded onto trains at a rail loadout facility and transported 172 kilometers to the Dalrymple Bay Coal Terminal, Queensland, Australia.

             Isaac Plains.    The Isaac Plains open-cut mine is located close to Carborough Downs in central Queensland. The mine is managed by Isaac Plains Coal Management on behalf of the joint venture parties. The coal is classified as a medium volatile bituminous coal with low sulfur content. Coal is processed at the Isaac Plains CHPP and railed 180 kilometers to the Dalrymple Bay Coal Terminal.

31

---

Table of Contents

             El Hatillo.    The El Hatillo coal mine in Colombia is located in the central portion of the Cesar Department, 210 kilometers southeast of Santa Marta. The concession area is adjacent to the town of La Loma and encompasses an area of 9,693 hectares. El Hatillo is mined with truck-and-shovel methodology and uses crushing and screening to produce a thermal coal product that is loaded onto trains at a dedicated rail loading facility for transport to the port of SPRC. Most of the thermal coal product is exported to Europe and United States.

             Moatize.    Moatize is an open-cut mine located in the province of Tete, Mozambique. It started operations in August 2011 and is expected to reach full capacity in 2015 with a nominal production capacity of 11 Mtpy, comprising 8.5 Mtpy of metallurgical coal and 2.5 Mtpy of thermal coal. The coal production is being transported by the Linha do Sena railway to the Port of Beira. Currently, Moatize's main branded product is the Chipanga prime hard coking coal while a regular hard coking coal product is still being studied.

1.7.2 Production

             The following table sets forth information on our coal production.

             Longyu produces coal and other related products. Yankuang, a metallurgical coke plant, has production capacity of 2.0 Mtpy of coke and 200,000 metric tons per year of methanol.

1.7.3 Customers and sales

             The coal sales from our Australian operations are primarily focused on East Asia. In 2011, our Chinese coal joint ventures directed their sales mainly to the Chinese domestic market. The coal sales from our Colombian operations are primarily destined for Europe and Central and South America. The coal sales from our Mozambican operations will be directed to the main seaborne coal markets, including East Asia, the Americas, Europe and India.

32

---

Table of Contents

1.7.4 Competition

             The global coal industry, which is primarily comprised of the markets for hard coal (metallurgical coal and thermal coal) and brown coal/lignite, is highly competitive. Growth in the demand for steel, especially in Asia, underpins strong demand for metallurgical coal. Major port and rail constraints in some of the countries in which major suppliers are located could lead to limited availability of incremental metallurgical coal production.

             The global seaborne thermal coal market has significantly expanded in recent years. Growth in thermal coal demand is closely related to growth in electricity consumption, which will continue to be driven by global economic growth, particularly from emerging economies. Large existing fleets of coal-fired power plants with long life cycles take decades to replace or upgrade, keeping a high share of thermal coal in the electricity matrix of countries with high consumption. The cost of fuel is typically the largest variable cost involved in electricity generation and coal is currently the most competitively priced fossil fuel for this purpose.

             Competition in the coal industry is based primarily on the economics of production costs, coal quality and transportation costs. We believe that our operations and project pipeline are competitive, and our key competitive strengths include the strategic geographic location of our current and future supply bases and our production cash costs relative to several other coal producers.

             Major participants in the coal seaborne market are subsidiaries and affiliates of Xstrata plc ("Xstrata"), BHP Billiton, PT Bumi Resources Tbk., Anglo Coal, Drummond Company, Inc., Rio Tinto, Teck Cominco, Peabody and the Shenhua Group, among others.

2.    Base metals

2.1 Nickel

2.1.1 Operations

             We conduct our nickel operations primarily through our wholly owned subsidiary Vale Canada, which operates two nickel production systems, one in the North Atlantic and the other in the Asia Pacific. In March

33

---

Table of Contents

2011, we began production of nickel at the Onça Puma project in the Brazilian state of Pará. Our nickel operations are set forth in the following table.

    North Atlantic

Sudbury operations

             Our long-established mines in Sudbury, Ontario, are primarily underground operations with nickel sulfide ore bodies. These ore bodies also contain co-deposits of copper, cobalt, PGMs, gold and silver. We have integrated mining, milling, smelting and refining operations to process ore into finished nickel at Sudbury. We also smelt and refine nickel concentrates from our Voisey's Bay operations. We ship a nickel intermediate product, nickel oxide, from our Sudbury smelter to our nickel refineries in Wales, Taiwan, China and South Korea for processing into finished nickel. In 2011, we produced 16% of the electric energy consumed in Sudbury at our hydroelectric power plants there. The remaining electricity was purchased from Ontario's provincial electricity grid.

34

---

Table of Contents

             In February 2011, we shut down one furnace at our Sudbury smelter due to an operational problem. The furnace was restarted in late June 2011. The furnace stoppage resulted in a negative impact of approximately 16,700 metric tons of production of nickel and 17,300 metric tons of copper.

Thompson operations

             Our long-established mines in Thompson, Manitoba, are primarily underground operations with nickel sulfide ore bodies. The ore bodies also contain co-deposits of copper and cobalt. We currently have integrated mining, milling, smelting and refining operations to process ore into finished nickel at Thompson. We also smelt and refine an intermediate product, nickel concentrate, from our Voisey's Bay operations. Low-cost energy is available from purchased hydroelectric power at our Thompson operations.

             We are transitioning our Thompson operations to a mining and milling business, and phasing out smelting and refining by 2015. This enables us to better align processing capacity with mineral reserves while meeting our environmental commitments. The current mineral reserves in Thompson are not sufficient to sustain the operation of the smelter and refinery at full capacity over the long term and do not support the investment of the significant capital that would be required under new pending federal sulfur dioxide emission standards that are expected to come into effect in 2015.

Voisey's Bay operations

             Our Voisey's Bay operation in Newfoundland and Labrador is comprised of the Ovoid mine, an open-pit mine, and deposits with the potential for underground operations at a later stage. We mine nickel sulfide ore bodies, which also contain deposits of copper and cobalt. Until 2013, we will mill Voisey's Bay ore on site and ship it as an intermediate product (nickel concentrates) primarily to our Sudbury and Thompson operations for final processing (smelting and refining), while copper concentrate produced is sold in the market. Beyond 2013, the nickel concentrates will be shipped to our hydrometallurgical plant being constructed at the Long Harbour site to produce finished nickel, while the copper concentrate will continue to be produced at Voisey's Bay and sold in the market. The electricity requirements of our Voisey's Bay operations are supplied through diesel generators.

Clydach operations

             Clydach is a stand-alone nickel refinery in Wales, U.K., that processes a nickel intermediate product, nickel oxide, supplied from our Sudbury operations to produce finished nickel in the form of powders and pellets.

    Asia Pacific

Sulawesi operations

             Our subsidiary PTVI operates an open cast mining area and related processing facility in Sorowako on the Island of Sulawesi, Indonesia. PTVI mines nickel saprolitic 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 Metal Mining Co., Ltd. ("Sumitomo"). PTVI is a public company whose shares are traded on the Indonesia Stock Exchange. We hold 59.2% of its share capital, Sumitomo holds 20.3%, and 20.5% is publicly held.

             Energy costs are a significant component of our nickel production costs for the processing of lateritic saprolitic ores at our PTVI operations in Indonesia. A major part of the electric furnace power requirements of PTVI is supplied at low cost by its three hydroelectric power plants on the Larona River: Larona, Balambano and Karebbe. 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. In 2011, the hydroelectric

35

---

Table of Contents

power plants provided 93% of the electric energy consumed at our Indonesian operations, with the thermal generators providing the remainder.

Asian refinery operations

             Our 87.2%-owned subsidiary Vale Japan Limited ("Vale Japan") operates a refinery in Matsuzaka, Japan, which produces intermediate and finished nickel products, primarily using nickel matte sourced from PTVI. Vale Japan is a privately-owned company controlled by Vale, with the minority interest held by Sumitomo (12.8%).

             We also operate or have investments in nickel refining operations in Taiwan through our 93.7% stake in Taiwan Nickel Refining Corporation ("TNRC"), in China through our 98.3% interest in Vale Nickel (Dalian) Co. Ltd. ("VNDC") and in South Korea through our 25.0% stake in Korea Nickel Corporation ("KNC"). TNRC, VNDC and KNC produce finished nickel for the local stainless steel industry in Taiwan, China and South Korea, respectively, primarily using intermediate products containing about 75% nickel (in the form of nickel oxide) from our Matsuzaka Japan and Sudbury operations.

New Caledonian operations

             We are ramping up our Vale Nouvelle-Calédonie S.A.S ("VNC") nickel operation in New Caledonia in the South Pacific. VNC utilizes a High Pressure Acid Leach ("HPAL") process to treat limonitic laterite and saprolitic laterite ores. We expect to ramp up VNC over a four-year period to reach nominal production capacity of 60,000 metric tons per year of nickel contained in nickel oxide and 4,600 metric tons of cobalt, once nickel oxide production starts. In order to accelerate cash generation, the resulting nickel and cobalt solution from HPAL is currently sold to customers as an intermediate product, nickel hydroxide cake ("NHC"). We hold 74% of the share capital of VNC, Sumic Nickel Netherlands B.V. ("Sumic") (a joint venture between Sumitomo and Mitsui) holds 21% and Société de Participation Minière du Sud Calédonien SAS holds 5%. Sumic has a put option to sell us 25%, 50%, or 100% of its shares, at a price based on the lower of the book value or the market value of the shares, and we are currently in discussions with Sumic concerning its continued participation in VNC.

South Atlantic

             We are continuing to ramp up the Onça Puma project in Ourilândia do Norte, in the Brazilian state of Pará. The Onça Puma mine is built on lateritic nickel deposits of saprolitic laterite ore, and is expected to reach a nominal capacity of 53,000 metric tons per year of nickel contained in ferro-nickel, its final product.

36

---

Table of Contents

2.1.2 Production

             The following table sets forth our annual mine production by operating mine (or on an aggregate basis for PTVI because it has mining areas rather than mines) and the average percentage grades of nickel and copper. The mine production at PTVI represents the product from PTVI's dryer kilns delivered to PTVI's smelting operations and does not include nickel losses due to smelting. For our Sudbury, Thompson and Voisey's Bay operations, the production and average grades represent the mine product delivered to those operations' respective processing plants and do not include adjustments due to beneficiation, smelting or refining. The following table sets forth information about ore production at our nickel mining sites.

37

---

Table of Contents

             The following table sets forth information about our nickel production, including: (i) nickel refined through our facilities, (ii) nickel further refined into specialty products and (iii) intermediates designated for sale. The numbers below are reported on an ore-source basis.

2.1.3 Customers and sales

             Our nickel customers are broadly distributed on a global basis. In 2011, 53% of our total nickel sales were delivered to customers in Asia, 27% to North America, 17% to Europe and 3% to other markets. We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts generally provide stable demand for a significant portion of our annual production.

             Nickel is an exchange-traded metal, listed on the LME, and most nickel products are priced according to a discount or premium to the LME price, depending primarily on the nickel product's physical and technical characteristics. Our finished nickel products represent what is known in the industry as "primary" nickel, meaning nickel produced principally from nickel ores (as opposed to "secondary" nickel, which is recovered from recycled nickel-containing material). Finished primary nickel products are distinguishable in terms of the following characteristics, which determine the product price level and the suitability for various end-use applications:

•

nickel content and purity level: (i) intermediates with various levels of nickel content, (ii) nickel pig iron has 1.5-6% nickel, (iii) ferro-nickel has 10-40% nickel, (iv) standard LME grade nickel has a minimum of 99.8% nickel, and (v) high purity nickel has a minimum of 99.9% nickel and does not contain specific elemental impurities;



•

shape (such as pellets, discs, squares, strips and foams); and



•

size.

             In 2011, the principal end-use applications for nickel were:

•

austenitic stainless steel (64% of global nickel consumption);



•

non-ferrous alloys, alloy steels and foundry applications (19% of global nickel consumption);

38

---

Table of Contents

•

nickel plating (9% of global nickel consumption); and



•

specialty applications, such as batteries, chemicals and powder metallurgy (9% of global nickel consumption).

             In 2011, 66% of our refined nickel sales were made which into non-stainless steel applications, compared to the industry average for primary nickel producers of 36%, which brings more stability to our sales volumes. As a result of our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.

             We offer sales and technical support to our customers on a global basis. We have a well-established global marketing network for finished nickel, based at our head office in Toronto, Canada. We also have sales and technical support offices in St. Prex (Switzerland), Saddle Brook, New Jersey (United States), Tokyo (Japan), Shanghai (China), Singapore, Kaohsiung (Taiwan), Bangkok (Thailand) and Bridgetown (Barbados). For information about demand and prices, see below Operating and financial review and prospects—Demand and prices.

2.1.4 Competition

             The global nickel market is highly competitive. Our key competitive strengths include our long-life mines, our low cash costs of production relative to other nickel producers, sophisticated exploration and processing technologies, and a diversified portfolio of products. Our global marketing reach, diverse product mix, and technical support direct our products to the applications and geographic regions that offer the highest margins for our products.

             Our nickel deliveries represented 16% of global consumption for primary nickel in 2011. In addition to us, the largest suppliers in the nickel industry (each with its own integrated facilities, including nickel mining, processing, refining and marketing operations) are Mining and Metallurgical Company Norilsk Nickel, Jinchuan Nonferrous Metals Corporation, BHP Billiton and Xstrata. Together with us, these companies accounted for about 51% of global finished primary nickel production in 2011.

             While stainless steel production is a major driver of global nickel demand, stainless steel producers can use nickel products with a wide range of nickel content, including secondary nickel (scrap). The choice between primary and secondary nickel is largely based on their relative prices and availability. In recent years, secondary nickel has accounted for about 43-48% of total nickel used for stainless steels, and primary nickel has accounted for about 52-57%. In 2006, a new primary nickel product entered the market, known as nickel pig iron. This low-grade nickel product made in China from imported lateritic ores (primarily from the Philippines and Indonesia) is primarily suitable for use in stainless steel production. With higher nickel prices and strong demand from the stainless steel industry, Chinese domestic production of nickel pig iron and low-grade ferro-nickel continues to expand. In 2011, Chinese nickel pig iron and ferro-nickel production is estimated to have been greater than 250,000 metric tons, representing 16% of world primary nickel supply.

             Competition in the nickel market is based primarily on quality, reliability of supply and price. We believe our operations are competitive in the nickel market because of the high quality of our nickel products and our relatively low production costs.

             There is no material seasonality in the demand for nickel, although demand for nickel has been slightly weaker in the third quarter.

39

---

Table of Contents

2.2  Copper

2.2.1  Operations

             We conduct our copper operations at the parent-company level in Brazil and through our wholly owned subsidiaries in Canada and Chile.

Brazilian operations

             Our Sossego copper mine in Carajás, in the state of Pará, has two main copper ore bodies, Sossego and Sequeirinho. The copper ore is mined by 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. We truck the concentrate to a storage terminal in Parauapebas and then transport it via the EFC railroad to the Ponta da Madeira maritime terminal in São Luís, in the state of Maranhão.

             We constructed an 85-kilometer road to link Sossego to the Carajás air and rail facilities and a power line that allows us to purchase electrical power at market prices. We have a long-term energy supply contract with Eletronorte.

Canadian operations

             In Canada, we recover copper in conjunction with our nickel operations, principally at Sudbury and Voisey's Bay. At Sudbury, we produce two intermediate copper products, copper concentrates and copper anodes, and we also produce electrowon copper cathode as a by-product of our nickel refining operations. At Voisey's Bay, we produce copper concentrates.

Chilean operations

             In Chile, we produce copper cathodes at the Tres Valles operation, located in Salamanca, in the Coquimbo region. The plant has an estimated annual production capacity of 18,500 metric tons of copper cathode (metal plate), and is our first industrial-scale cathode plant using a hydrometallurgical process. The Tres Valles operations include two copper oxide mines: Don Gabriel, an open-pit mine, and Papomono, an underground mine, as well as an SX-EW plant that produces copper cathodes.

40

---

Table of Contents

2.2.2  Production

             The following table sets forth information on our copper production.

2.2.3  Customers and sales

             Copper concentrates from Sossego are sold under medium- and long-term contracts to copper smelters in South America, Europe and Asia. We have long-term off-take agreements to sell the entire production of copper concentrates from the first phase of the Salobo project to smelters. We have long-term copper supply agreements with Xstrata Copper Canada for the sale of copper anodes and most of the copper concentrates produced in Sudbury. Copper concentrates from Voisey's Bay are sold under medium-term contracts to customers in Europe. Electrowon copper from Sudbury is sold in North America under short-term sales agreements.

2.2.4  Competition

             The global copper cathode 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, Freeport-McMoRan Copper & Gold Inc. ("Freeport-McMoRan"), Jiangxi Copper Corporation Ltd. and Xstrata, operating at the parent-company level or through subsidiaries. Our participation in the global copper cathode market is marginal.

             Copper concentrate and copper anode are intermediate products in the copper production chain. Both the concentrate and anode markets are competitive, having numerous producers but fewer participants and smaller volumes than in the copper cathode market due to high levels of integration by the major copper producers.

             In the copper concentrate market, the main producers are mining companies located in South America and Indonesia, while consumers are custom smelters located in Europe and Asia. Competition in the custom copper concentrate market occurs mainly on a global level and is based on production costs, quality, logistics costs and reliability of supply. The largest competitors in the copper concentrate market are Freeport-McMoRan, Xstrata, BHP Billiton, Antofagasta plc and Anglo American plc, operating at the parent-company level or through subsidiaries. Our market share in 2011 was about 3.0% of the total custom copper concentrate market.

             The copper anode/blister market has very limited trade within the copper industry; generally, anodes are produced to supply each company's integrated refinery. The trade in anodes/blister is limited to those facilities that have more smelting capacity than refining capacity or to those situations where logistics cost savings provide an incentive to source anodes from outside smelters. The largest competitors in the copper anode market are Codelco, Anglo American and Xstrata, operating at the parent-company level or through subsidiaries.

41

---

Table of Contents

             There is no material seasonality in the demand for copper, although demand for copper is generally weaker throughout the second half of the year.

2.3 Aluminum

             We hold a 22.0% interest in Hydro, a major aluminum producer, which we account for on the equity method. In the past, we engaged in bauxite mining, alumina refining and aluminum smelting through subsidiaries in Brazil, our interests in which we transferred to Hydro in February 2011. We still own minority interests in MRN and Paragominas, which are bauxite mining businesses located in Brazil, and which we also account for on the equity method. We will transfer our remaining interest in Paragominas to Hydro in two equal tranches in 2014 and 2016.

2.4 PGMs and other precious metals

             As by-products of our Sudbury nickel operations in Canada, we recover significant quantities of PGMs, as well as small quantities of gold and silver. We also recover gold as a by-product of our operations at our Sossego copper mine in Carajás, in the Brazilian state of Pará. We operate a processing facility in Port Colborne, Ontario, which produces PGMs, gold and silver intermediate products. We have a refinery in Acton, England, where we process our intermediate products, as well as feeds purchased from unrelated parties and toll-refined materials. In 2011, PGM concentrates from our Sudbury operations supplied about 54% of our PGM production, which also includes metals purchased from unrelated parties. Our base metals marketing department sells our own PGMs and other precious metals, as well as products from unrelated parties and toll-refined products, on a sales agency basis.

             The following table sets forth information on our precious metals production.

2.5 Cobalt

             We recover significant quantities of cobalt as a by-product of our Canadian nickel operations. In 2011, we produced 1,469 metric tons of refined cobalt metal at our Port Colborne refinery and 594 metric tons of cobalt in a cobalt-based intermediate product at our Thompson nickel operations in Canada. Our remaining cobalt production consisted of 611 metric tons of cobalt contained in other intermediate products (such as nickel concentrates). We are increasing our production of cobalt as a by-product of our nickel production at the VNC operations in New Caledonia, which is currently ramping up. We sell cobalt on a global basis. Our cobalt metal, which is electro-refined at our Port Colborne refinery, has very high purity levels (99.8%). Cobalt metal is used in the production of various alloys, particularly for aerospace applications, as well as the manufacture of cobalt-based chemicals.

42

---

Table of Contents

             The following table sets forth information on our cobalt production.

3.    Fertilizer nutrients

3.1 Phosphates

             We operate our phosphates business through subsidiaries and joint ventures, as set forth in the following table.

             Vale Fertilizantes is a producer of phosphate rock, phosphate fertilizers ("P") (e.g., monoammonium phosphate ("MAP"), dicalcium phosphate ("DCP"), triple superphosphate ("TSP") and single superphosphate ("SSP")) and nitrogen ("N") fertilizers (e.g., ammonium nitrate and urea). It is the largest producer of phosphate and nitrogen crop nutrients in Brazil. Vale Fertilizantes operates the following phosphate rock mines: Catalão, in the state of Goiás, and Tapira, Patos de Minas and Araxá, all in the state of Minas Gerais, and Cajati, in the state of São Paulo, in Brazil. In addition, Vale Fertilizantes has nine processing plants for the production of phosphate and nitrogen nutrients, located at Catalão, Goiás; Araxá and Uberaba, Minas Gerais; Guará, Cajati, and three plants in Cubatão, São Paulo; and Araucária, Paraná.

             Besides the phosphate and nitrogen operations of Vale Fertilizantes, since 2010 we have also operated the Bayóvar phosphate rock mine in Peru, which is expected to reach nominal capacity of 3.9 Mtpy by 2014. Bayóvar is a world-class resource with a low mining cost of phosphate rock production.

             The following table sets forth information about our phosphate rock production.

43

---

Table of Contents

             The following table sets forth information about our phosphate and nitrogen nutrients production.

3.2 Potash

             We conduct potash operations in Brazil at the parent-company level. We lease Taquari-Vassouras, the only potash mine in Brazil (in Rosario do Catete, in the state of Sergipe), from Petrobras—Petróleo Brasileiro S.A., the Brazilian state-owned oil company. The lease, signed in 1991, became effective in 1992 for an initial period of 25 years, and the parties have recently agreed upon an extension of the lease agreement for 30 more years. The following table sets forth information on our potash production.

3.3 Customers and sales

             All potash sales from the Taquari-Vassouras mine are to the Brazilian market. In 2011, our production represented approximately 9% of total potash consumption in Brazil. We have a strong presence and long-standing relationships with the major players in Brazil, with more than 60% of our sales generated from four traditional customers.

             Our phosphate products are mainly sold to fertilizer blenders. In 2011, our production represented approximately 37% of total phosphate consumption in Brazil, with imports representing 35% of total supply. In the high-concentration segment, our production supplied more than 33% of total Brazilian consumption, with products like MAP and TSP. In the low-concentration phosphate nutrients segment, our production represented approximately 49% of total Brazilian consumption, with products like SSP and DCP.

3.4 Competition

             Fertilizers have strong demand growth potential, which is anchored in market fundamentals similar to those underlying the global demand for minerals, metals and energy. Rapid per capita income growth in emerging economies causes diet changes towards an increasing consumption of proteins that ultimately contribute to boost fertilizer use. More recently, global output of biofuels has started to boom as they emerged as an alternative source of energy to reduce world reliance on sources of climate-changing greenhouse gases. Given that key inputs for the production of biofuels—sugar cane, corn, palm and soy beans—are intensive in the use of fertilizers, they are becoming another major driver of the global demand for crop nutrients.

             The industry is divided into three major nutrients: potash, phosphate and nitrogen. There are very limited resources of potash around the world, with Canada, Russia and Belarus being the most important sources. Due to the lack of mineral resources, the high level of investment and the long time required for a project to mature, it is unlikely that other regions will emerge as major potash producers over the next few years. In addition, the potash industry is highly concentrated, with the 10 major producers accounting for

44

---

Table of Contents

more than 94% of total world production capacity. While potash is a very scarce resource, phosphate is more available, but all major exporters are located in the northern region of Africa (Morocco, Algeria and Tunisia) and in the United States. The top five phosphate rock producers (China, Morocco, the United States, Russia and Tunisia) account for 76% of global production, of which roughly 9% is exported. However, higher value-added products such as MAP and DAP are usually traded instead of phosphate rock due to cost efficiency.

             Brazil is one of the largest agribusiness markets in the world due to its high production, exports and consumption of grains and biofuels. It is the fourth-largest consumer of fertilizers in the world and one of the largest importers of potash, phosphates, phosphoric acid and urea. Brazil imports 91% of its potash consumption, which amounted to 7.5 Mtpy of KCl (potassium chloride) in 2011, 44% higher than 2010, from Russian, Belarussian, Canadian and German producers, in descending order. In terms of global consumption, China, the United States, Brazil and India represent 59% of the total, with Brazil alone representing 13% of the total. Our project portfolios are highly competitive in terms of cost and logistics within these regions.

             Most phosphate rock concentrate is consumed locally by downstream integrated producers, with the seaborne market corresponding to 16% of total phosphate rock production. Major phosphate rock exporters are concentrated in North Africa, mainly through state-owned companies, with Moroccan OCP Group holding 37% of the total seaborne market. Brazil imports 19% of the total phosphate nutrients it needs through both phosphate fertilizer products and phosphate rock. The phosphate rock imports supply non-integrated producers of phosphate fertilizers products such as SSP, TSP and MAP.

             Nitrogen-based fertilizers are derived primarily from ammonia (NH3), which, in turn, is made from nitrogen present in the air and natural gas, making this an energy-intensive nutrient. Ammonia and urea are the main inputs for nitrogen-based fertilizers. Consumption of nitrogen-based fertilizers has a regional profile due to the high cost associated with transportation and storage of ammonia, which requires refrigerated and pressurized facilities. As a result, only 12% of the ammonia produced worldwide is traded. North America is the main importer, accounting for 35% of global trade. Main exporting regions are Central America, Russia, Eastern Europe and the Middle East.

45

---

Table of Contents

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 following table.

4.1.1 Railroads

Brazil

             Vitória a Minas railroad ("EFVM").    The EFVM railroad links our Southeastern System mines in the Iron Quadrangle region in the Brazilian state of Minas Gerais to the Tubarão Port, in Vitória, in the Brazilian state of Espírito Santo. We operate this 905-kilometer railroad under a 30-year renewable concession, which expires in 2027. The EFVM railroad consists of two lines of track extending for a distance of 601 kilometers to permit continuous railroad travel in opposite directions, and single-track branches of 304 kilometers. Industrial manufacturers are located in this area and major agricultural regions are also accessible to it. The EFVM railroad has a daily capacity of 342,000 metric tons of iron ore. In 2011, the EFVM railroad carried a total of 69.3 billion ntk of iron ore and other cargo, of which 9.4 billion ntk, or 7.4%, consisted of cargo transported for customers, including iron ore for Brazilian customers. The EFVM railroad also carried 1.0 million passengers in 2011. In 2011, we had a fleet of 322 locomotives and 14,221 wagons at EFVM.

46

---

Table of Contents

             Carajás railroad ("EFC").    We operate the EFC railroad under a 30-year renewable concession, which expires in 2027. EFC is located in the Northern System, beginning at our Carajás iron ore mines in the Brazilian state of Pará and extending 892 kilometers to our Ponta da Madeira maritime terminal complex facilities located near the Itaqui Port in the Brazilian state of Maranhão. Its main cargo is iron ore, principally carried for us. It has a daily capacity of 313,970 metric tons of iron ore. In 2011, the EFC railroad carried a total of 98.1 billion ntk of iron ore and other cargo, 2.8 billion ntk of which was cargo for customers, including iron ore for Brazilian customers. EFC also carried 352,928 passengers in 2011. EFC supports the largest capacity train in Latin America, which measures 3.4 kilometers, weighs 42,300 gross metric tons when loaded and has 330 cars. In 2011, EFC had a fleet of 234 locomotives and 14,261 wagons.

             Ferrovia Centro-Atlântica ("FCA").    Our subsidiary FCA operates the central-east regional railway network of the Brazilian national railway system under a 30-year renewable concession, which expires in 2026. The central east network has 8,023 kilometers of track extending into the states of Sergipe, Bahia, Espírito Santo, Minas Gerais, Rio de Janeiro and Goiás and Brasília, the Federal District of Brazil. It connects with our EFVM railroad near the cities of Belo Horizonte, in the state of Minas Gerais and Vitória, in the state of Espírito Santo. FCA operates on the same track gauge as our EFVM railroad and provides access to the Santos Port in the state of São Paulo. In 2011, the FCA railroad transported a total of 10.7 billion ntk of cargo for customers. In 2011, FCA had a fleet of 481 locomotives and 12,413 wagons.

             Ferrovia Norte-Sul railroad ("FNS").    We have a 30-year renewable subconcession for the commercial operation of a 720-kilometer stretch of the FNS railroad in Brazil. Since 1989, we have operated a segment of the FNS, which connects to the EFC railroad, enabling access to the port of Itaqui, in São Luís, where our Ponta da Madeira maritime terminal is located. A 452-kilometer extension was concluded in December 2008. In 2011, the FNS railroad transported a total of 1.9 billion ntk of cargo for customers. This new railroad creates a new corridor for the transportation of general cargo, mainly for the export of soybeans, rice and corn produced in the center-northern region of Brazil. In 2011, FNS had a fleet of 6 locomotives and 375 wagons.

             The principal items of cargo of the EFVM, EFC, FCA and FNS railroads are:

•

iron ore and iron ore pellets, carried for us and customers;



•

steel, coal, pig iron, limestone and other raw materials carried for customers with steel mills located along the railroad;



•

agricultural products, such as soybeans, soybean meal and fertilizers; and



•

other general cargo, such as building materials, pulp, fuel and chemical products.

             We charge market prices for customer freight, including iron ore pellets originating from joint ventures and other enterprises in which we do not have a 100% equity interest. Market prices vary based on the distance traveled, the type of product transported and the weight of the freight in question, and are regulated by the Brazilian transportation regulatory agency, ANTT (Agência Nacional de Transportes Terrestres).

             MRS Logística S.A. ("MRS").    The MRS railroad is 1,643 kilometers long and links the Brazilian states of Rio de Janeiro, São Paulo and Minas Gerais. In 2011, the MRS railroad carried a total of 151.87 million metric tons of cargo, including 113.51 million metric tons of iron ore and other cargo from Vale.

Colombia

             Ferrocarriles del Norte de Colombia S.A. ("FENOCO").    We own an 8.4% equity stake in FENOCO, a company that owns a concession to restore and operate the Chiriguana—Santa Marta tranche (220

47

---

Table of Contents

kilometers) of the Atlantic Railroad, which connects the Cesar coal-producing region with various ports in the Atlantic Ocean.

Argentina

             On August 24, 2010, through our subsidiary Potasio Río Colorado S.A., we executed an agreement with Ferrosur Roca S.A. for partial assignment, subject to governmental approvals, of a 756-kilometer railroad administrative concession. This concession is important to the support of the Rio Colorado potash project and our strategy to become a leading global player in the fertilizer business.

Africa

             Consistent with our decision to invest in the Nacala Corridor and following on our September 2010 acquisition of a 51.0% stake in SDCN, in June 2011, we acquired an additional 16% stake in SDCN for US$8 million, reaching a 67% total participation in the company at year end. In December 2011, we executed a concession agreement with the Republic of Malawi with respect to a 137-kilometer railroad to be built from Chikwawa to Nkaya Junction in Malawi. The SDCN acquisition and the concession in Malawi will allow the expansion of Moatize and facilitate the creation of a world-class logistics infrastructure to support our operations in Central and Eastern Africa. We will invest in the capacity expansion of the Nacala logistics corridor through the rehabilitation of the existing railroads in Mozambique and Malawi, respectively owned by Corredor de Desenvolvimento do Norte S.A. ("CDN") and Central East African Railway Company Limited ("CEAR"), each a 51%-owned subsidiary of SDCN, and through the construction of railway links from Moatize to a new deep water maritime terminal to be built in Nacala-à-Velha.

             We are currently studying the possible construction of an integrated railway-port system for transporting iron ore output from Simandou, in Guinea.

4.1.2 Ports and maritime terminals

Brazil

             We operate a port and six maritime terminals principally as a means to complete the delivery of our iron ore and iron ore pellets to bulk carrier vessels serving the seaborne market. See—Bulk materials—Iron ore pellets—Operations. We also use our port and terminals to handle customers' cargo. In 2011, 10% of the cargo handled by our port and terminals represented cargo handled for customers.

             Tubarão Port.    The Tubarão Port, which covers an area of 18 square kilometers, is located near the Vitória Port in the Brazilian state of Espírito Santo and contains four maritime terminals: (i) an iron ore maritime terminal, (ii) Praia Mole Terminal, (iii) Terminal de Produtos Diversos, and (iv) Terminal de Granéis Líquidos.

•

The iron ore maritime terminal has two piers. Pier I can accommodate two vessels at a time, one of up to 170,000 DWT on the southern side and one of up to 200,000 DWT on the northern side. Pier II can accommodate one vessel of up to 400,000 DWT at a time, limited at 20 meters draft plus tide. In Pier I there are two ship loaders, which can load up to a combined total of 26,700 metric tons per hour. In Pier II there are two ship loaders that work alternately and can each load up to 16,000 metric tons per hour. In 2011, 102.9 million metric tons of iron ore and iron ore pellets were shipped through the terminal for us. The iron ore maritime terminal has a stockyard capacity of 3.2 million metric tons.



•

Praia Mole terminal is principally a coal terminal and handled 10.9 million metric tons in 2011. See Additional information—Legal proceedings.



•

Terminal de Produtos Diversos handled 6.4 million metric tons of grains and fertilizers in 2011.



•

Terminal de Granéis Líquidos handled 1.0 million metric tons of bulk liquid in 2011.

48

---

Table of Contents

             Ponta da Madeira maritime terminal.    The Ponta da Madeira maritime terminal is located near the Itaqui Port in the Brazilian state of Maranhão. The terminal facilities can accommodate four vessels. Pier I can accommodate vessels displacing up to 420,000 DWT. Pier II can accommodate vessels of up to 155,000 DWT. Pier I has a maximum loading rate of 16,000 tons per hour. Pier II has a maximum loading rate of 8,000 tons per hour. Pier III, which has two berths and three shiploaders, can accommodate vessels of up to 220,000 DWT at the south berths and 180,000 DWT at the north berths and has a maximum loading rate of 8,000 metric tons per hour in each shiploader. Cargo shipped through our Ponta da Madeira maritime terminal consists principally of our own iron ore production. Other cargo includes manganese ore, copper concentrate and pig iron produced by us and pig iron and soybeans for unrelated parties. In 2011, 100.5 million metric tons of iron ore were handled through the terminal. The Ponta da Madeira maritime terminal has a stockyard capacity of 6.2 million metric tons.

             Itaguaí maritime terminal—Cia. Portuária Baía de Sepetiba ("CPBS").    CPBS is a wholly owned subsidiary that operates the Itaguaí terminal, in the Sepetiba Port, in the Brazilian state of Rio de Janeiro. Itaguaí's maritime terminal has a pier that allows the loading of ships up to 18 meters of draft and up to 230,000 DWT. In 2011, the terminal uploaded 21.5 million metric tons of iron ore.

             Guaíba Island maritime terminal.    We operate a maritime terminal on Guaíba Island in the Sepetiba Bay, in the Brazilian state of Rio de Janeiro. The iron ore terminal has a pier that allows the loading of ships of up to 300,000 DWT. In 2011, the terminal uploaded 37.6 million metric tons of iron ore.

             Inácio Barbosa maritime terminal ("TMIB").    We operate the Inácio Barbosa maritime terminal, located in the Brazilian state of Sergipe. The terminal is owned by Petrobras. Vale and Petrobras entered into an agreement in December 2002, which allows Vale to operate this terminal for a period of 10 years. In 2011, 1.0 million metric tons of fuel and agricultural and steel products were shipped through TMIB.

             Santos maritime terminal ("TUF").    We operate a maritime terminal, through our subsidiary Vale Fertilizantes, in Santos, in the Brazilian state of São Paulo. The terminal has a pier that is equipped to receive ships of up to 67,000 DWT. In 2011, the terminal handled 2.6 million metric tons of ammonia and bulk solids, 21.4% higher than 2010. In July 2011, we signed an agreement to form a joint venture with Vale Fertilizantes to exploit the concession of TUF previously enjoyed by Vale Fertilizantes. Under the agreement, we will pay R$150 million (US$95 million) for the acquisition of 51% of the joint venture and will invest an additional R$432 million (US$274 million) to finance the investment program of TUF.

Colombia

             Sociedad Portuaria Rio Cordoba ("SPRC").    SPRC is a seaport facility wholly owned by Vale and used to export coal from the El Hatillo operation, as well as other nearby mines. The port is located in Cienaga, on the Caribbean coast of Colombia, in the Magdalena Department, about 67 kilometers from Barranquilla and 31 kilometers from Santa Marta.

Argentina

             Vale Logística Argentina S.A. ("Vale Logística Argentina") operates a terminal at the San Nicolas port located in the province of Buenos Aires, Argentina, where Vale Logística Argentina has a permit to use a stockyard of 20,000 square meters until October 2016 and an agreement with third parties for an extra stockyard of 27,000 square meters. We expect to handle 1.9 million metric tons of iron and manganese ore through this port in 2012, which will come from Corumbá, Brazil, through the Paraguay and Paraná rivers, for shipment to Asian and European markets. The loading rate of this port is 15,000 tons per day and the unloading rate is 11,000 tons per day.

Indonesia

             PTVI owns and operates two ports in Indonesia to support its nickel mining activities.

49

---

Table of Contents

•

The Balantang Special Port is located in Balantang Village, South Sulawesi, and has two types of piers, with total capacity of 6,000 DWT: a barge slip for barges with capacity of up to 4,000 DWT for dry bulk cargo and a general cargo wharf for vessels of up to 2,000 DWT.



•

The Harapan Tanjung Mangkasa Special Port is located in Harapan Tanjung Mangkasa Village, South Sulawesi, with mooring buoys that can accommodate vessels displacing up to 20,000 DWT, and a terminal that can accommodate fuel tanker vessels with capacity of up to 2,000 DWT, totaling capacity of 22,000 DWT.

4.1.3 Shipping

             In addition to the iron ore seaborne shipping conducted to support our iron ore and pellets business (See—Bulk Materials—Iron Ore—Operations), and the shipping and loading in the Paraná and Paraguay waterway system conducted to support our bulk material operations, we also operate tug boat services.

             We continue to develop and operate a low-cost fleet of vessels, comprised of our own ships and ships hired pursuant to medium and long-term contracts, to support our bulk materials business. Over the last few years, we purchased 22 used capesize vessels. We have also placed orders with shipyards for the construction of 19 very large ore carriers ("VLOC") each with a capacity of 400,000 DWT and 4 additional capesize vessels, each with a capacity of 180,000 DWT. The first 4 very large ore carriers and the 4 capesize vessels were delivered in 2011. At the end of 2011, 30 of our own vessels were in operation, along with 22 used capesizes, 4 VLOC and 4 new capesizes of 180,000 DWT. In addition to our VLOCs, another 16 have been ordered for construction by third party ship owners to be chartered by Vale and dedicated to transport Vale's iron ore to its customers. We expect this service to enhance our ability to offer our iron ore products in the Asian market at competitive prices and to increase our market share in China and the global seaborne market. In 2011, we shipped 89.9 million metric tons of iron ore and pellets on a CFR basis, of which 82.4 million metric tons were shipped to China.

             In the Paraná and Paraguay waterway system, we transport iron ore and manganese ores through our wholly owned subsidiary Transbarge Navigación, which transported 1.7 million tons through the waterway system in 2011, and our wholly owned subsidiary Vale Logística Argentina, which loaded 1.5 million tons of ore at Saint Nicolas Port into ocean-going vessels in 2011. In 2010, we also purchased two new convoys (two pushers and 32 barges) that will begin operations in 2012.

             We operate a fleet of 28 tug boats in maritime terminals in Brazil, specifically in Vitória (in the state of Espírito Santo), Trombetas and Vila do Conde (in the state of Pará), São Luís (in the state of Maranhão), Mangaratiba (in the state of Rio de Janeiro) and Aracaju (in the state of Sergipe).

             We own 31.3% of Log-In, which conducts intermodal logistics services. Log-In offers port handling and container transportation services by sea as well as container storage. It operates owned and chartered ships for coastal shipping, a container terminal (Terminal Vila Velha—TVV) and multimodal terminals. In 2011, Log-In's coastal shipping service transported 153,350 twenty-foot equivalent units ("teus") and TVV handled 276,245 teus.

4.2    Energy

4.2.1 Electric power

             We have developed our energy assets based on the current and projected energy needs of our mining operations, with the goal of reducing our energy costs and minimizing the risk of energy shortages.

50

---

Table of Contents

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 and electric energy shortages (as experienced in Brazil in the second half of 2001). We currently have nine hydroelectric power plants and four smaller hydroelectric power plants in operation. The hydroelectric power plants of Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I, Capim Branco II and Machadinho are located in the Southeastern and Southern regions. Vale's first hydroelectric power plant in the Northern region, Estreito, started generating power in March 2011. In addition, in June 2011, we acquired a 9% stake in NESA, the entity established to develop and operate the Belo Monte hydroelectric plant in the Brazilian state of Pará. In 2011, our installed capacity in Brazil was 981 MW. We use the electricity produced by these plants for our internal consumption needs. As a large consumer of electricity, we expect that investing in power projects will help us reduce costs and will protect us against energy supply and price volatility. However, we may experience delays in the construction of certain generation projects due to environmental and regulatory issues, which may lead to higher costs.

Canada

             In 2011, our wholly owned and operated hydroelectric power plants in Sudbury generated 16% of the electricity requirements of our Sudbury operations. The power plants consist of five separate generation stations with an installed generator nameplate capacity of 56 MW. The output of the plants is limited by water availability, as well as by constraints imposed by a water management plan regulated by the provincial government of Ontario. Over the course of 2011, the power system operator distributed electrical energy at the rate of 179 MW to all surface plants and mines in the Sudbury area.

             In 2011, diesel generation provided 100% of the electric requirements of our Voisey's Bay operations. We have six diesel generators on-site, of which normally only four are in operation, producing 12 MW.

Indonesia

             Energy costs are a significant component of our nickel production costs for the processing of lateritic saprolitic ores at PTVI operations in Indonesia. A major portion of PTVI's electric furnace power requirements are supplied at a low cost by its three hydroelectric power plants on the Larona River: (i) the Larona plant, which generates an average of 136 MW, (ii) the Balambano plant, which generates an average of 97 MW and (iii) the Karebbe plant, which recently came on stream with 90 MW of average generating capacity. The Karebbe plant helps reduce production costs by substituting oil used for power generation with hydroelectric power, reduce CO2 emissions by replacing non-renewable power generation, as well as enable us to increase our current nickel production capacity in Indonesia. PTVI has thermal generating facilities with 77 MW, which includes 53 MW from 23 Caterpillar diesel generators with capacity of 1 MW each and five Mirrlees Blackstone diesel generators with a capacity of 6 MW each, as well as a 24 MW high sulfur fuel oil burning steam turbine generator located in Sorowako.

4.2.2 Oil and natural gas

             Since 2007, we have developed a hydrocarbon exploration portfolio in Brazilian onshore and offshore basins. We believe that natural gas will play an important role in the global energy matrix in the future, given its advantages of lower carbon emissions and greater flexibility with regard to power generation.

5.    Other investments

             We own a 50.0% stake in California Steel Industries, Inc. ("CSI"), a producer of flat-rolled steel and pipe products located in the United States. The remainder is owned by JFE Steel. CSI successfully concluded the commissioning of a second reheating furnace with state-of-the-art environmental technology at a cost of US$71.0 million, which increased CSI's annual production capacity to approximately 2.8 million metric tons of flat rolled steel and pipe.

51

---

Table of Contents

             We have a 26.9% stake in the ThyssenKrupp Companhia Siderúrgica do Atlântico ("TKCSA") integrated steel slab plant in the Brazilian state of Rio de Janeiro. The plant started operations during the third quarter of 2010, and produced 3.2 Mt in 2011. The plant will ultimately have a production capacity of 5.0 Mtpy and will consume 8.5 million metric tons of iron ore and iron ore pellets per year, supplied exclusively by Vale. We are also involved in three other steel projects in Brazil, Companhia Siderúrgica do Pecém ("CSP"), which was already approved by our Board of Directors, as well as Aços Laminados do Pará ("Alpa") and Companhia Siderúrgica Ubu ("CSU"), which are both in earlier stages of development.

             We have a 61.5% stake in CADAM S.A. ("CADAM"), located on the border of the Brazilian states of Pará and Amapá, in the Amazon area in northern Brazil. CADAM produces kaolin for paper coating and also conducts research into other uses for kaolin products in order to develop a more diversified portfolio. CADAM's reserves are principally concentrated in the open-pit Morro do Felipe mine, in Vitória do Jari, in the state of Amapá. The beneficiation plant and private port facilities are situated on the west bank of the Jari River, in Munguba, in the Brazilian state of Pará. CADAM produces the following products: Amazon SB, Amazon Premium and Amazon Plus. They are sold mainly in the European, Asian and Latin American markets. CADAM obtains electricity from its own thermal power plant. In 2011, CADAM produced 370,969 metric tons of kaolin.

             Until recently, we conducted a pig iron operation in northern Brazil, which utilized two conventional mini-blast furnaces to produce 350,000 metric tons of pig iron per year, using iron ore from our Carajás mines in northern Brazil. In February 2012, we began shutting down all of our pig iron operations.

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 calculated in accordance with the technical definitions established by the SEC. Under the SEC's Industry Guide 7:

•

Reserves are the part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.



•

Proven (measured) reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, working or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.



•

Probable (indicated) reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

             We periodically revise our reserve estimates when we have new geological data, economic assumptions or mining plans. During 2011, we performed an analysis of our reserve estimates for certain projects and operations, which is reflected in new estimates as of December 31, 2011. Reserve estimates for each operation assume that we either have or will obtain all of the necessary rights and permits to mine, extract and process ore reserves at each mine. Where we own less than 100% of the operation, reserve estimates have not been adjusted to reflect our ownership interest. Certain figures in the tables, discussions and notes have been rounded. For a description of risks relating to reserves and reserve estimates, see Risk factors.

52

---

Table of Contents

             Our reserve estimates are based on certain assumptions about future prices. We have determined that our reported reserves could be economically produced if future prices for the products identified in the following table were equal to the three-year average historical prices through December 31, 2011. For this purpose, we used the three-year historical average prices set forth in the following table.

Iron ore reserves

             The following tables set forth our iron ore reserves and other information about our iron ore mines. Total iron ore reserves increased 6.4% from 2010 to 2011, reflecting an updated geological model which

53

---

Table of Contents

incorporated new drilling data from Conceição, Galinheiro, Sapecado and Serra Leste deposits, which more than offset mining depletion.

54

---

Table of Contents

55

---

Table of Contents

 

 

56

---

Table of Contents

 

Manganese ore reserves

             No new manganese ore reserves were added in 2011.

             The operating lifetime and projected exhaustion date of the manganese mines is shown below.

Coal reserves

             Our coal reserve estimates have been provided on an in-place material basis after adjustments for mining depletion, moisture content, anticipated mining losses and dilution, but excluding any adjustment for losses associated with beneficiation of raw coal mined to meet saleable product requirements. Some of our coal reserve estimates were prepared by the following independent consultants: IMC Mining Services (Integra Coal—Open Cut and Integra—Underground), Echelon Mining services (Isaac Plains), SRK Consulting

57

---

Table of Contents

(Carborough Downs) and Snowden Mining Industry Consultants Pty Ltd. (Moatize), each of whom has consented to the inclusion of these estimates herein.

             Reserves at Integra Open Cut, the Middle Liddell Seam for Integra Underground, Carborough Downs and Isaac Plains decreased in 2011 due to mining depletion. Reserves for the Hebden Seam for Integra Underground remained the same. The reduction in the El Hatillo reserves reflects the mine ROM production in 2011, but also revisions to the geological model, underlying economic assumptions and mining plans. The reduction of reserves at Moatize reflects the mine production in the second half of 2011.

58

---

Table of Contents

Nickel ore reserves

             Our nickel reserve estimates are of in-place material after adjustments for mining depletion and mining losses (or screening and drying in the cases of PTVI and VNC) and recoveries, with no adjustments made for metal losses due to processing.

             In Canada, reserves at our Sudbury operations decreased due primarily to mining depletion and reclassification of mineral reserves to mineral resources and certain re-interpretations. Reserves at our Thompson operations increased slightly due to resources-to-reserves conversion that offset mine depletions incurred during the year. Reserves at our Voisey's Bay operations decreased primarily due to mining depletion that was partially offset by resources being converted to reserves.

             Reserves at PTVI decreased as a result of adjustments for mining depletion and changes in ore modeling and pit designs that were partially offset by the conversion of resources to reserves.

             Reserves grades at Onça Puma changed from 2010 estimates due to re-evaluation of dilution factors. At VNC, there was a slight increase in the reserve estimates from 2010 due to a change in the plant feed constraint that allowed for more high magnesia material than in prior estimates.

59

---

Table of Contents

Copper ore reserves

             Our copper reserve estimates are of in-place material after adjustments for mining depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.

             In Canada, our copper ore reserve estimates decreased for the same reasons discussed above in connection with nickel reserves, since these deposits are also of polymetallic ore. In addition, we determined that there was not enough geological confidence to report copper as mineral reserves any longer in Thompson, although we have recovered there for many years and will continue to recover copper in concentrate as a by-product of the nickel operations. In Brazil, reserves at Sossego have decreased from last year due to mine depletions, partially offset by new drilling results that increased the mineral reserves. The change of reserves at Salobo is due to an updated mining plan that assumes higher operational costs relative to increases in assumed prices. The Salobo mine is currently in the pre-operating phase.

PGMs and other precious metals reserves

             We expect to recover significant quantities of precious metals as by-products of our Canadian operations, Sossego and from the Salobo project. Our reserve estimates are of in-place material after

60

---

Table of Contents

adjustments for mining depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.

             In Canada our mineral reserve estimates for platinum, palladium and gold decreased for the reasons discussed above in connection with nickel reserves. In Brazil, reserves at Sossego have decreased from last year due to mining depletions, partially offset by new drilling results that increased the mineral reserves. The change of reserves at Salobo is due to an updated mining plan that assumes higher operational costs relative to increases in assumed prices.

Cobalt ore reserves

             We expect to recover significant quantities of cobalt as a by-product of our Canadian operations and from the VNC project. Our cobalt reserve estimates are of in-place material after adjustments for mining depletion and mining losses (or screening in the case of VNC) and recoveries, with no adjustments made for metal losses due to processing.

61

---

Table of Contents

             Our cobalt reserve estimates decreased in 2011 for the reasons discussed above in connection with nickel reserves.

Phosphate reserves

             Our phosphate reserve estimates are of in-place material after adjustments for mining dilution, with no adjustments made for process recovery. The decrease in our phosphate reserve estimates reflects mine production and sales in 2011.

62

---

Table of Contents

Potash ore reserves

             Our reserve estimates are of in-place material after adjustments for mining depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.

Kaolin ore reserves

             Our reserve estimates are of in-place material after adjustments for mining depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.

             Reserves at Morro do Felipe increased to 42.0 million metric tons, primarily reflecting an update to the geological model with detailed new deposits.

63

---

Table of Contents

CAPITAL EXPENDITURES AND PROJECTS

             We have an extensive program of investments in the organic growth of our businesses. During 2011, we made capital expenditures and other investments of US$17.994 billion, of which US$13.426 billion was organic growth, while US$4.568 billion was invested in maintaining existing operations. As previously disclosed, the 2012 investment budget approved by our Board of Directors in November 2011 is US$12.949 billion for project execution, US$2.357 billion for research and development (R&D) and US$6.106 billion for sustaining existing operations. The capital expenditures, including R&D expenses, are reported on the basis of financial disbursements. A large part of the capital expenditures budget will be invested in Brazil (63.7%) and in Canada (11.7%). The remainder is allocated to investments in Argentina, Australia, Chile, China, Guinea, Indonesia, Malaysia, Mozambique, New Caledonia, and Peru, among other countries.

             The following table summarizes by major business area the breakdown of our capital expenditures in 2010 and 2011 and our investment budget for 2012.

             The following table sets forth total expenditures in 2011 for our main investment projects and expenditures budgeted for those projects in 2012, together with estimated total expenditures for each project

64

---

Table of Contents

and the estimated start-up date of each project as of December 31, 2011. The information below describing the status of each project has generally not been updated to reflect developments since December 31, 2011.

Bulk materials and logistics projects

Iron ore mining and logistics projects:

•

Carajás—Additional 40 Mtpy.    Construction of an iron ore dry processing plant located in Carajás, in the Brazilian state of Pará. The installation license was issued and civil engineering works and earthworks services to install the conveyor belt are in progress. The project has an estimated nominal capacity of 40 Mtpy. The project is 48% complete, with total realized expenditures of US$1.5 billion. Start-up is expected for the second half of 2013.



•

CLN 150 Mtpy.    Expansion of Northern system railway and port capacity, including the construction of a fourth pier at the Ponta da Madeira maritime terminal in the Brazilian state of Maranhão. Offshore civil engineering works at Ponta da Madeira maritime terminal have started, and we are assembling the ship loaders and conveyor belts. The civil engineering necessary for the installation of the car dumpers has concluded, and mechanical assembly has begun. Earthworks in the railway line and terminal are in progress. One of the required railway installation licenses is expected to be issued in the second half of 2012. The project will increase EFC's logistics nominal capacity to

65

---

Table of Contents

approximately 150 Mtpy. The project is 67% complete, with total realized expenditures of US$2.3 billion. Start-up is expected for the first half of 2014.

•

Carajás Serra Sul S11D.    Development of a mine and processing plant, located in the Southern range of Carajás, in the Brazilian state of Pará. We are investing capital for earthworks services and building the access road, prior to the issuance of environmental permits. We expect to receive the preliminary environmental license in the first half of 2012, with the installation license expected to be issued in the first half of 2013. The project has an estimated nominal capacity of 90 Mtpy. The project is 25% complete, with total realized expenditures of US$1.1 billion. Start-up is expected for the second half of 2016.



•

Serra Leste.    Construction of a new processing plant located in Carajás, in the Brazilian state of Pará. Civil engineering works for the plant and excavation are underway. We expect the installation licenses to be issued in the first half of 2012. The project has an estimated nominal capacity of 6 Mtpy. The project is 26% complete, with total realized expenditures of US$143 million. Start-up is expected for the first half of 2013.



•

Conceição Itabiritos.    Construction of a concentration plant, located in the Southeastern System. The mills assembly was finalized and the issuance of the pending installation license for the energy transmission line is expected in the first half of 2012. The project has an estimated nominal capacity of 12 Mtpy. The project is 86% complete, with total realized expenditures of US$553 million. Start-up is expected for the second half of 2013.



•

Vargem Grande Itabiritos.    Construction of a new iron ore treatment plant in the Southern System, with an estimated nominal capacity of 10 Mtpy. The installation license was issued in 2009. We expect to receive the installation license for the energy transmission line and for the electrical sub-station in the first half of 2012. The project is 46% complete, with total realized expenditures of US$429 million. Start-up is expected for the first half of 2014.



•

Conceição Itabiritos II.    Adaptation of the plant to process low-grade itabirites, located in the Southeastern System. The heavy equipment was received and assembly has started. Civil engineering works for the installation of primary crushers are ongoing. The installation license has been issued. The project has an estimated nominal capacity of 19 Mtpy. The project is 20% complete, with total realized expenditures of US$159 million. Start-up is expected for the second half of 2014.



•

Simandou I—Zogota.    Development of the Zogota mine and processing plant in Simandou South, Guinea. The project has an estimated nominal capacity of 15 Mtpy. The project is in an early stage of development and first production is expected in 2012.



•

Teluk Rubiah.    Construction of a maritime terminal with enough depth for the 400,000 dwt vessels and a stockyard in Teluk Rubiah, Malaysia. The stockyard will be capable of handling up to 30 Mtpy of iron ore products. The preliminary environmental license, construction and installation licenses have been issued. The operation license is expected to be issued in the first half of 2014. The project is on schedule and we are executing earthworks. The project is 14% complete, with total realized expenditures of US$215 million. Start-up is expected in the first half of 2014.

Pellet plant projects:

•

Tubarão VIII.    Eighth pellet plant at our existing complex at the Tubarão Port, Espírito Santo, Brazil. We are assembling equipment and metallic structures. Issuance of the operation license is expected for the second half of 2012. We expect the plant to have production capacity of 7.5 Mtpy. The plant is 80% complete, with total realized expenditures of US$612 million. Start-up is expected in the second half of 2012.



•

Samarco IV.    Construction of Samarco's fourth pellet plant, and an expansion of the mine, pipeline and maritime terminal infrastructure. The project has an estimated nominal capacity of 8.3 Mtpy, increasing Samarco's capacity to 30.5 Mtpy. The project is 18% complete. The budget is fully sourced by Samarco. Start-up is expected for the first half of 2014.

66

---

Table of Contents

Coal mining and logistics projects:

•

Moatize II.    New pit and duplication of the Moatize CHPP, as well as all related infrastructure, located in Tete, Mozambique. Geological research studies and a detailed engineering project are in progress. There are no pending installation licenses. The project will increase Moatize's total nominal capacity to 22 Mtpy (70% coking coal and 30% thermal). The project is 4% complete, with total realized expenditures of US$73 million. Start-up is expected in the second half of 2014.



•

Nacala Corridor.    Railway and port infrastructure connecting Moatize site to the Nacala-à-Velha maritime terminal, located in Nacala, Mozambique. The project comprises the recovery of 682 km of the existing railway in Malawi and Mozambique, the construction of a maritime terminal and 230 km of new railways, composed by a 201 km stretch connecting Moatize to Nkaya, Malawi, and 29 km linking the railway to Nacala-à-Velha. The concession agreement with the government of Malawi for a railway crossing the country has been signed. Development of the engineering project is in progress. Vegetation clearing licenses were obtained for the construction of the railway and maritime terminal in Mozambique. The project has an estimated nominal capacity of 18 Mtpy. The project is in an early stage of development, with total realized expenditures of US$38 million. Start-up is expected in the second half of 2014.



•

Eagle Downs.    New underground mine development including CHPP, as well as all related infrastructure, located in the Bowen Basin, Queensland, Australia. The project is planned to be developed in a 50/50 JV with Aquila Coal Pty Ltd, a subsidiary of Aquila Resources Limited. The project has an estimated nominal capacity of 4 Mtpy (100% coking coal). The project was approved by both JV participant boards and is in an early stage of development, with total realized expenditures of US$19 million. Start-up is expected for the first half of 2016.

Base metal projects

Copper mining projects:

•

Salobo.    Development of mine, plant and related infrastructure, located in Marabá, in the Brazilian state of Pará. The primary and secondary crushers, primary screening and conveyor belt have been commissioned. The project has an estimated nominal capacity of 100,000 tpy of copper in concentrate. The project is 97% complete, with total realized expenditures of US$2.0 billion. Start-up is expected for the first half of 2012.



•

Salobo II.    Salobo expansion, raising of the tailing dam height and increasing the mine capacity, located in Marabá, in the Brazilian state of Pará. Civil works at the flotation circuit are in progress and the construction of the ball mill was initiated. The plant operating license is expected to be issued in the second half of 2013. The project is expected to provide an additional estimated nominal capacity of 100,000 tpy of copper in concentrate. The project is 49% complete, with total realized expenditures of US$354 million. Start-up is expected in the second half of 2013.

Nickel mining and refining projects:

•

Long-Harbour.    Construction of a hydrometallurgical facility in Long Harbour, Newfoundland and Labrador, Canada. The plant is under construction and electromechanical assembly is in progress. The plant will have an estimated nominal refining capacity of 50,000 tpy of finished nickel, and associated copper and cobalt. The project is 59% complete, with total realized expenditures of US$1.7 billion. Start-up is expected in the second half of 2013.



•

Totten.    Nickel mine (re-opening) in Sudbury, Ontario, Canada. The project has an estimated nominal capacity of 8,200 tpy. The project is 51% complete, and US$402 million of expenditures have been realized. Start-up is expected for the second half of 2013.

67

---

Table of Contents

Fertilizers nutrients projects

Potash mining and logistics projects:

•

Rio Colorado.    Investments in a solution mining system, located in Mendoza, Argentina, including the renovation of railway tracks (440 km), construction of a railway spur (350 km) and a maritime terminal in Bahia Blanca, Argentina. An employee camp has been built in Malargue, Mendoza. The environmental licenses for the construction of the new railway and agreements with four Argentinian provinces have been obtained. The issuance of an installation license is expected for the first half of 2012. The project has an estimated nominal capacity of 4.3 Mtpy of potash (KCl). The project is 27% complete, with total realized expenditures of US$826 million. Start-up is expected in the second half of 2014.

Energy projects

•

Biodiesels.    Project to produce biodiesel from palm oil. Plantation of 80,000 ha of palm trees located in the Brazilian state of Pará. The biodiesel plant's FEL III is expected for July 2013, while the preliminary environmental license and construction and installation license issuance are all expected for the second half of 2013. The project has an estimated nominal capacity of 360,000 tpy of biodiesel. US$343 million of expenditures have been realized. Start-up is expected for 2015.



•

Belo Monte.    The Belo Monte Hydroelectric Power Plant will be built on the Xingu River, in the Brazilian state of Pará and will have an installed capacity of 11,233 MW. Vale has a 9% stake in NESA, the company established to develop and operate the Belo Monte hydroelectric plant. Vale's share of Belo Monte capacity will supply Vale's demand on the northern region of Brazil. The project is in an early stage of development, with total realized expenditures of US$85 million. Start-up is expected in the first half of 2015.

Steel projects

•

Companhia Siderúrgica do Pecém ("CSP").    Development of a steel slab plant in the Brazilian state of Ceará in partnership with Dongkuk Steel Mill Co. ("Dongkuk") and Posco, two major steel producers in South Korea. Vale holds 50% of the joint venture. The project implementation started in December 2011. Preliminary environmental and installation licenses were already obtained. The project will have an estimated nominal capacity of 3.0 Mtpy. Start-up is expected in the first half of 2015.

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

             In order to conduct mining activities, we are generally required to obtain some form of governmental permits, which differ in form depending on the jurisdiction but may include concessions, licenses, claims, tenements, leases or permits (all of which we refer to below as "concessions"). Some concessions are of indefinite duration, but many have specified expiration dates and may not be renewable. The legal and regulatory regime governing concessions differs among jurisdictions, often in important ways. For example in many jurisdictions, including Brazil, mineral resources belong to the State and may only be extracted pursuant to a concession. In other jurisdictions, including Canada, a substantial part of our mining operations is conducted pursuant to mining rights we own or pursuant to leases, often from government agencies.

68

---

Table of Contents

             The table below summarizes our principal mining concessions and other similar rights. In addition to the concessions described below, we have exploration licenses and Brazilian exploration applications with priority covering 7.03 million hectares in Brazil and 18.2 million hectares in other countries.

---

(1)

Includes mining applications.

(2)

Under the Mining Law that came into effect in 2009, we may be entitled to apply for at least one 10-year extension.

(3)

The Peruvian mining regime comprises only a single license type. The area reported reflects only licenses involving mining activities.

(4)

50-50 joint venture with African Rainbow Minerals Limited.

(5)

Joint Venture with Henan Longyu Energy Resources Co., Ltd. Vale has a minority equity interest of 25%.

             Many concessions impose specific obligations on the concessionaire governing such matters as how operations are conducted and what investments are required to be made. Our ability to maintain our mineral rights depends on meeting these requirements, which often involve significant capital expenditures and operating costs.

Regulation of mining activities

             Mining and mineral processing are subject to extensive regulation, which differs in each jurisdiction in which we operate. Our major operations are subject to legislation and regulations that apply to mining activities, which in many countries include state or provincial law in addition to national or federal law. Many of our concessions, particularly for large operations, impose additional obligations on us as the concessionaire.

             The jurisdictions in which we operate typically have government agencies that are charged with granting mining concessions and monitoring compliance with mining law and regulations. For example, mining activities in Brazil are supervised by the National Department of Mineral Production (Departamento Nacional de Produção Mineral—DNPM), an agency of the federal Ministry of Mines and Energy.

69

---

Table of Contents

             Changes in mining legislation can have significant effects on our operations. Among the jurisdictions in which we currently have major operations, there are several proposed or recently adopted changes in mining legislation that could materially affect us. These include the following:

•

The Brazilian government is planning to propose changes to the Brazilian Mining Code, which if adopted may have important implications for mining operations in Brazil or require additional capital expenditures.



•

In Indonesia, a Mining Law, which came into effect in January 2009, introduced a new licensing regime and called for certain adjustments to mining contracts with the Indonesian government. Regulations implementing the Mining Law have gradually been promulgated by the government, but more are expected. The trend is towards a more regulated environment in the country, including benchmark price or reference price rules for nickel products, which have previously been unregulated. In addition, regulations requiring mining companies to process commodities before exporting them and mandating foreign companies to divest a portion of their stake to domestic entities have also recently been promulgated. In addition, the Indonesian Government has issued a list of nine principal items it intends to adjust in existing contracts of work, including area adjustments, taxes and non-tax state revenue obligations, domestic value added requirements, the duration of any extension, application of a license form for any extensions, priority for local and national contractors and restrictions on use of affiliated companies for mining services. PTVI has submitted to the government its positions regarding these nine items, but no further discussions were initiated by the government during 2011. PTVI continues to monitor developments with respect to the Mining Law and its implementing regulations and assess the impacts that these may have on PTVI's current operations and its future prospects in Indonesia. Until all of the implementing regulations are promulgated, we will be unable to fully determine how and to what extent PTVI's Contract of Work and operations will be affected.



•

In New Caledonia, a mining law was passed in March 2009 requiring new mining projects to obtain formal authorization rather than simply a declaration. Our application for authorization (replacing a 2005 declaration) must be made by April 2012 and, once submitted, we should obtain the authorization by April 2015. We believe it is unlikely that the application for the authorization will be rejected, but there is a risk that new conditions will be imposed.



•

In Guinea, a mining code adopted in 2011 imposes on all mining projects a requirement for 15% government participation. Additionally, the new code creates an obligation for an applicant for a mining concession to present a retrocession plan under which 50% of the area it researched during the exploration phase is retroceded to the government.



•

In Mozambique, the Ministry of Natural Resources is following other African countries in proposing a new mining code with more detailed provisions that reinforce the rights of local communities, give preference to domestic services and establish the possibility of government participation in the case of strategic projects, which have not yet been defined.

Environmental regulations

             We are also subject to environmental regulations that apply to the specific types of mining and processing activities we conduct. We require approvals, licenses, permits or authorizations from governmental authorities to operate, and in most jurisdictions the development of new facilities requires us to submit environmental impact statements for approval and often to make additional investments to mitigate environmental impacts. We must also operate our facilities in compliance with the terms of the approvals, licenses, permits or authorizations. We are taking several steps to improve the efficiency of the licensing process, including stronger integration of our environmental and project development teams, the development of a Best Practices Guide for Environmental Licensing and the Environment, the deployment of highly-skilled specialist teams, closer interaction with environmental regulators and the creation of an Executive Committee to expedite internal decisions regarding licensing.

70

---

Table of Contents

             Environmental regulations affecting our operations relate, among other matters, to emissions into the air, soil and water; recycling and waste management; protection and preservation of forests, coastlines, natural caverns, watersheds and other features of the ecosystem; water use; climate change and decommissioning and reclamation. In many cases, the mining concessions or environmental permits under which we operate impose specific environmental requirements on our operations. Environmental regulations can sometimes change and ongoing compliance can require significant costs for capital expenditures, operating costs, reclamation costs and compliance. For example, in Brazil, a suit challenging a Brazilian environmental decree that permits mining in certain subterraneous areas may adversely affect our ability to conduct some mining operations or even our reserves.

             Environmental legislation is becoming stricter worldwide, which could lead to greater costs for environmental compliance. For instance, if we are required to modify installations, substitute carbon-intensive fuels and process inputs, develop new operational procedures or purchase new equipment, our environmental compliance costs could increase. In particular, we expect heightened attention from various governments to reducing greenhouse gas emissions as a result of concern over climate change. Some important environmental regulation and compliance initiatives are described below, but it is unclear whether additional operating or capital expenditures will be required to comply with enacted amendments or what effect these regulations will have on our business, financial results or cash flow from operations:

•

Our operations in Canada and at PTVI in Indonesia are subject to air emission regulations that address, among other things, sulfur dioxide ("SO2"), particulates and metals. In Canada, we are making significant capital investments to ensure compliance with these emissions standards. In Indonesia, PTVI and the Ministry of Environment have agreed upon an SO2 emission reduction plan, which is currently being implemented and is scheduled for completion in 2013.



•

The Canadian federal government's efforts to legislate greenhouse gas emission reduction targets for the industrial sectors have slowed down. The three provinces in which Vale operates, Ontario, Manitoba and Newfoundland, have made limited progress in setting greenhouse gas emission targets, with the exception of Manitoba, which has set a provincial target based on 1990 levels. The legislation enacted by the Manitoba government is not anticipated to impact our operations. The Ontario government has enacted legislation that requires annual reporting of greenhouse gas emissions. The provinces of Ontario and Manitoba are considering emissions trading schemes to limit greenhouse gas emissions. The three provinces have begun consulting with various stakeholders with respect to climate change initiatives and are also focusing on adaptation strategies.



•

In Canada, a number of studies have been completed or are in progress in Sudbury and Port Colborne related to contamination of soil and water from past and continuing activities. We are taking steps, in partnership with other stakeholders, to remediate the ecological impact of our activities.



•

The Australian government has recently introduced a carbon pricing scheme which will operate initially like a carbon tax with a fixed (but increasing) carbon permit price and will then transition into a cap and trade scheme after three years. The scheme takes effect on July 1, 2012 and will impact Vale's Australian operations.



•

In October 2009, Indonesia adopted legislation on Environmental Protection and Management. It sets out a broad regulatory structure and provides that many important details will be clarified in later implementing regulations.



•

Brazil adopted a decree under the federal carbon emissions law in December 2010 that contemplates specific limits on carbon emissions to be established in late 2011 and phased in through 2020. The law establishes a voluntary commitment to cut Brazil's greenhouse gas emissions between 36.1% and 38.9% by 2020, based on 2020 projected emissions, and several

71

---

Table of Contents

regulated industries, including the steel, forestry, agriculture and power generation sectors, have designed plans to reduce their greenhouse gas emissions. By 2012, the government plans to issue rules establishing specific limits on carbon emissions from other sectors of the economy, including mining and fertilizers. The Mining and Energy Ministry, with the participation of the Brazilian Mining Association (Instituto Brasileiro de Mineração—IBRAM) presented the mining sector plan in December 2011.

•

As part of the Global Reporting Initiative, which provides a reporting framework for economic, environmental and social sustainability, we launched a Sustainability Action Plan (PAS) in 2008. The PAS deals with issues related to water resources, waste treatment and disposal, emissions and energy, which are also associated with the target variable compensation of all employees. The outcome of the PAS indicators provides the Board with relevant inputs for its decision-making process regarding the investments needed for improvement in these areas as well as further exploring their potential.

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:

•

In Brazil, we pay a royalty known as the CFEM (Compensação Financeira pela Exploração de Recursos Minerais) on the revenues from the sale of minerals we extract, net of taxes, insurance costs and costs of transportation. The current rates on our products are: 2% for iron ore, copper, nickel, fertilizers and other materials; 3% on bauxite, potash and manganese ore; and 1% on gold. The Brazilian government is preparing to propose changes in the CFEM regime. Any changes must be incorporated into a final proposal by the DNPM, which is then subject to approval by the Brazilian National Congress. We are currently engaged in several administrative and legal proceedings alleging that we have failed to pay the proper amount of CFEM. See Additional information—Legal proceedings—CFEM-related proceedings.



•

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 company income tax purposes.



•

In Indonesia, our subsidiary PTVI pays a royalty fee on, among other items, its nickel production on the concession area and has made certain other commitments. The royalty payment was based on sales volume (US$78 per metric ton of contained nickel matte, and US$140 or US$156 per metric ton of contained cobalt, based on total production). During 2011, the royalty payment was equal to 0.44% of revenues from the sale of nickel in matte products, while the average yearly royalty payment for the period from 2008 to 2011 was equal to 0.5% of revenues from the sale of nickel in matte.



•

In Australia, royalty is payable on revenues from the sale of minerals. In Queensland, it is 7% of the value (net of freight and late dispatch costs) up to A$100 per ton and 10% of the value thereafter. In New South Wales, it is a percentage of the value of production—total revenue (which is net of certain costs and levies) less allowable deductions—of 6.2% for deep underground mines, 7.2% for underground mines and 8.2% for open cut mines.

72

---

Table of Contents

•

The Australian government has introduced a mineral resource rent tax ("MRRT"), which applies beginning in July 2012. The MRRT will tax profits generated from the exploitation of coal and iron ore resources in Australia. The tax will be levied at an effective rate of 22.5% of assessable profit and will be deductible for company income tax purposes. The difference between the MRRT and royalties paid to each state government is that the royalties are based on the volume and value of the resource, whereas the MRRT is based on profits. However, companies will be given a credit for any state-based royalties paid where the MRRT is payable.



•

In December 2011, the Brazilian states of Pará and Minas Gerais created a new tax on mineral production (Taxa de Fiscalização de Recursos Minerais—TFRM), due beginning in April 2012. For 2012, the rate of TFRM will be (i) R$6.906 per ton of mineral produced in the state of Pará, and (ii) R$2.3291 per ton of mineral transferred or sold in the state of Minas Gerais. Industry associations believe that the TFRM is unconstitutional and plan to initiate legal proceedings challenging the applicability of the legislation.

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, electricity generation, and oil and gas. We are also subject to more general legislation on workers' health and safety, safety and support of communities near mines, and other matters.

             Our Brazilian railroad business is subject to regulation and supervision by the Brazilian Ministry of Transportation and the transportation regulatory agency (Agência Nacional de Transportes Terrestres—ANTT), and operates pursuant to concession contracts granted by the federal government. The concession contracts impose certain shareholder ownership limitations. The concession contract for FCA limits shareholder ownership to 20% of the voting capital of the concessionaire, unless such limit is waived by ANTT. We own 99.9% of FCA, which ANTT has authorized. The 20% ownership limitation does not apply to our EFVM, EFC and FNS railroads. ANTT also sets different tariff ceilings for railroad services for each of the concessionaires and each of the different products transported. So long as these limits are respected, the actual prices charged can be negotiated directly with the users of such services.

             The MRS concession contract provides that each shareholder can only own up to 20% of the voting capital of the concessionaire, unless otherwise permitted by ANTT. As a result of our acquisitions of CAEMI and Ferteco, our share in the voting capital of MRS surpassed this threshold. As a result, Vale waived its voting and veto rights with respect to MRS shares in accordance with a 2006 ANTT resolution. We continue to have some voting rights with respect to shares owned by a subsidiary.

             Our railroad concession contracts have a duration of 30 years and are renewable. The FCA and MRS concessions expire in 2026, and the concessions for EFC and EFVM expire in 2027. We also own the subconcession for commercial operation for 30 years of a 720-kilometer segment of the FNS railroad, in Brazil. This concession expires in 2037.

             In 2011, ANTT approved new resolutions, which (i) expanded the trackage rights for concessionaires operating in the railway network and confirmed the ability of non-concessionaires to make investments in the railway network in order to accommodate increased demand, (ii) increased concessionaire obligations and customers rights, (iii) redefined the methodology for assessment of productivity targets by concessionaires and (iv) established a mechanism for ANTT to adjudicate disputes among concessionaires and between concessionaires and non-concessionaires with respect to railway use. Rail concessionaires and the National Association of Rail Carriers (Associação Nacional dos Transportadores Ferroviários—ATNF), filed a petition with ANTT claiming that such regulatory changes would violate the concession agreements. Additionally, rail concessionaires are discussing with ANTT certain technical and economic aspects of these recent regulations in order to clarify the content of the new regulations, to conform them with Brazilian federal law and the relevant concession agreements, and to protect the investments made by concessionaires.

73

---

Table of Contents

             In January 2012, ANTT submitted for public comment a proposed regulation to the tariffs charged by the rail concessionaires that would reduce the ceiling for the tariffs able to be charged by concessionaires, which could affect some of our contracts. We will provide comments to ANTT and will continue to work with ANTT so that any approved regulation conforms to the terms and conditions set forth at the time our concession contracts were executed and to applicable law.

             In connection with the approval in 2006 of our acquisition of Vale Canada, we made a number of undertakings that expired in October 2011 to the Canadian Minister of Industry under the Investment Canada Act. We believe we were substantially in compliance with these undertakings, which included locating our global nickel business in Toronto, Canada; enhancing investments in a number of areas in Canada; and honoring agreements with provincial governments, local governments, labor unions and aboriginal groups.

             Some of our products are subject to regulations applicable to the marketing and distribution of chemicals and other substances. For example, the European Commission has adopted a European Chemicals Policy, known as REACH ("Registration, Evaluation, and Authorization of Chemicals"). Under REACH, manufacturers and importers were required to register new 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 restrictions to commercialize its products in Europe. We have complied with registration requirements for the substances we import into or manufacture in the EU in 2011 and continue to take measures to manage our exposure to the authorization process.

II.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

             We recorded strong performance in 2011, which is reflected in all-time high figures for operating revenue, operating margin, cash generation and net earnings. Our shipments of iron ore and pellets, which totaled almost 300 million metric tons, were our highest ever, while our sales of nickel and copper were the highest since 2008.

             Vale is deeply committed to creating shareholder value, with a strong focus on efficient capital management. To that end, we have implemented several initiatives aimed at minimizing risks of delays and cost overruns in the execution of our projects and have taken a more proactive stance towards returning excess cash to shareholders.

             In successfully generating record levels of cash while prudently allocating our capital resources we continue to meet the challenge for growth companies: to finance growth, to maintain a sound balance sheet and to meet shareholders' expectations for capital return.

             Below are the main highlights of Vale's performance in 2011:

•

gross operating revenue of US$60.4 billion;



•

operating income of US$30.1 billion;



•

operating margin, measured as the ratio of operating income to net operating revenues, of 48.5% excluding the gain on the sale of our aluminum assets in February 2011;



•

record return of capital to shareholders of US$12.0 billion, through cash dividends of US$9.0 billion, equal to US$1.74 per share, and US$3.0 billion in share repurchases;



•

net income of US$22.9 billion, or US$4.33 per preferred and common share; and



•

strong financial position, supported by cash holdings of US$3.5 billion, availability of significant medium and long-term credit lines and a low-risk debt portfolio.

74

---

Table of Contents

Demand and prices

             The following table sets forth our average realized prices for our principal products for each of the periods indicated.

Iron ore and iron ore pellets

             Demand for our iron ore and iron ore pellets is a function of global demand for carbon steel. Demand for carbon steel, in turn, is strongly influenced by global industrial production. Iron ore and iron ore pellets are priced based on a wide array of quality levels and physical characteristics. Various factors influence price differences among the several types of iron ore, such as the iron content of specific ore deposits, the various beneficiation and purifying processes required to produce the desired final product, particle size, moisture content and the type and concentration of contaminants (such as phosphorus, alumina and manganese ore) in the ore. Fines, lump ore and pellets typically command different prices.

             Demand from China has been a principal driver of world demand and of prices. Chinese iron ore imports reached 686.1 million metric tons in 2011, 10.8% above the 619.1 million metric tons imported in 2010 and 9.3% higher than 2009 levels, due mainly to the continued growth in Chinese steel production throughout 2011. We expect China's economic growth to continue at a high rate during 2012, mainly driven by domestic demand.

             Our iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis for determining the customer price.

Manganese and ferroalloys

             The prices of manganese ore and ferroalloys are mainly influenced by trends in the carbon steel market. Ferroalloy prices are also influenced by the prices of the main production inputs, including manganese ore, power and coke. We sell manganese ore mainly at spot prices or at prices established on a quarterly basis. Ferroalloy prices are negotiated on a quarterly basis.

Nickel

             Nickel is an exchange-traded metal, listed on the LME. Most nickel products are priced using a discount or premium to the LME price, depending on the nickel product's physical and technical

75

---

Table of Contents

characteristics. Demand for nickel is strongly affected by stainless steel production, which represents, on average, 60-65% of global nickel consumption.

             We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts, together with our sales for non-stainless steel applications (alloy steels, high nickel alloys, plating and batteries), provide stable demand for a significant portion of our annual production. In 2011, 66% of our refined nickel sales were made into non-stainless steel applications, compared to the industry average for primary nickel producers of 36%, bringing more stability to our sales volumes. As a result of our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.

             Primary nickel (including ferro-nickel, nickel pig iron and nickel cathode) and secondary nickel (i.e., scrap) are competing nickel sources for stainless steel production. The choice between different types of primary and secondary nickel is largely driven by their relative price and availability. In recent years, secondary nickel has accounted for about 43-48% of total nickel used for stainless steels, and primary nickel has accounted for about 52-57%. In 2011, Chinese nickel pig iron and ferro-nickel production is estimated to have exceeded 250,000 metric tons, representing 16% of world primary nickel supply, compared to 11% of the world's supply in 2010.

             Long-term market fundamentals for nickel are expected to remain positive. While a number of nickel projects will be ramping-up in the short-term, future project development is becoming increasingly challenging. Nickel is widely used in consumer and industrial applications, and its use tends to grow as a country's economy develops. We anticipate continued income growth within emerging economies will drive higher nickel consumption over the medium-term.

Copper

             Growth in copper demand in recent years has been driven primarily by Chinese imports, given the important role copper plays in construction in addition to electrical and consumer applications. Copper prices are determined on the basis of (i) prices of copper metal on terminal markets, such as the LME and the NYMEX, and (ii) in the case of intermediate products such as copper concentrate (which comprise most of our sales) and copper anode, treatment and refining charges negotiated with each customer. Under a pricing system referred to as MAMA ("month after month of arrival"), sales of copper concentrates and anodes are provisionally priced at the time of shipment, and final prices are settled on the basis of the LME price for a future period, generally one to three months after the shipment date.

             Supply growth has struggled to keep pace with growing copper demand, with average mine growth of only 1.4% per annum over the past five years. These circumstances led to a strong 17% rise in copper prices in 2011, relative to 2010. We anticipate market fundamentals to remain strong as demand growth continues and the supply response remains challenging.

Fertilizer nutrients

             Demand for fertilizers is based on market fundamentals similar to those underlying global demand for minerals, metals and energy. Rapid per capita income growth in emerging economies generally causes dietary changes marked by an increase in the consumption of proteins, which ultimately contributes to increased demand for fertilizer nutrients. Demand is also driven by the demand for bio-fuels, which have emerged as an alternative source of energy to reduce world reliance on sources of climate-changing greenhouse gases, because key inputs for the production of biofuels—sugar cane, corn and palm—are intensive in the use of fertilizers.

             Sales of fertilizers are mainly on a spot basis using international benchmarks, although some large importers in China and India often sign annual contracts. Seasonality is an important factor for price determination throughout the year, since agricultural production in each region depends on climate conditions for crop production.

76

---

Table of Contents

Aluminum

             We have a 22.0% interest in Hydro, a major aluminum producer, which we acquired in February 2011 when we transferred the major part of our aluminum businesses to Hydro. For the periods prior to the transaction, our sales of aluminum were made at prices based on the LME of the previous month. Our sales of alumina were based on a percentage of the aluminum price traded on the LME, and our prices for bauxite were determined by a formula linked to the price of aluminum for the three-month futures contracts on the LME and to the price of alumina FOB Australia.

Coal

             Demand for metallurgical coal is driven by demand for steel, with growth expected especially in Asia. Demand for thermal coal is closely related to electricity consumption, which will continue to be driven by global economic growth, particularly in emerging market economies. Since April 2010, prices for metallurgical coal have been established on a quarterly basis for the majority of the seaborne term contract volumes, although some sellers have begun introducing monthly pricing and a minority of the seaborne trade volumes continue to employ annual pricing. Most of our term contracts have been priced on a quarterly basis since April 2010. Price negotiations for thermal coal are held both on a spot and an annual basis.

Logistics

             Demand for our transportation services in Brazil is primarily driven by Brazilian economic growth, mainly in the agricultural and steel sectors. We earn our logistics revenues primarily from fees charged to customers for the transportation of cargo via our railroads, port and ships. Our railways generate most of these revenues. Nearly all of our logistics revenues are denominated in reais and subject to adjustments for changes in fuel prices. Prices in the Brazilian market for railroad services are subject to ceilings set by the Brazilian regulatory authorities, but they primarily reflect competition with the trucking industry.

Production and sales volumes

             Our financial performance depends, among other factors, on the volume of production at our facilities. We publish a quarterly production report, which is available on our website and filed with the SEC on Form 6-K. Increases in the capacity of our facilities resulting from our capital expenditure program have an important effect on our performance. Our results are also affected by acquisitions and dispositions of businesses or assets, and they may be affected in the future by new acquisitions or dispositions. For more information on acquisitions since the beginning of 2011, see Information on the Company—Business overview—Significant changes in our business. We had no dispositions of businesses in 2011.

77

---

Table of Contents

             The following table sets forth, for our principal products, the total volumes we sold in each of the periods indicated.

Currency price changes

             Our results of operations are affected in several ways by changes in currency exchange rates. The most important of these are the following:

•

Most of our revenues are denominated in U.S. dollars, while most of our costs of goods sold are denominated in other currencies, principally the real (59% in 2011), the U.S. dollar (19% in 2011) and the Canadian dollar (15% in 2011). As a result, changes in exchange rates affect our costs and operating margins. Our margins are adversely affected by a decline in the value of the U.S. dollar.



•

Most of our long-term debt is denominated in currencies other than the real (US$14.703 billion at December 31, 2011), principally the U.S. dollar. Because our functional currency for accounting purposes is the Brazilian real, changes in the value of the U.S. dollar against the real result in an exchange gain or loss on our net liabilities.



•

We had real-denominated debt of US$7.997 billion at December 31, 2011. Since most of our revenue is in U.S. dollars, we use swaps to convert our debt service from reais to U.S. dollars. Changes in the value of the U.S. dollar against the real result in fair value variation on these derivatives, affecting our financial results. For more information on our use of derivatives, see—Risk management.

             A decline in the value of the U.S. dollar tends to result in: (i) lower operating margins and (ii) higher financial results due to currency gains on our net U.S. dollar-denominated liabilities and fair value gains on our currency derivatives. Conversely, an increase in the value of the U.S. dollar tends to result in: (i) better operating margins and (ii) lower financial results, due to exchange losses on our net U.S. dollar-denominated liabilities and fair value losses on our currency derivatives.

             The U.S. dollar depreciated against both the real and the Canadian dollar during the first half of 2011 but began to appreciate in the second half of the year, after the aggravation of the Eurozone's debt crisis in late July. As of December 31, 2011, the U.S. dollar had appreciated 12.1% against the real and 2.2% against the Canadian dollar relative to December 31, 2010. The average value of the U.S. dollar in 2011, compared to 2010, was 4.8% lower against the real and 4.4% lower against the Canadian dollar. These currency price

78

---

Table of Contents

changes affected our operating margins and resulted in higher foreign exchange gains and gains on derivatives, as described under—Critical accounting policies and estimates—Derivatives.

Operating expenses

             Our principal operating expenses consist of: (i) cost of goods sold, (ii) selling, general and administrative expenses and (iii) research and development expenses. Our cost of goods sold consists of costs of energy (fuel and electric energy), materials (such as components for railroad and mining equipment), outsourced services (especially ore and waste removal, transportation and maintenance), purchased products for processing or resale (such as iron ore, iron ore pellets, nickel and aluminum products), personnel, and depreciation and depletion. Our selling, general and administrative expenses consist principally of personnel expense, sales expense and depreciation. Our research and development expenses consist primarily of investments related to mineral exploration and studies for the development of projects, which are recorded as expenses until the economic viability of the related mining activities can be established.

Results of operations—2011 compared to 2010

Revenues

             Our net operating revenues increased 30.2%, to US$58.990 billion, in 2011, primarily as a result of (i) higher prices for our major products, especially for iron ore and other bulk materials, (ii) the increase in nickel volumes following the end of labor strikes and resumption of our nickel production in Ontario and (iii) the inclusion of a full year of results for fertilizers compared to seven months in 2010. These effects were partly offset by the effect of the sale of our aluminum assets in February 2011. Of a total increase of US$13.697 billion in gross revenues, US$9.575 billion was attributable to higher prices for iron ore and iron ore pellets.

             The following table summarizes our gross revenues by product and our net operating revenues for the periods indicated.

79

---

Table of Contents

             The following table summarizes, for the periods indicated, the distribution of our operating revenues based on the geographical location of our customers.

Revenues by segment

Bulk materials

             The 30.4% increase in revenues from sales of bulk materials primarily reflected higher prices for iron ore and iron ore pellets. Our average realized prices were up 31.5% for iron ore and 20.2% for iron ore pellets, due primarily to strong demand from China while demand remained slow elsewhere, particularly in Europe. Volume sold was also up for iron ore (0.9%) and for iron ore pellets (5.9%).

             Revenues from bulk materials were also positively affected by higher prices for coal. Our average realized prices were up 35.7% for thermal coal, based on demand from the power industry, and 56.9% for metallurgical coal, based on demand from the steel industry, especially in China. The volume of metallurgical coal sold was adversely affected by heavy rains and flooding in Australia in the early part of 2011, while the volume of thermal coal sold increased based on higher production in Colombia and the start of production at Moatize.

             Revenues from sales of both manganese and ferroalloys declined on lower prices and lower volumes sold.

Base metals

             The 17.4% increase in gross revenues from sales of base metals primarily reflected higher volumes of nickel sold. With the end of labor strikes at our production sites in Sudbury and Voisey's Bay in the second half of 2010, the volume of nickel sold was 44.8% higher in 2011. The average sale price for nickel also

80

---

Table of Contents

increased 3.2%, reflecting an increase in the LME price due to continued strong demand. Revenues from sales of copper concentrate were also higher, based on higher prices. These effects were partly offset by the sale of our aluminum business in February 2011, because for 2011 we had only two months of aluminum sales.

Fertilizers

             We acquired our principal phosphate operations in May 2010, and the 92.1% increase in revenues from sales of fertilizers in 2011 primarily reflects a full year of these operations compared to seven months in 2010. In addition, prices were up for both phosphates (13.1% higher average realized price) and nitrogen (35.7% higher average realized price), due to strong demand especially from the Brazilian agricultural sector.

Logistics

             Gross revenues from sales of logistics services increased 17.8%. Revenues from railroad transportation increased 14.3%. Revenues from port operations increased 30.6% due to higher imports for the steel industry.

Operating costs and expenses

Cost of goods sold

             The following table summarizes the components of our cost of goods sold for the periods indicated.

81

---

Table of Contents

•

The largest factors in the 25.3% increase in cost of goods sold were the resumption of normal nickel operations in Ontario, the inclusion of a full year of the phosphate business acquired in 2010 and the start-up of Onça Puma. Out of the total increase of US$4.759 billion, these three factors accounted for US$3.501 billion. Additional important factors were the appreciation on average of the Brazilian real against the U.S. dollar during 2011, which accounted for US$764 million of additional cost of goods sold, and higher sales volumes, which accounted for US$268 million of additional cost of goods sold.



•

The increases in costs of goods sold attributable to the resumption of Ontario operations and the start-up of Onça Puma were primarily in the following line items: outsourced services (US$441 million), materials (US$367 million), energy (US$242 million), personnel (US$492 million) and depreciation (US$502 million).



•

The increases in costs of goods sold attributable to the full year of fertilizer operations were primarily in the following line items: outsourced services (US$277 million), materials (US$656 million), energy (US$237 million), personnel (US$159 million) and depreciation (US$230 million), partially offset by the purchase price allocation in inventories in connection with our acquisition in 2010.



•

The increases in costs were partially offset by the sale of our aluminum assets, which reduced costs by US$1.819 billion, primarily in these line items: energy costs (US$712 million), materials (US$494 million) and product acquisitions (US$268 million). The reduction in energy costs was particularly significant.



•

These factors were partially offset by our efforts to reduce costs by optimizing the flow of materials, optimizing plant and labor utilization, and cutting administrative costs, among other measures.



•

In addition to the general factors described above: (i) higher outsourced services costs were affected by increased freight prices, (ii) higher costs for acquisition of products from third parties reflected higher nickel purchases because of operational problems at the Copper Cliff smelter and higher prices of iron ore and iron ore pellets, and (iii) higher personnel costs reflected the signing of a new collective agreement in Brazil.

Selling, general and administrative expenses

             Selling, general and administrative expenses increased by 37.2%, or US$633 million, as a result of higher head count due to acquisitions, the signing of a new collective bargaining agreement in Brazil and the appreciation of the Brazilian real against the U.S. dollar.

Research and development expenses

             Research and development expenses increased by 90.7%, which reflects expenditures for feasibility and other studies for new projects, mineral exploration, natural gas exploration and the development of new processes and technological improvements.

Other costs and expenses

             Other costs and expenses increased by US$605 million, mainly due to pre-operating and start-up expenses related to our Onça Puma and Vale New Caledonia projects and contingency expenses.

82

---

Table of Contents

Operating income by segment

             The following table provides information about our operating income by segment and as a percentage of revenues for the years indicated.

             Operating income as a percentage of net operating revenues increased from 47.9% in 2010 to 51.0% in 2011. In general, all segments benefited from higher prices and volumes sold. The improvement in operating margin in nickel also reflected the resumption of normal operations after the end of the labor disruption in Canada. Lower margins for manganese and ferroalloys reflected weak markets and lower volumes.

        Non-operating income (expenses)

             The following table details our net non-operating income (expenses) for the periods indicated.

83

---

Table of Contents

             We had net non-operating expenses of US$3.313 billion in 2011, compared to net US$1.381 billion in 2010. The principal factor in the change was the high level of foreign exchange losses in 2011. This and the other factors in the change are described below:

•

The net impact of foreign exchange and monetary variations was a charge of US$1.641 billion, due to appreciation of the U.S. dollar (in which most our debt is denominated) against the Brazilian real (which is our functional currency). This compares with a gain of US$344 million in 2010, when there was a small depreciation of the U.S. dollar.



•

The increase in financial income reflected the high level of cash we built up during late 2010 and 2011, prior to our dividend payments and share repurchases in the fourth quarter of 2011.



•

Financial expenses declined by 6.8%, mainly due to a favorable change in the amount recognized for change in the fair value of our outstanding shareholder debentures.



•

The net effect of fair value changes in derivatives had a positive impact on earnings of US$75 million in 2011 and US$631 million in 2010. This reflected the following categories of derivatives transactions:



•

Currency and interest rate swaps—We recognized net expense of US$59 million in 2011, compared to net income of US$771 million in 2010. These swaps are primarily to convert debt denominated in other currencies into U.S. dollars to protect our cash flow from exchange rate volatility.



•

Nickel derivatives—We recognized net income of US$103 million in 2011 and net expense of US$84 million in 2010. These derivatives are entered into as part of our nickel price protection program.



•

Bunker oil derivatives—We recognized net income of US$37 million in 2011. These derivatives were structured to minimize the volatility of the cost of maritime freight.

Income taxes

             For 2011, we recorded net income tax expense of US$5.282 billion, compared to US$3.705 billion in 2010. The effective tax rate on our pretax income was 19.7%, lower than the statutory rate, mainly because of the tax benefit of shareholder distributions categorized as interest on shareholders' equity. For more information, see Note 6 to our consolidated financial statements. Exchange variations directly impact the exchange gains or losses recognized on transactions between the parent company and certain subsidiaries with lower statutory tax rates. Although those gains and losses are eliminated from reported consolidated pretax amounts in the consolidation and currency re-measurement process, they are not eliminated for tax purposes since in Brazil there is no consolidated income tax regime. Our effective tax rate has historically been lower than the Brazilian statutory rate because: (i) income of some non-Brazilian subsidiaries is subject to lower rates of tax; (ii) we are entitled under Brazilian law to deduct the amount of our distributions to shareholders that we classify as interest on shareholders' equity; (iii) we benefit from tax incentives applicable to our earnings on production in certain regions of Brazil; and (iv) functional currency movements on some non-Brazilian subsidiaries are not taxable under Brazilian law. In addition, some of the foreign exchange variations that affect our operating results are not taxable.

Affiliates and joint ventures

             Our equity in the results of affiliates and joint ventures resulted in a net gain of US$1.135 billion in 2011, compared to a net gain of US$987 million in 2010. Our joint venture Samarco represented US$878 million of the 2011 amount, and the increase in 2011 is attributable to higher sales volumes and higher prices for iron ore pellets.

84

---

Table of Contents

Results of operations—2010 compared to 2009

        Revenues

             Our net operating revenues increased 94.3%, to US$45.293 billion, in 2010, primarily as a result of higher prices for our major products. In response to strong demand, volumes sold increased for iron ore and other bulk materials, but not for nickel and copper due largely to the effect of the labor dispute at our Sudbury and Voisey's Bay operations, which has now ended. Of a total increase of US$22.542 billion in gross revenues, US$15.571 billion was attributable to higher prices for iron ore and iron ore pellets.

             The following table summarizes our gross revenues by product and our net operating revenues for the periods indicated.

85

---

Table of Contents

             The following table summarizes, for the periods indicated, the distribution of our operating revenues based on the geographical location of our customers.

Revenues by segment

             Iron ore.    Gross revenues from sales of iron ore increased 105.6% in 2010 compared to 2009, primarily as a result of an 84.9% increase in the average sale price and an 11.2% increase in volume sold. The increase in the average sales price resulted from strong demand for iron ore. The increase in volume was a consequence of the worldwide economic recovery. Given strong demand pressure, the market for iron ore has been very tight, with rising spot prices and a decreasing stock-to-consumption ratio in China relative to last year.

             Iron ore pellets.    Gross revenues from sales of iron ore pellets increased 373.5%, driven by a 118.5% increase in volume sold due to increased utilization of production capacity and a 118.7% increase in the average sales price due to strong demand.

             Manganese ore.    Gross revenues from sales of manganese ore increased 77.9%, driven by a 56.5% increase in the average sale price and a 13.5% increase in volume sold due to the demand from the steel industry, partially offset by stoppage occurred in mines for operational maintenance.

             Ferroalloys.    Gross revenues from sales of ferroalloys increased 78.5%, due primarily to a 60.7% increase in volume sold in connection with the recovery of the steel industry and a 10.9% increase in the average sales price.

             Coal.    Gross revenues from sales of coal increased 52.5%, mainly due to the consolidation of sales from Vale Colombia, which Vale acquired in the first quarter of 2009, as well as higher average sales price reflecting better market conditions. The improvement in sales prices for metallurgical coal reflected new quarterly index-based pricing arrangements with our customers similar to those we adopted in our iron ore business. Metallurgical coal revenues increased by 57.9% due to high prices (29.8% higher than in 2009) and

86

---

Table of Contents

higher volumes sold (21.6% higher than in 2009). Thermal coal revenues increased by 44.7% due to higher prices (5.7% higher than in 2009) and higher volumes sold (37.3% higher than in 2009).

             Nickel and other products.    Gross revenues from this segment increased 19.4%, mainly due to an increase in prices, partially offset by a decrease in volumes as a result of the labor strikes at our production plants in Sudbury and Voisey's Bay. The segment includes sales of nickel (representing 57.5% of base metals gross revenues for 2010) and sales of copper that is a by-product of our nickel operations. Gross revenues from nickel sales increased 17.6%, primarily due to a 50.6% increase in the average sales price due to an increase in the LME price, which was partially offset by a 22.8% decrease in volume sold. Gross revenues from copper sales increased 50.1%, primarily due to a 59.5% increase in the average sales price, which was partially offset by a 23.0% decrease in the volume sold.

             Copper concentrate.    Gross revenues from sales of copper concentrate increased 37.0%, reflecting a 40.5% increase in the average sales price as a result of structural limitations on growth in the supply of concentrates. The increase was partially offset by a 2.6% decrease in volume sold.

             Aluminum products.    Gross revenues from sales of aluminum-related products increased 24.6%, primarily reflecting an increase in the average sales price as a result of an increase in the LME price. We transferred our aluminum business in Albras, Alunorte and CAP, among other items, to Hydro in February 2011.

             Potash.    Gross revenues from sales of potash decreased 32.2%, mainly due to a 21.2% decrease in the average sales price and a 13.9% decrease in volume sold explained by the recovery of inventories.

             Phosphates and nitrogen.    We had revenues from sales of phosphates and nitrogen for the first time in 2010 due to the acquisition of fertilizer assets in Brazil.

             Logistics services.    Gross revenues from sales of logistics services increased 32.7%. Revenues from railroad transportation increased 32.1%, primarily reflecting the rise in transportation of agricultural products and steel industry inputs and products in 2010. Revenues from port operations increased 33.7% due to changes in the mix of goods carried.

             Other products and services.    Gross revenues from sales of other products and services decreased 8.6%, primarily due to the classification of kaolin within discontinued operations in the first quarter of 2010.

        Operating costs and expenses

87

---

Table of Contents

Cost of goods sold

             The following table summarizes the components of our cost of goods sold for the periods indicated.

•

Our total cost of goods sold increased 38.1% from 2009 to 2010. The increase is attributable to the increase in volume sold and to exchange rate variations, partially offset by our continuous efforts to reduce costs. Of the US$5.193 billion increase in cost of goods sold, higher volume sold and exchange rate variations were responsible for US$1.775 billion and US$1.323 billion, respectively. Also contributing to the increase was a higher level of purchases of third-party products for resale in order to meet excess demand, as well as our acquisition of fertilizer assets. These factors were partially offset by our efforts to reduce costs by optimizing the flow of materials, optimizing plant and labor utilization, and cutting administrative costs, among other measures.



•

Outsourced services costs (primarily for operational services such as waste removal, cargo freight and maintenance of equipment and facilities) increased 21.0%, driven primarily by higher volume sold and the appreciation of the Brazilian real against the U.S. dollar.



•

Materials costs increased 6.0%, driven primarily by higher volume sold and the appreciation of the Brazilian real against the U.S. dollar, partially offset by lower maintenance expense in 2010 reflecting accelerated expenditures in 2009.



•

Energy costs increased 45.7%, driven primarily by higher volume sold, higher average prices and the appreciation of the Brazilian real against the U.S. dollar.



•

Costs for the acquisition of products from third parties increased 124.0%, driven primarily by the purchase of iron ore and iron ore pellets. In 2009, Vale did not purchase iron ore pellets from third parties, due to the lower level of demand during the financial crisis.



•

Personnel costs increased 7.3%, due primarily to higher production volumes and the appreciation of the Brazilian real against the U.S. dollar, partially offset by lower production of nickel.



•

Depreciation and depletion expense increased 20.2%, driven primarily by the general increase in volume sold and the appreciation of the Brazilian real against the U.S. dollar, partially offset by lower volumes of nickel sold due to the strikes.

88

---

Table of Contents

•

Other costs of goods sold increased 134.5%, primarily reflecting higher expenditures for mining royalties, inventory adjustments in the ferrous minerals business, the effects of fair value inventory adjustments made as part of the purchase price allocation of US$98 million in connection with our acquisition of the fertilizers business and increased demurrage costs as a result of greater activity during 2010.

Selling, general and administrative expenses

             Selling, general and administrative expenses increased by 50.5%, or US$571 million, due primarily to higher volumes sold, increased personnel expenses, outsourced services and exchange rate variations.

Research and development expenses

             Research and development expenses decreased by 10.5%. The US$103 million decrease primarily reflects changes in the status of some gas and energy projects that we determined were viable, so the related expenditures were recorded as capital expenditures rather than expenses, as in prior periods.

Other costs and expenses

             Other costs and expenses increased by US$683 million, mainly due to provisions for losses on property, plant and equipment and disposal of materials, start-up expenses related to our New Caledonia operations and pre-operating expenses related to our Onça Puma, Salobo and Moatize projects.

Operating income by segment

             The following table provides information about our operating income by segment and as a percentage of revenues for the years indicated.

89

---

Table of Contents

             Operating income as a percentage of net operating revenues increased from 26.0% in 2009 to 47.9% in 2010. In general, the segments benefited from higher prices and volumes sold, as summarized in more detail below.

•

The increase in operating margin for iron ore and iron ore pellets primarily reflects higher average sales prices and volumes sold.



•

The increase in operating margins for manganese and ferroalloys is attributable to higher sales prices and volumes sold as a result of the recovery of the steel industry.



•

The decrease in operating margin for coal is attributable to higher expenses related to the pre-operating phase of Vale Moçambique.



•

The increase in operating margins for nickel and other products is attributable to higher market prices.



•

The negative operating margin for our fertilizer segment is attributable primarily to the fair value allocated to inventories as part of the purchase accounting adjustments in connection with the 2010 acquisitions.



•

The increase in operating margin in the aluminum products segment resulted primarily from higher average sales prices.

        Non-operating income (expenses)

             The following table details our net non-operating income (expenses) for the periods indicated.

             We had net non-operating expenses of US$1.381 billion in 2010, compared to net non-operating income of US$1.066 billion in 2009. The change in net non-operating income (expenses) was affected by the following factors:

•

A decrease in financial income of US$91 million, mainly due to a lower average cash balance.



•

An increase in financial expenses of US$1.088 billion, principally due to fair value changes in our liability under our shareholder debentures, IOF (financial operations tax) charges related to the conversion of our mandatorily convertible notes due June 2010 and higher financial interest due to a higher average level of debt.



•

Lower foreign exchange and indexation gains due to foreign exchange loss, resulting from the combination of lower cash balances, treasury positions in U.S. dollars in 2010 and appreciation of the Brazilian real against the U.S. dollar in 2010.



•

No gain on sales of assets in 2010, compared to a US$40 million gain in 2009. The net gain in 2009 was mainly attributable to the sale of shares of Usiminas.

90

---

Table of Contents

        Income taxes

             For 2010, we recorded net income tax expense of US$3.705 billion, compared to US$2.100 billion in 2009. The effective tax rate on our pretax income was 18%, lower than the statutory rate, mainly because of a retroactive tax benefit eligible for recognition this year related to our Carajás iron ore operations and the tax benefit of shareholder distributions categorized as interest on shareholders' equity. For more information, see Note 6 to our consolidated financial statements.

             Exchange variations directly impact the exchange gains or losses recognized on transactions between the parent company and certain subsidiaries with lower statutory tax rates. Although those gains and losses are eliminated from reported consolidated pretax amounts in the consolidation and currency re-measurement process, they are not eliminated for Brazilian tax purposes since in Brazil there is no consolidated income tax regime. Our effective tax rate has historically been lower than the Brazilian statutory rate because: (i) income of some non-Brazilian subsidiaries is subject to lower statutory rates of tax; (ii) we are entitled under Brazilian law to deduct the amount of our distributions to shareholders that we classify as interest on shareholders' equity; (iii) we benefit from tax incentives applicable to our earnings on production in certain regions of Brazil; and (iv) functional currency movements on some non-Brazilian subsidiaries are not taxable under Brazilian law. In addition, some of the foreign exchange variations that affect our operating results are not taxable.

        Affiliates and joint ventures

             Our equity in the results of affiliates and joint ventures resulted in a net gain of US$987 million in 2010, compared to a net gain of US$433 million in 2009. Our joint venture Samarco represents US$798 million of the 2010 amount, and the increase in 2010 is attributable to higher sales volume and higher prices for iron ore pellets.

LIQUIDITY AND CAPITAL RESOURCES

Overview

             In the ordinary course of business, our principal funding requirements are for capital expenditures, dividend payments and debt service. We have historically met these requirements by using cash generated from operating activities and through borrowings, supplemented occasionally by dispositions of assets.

             For 2012, we have budgeted capital expenditures of US$21.4 billion, and announced a minimum dividend payment of US$6.0 billion to be paid in two installments of US$3.0 billion, with the first installment in April and the second in October. We paid US$9.0 billion in dividends during 2011 and repurchased US$3.0 billion of our common and preferred shares during the second half of 2011.

             We expect our operating cash flow and cash holdings to be sufficient to meet these anticipated requirements. We also regularly review acquisition and investment opportunities and, when suitable opportunities arise, we make acquisitions and investments to implement our business strategy. We may fund these investments with borrowings.

Sources of funds

             Our principal sources of funds are operating cash flow and borrowings. Our operating activities generated cash flows of US$24.5 billion in 2011.

91

---

Table of Contents

             Our major new borrowing transactions in 2011 and to date in 2012 are summarized below:

•

In January 2012, our wholly owned finance subsidiary Vale Overseas issued US$1 billion notes due 2022, guaranteed by Vale, with a coupon of 4.375% per year, payable semi-annually. In April 2012, Vale Overseas reopened the notes and issued an additional US$1.250 billion.



•

In August 2011, we entered into an agreement with a syndicate of financial institutions to finance the acquisition of five large ore carriers of 400,000 DWT and two capesize bulkers of 180,000 DWT. The agreement provides a secured term loan facility of up to approximately US$530 million, which corresponds to 80% of the contract price of the vessels. As of December 31, 2011, Vale had drawn US$178 million under the facility. The banks also have the benefit of an insurance policy provided by K-Sure (Korea Trade Insurance Corporation).



•

In January 2011, we entered into an agreement with a group of commercial banks with the guarantee of the official Italian credit agency, Servizi Assicurativi Del Commercio Estero S.p.A—SACE, to provide us with a US$300 million facility with a final tenor of 10 years to guarantee lines of credit provided by commercial banks. As of December 31, 2011, we had drawn down all amounts available under this facility.

             In addition to the transactions described above, during 2011 we also borrowed US$1.761 billion under our existing financing agreements.

             In February 2011, we concluded the transfer to Hydro of a substantial portion of our aluminum assets, including our interests in Albras, Alunorte and CAP, together with off-take rights, outstanding commercial contracts and net debt of US$655 million. In this transaction we received US$503 million in cash and 22% of Hydro's outstanding common shares. Also as part of the transaction, we transferred the Paragominas bauxite mine and all of our other Brazilian bauxite mineral rights (apart from rights owned through our stake in MRN) to Paragominas, 60% of which we transferred to Hydro in exchange for US$578 million in cash. We will transfer our remaining interest in Paragominas to Hydro in two equal tranches in 2014 and 2016, each in exchange for US$200 million, subject to certain contingent adjustments.

             In April 2011, we entered into a new revolving credit agreement with a syndicate of banks that added US$3 billion to the total amount available under our revolving credit facilities, which can be drawn by Vale S.A., Vale Canada and Vale International. As of December 31, 2011, none of the borrowers had drawn any amounts under these facilities.

Uses of funds

Capital expenditures

             Capital expenditures amounted to US$18.0 billion in 2011, and we have budgeted US$21.4 billion for 2012. Our actual capital expenditures may differ from the budgeted amount for a variety of reasons, including unexpected changes in currency prices. These capital expenditure figures include some amounts that are treated as current expenses for accounting purposes, such as expenses for project development, maintenance of existing assets and research and development. For more information about the specific projects for which we have budgeted funds, see—Capital expenditures and projects.

Distributions

             We paid total dividends of US$9 billion in 2011 (including distributions classified as interest on shareholders' equity). In January 2011, we paid an extraordinary dividend of US$1 billion and announced a minimum dividend for the year of US$4 billion, consisting of US$2 billion in April 2011 and US$2 billion in October 2011. Subsequently, we also paid additional dividends of US$3 billion in August 2011 and

92

---

Table of Contents

US$1 billion in October 2011. The minimum dividend we have announced for 2012 is US$6.0 billion, payable in two equal installments in April and October.

Tax payments

             We paid US$7.293 billion in income tax during 2011. This amount includes US$3.746 billion in social contribution tax (Contribuição Social sobre o Lucro Líquido—CSLL) that we paid as a result of a recent adverse decision by a Brazilian court, in order to avoid a penalty that would otherwise have applied 30 days after the decision. Vale continues to dispute the merits of this proceeding, which relates to the exemption from CSLL for export revenues. The amount we paid had previously been provisioned.

Share repurchases

             We repurchased US$3 billion of our common and preferred shares during the second half of 2011. For more information, see—Purchase of equity securities by the issuer and affiliated purchasers.

Acquisitions

             In December 2011, we concluded a tender offer to acquire up to 100% of the publicly held shares of our subsidiary Vale Fertilizantes. As a result of the public offer, we acquired 83.8% of the publicly held common shares and 94.0% of the publicly held preferred shares of Vale Fertilizantes, which correspond to 0.1% of the total common shares and 29.8% of the total preferred shares of Vale Fertilizantes. Both the common and preferred shares were acquired for R$25.00 per share, amounting to a total of R$2.1 billion (US$1.1 billion). Shortly thereafter, Vale Fertilizantes' registration as a publicly listed company in Brazil was cancelled. The shareholders of Vale Fertilizantes held a general shareholders meeting in January 2012 and approved the redemption of the remaining free floating common and preferred shares. As a result, Vale holds 100% of the common shares and 100% of the preferred shares of Vale Fertilizantes. For more information, see—Significant changes in our business.

Debt

             At December 31, 2011, we had aggregate outstanding debt of US$23.055 billion. Our outstanding long-term debt (including the current portion of long-term debt and accrued charges) was US$23.033 billion, compared with US$24.414 billion at the end of 2010. At December 31, 2011, US$648 million of our debt was secured by liens on some of our assets. At December 31, 2011, the average debt maturity was 9.81 years, compared to 9.92 years in 2010.

             Our short-term debt consists primarily of U.S. dollar-denominated trade financing with commercial banks. At December 31, 2011, we had US$22 million of outstanding short-term debt.

             Our major categories of long-term indebtedness are as follows. The amounts given below include the current portion of long-term debt and exclude accrued charges.

•

U.S. dollar-denominated loans and financing (US$3.189 billion at December 31, 2011).    This category includes export financing lines, loans from export credit agencies, and loans from commercial banks and multilateral organizations. The largest facility is a pre-export financing facility linked to future receivables from export sales, which was originally entered in the amount of US$6.0 billion. The outstanding amount at December 31, 2011 was US$650 million.



•

U.S. dollar-denominated fixed rate notes (US$10.483 billion at December 31, 2011).    Through our finance subsidiary Vale Overseas Limited, we have issued in public offerings several series of fixed-rate debt securities with a Vale guarantee, totaling US$9.131 billion. Our subsidiary Vale Canada has outstanding fixed rate debt in the amount of US$1.351 billion.

93

---

Table of Contents

•

Euro-denominated fixed rate notes (US$970 million at December 31, 2011).    On March 24, 2010, we issued €750 million of fixed-rate notes in a global public offering. These notes are due in 2018 and have a coupon of 4.375% per year, payable annually.



•

Real-denominated non-convertible debentures (US$2.505 billion at December 31, 2011).    In November 2006, we issued non-convertible debentures in the amount of approximately US$2.600 billion, in two series, with four- and seven-year maturities. The first series, approximately US$700 million at issuance, matured in 2010. The second series, approximately US$1.900 billion at issuance, matures in 2013 and bears interest at the Brazilian CDI interest rate plus 0.25% per year. At December 31, 2011, the total amount of the second series was US$2.157 billion.



•

Other debt (US$5.553 billion at December 31, 2011).    We have outstanding debt, principally owed to BNDES and Brazilian commercial banks, denominated in Brazilian reais and other currencies.

             We also have a variety of credit lines. At December 31, 2011, these included the following:

•

A credit line for US$530 million with a syndicate of financial institutions to finance the acquisition of five large ore carriers and two capesize bulkers at two Korean shipyards. As of December 31, 2011, we had drawn US$178 million under this facility.



•

A credit line for US$1 billion with Export Development Canada to finance our investment program. As of December 31, 2011, we had drawn US$500 million under this facility.



•

A US$1.2 billion facility with The Export-Import Bank of China and the Bank of China Limited to finance the construction of 12 very large ore carriers. As of December 31, 2011, we had drawn US$467 million under this facility.



•

Framework agreements signed in May 2008 with the Japan Bank for International Cooperation ("JBIC") and Nippon Export and Investment Insurance ("NEXI") for US$5 billion of financing for mining, logistics and power generation projects. We have a fully drawn US$300 million export facility, through our subsidiary PTVI, with Japanese financial institutions to finance the construction of the Karebbe hydroelectric power plant on the Larona River in Sulawesi, Indonesia.



•

Credit lines for R$7.3 billion, or US$4.0 billion, with BNDES to help finance our investment program. As of December 31, 2011, we had drawn the equivalent of US$1.496 billion under this facility.



•

Facilities with BNDES totaling R$877 million, or US$492 million, to finance the acquisition of domestic equipment. As of December 31, 2011, we had drawn the equivalent of US$329 million under these facilities.

             We have revolving credit facilities with syndicates of international banks. At December 31, 2011, the total amount available under these facilities was US$4.1 billion. A portion of these facilities, US$1.1 billion, will expire in May 2012. As of December 31, 2011, we had not drawn any amounts under these facilities, but US$107 million of letters of credit were issued and outstanding under a facility of Vale Canada.

             Some of our long-term debt instruments contain financial covenants. Our principal covenants require us to maintain certain ratios, such as debt to EBITDA and interest coverage. We believe that our existing covenants will not significantly restrict our ability to borrow additional funds as needed to meet our capital requirements.

94

---

Table of Contents

Shareholder Debentures

             At the time of the first stage of our privatization in 1997, we issued shareholder revenue interests known in Brazil as "debentures participativas" to our then-existing shareholders. The terms of the debentures were established to ensure that our pre-privatization shareholders, including the Brazilian government, would participate alongside us in potential future financial benefits that we derive from exploiting certain mineral resources that were not taken into account in determining the minimum purchase price of our shares in the privatization. In accordance with the debentures deed, holders have the right to receive semi-annual payments equal to an agreed percentage of our net revenues (revenues less value-added tax, transport fee and insurance expenses related to the trading of the products) from certain identified mineral resources that we owned at the time of the privatization, to the extent that we exceed defined thresholds of sales volume relating to certain mineral resources, and from the sale of mineral rights that we owned at that time. Our obligation to make payments to the holders will cease when the relevant mineral resources are exhausted.

             We have been making semi-annual payments to holders of shareholder debentures, which reached US$7 million in 2009, US$10 million in 2010 and US$14 million in 2011. See Note 20 to our consolidated financial statements for a description of the terms of the debentures.

CONTRACTUAL OBLIGATIONS

             The following table summarizes our contractual obligations at December 31, 2011. 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.

---

(1)

Amounts include the current portion of long-term debt and do not include accrued charges.

(2)

Consists of estimated future payments of interest on our loans, financings and debentures, calculated based on interest rates and foreign exchange rates applicable at December 31, 2011 and assuming (i) that all amortization payments and payments at maturity on our loans, financings and debentures will be made on their scheduled payments dates, and (ii) that our perpetual bonds are redeemed on the first permitted redemption date.

(3)

Amounts include fixed payments related to the operating lease contracts for the pellet plants.

(4)

Obligations to purchase materials. Amounts are based on contracted prices, except for purchases of iron ore from mining companies located in Brazil, which are based on Q1 2012 average prices.

OFF-BALANCE SHEET ARRANGEMENTS

             At December 31, 2011, we did not have any off-balance sheet arrangements as defined in the SEC's Form 20-F. For information on our contingent liabilities see Note 20 to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

             We believe that the following are our critical accounting policies. We consider an accounting policy to be critical if it is important to our financial condition and results of operations and if it requires significant

95

---

Table of Contents

judgments and estimates on the part of our management. For a summary of all of our significant accounting policies, see Note 3 to our consolidated financial statements.

Mineral reserves and useful life of mines

             We regularly evaluate and update our estimates of proven and probable mineral reserves. Our proven and probable mineral reserves are determined using generally accepted estimation techniques. Calculating our reserves requires us to make assumptions about future conditions that are highly uncertain, including future ore prices, currency prices, inflation rates, mining technology, availability of permits and production costs. Changes in some or all of these assumptions could have a significant impact on our recorded proven and probable reserves.

             One of the ways we make our ore reserve estimates is to determine the mine closure dates used in recording the fair value of our asset retirement obligations for environmental and site reclamation costs and the periods over which we amortize our mining assets. Any change in our estimates of total expected future mine or asset lives could have an impact on the depreciation, depletion and amortization charges recorded in our consolidated financial statements under cost of goods sold. Changes in the estimated lives of our mines could also significantly impact our estimates of environmental and site reclamation costs, which are described in greater detail below.

Environmental and site reclamation costs

             Expenditures relating to ongoing compliance with environmental regulations are charged against earnings or capitalized as appropriate. These ongoing programs are designed to minimize the environmental impact of our activities.

             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;



•

calculating the fair value of our asset retirement obligations requires us to assign probabilities to projected cash flows, to make long-term assumptions about inflation rates, to determine our credit-adjusted risk-free interest rates and to determine market risk premiums that are appropriate for our operations; and



•

given the significance of these factors in the determination of our estimated environmental and site reclamation costs, changes in any or all of these estimates could have a material impact on net income. In particular, given the long periods over which many of these charges are discounted to present value, changes in our assumptions about credit-adjusted risk-free interest rates could have a significant impact on the size of our provision.

             Our Environmental Department defines the rules and procedures that should be used to evaluate our asset retirement obligations. The future costs of retirement of our mines and sites are reviewed annually, in each case considering the actual stage of exhaustion and the projected exhaustion date of each mine and site. The future estimated retirement costs are discounted to present value using a credit-adjusted risk-free interest rate. At December 31, 2011, we estimated the fair value of our aggregate total asset retirement obligations to be US$1.77 billion.

96

---

Table of Contents

Impairment of long-lived assets and goodwill

             We have made acquisitions that included a significant amount of goodwill, as well as intangible and tangible assets. Under generally accepted accounting principles, except for goodwill and indefinite-life intangible assets, all long-lived assets, including these acquired assets, are amortized over their estimated useful lives, and are tested to determine if they are recoverable from operating earnings on an undiscounted cash flow basis over their useful lives whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include the following:

•

significant underperformance relating to expected historical or projected future operating results of entities or business units;



•

significant changes in the way we use the acquired assets or our overall business strategy; or



•

significant negative industry or macroeconomic trends.

             When we determine that the carrying value of definite-life intangible assets and long-lived assets may not be recoverable based upon verification of one or more of the above indicators of impairment, we measure any impairment loss based on a projected discounted cash flow method using a discount rate estimated pursuant to technical criteria to be commensurate with the risk inherent in our current business model.

             We are required to assign goodwill to reporting units and to assess each reporting unit's goodwill for impairment at least annually and whenever circumstances indicating that recognized goodwill might not be fully recovered are identified. On September 15, 2011, FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The standard provides the option to first assess qualitative factors to determine whether it is necessary to further perform the first and second steps of the goodwill impairment test. In assessing the qualitative factors, if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount, the first and second steps of the goodwill impairment test are not required and no goodwill impairment charge is required. Otherwise, the entity will be required to perform the first and second steps of the goodwill impairment test to assess whether an impairment exists. In the first step of a goodwill impairment test, we compare a reporting unit's fair value with its carrying amount to identify any potential goodwill impairment loss. If the carrying amount of a reporting unit exceeds the unit's fair value, we carry out the second step of the impairment test to measure the amount, if any, of the unit's goodwill impairment loss. Goodwill arising from a business combination with a continuing non-controlling interest is tested for impairment by using an approach that is consistent with the approach that the entity used to measure the non-controlling interest at the acquisition date. For equity investees we determine annually whether there is an other-than-temporary decline in the fair value of the investment.

             For impairment test purposes, management determined discounted cash flows based on approved budget assumptions. Gross margin projections were based on past performance and management's expectations of market developments. Information about sales prices is consistent with the forecasts included in industry reports, taking into account quoted prices when available and appropriate. The discount rates used reflect specific risks relating to the relevant assets in each reporting unit, depending on their composition and location.

             Recognition of additional goodwill impairment charges in the future would depend on several estimates, including market conditions, recent actual results and management's forecasts. This information will be obtained when our assessment is updated during the fourth quarter of 2012, or earlier if impairment indicators are identified. It is not possible at this time to determine whether an impairment charge will be taken in the future and if it were to be taken, whether such charge would be material.

97

---

Table of Contents

Derivatives

             We are required to recognize all derivative financial instruments, whether designated in hedging relationships or not, on our balance sheet and to measure such instruments at fair value. The gain or loss in fair value is included in current earnings, unless the derivative to which the gain or loss is attributable qualifies for hedge accounting. We have entered into cash flow hedges that qualify for hedge accounting. Unrealized fair value adjustments to cash flow hedges are recognized in other comprehensive income. We use well-known market participants' valuation methodologies to compute the fair value of instruments. To evaluate the financial instruments, we use estimates and judgments related to present values, taking into account market curves, projected interest rates, exchange rates, forward market prices and their respective volatilities, when applicable. We evaluate the impact of credit risk on financial instruments and derivative transactions, and we enter into transactions with financial institutions that we consider to have a high credit quality. The exposure limits to financial institutions are proposed annually by the Executive Risk Committee and approved by the Board of Executive Officers. The financial institution's credit risk tracking is performed making use of a credit risk valuation methodology that considers, among other information, published ratings provided by international rating agencies and other management judgments. During 2011, we implemented hedge accounting partially for strategic nickel hedge and for a foreign exchange hedge. At December 31, 2011, we had US$37 million of realized gains related to derivative instruments designated as cash flow hedges. In 2011, we recorded to the income statement gains of US$75 million in relation to derivative instruments.

Income taxes

             We recognize deferred tax effects of tax loss carryforwards and temporary differences in our consolidated financial statements. We record a valuation allowance when we believe that it is more likely than not that tax assets will not be fully recoverable in the future.

             When we prepare our consolidated financial statements, we estimate our income taxes based on regulations in the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from deferring treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we show on our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a tax expense in our statement of income. When we reduce the valuation allowance, we record a tax benefit in our statement of income.

             Determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax assets requires significant management judgment, estimates and assumptions about matters that are highly uncertain. For each income tax asset, we evaluate the likelihood of whether some portion or the entire asset will not be realized. The valuation allowance made in relation to accumulated tax loss carryforwards depends on our assessment of the probability of generation of future taxable profits within the legal entity in which the related deferred tax asset is recorded, based on our production and sales plans, selling prices, operating costs, environmental costs, group restructuring plans for subsidiaries and site reclamation costs and planned capital costs.

Contingencies

             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 20 to our consolidated financial statements.

             We record an estimated loss from a loss contingency when information available prior to the issuance of our financial statements indicates that it is probable that a future event will confirm that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss

98

---

Table of Contents

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 contingencies at December 31, 2011, totaling US$1.686 billion, consists of provisions of US$751 million for labor, US$248 million for civil, US$654 million for tax and US$33 million for other claims.

Employee post-retirement benefits

             We sponsor defined benefit pension plans covering some of our employees. The determination of the amount of our obligations for pension benefits depends on certain actuarial assumptions. These assumptions are described in Note 18 to our consolidated financial statements and include, among others, the expected long-term rate of return on plan assets and increases in salaries. In accordance with U.S. GAAP, actual results that differ from our assumptions and are not a component of net benefit costs for the year are recorded in other comprehensive income (loss).

RISK MANAGEMENT

             The aim of our risk management strategy is to promote enterprise-wide risk management that supports our growth strategy, strategic plan, corporate governance practices and financial flexibility to support maintenance of investment grade status. We developed an integrated framework for managing risk, which considers the impact on our business of not only market risk factors (market risk), but also risks arising from third party obligations (credit risk), risks associated with inadequate or failed internal processes, people, systems or external events (operational risk) and risks associated with political and regulatory conditions in countries in which we operate (political risk).

             In furtherance of this objective and in order to further improve our corporate governance practices, our Board of Directors has established a company-wide risk management policy and an Executive Risk Management Committee. The risk management policy requires that we regularly evaluate and monitor the corporate risk on a consolidated basis in order to guarantee that our overall risk level remains in line with the guidelines defined by the Board of Directors and the Executive Board.

             The Executive Risk Management Committee is responsible for supporting the Board of Executive Officers in performing risk analysis and for issuing opinions regarding proper risk management. The committee is also responsible for the supervision and revision of the principles and instruments of company-wide risk management, in addition to reporting periodically to the Board of Executive Officers regarding the major risks we are exposed to and the impact of new investments, projects and disinvestments in our risk profile. As of April 2012, the members of the Executive Risk Management Committee were: Tito Botelho Martins, Chief Financial Officer and Executive Director for Investor Relations, Procurement and Shared Services, José Carlos Martins, Executive Officer responsible for Ferrous Minerals Operations and Marketing, Sonia Zagury, Corporate Finance Director, Efrem José Daumas Junior, Planning, Development and Continuous Improvement Director and Roberto Moretzsohn, Marketing and Sales Base Metals Director.

             Under our risk management policy, we may assign specific risk limits to certain management activities that require market, credit or sovereign risk limits. Those limits will be observed and evaluated using certain risk metrics, including Value at Risk (VaR).

99

---

Table of Contents

Market risk

             We are exposed to various market risk factors that can impact our financial stability and cash flow. An assessment of the potential impact of the consolidated market risk exposure is performed periodically to inform our decision making processes and growth strategy, ensure financial flexibility and monitor future cash flow volatility.

             When necessary, market risk mitigation strategies are evaluated and implemented. Some of these strategies may incorporate financial instruments, including derivatives. The financial instrument portfolios are monitored on a monthly basis, enabling us to properly monitor 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: interest rates, foreign exchange rates, product prices and input costs.

             We recognize all derivatives on our balance sheet at fair value, and the gain or loss in fair value is recognized in our current earnings, except as described in the next paragraph. Fair value accounting of derivatives may introduce unintended volatility in our quarterly earnings. However, it does not generate volatility in our cash flows, given the nature of our derivatives transactions.

             Under the Standard Accounting for Derivative Financial Instruments and Hedging Activities, all derivatives, whether designated as hedging relationships or not, are required to be recorded on the balance sheet at fair value, and the gain or loss in fair value is included in current earnings, unless the derivative is designated as in a hedging relationship, thereby qualifying as hedge accounting. In order to be deemed an effective hedging relationship, a change in the fair value of the derivative must be offset by an equal and opposite change in the fair value of the underlying hedged item. In accordance with these requirements, we perform effectiveness tests in order to assess the effectiveness of the hedging relationships and quantify ineffectiveness for all designated hedges.

             At December 31, 2011, Vale had outstanding positions designated as hedging relationships, or more specifically, cash flow hedges. A cash flow hedge is a hedge of the exposure to the variability in expected future cash flows that is attributable to a particular risk, such as a forecasted purchase or sale. If a derivative is designated as cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income and recognized in the income statement at the time the hedged item is recorded, enabling gains and losses on the hedging instrument to be recognized in the income statement in the same period as offsetting losses or gains on the hedged item. However, the ineffective portion of changes in the fair value of the derivatives designated as hedges is recognized in the income statement. Consequently, if a portion of a derivative contract is excluded for purposes of effectiveness testing, the value of such excluded portion is recognized on the income statement.

100

---

Table of Contents

             The asset (liability) balances at December 31, 2011 and 2010 and the movement in fair value of derivative financial instruments are shown in the following table.

Foreign exchange rate and interest rate risks

             Our cash flows are exposed to the volatility of several currencies against the U.S. dollar. While most of our product prices are indexed to U.S. dollars, most of our costs, disbursements and investments are indexed to currencies other than the U.S. dollar, principally the Brazilian real and the Canadian dollar. We frequently use derivative instruments, primarily forward transactions and swaps, in order to reduce our potential cash flow volatility arising from this currency mismatch.

             We use swap transactions to effectively convert debt linked to Brazilian reais into U.S. dollars. These transactions typically have similar—or sometimes earlier—settlement dates than the final maturity dates of the associated debt instruments. Likewise, the notional amounts of the swap transactions are similar to the principal and interest payments of the debt, subject to liquidity market conditions. The swaps with shorter settlement dates are then renegotiated over time so that their final maturity matches, or approaches, the debt's final maturity. At each settlement date, the results of the swap transactions partially offset the impact of the foreign exchange rate in Vale's obligations, helping stabilize the cash disbursements in U.S. dollars.

             In the event of an appreciation (depreciation) of the Brazilian real against the U.S. dollar, the negative (positive) impact on our real-denominated debt obligations (interest and/or principal payment) measured in U.S. dollars will be partially offset by an associated positive (negative) effect from any existing swap transaction, regardless of the U.S. dollar/real exchange rate on the payment date. The same rationale applies to debt denominated in other currencies and their respective swaps.

             We are also exposed to interest rate risk on loans and financings. Our floating rate debt consists mainly of loans including export pre-payments, commercial bank loans and multilateral organization loans. In general, the U.S. dollar floating rate debt is subject to changes in LIBOR (London Interbank Offer Rate) in U.S. dollars. To mitigate the impact of interest rate volatility on our cash flows, we take advantage of natural hedges resulting from the correlation between commodity prices and U.S. dollar floating interest rates. If such natural hedges are not present, we may opt to obtain the same effect by using financial instruments.

             Our floating rate debt denominated in reais includes debentures issued in the Brazilian market and loans provided by BNDES and commercial local banks. Interest on these obligations is mainly based on the CDI (Interbank Deposit Certificate), the benchmark interest rate in the Brazilian interbank market, and the TJLP, the benchmark Brazilian long-term interest rate.

101

---

Table of Contents

             The following table sets forth our floating and fixed rate long-term debt, categorized by Brazilian reais and other currencies, and as a percentage of our total long-term debt portfolio at the dates indicated, except for accrued charges and translation adjustments, as reflected in our consolidated financial statements.

             The following table provides information about our debt obligations as of December 31, 2011. It presents the principal cash flows and related weighted average interest rates of these obligations by expected maturity date. Weighted average variable interest rates are based on the applicable reference rate at December 31, 2011. Actual cash flows of these debt obligations are denominated mainly in U.S. dollars or reais, as indicated.

102

---

Table of Contents

             As of December 31, 2011, the total principal amount and interest of our real-denominated debt converted through swaps into U.S. dollars was US$6.0 billion and the total principal amount and interest of our euro-denominated debt converted through swaps into U.S. dollars was US$649 million, with an average cost in U.S. dollars of 3.22% per year after swap transactions and with maturity until September 2029. Most of those contracts are subject to semi-annual interest payments.

Protection program for real-denominated debt indexed to CDI

             In order to reduce cash flow volatility, we entered into swap transactions to convert to U.S. dollars the cash flows on debt instruments denominated in reais linked to CDI. In those swaps, Vale pays either fixed rates or floating LIBOR rates in U.S. dollars and receives payments linked to CDI.

             These instruments were used to convert cash flows from: debentures issued in 2006 with a nominal value of R$5.5 billion (US$2.5 billion at the disbursement date), credit export notes issued in 2008 with a nominal value of R$2.0 billion (US$1.1 billion at the disbursement date) and procurement financing obtained in 2006 and 2007 with a nominal value of R$1.0 billion (US$464 million at the disbursement dates).

Protection program for real-denominated debt indexed to TJLP

             In order to reduce cash flow volatility, we entered into swap transactions to convert to U.S. dollars the cash flows related to indebtedness to BNDES indexed to TJLP. In these swaps, we pay either fixed or floating rates in U.S. dollars and receive payments linked to TJLP.

103

---

Table of Contents

Protection program for real-denominated fixed debt

             In order to hedge against cash flow volatility, we entered into a swap transaction to convert the cash flows from loans with BNDES in Brazilian reais linked to a fixed rate into U.S. dollars linked to a fixed rate. In these swaps, we receive fixed rates in reais and pay fixed rates in U.S. dollars.

Foreign exchange cash flow hedges

             We entered into swap transactions to mitigate our exchange rate exposure arising from the currency mismatch between our revenues in U.S. dollars and our disbursements and investments in reais. Those transactions were designated as cash flow hedges.

Protection program for euro-denominated floating rate debt

             We entered into a swap transaction to convert the cash flows from a 2003 euro-denominated loan linked to EURIBOR (Euro Interbank Offered Rate) to U.S. Dollars linked to LIBOR. In this trade, we received floating rates in euros (EURIBOR) and paid floating rates in U.S. dollars (LIBOR). This program ended in 2011.

104

---

Table of Contents

Protection program for euro-denominated fixed rate debt

             We entered into a swap transaction to convert cash flows from loans in euros linked to a fixed rate to U.S. dollars linked to a fixed rate. In this swap, we receive fixed rates in euros and pay fixed rates in U.S. dollars. This trade was used to convert the cash flow of a debt denominated in euros, with a notional amount of €750 million that was issued in 2010.

Protection program for US$ floating rate debt

             Our wholly owned subsidiary Vale Canada entered into a swap to convert U.S. dollar floating rate debt into U.S dollar fixed rate debt in connection with debt issued in 2004 with a notional amount of US$200 million. In this swap, we paid fixed rates in U.S. dollars and received floating rates in LIBOR. This program ended in 2011.

Protection program for interest rates

             In the fourth quarter of 2011, we entered into a forward transaction relating to 10-year U.S. treasury notes in order to help protect against certain insurance debt costs that are indexed to this rate.

105

---

Table of Contents

Foreign exchange protection program for fixed price coal sales

             In order to reduce cash flow volatility associated with a fixed price coal contract, we entered into an Australian dollar forward purchase contract to equalize production cost and revenue currencies exposure. This program ended in 2011.

Protection program for cash investment yield exposure

             In order to link the returns of part of the cash invested on the Brazilian market to U.S. dollar yield, we entered into a swap transaction to convert real-denominated cash investments in CDI to a fixed rate in U.S. dollars. In these swaps, we received U.S. dollars at fixed rates and paid reais linked to CDI. This program ended in December 2011.

Foreign exchange protection program for Vale's bid offer for assets in the African copperbelt

             In order to reduce the volatility of South African rands on the value of a bid, denominated in U.S. dollars, we had placed for assets in the African copperbelt, we entered into rand-denominated forward purchase transactions in April 2011. On July 2011, we terminated our offer to purchase these assets. The transactions relative to this program were settled on July 2011.

Foreign exchange protection program for cash flow

             In order to hedge cash flow volatility, we entered into a swap transaction to convert part of our cash flow linked to reais to a fixed rate in U.S. dollars. In those swaps, Vale paid fixed rates in U.S. dollars and received fixed rates in reais. This program ended in December 2011.

Product price and input cost risk

             We are also exposed to market risks associated with commodity price volatility. In line with our risk management policy, we also employ risk mitigation strategies, including forward transactions, futures contracts and zero-cost collars, to mitigate against the effects of commodity price volatility on our cash flows.

Nickel sales hedging program

             In order to reduce cash flow volatility in 2011 and 2012, we entered into forward-sale transactions that were accounted for as cash flow hedges. These transactions fixed the prices of part of the sales in the period.

Nickel fixed price program

             We entered into derivatives in connection with fixed price nickel sales contracts to preserve exposure to nickel price fluctuations. These transactions are intended to achieve a minimum price equal to the average LME price on the date of product delivery. These transactions normally involve buying nickel forwards (over-the-counter) or futures (exchange traded) contracts and are usually settled on the settlement dates of

106

---

Table of Contents

the related commercial contracts. We also have contracts subject to margin calls for some nickel trades executed by Vale Canada, but the total cash amount as of December 2011 was not material. Whenever the "Nickel sales hedging program", described above, is executed, this program is interrupted.

Nickel purchase protection program

             In order to reduce cash flow volatility and eliminate the mismatch between the pricing of purchased nickel (concentrate, cathode, sinter and other) and the pricing of the final product sold to our customers, we entered into hedging transactions. The items purchased are raw materials utilized to produce refined nickel. The transactions are usually implemented by the sale of nickel forward or future contracts at LME or over-the-counter operations.

Bunker oil purchase protection program

             In order to reduce the impact of bunker oil price fluctuation on our freight costs, we have entered into bunker oil derivatives, usually through forward purchases and swaps. We had no open positions on December 31, 2011.

Copper scrap purchase protection program

             This program was implemented in order to reduce cash flow volatility due to the quotation period mismatch between the pricing period of copper scrap purchase and the pricing period of sale of final products to customers. Copper scrap, combined with other raw materials or inputs, is used to produce copper by Vale Canada, our wholly owned subsidiary. This program usually is implemented by the sale of forwards or futures on the LME or over-the-counter operations.

Embedded derivatives—raw material and intermediate products purchase

             Our cash flow is also exposed to various market risks associated with certain of our contracts that contain embedded derivatives or behave as derivatives. These derivatives may be embedded in, but are not limited to, commercial contracts, purchase agreements, leases, bonds, insurance policies and loans.

107

---

Table of Contents

             Our wholly owned subsidiary Vale Canada has nickel concentrate and raw materials purchase agreements, in which there are provisions tied to the movement of nickel and copper prices, which function as embedded derivatives.

Credit risk

Commercial credit risk management

             We are exposed to credit risk arising from trade receivables, derivative transactions, payment guarantees 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. In order to protect against commercial credit exposure, our Board of Executive Officers sets annually global credit risk limits and working capital limits, both monitored on a monthly basis, and the risk management department approves credit risk limits for each counterparty.

             We assign an internal credit rating to each counterparty using our own quantitative methodology for credit risk analysis, which is based on market prices, external credit ratings and financial information of the counterparty, as well as qualitative information regarding the counterparty's strategic position and history of commercial relations.

             Based on the counterparty's credit risk, or based on our consolidated credit risk profile, risk mitigation strategies may be used to minimize credit risk in order to meet the risk level approved by the Board of Executive Officers. The main credit risk mitigation strategies include credit risk insurance, mortgages, letters of credit and corporate guarantees, among others.

             From a geographic standpoint, we have a well-diversified accounts receivable portfolio, with China, Europe, Brazil and Japan the regions with most significant exposure. According to each region, different guarantees can be used to enhance the credit quality of the receivables. Each counterparty position in the portfolio is periodically monitored and we automatically block additional sales to customers in delinquency.

Treasury credit risk management

             To manage the credit exposure arising from cash investments and derivative instruments, our Executive Board approves, on an annual basis, credit limits by counterparty. Furthermore, the risk management department controls our portfolio diversification, the aggregate exposure related to counterparty credit spread volatility and the overall credit risk of the treasury portfolio. All positions are monitored daily and are reported monthly to the Executive Risk Management Committee and to the Board of Executive Officers.

             To calculate the exposure we face to a counterparty that has entered into several derivative transactions with us, we consider the aggregate exposure of each derivative transaction executed with this counterparty. We also assess the creditworthiness of its counterparties in treasury operations, employing an internal methodology similar to that used for commercial credit risk management, which aims to define a default probability for each counterparty based on market prices, credit ratings and the counterparty's financial information.

108

---

Table of Contents

             Our credit risk management processes provide a framework for assessing and managing counterparty credit risk and for maintaining our risk at an acceptable level. The Executive Risk Management Committee analyzes and recommends to the Board of Executive Officers the maximum credit risk exposure to trade receivables and the maximum credit risk exposure to financial institutions that are acceptable at both the counterparty and at the portfolio level.

Operational risk

             Operational risk management is the structured approach we take to manage uncertainty related to inadequate or failed internal processes, people and systems and to external events.

             We mitigate operational risk with new controls and improvement of existing ones, with transfer of risk through insurance and establishment of financial provisions. As a result, the Company seeks to have a clear view of its major risks, the best cost-benefit mitigation plans it must invest in and the controls in place to monitor the impact of operational risk closely and to efficiently allocate capital to reduce it.

             More specifically, our operational risk management involves a consistent and systematic process to assess and manage risks that could prevent the Company from reaching its business objectives. The most important events are analyzed to understand the causes and respective controls that can prevent the event and/or respond and recover from the event. Standard risk measures such as the Most Foreseeable Loss and the Residual Risk, both based on Vale's Risk Matrix, are part of the risk management process, which enables consistent discussions by our management regarding whether additional resources are required to lower risk levels. The most significant risks identified in the process are reported to the Executive Risk Management Committee where decisions are made and action plans approved to further reduce risks where necessary.

109

---

Table of Contents

III.           SHARE OWNERSHIP AND TRADING

MAJOR SHAREHOLDERS

             Valepar is Vale's controlling shareholder. Valepar is a special-purpose company organized under the laws of Brazil that was incorporated for the sole purpose of holding an interest in Vale. Valepar does not have any other business activity. Valepar acquired its controlling stake in Vale from the Brazilian government in 1997 as part of the first stage of Vale's privatization.

             The following table sets forth information regarding ownership of Vale shares as of March 31, 2012 by the shareholders we know beneficially own more than 5% of any class of our outstanding capital stock, and by our directors and executive officers as a group.

             The Brazilian government also owns 12 golden shares of Vale, which give it veto powers over certain actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining activities.

             The table below set forth information regarding ownership of Valepar common shares as of March 31, 2012.

110

---

Table of Contents

             The table below sets forth information regarding ownership of Litel Participações S.A., one of Valepar's shareholders, as of March 31, 2012.

             The shareholders of Valepar are parties to a shareholders' agreement, ending in 2017. The Valepar shareholders' agreement also:

•

grants rights of first refusal on any transfer of Valepar shares and preemptive rights on any new issue of Valepar shares;



•

prohibits the direct acquisition of Vale shares by Valepar's shareholders unless authorized by the other shareholders party to the agreement;



•

prohibits encumbrances on Valepar shares (other than in connection with financing an acquisition of Vale shares);



•

requires each party generally to retain control of its special purpose company holding its interest in shares of Valepar, unless the rights of first refusal previously mentioned are observed;



•

allocates seats on Valepar's and Vale's boards among representatives of the parties;



•

commits the Valepar shareholders to support a Vale dividend policy of distributing 50% of Vale's net profit for each fiscal year, unless the Valepar shareholders commit to support a different dividend policy for a given year;



•

provides for the maintenance by Vale of a capital structure that does not exceed specified debt to equity thresholds;



•

requires the Valepar shareholders to vote their indirectly held Vale shares and to cause their representatives on Vale's Board of Directors to vote only in accordance with decisions made at Valepar meetings held prior to meetings of Vale's Board of Directors or shareholders; and



•

establishes supermajority voting requirements for certain significant actions relating to Valepar and to Vale.

             Pursuant to the Valepar shareholders' agreement, Valepar cannot support any of the following actions with respect to Vale without the consent of at least 75% of the holders of Valepar's common shares:

•

any amendment of Vale's bylaws;

111

---

Table of Contents

•

any increase of Vale's capital stock by share subscription, creation of a new class of shares, change in the characteristics of the existing shares or any reduction of Vale's capital stock;



•

any issuance of debentures of Vale, whether or not convertible into shares of Vale, participation certificates upon compensation (partes beneficiárias), call options (bônus de subscrição) or any other security of Vale;



•

any determination of issuance price for any new shares of capital stock or other security of Vale;



•

any amalgamation, spin-off or merger to which Vale is a party, as well as any change to Vale's corporate form;



•

any dissolution, receivership, bankruptcy or any other voluntary act for financial reorganization or any suspension thereof;



•

the election and replacement of Vale's Board of Directors, including the Chairman of the Board, and any executive officer of Vale;



•

the disposal or acquisition by Vale of an equity interest in any company, as well as the acquisition of any shares of capital stock of Vale or Valepar;



•

the participation by Vale in a group of companies or in a consortium of any kind;



•

the execution by Vale of agreements relating to distribution, investment, sales exportation, technology transfer, trademark license, patent exploration, license to use and leases;



•

the approval and amendment of Vale's business plan;



•

the determination of the compensation of the executive officers and directors of Vale, as well as the duties of the Board of Directors and the Board of Executive Officers;



•

any profit sharing among the members of the Board of Directors or Board of Executive Officers of Vale;



•

any change in the corporate purpose of Vale;



•

the distribution or non-distribution of any dividends (including distributions classified as interest on shareholders' equity) on any shares of capital stock of Vale other than as provided in Vale's bylaws;



•

the appointment and replacement of Vale's independent auditor;



•

the creation of any "in rem" guarantee, granting of guarantees including rendering of sureties by Vale with respect to obligations of any unrelated party, including any affiliates or subsidiaries;



•

the passing of any resolution on any matter which, pursuant to applicable law, entitles a shareholder to withdrawal rights;



•

the appointment and replacement by the Board of Directors of any representative of Vale in subsidiaries, companies related to Vale or other companies in which Vale is entitled to appoint directors and officers; and



•

any change in the debt to equity threshold, as defined in the shareholders' agreement.

112

---

Table of Contents

             In addition, the shareholders' agreement provides that any issuance of participation certificates by Vale and any disposition by Valepar of Vale shares requires the unanimous consent of all of Valepar's shareholders.

RELATED PARTY TRANSACTIONS

             We have arm's-length commercial relationships in the ordinary course of our business with Mitsui, a shareholder of Valepar (our controlling shareholder) and we have arm's-length financial relationships in the ordinary course of our business with Bradesco, which is controlled by the same controlling group as Bradespar, also a shareholder of Valepar.

             BNDES is the parent company of one of our major shareholders, BNDESPAR. We and BNDES, the Brazilian state-owned development bank, 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 (Carajás), as well as proportional participation in any profits earned from the development of such resources. Iron ore and manganese ore deposits already identified at the time we entered into the Mineral Risk Contract (in March 1997) were specifically excluded from the contract. 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. In addition, BNDES has provided us with a R$7.3 billion, or US$4.3 billion, credit facility to help us finance our investment programs; BNDES holds a total of R$679.4 million, or US$363.6 million, in debentures of our subsidiary Salobo Metais S.A. with a subscription right, subject to certain conditions, for Salobo's preferred shares in exchange for such debentures; and its subsidiary BNDESPAR holds a total of R$1.406 billion, or US$816 million, in debentures, exchangeable into FNS shares, that were issued to finance the expansion of the FNS railroad. BNDES has also participated in certain of our other financing arrangements. For more information on our transactions with BNDES, see Operating and financial review and prospects—Liquidity and capital resources.

             For information regarding investments in affiliated companies and joint ventures and for information regarding transactions with major related parties, see Notes 14 and 24 to our consolidated financial statements.

DISTRIBUTIONS

             Under our dividend policy, our Board of Executive Officers announces, by no later than January 31 of each year, a proposal to be approved by our Board of Directors of a minimum amount, expressed in U.S. dollars, that will be distributed in that year to our shareholders. Distributions may be classified either as dividends or interest on shareholders' equity, and references to "dividends" should be understood to include all distributions regardless of their classification, unless stated otherwise. We determine the minimum dividend payment in U.S. dollars, considering our expected free cash flow generation in the year of distribution. The proposal establishes two installments, to be paid in April and October of each year. Each installment is submitted to the Board of Directors for approval at meetings in April and October. Once approved, dividends are converted into and paid in reais at the Brazilian real/U.S. dollar exchange rates announced by the Central Bank of Brazil on the last business day before the Board meetings in April and October of each year. The Board of Executive Officers can also propose to the Board of Directors, depending on the evolution of our cash flow performance, an additional payment to shareholders of an amount over and above the minimum dividend initially established.

             For 2012, our Board of Executive Officers has proposed a minimum dividend of US$6.0 billion. We pay the same amount per share on both common and preferred shares in accordance with our bylaws. This dividend is payable in two equal installments in April and October 2012. The first installment of this dividend, in the amount of US$3.0 billion, will be paid on April 30, 2012.

113

---

Table of Contents

             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.

             Distributions classified as dividends which are paid to ADR and HDR holders and to non-resident shareholders will not be subject to Brazilian withholding tax, except that a distribution from profits generated prior to December 31, 1995 will be subject to Brazilian withholding tax at varying rates. Distributions classified as interest on shareholders' equity which are paid to ADR and HDR holders and to non-resident shareholders are currently subject to Brazilian withholding tax. See Additional information—Taxation—Brazilian tax considerations.

             By law, we are required to hold an annual shareholders' meeting by April 30 of each year at which an annual dividend may be declared. Additionally, our Board of Directors may declare interim dividends. Under Brazilian corporate law, dividends are generally required to be paid to the holder of record on a dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders' resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A shareholder has a three-year period from the dividend payment date to claim dividends (or payments of interest on shareholders' equity) in respect of its shares, after which we will have no liability for such payments. From 1997 to 2003, all distributions took the form of interest on shareholders' equity. In many years, part of the distribution has been made in the form of interest on shareholders' equity and part as dividends. See Additional information—Memorandum and articles of association—Common shares and preferred shares.

             We make cash distributions on the common shares and preferred shares underlying the ADSs in reais to the custodian on behalf of the depositary. The custodian then converts such proceeds into U.S. dollars and transfers such U.S. dollars to be delivered to the depositary for distribution to holders of ADRs and HDRs, net of the depositary's fees. For information on taxation of dividend distributions, see Additional information—Taxation—Brazilian tax considerations.

             The following table sets forth the cash distributions we paid to holders of common shares and preferred shares for the periods indicated. Amounts have been restated to give effect to stock splits that we carried out in subsequent periods. We have calculated U.S. dollar conversions using the commercial selling rate in effect on the date of payment. Amounts are stated before any applicable withholding tax.

114

---

Table of Contents

TRADING MARKETS

             Our publicly traded share capital consists of common shares and preferred shares, each without par value. Our common shares and our preferred shares are publicly traded in Brazil on the BM&FBOVESPA, under the ticker symbols VALE3 and VALE5, respectively. Our common shares and preferred shares also trade on the LATIBEX, under the ticker symbols XVALO and XVALP, respectively. The LATIBEX is a non-regulated electronic market created in 1999 by the Madrid stock exchange in order to enable trading of Latin American equity securities.

             Our common ADSs, each representing one common share, and our preferred ADSs, each representing one preferred share, are traded on the New York Stock Exchange ("NYSE"), under the ticker symbols VALE and VALE.P, respectively. Our common ADSs and preferred ADSs are traded on Euronext Paris, under the ticker symbols VALE3 and VALE5, respectively. JPMorgan Chase Bank serves as the depositary for both the common and the preferred ADSs. On March 31, 2012, there were 1,479,147,397 ADSs outstanding, 737,366,804 common ADSs and 741,780,593 preferred ADSs, representing 22.6% of our common shares and 35.2% of our preferred shares, or 27.6% of our total share capital.

             Our common HDSs, each representing one common share, and our preferred HDSs, each representing one class A preferred share, are traded on the HKEx, under the stock codes 6210 and 6230, respectively. JPMorgan Chase Bank serves as the depositary for both the common and the preferred HDSs. On March 31, 2012, there were 1,153,600 HDSs outstanding, consisting of 1,122,200 common HDSs and 31,400 preferred HDSs.

SHARE PRICE HISTORY

             The following table sets forth trading information for our ADSs, as reported by the New York Stock Exchange and our shares, as reported by the BM&FBOVESPA, for the periods indicated. Share prices in the table have been adjusted to reflect stock splits.

115

---

Table of Contents

DEPOSITARY SHARES

             JPMorgan Chase Bank serves as the depositary for our ADSs and HDSs. ADR holders and HDR holders are required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

             ADR holders and HDR holders are required to pay the depositary amounts in respect of expenses incurred by the depositary or its agents on behalf of ADR holders and HDR holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission or conversion of foreign currency into U.S. or Hong Kong dollars. In this case, the depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions. The depositary may recover any unpaid taxes or other governmental charges owed by an ADR holder or HDR holder by billing such holder, by deducting the fee from one or more cash dividends or other cash distributions, or by selling underlying shares after reasonable attempts to notify the holder, with the holder liable for any remaining deficiency.

             ADR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.

             HDR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.

             The depositary reimburses us for certain expenses we incur in connection with the ADR and HDR programs, subject to a ceiling agreed between us and the depositary from time to time. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders and HDR holders. For the year ended December 31, 2011, the depositary reimbursed us US$19 million in connection with the ADR and HDR programs.

116

---

Table of Contents

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

             On November 25, 2011, we announced the completion of the US$3 billion share repurchase program approved by the Board of Directors on June 30, 2011. Vale acquired 39,536,080 common shares, at an average price of US$26.25 per share, and 81,451,900 preferred shares, at an average price of US$24.09 per share (including shares of each class in the form of American Depositary Receipts), for a total aggregate purchase price of US$3.0 billion. The repurchased shares represent 3.10% of the free float of common shares, and 4.24% of the free float of preferred shares, outstanding before the launching of the program. The shares acquired will be held in treasury for cancellation. See Note 17 to our consolidated financial statements for further information.

             The results of our share repurchase program for 2011 are set forth below.

             On October 11, 2010, we completed a US$2 billion share repurchase program under which we acquired 21,682,700 common shares, at an average price of US$31.31 per share, and 48,197,700 preferred shares, at an average price of US$27.40 per share, corresponding respectively to 1.67% and 2.45% of the free float of each class at the outset of the program.

             On May 29, 2009, we terminated a US$762 million share repurchase program under which we acquired 18,415,859 common shares, at an average price of US$12.35 per share, and 47,284,800 preferred class A shares, at an average price of US$11.31 per share, corresponding respectively to 1.5% and 2.4% of the outstanding shares of each class on the date the program was launched.

117

---

Table of Contents

IV.  MANAGEMENT AND EMPLOYEES

MANAGEMENT

Board of Directors

             Our Board of Directors sets general guidelines and policies for our business and monitors the implementation of those guidelines and policies by our executive officers. Our bylaws provide that the Board of Directors consist of 11 members and 11 alternates, each of whom serves on behalf of a particular director. Each director (and his or her respective alternate) is elected for a two-year term at a general shareholders' meeting, can be re-elected, and is subject to removal at any time.

             The Board of Directors holds regularly scheduled meetings on a monthly basis and holds additional meetings when called by the chairman, vice-chairman or any two directors. Decisions of the Board of Directors require a quorum of a majority of the directors and are taken by majority vote. Alternate directors may attend and vote at meetings in the absence of the director for whom the alternate director is acting.

             Our bylaws establish the following technical and advisory committees to the Board of Directors.

•

The Executive Development Committee is responsible for reporting on general human resources policies, analyzing and reporting on the adequacy of compensation levels for our executive officers, proposing and updating guidelines for evaluating the performance of our executive officers and reporting on policies relating to health and safety.



•

The Strategy Committee is responsible for reviewing and making recommendations to the Board of Directors concerning the strategic guidelines and plan submitted annually to the Board by our executive officers, our annual and multi-annual investment budgets, investment or divestiture opportunities submitted by executive officers and mergers and acquisitions.



•

The Finance Committee is responsible for reviewing and making recommendations to the Board of Directors concerning our corporate risks and financial policies and the internal financial control systems, compatibility between the level of distributions to shareholders and the parameters established in the annual budget and the consistency between our general dividend policy and capital structure.



•

The Accounting Committee is responsible for nominating an employee to be responsible for our internal auditing, reporting on auditing policies and the execution of our annual auditing plan, tracking the results of our internal auditing, and identifying, prioritizing, and submitting recommendations to the executive officers and analyzing and making recommendations with regard to our annual report and financial statements.



•

The Governance and Sustainability Committee is responsible for evaluating and recommending improvements to the effectiveness of our corporate governance practices and the functioning of our Board of Directors, recommending improvements to the code of ethical conduct and our management system in order to avoid conflicts of interests between Vale and its shareholders or management, issuing reports on potential conflicts of interest between Vale and its shareholders or management and reporting on policies relating to corporate responsibility, such as environmental and social responsibility.

             Ten of our 11 current directors (and nine of their respective alternates) were appointed by Valepar, our controlling shareholder, pursuant to Valepar's shareholders' agreement. One Director and his alternate were appointed by the employees, pursuant to our bylaws. Non-controlling shareholders holding common shares representing at least 15% of our voting capital, and preferred shares representing at least 10% of our total share capital, have the right to appoint one member and an alternate to our Board of Directors. Our

118

---

Table of Contents

employees and our non-controlling shareholders each have the right, as a class, to appoint one director and an alternate. All of our current directors were elected or re-elected, as the case may be, at our annual shareholders' meeting held on April 19, 2011. Their terms will expire in 2013.

             The following table lists the current members of the Board of Directors and each director's alternate.

             Below is a summary of the business experience, activities and areas of expertise of our current directors.

             Ricardo José da Costa Flores, 48:    Chairman of Vale's Board of Directors since November 2010.

             Other current director or officer positions:    Chief Executive Officer of Previ, the pension fund of the employees of Banco do Brasil, since June 2010; Chairman of the Board of Directors, since December 2010; and Chief Executive Officer of Valepar since November 2010.

             Professional experience:    President of Federação Nacional de Capitalização ("FENACAP") and Vice-President of Confederação Nacional das Empresas de Seguros Gerais, Previdência Privada e Vida, Saúde Complementar e Capitalização ("CNSeg"), both of which are insurance industry trade associations, from January 2008 to March 2011; Chairman of the Board of Directors of Brasilcap Capitalização S.A. ("Brasilcap"), a financial institution affiliated with Banco do Brasil, from October 2007 to March 2011; Vice-President of the Credit, Accounting and Global Risk Management committee of Banco do Brasil, a Brazilian state-owned and publicly held financial institution, from April 2009 to May 2010, where he also served as the Vice-President of Government Relations from June 2008 to April 2009, as the officer responsible for insurance, pension plans and capitalization from August 2007 to June 2008 and as the officer responsible for operational assets restructuring from May 2004 to July 2007; Chairman of the Board of Directors of Banco Nossa Caixa S.A. ("Nossa Caixa") from January 2009 to November 2009, and Ativos S.A.—Securitizadora de Créditos Financeiros from May 2004 to August 2007; Director of Brasilveículos Companhia de Seguros S.A. ("Brasilveículos") from October 2007 to September 2008; Director of Brasilprev Seguros e Previdência S.A. ("Brasilprev"), and Brasilsaúde Companhia de Seguros S.A. from October 2007 to August 2008, both private companies engaged in insurance activity; member of the Fiscal Council of various energy companies, namely, Companhia Energética do Rio Grande do Norte ("COSERN") from April 2006 to January 2008, Companhia Energética de Pernambuco ("CELPE") from March 2004 to March 2006, CPFL Geração de Energia S.A. ("CPFL Geração") and Companhia Paulista de Força e Luz ("CPFL") from April 2006 to January 2008. Mr. Flores was also the Executive Officer of Federação Brasileira de Bancos ("FEBRABAN") from June 2009 to November 2009.

             Academic background:    Degree in Economics from the Centro de Ensino Unificado de Brasília ("CEUB"), Faculdade de Ciências Econômicas, Contábeis e Administração in Brasília; post-graduate degrees in Project Analysis from Fundação Getúlio Vargas ("FGV") and in Project Development from the Instituto

119

---

Table of Contents

de Planejamento Econômico e Social; Executive MBA degree from Universidade de São Paulo ("USP") and MBA Controller degree from FIPECAFI/USP.

             Mario da Silveira Teixeira Júnior, 66:    Director of Vale since April 2003, Vice-Chairman of Vale's Board of Directors since May 2003.

             Other current director or officer positions:    Vice-Chairman of the Board of Directors of Valepar since 2003; Member of the Board of Directors of Banco Bradesco S.A. ("Banco Bradesco"), a publicly-held financial institution, since 1999; Member of the Board of Directors of Bradespar S.A. ("Bradespar"), a publicly-held investment holding company; and Member of the Board of Directors of Bradesco Leasing S.A.—Arrendamento Mercantil, a subsidiary of Banco Bradesco engaged in the provision of financial leasing operations.

             Professional experience:    President of Bradespar; Executive Vice-President, Executive Managing Officer and Department Officer at Banco Bradesco; Officer of Bradesco S.A. Corretora de Títulos e Valores Mobiliários, a subsidiary of Banco Bradesco that provides securities brokerage and research services, from March 1983 to January 1984; Executive Vice-President of the Associação Nacional dos Bancos de Investimento ("ANBID"), an association of investment banks; Member of the Board of Directors of the Associação Brasileira das Companhias Abertas ("ABRASCA"), an association of Brazilian publicly held companies; Vice-Chairman of the Board of Directors of BES Investimento do Brasil S.A.—Banco de Investimento, an investment bank and subsidiary of Banco Espírito Santo, from 2001 to 2007; Member of the Board of Directors of CSN, a publicly-held steel company, Latasa S.A. ("Latasa"), now called Rexam Beverage Can South America S.A., an aluminum products manufacturer, São Paulo Alpargatas S.A., a clothing and sporting goods manufacturer, Tigre S.A.—Tubos e Conexões, a pipe and construction materials manufacturer, Everest Leasing S.A. Arrendamento Mercantil, a leasing company affiliated with Banco Bradesco, as well as the electric utility companies CPFL, CPFL Geração, and Companhia Piratininga de Força e Luz and the electric utility holding companies CPFL Energia S.A. ("CPFL Energia") and VBC Energia S.A.

             Academic background:    Degree in Civil Engineering and post-graduate degree in Business Administration from Universidade Presbiteriana Mackenzie, São Paulo.

             José Ricardo Sasseron, 56:    Director of Vale since April 2007.

             Other current director or officer positions:    Social Security Officer of Previ since June 2006; Member of the Board of Directors of Valepar since April 2007.

             Professional experience:    Chairman of the Board of Directors of Sauípe S.A., a private hotel and resort development and management company, from 2005 to 2007; Member of the Advisory Board of Previ, from 2004 to 2006 and Chairman of the Fiscal Council of Previ from 1996 to 1998.

             Academic background:    Degree in History from USP.

             Robson Rocha, 53:    Director of Vale since April 2011.

             Other current director or officer positions:    Vice-President for Human Resources Management and Sustainable Development of Banco do Brasil since April 2009.

             Professional experience:    Vice-Chairman of CPFL Energia from April 2010 to April 2011; Member of the Board of Directors of Nossa Caixa from May to November 2009; Officer of Banco do Brasil from May 2008 to April 2009.

             Academic background:    Degree in Business Administration from UNICENTRO—Newton Paiva, Belo Horizonte; post-graduate degree in Strategic Management from Universidade Federal de Minas Gerais

120

---

Table of Contents

("UFMG"); Master's degree in Marketing from Fundação Ciências Humanas—Pedro Leopoldo; and an MBA degree in Finance from Fundação Dom Cabral.

             Nelson Henrique Barbosa Filho, 42:    Director of Vale since April 2011.

             Other current director or officer positions:    Executive Secretary of the Ministry of Finance since 2011; Chairman of the Board of Directors of Banco do Brasil since 2009; Director of Brasilveículos, an insurance company affiliated with Banco do Brasil, since 2011.

             Professional experience:    Director of Brasilcap from 2010 to 2011; adviser to the Presidency of BNDES from 2005 to 2006; Director of EPE—Empresa de Pesquisa Energética, a state-owned energy research company, from 2007 to 2009; Secretary of Economic Policy of the Ministry of Finance from 2008 to 2010, where he also served as Secretary of Economic Monitoring from 2007 to 2008 and Assistant Secretary for Economic Policy from 2006 to 2007.

             Academic background:    Degree and Master's degree in Economics from Universidade Federal do Rio de Janeiro ("UFRJ") and a Ph.D. in Economics from New School for Social Research.

             Renato da Cruz Gomes, 59:    Director of Vale since April 2001.

             Other current director or officer positions:    Executive Officer and Member of the Board of Directors of Valepar since 2001; Investor Relations Executive Officer of Bradespar since 2000.

             Professional experience:    Various positions at BNDES from 1976 to 2000; Member of the Board of Directors of Iochpe Maxion S.A., a publicly-held company with investments in the auto parts and railway equipment industries, Globo Cabo S.A., now called Net Serviços de Comunicação S.A. ("Net"), a Brazilian cable TV operator, Latasa and the Brazilian pulp and paper manufacturers Aracruz Celulose S.A., now called Fibria S.A., and Bahia Sul Celulose S.A., now called Suzano Celulose S.A.

             Academic background:    Degree in Engineering from UFRJ and post-graduate degree in Management Development from Sociedade de Desenvolvimento Empresarial ("SDE").

             Fuminobu Kawashima, 59:    Director of Vale since April 2011.

             Other current director or officer positions:    Representative Director of Mitsui, a publicly-held trading company, since June 2011.

             Professional experience:    Senior Executive Managing Officer at Mitsui from April 2011 to March 2012, where he also served as Executive Managing Officer and Chief Operating Officer of the Marine & Aerospace business unit from April 2010 to March 2011, Managing Officer and Chief Operating Officer of the Energy business unit from 2007 to 2010, General Manager of the Energy business unit of the LNG project division from 2005 to 2007 and General Manager of the Energy business unit of the Natural Gas division from May to September 2005; Director of Japan Australia LNG (MIMI) Pty Ltd., an oil and gas company, from 2005 to 2007; Director of Mitsui Oil Co. Ltd., a petroleum products company, from 2007 to 2009 and Director of Kyokuto Petroleum Industries Ltd., an oil refinery, from 2007 to 2009.

             Academic background:    Degree in Economics from Hitotsubashi University in Japan; post-graduate degree in Economic Development from Keble College, Oxford.

             Oscar Augusto de Camargo Filho, 74:    Director of Vale since September 2003.

             Other current director or officer positions:    Director of Valepar since 2003; partner of CWH Consultoria Empresarial, a business consulting firm since 2003.

121

---

Table of Contents

             Professional experience:    Chairman of the Board of Directors of MRS from 1999 to 2003 and Chief Executive Officer and Member of the Board of Directors of CAEMI—Mineração e Metalurgia S.A. ("CAEMI"), a mining holding company that was acquired by Vale in 2006, from 1990 to 2003, where Mr. Camargo Filho also held various positions from 1973 to 2003; various positions at Motores Perkins S.A., including commercial officer and sales and services manager, from 1963 to 1973.

             Academic background:    Law degree from USP.

             Luciano Galvão Coutinho, 65:    Director of Vale since August 2007.

             Other current director or officer positions:    President of BNDES since 2007.

             Professional experience:    Partner of LCA Consultores, a business consulting firm, from 1995 until 2007 and partner of Macrotempo Consultoria, also a business consulting firm, from 1990 to 2007; member of the Board of Directors of Petrobras from 2009 to 2011, of Ripasa S.A. Celulose e Papel, a paper manufacturer, from 2002 to 2005, and of Guaraniana, now Neoenergia S.A., an energy company, from 2003 to 2004, and Executive Secretary of the Ministry of Science and Technology from 1985 to 1988. Mr. Coutinho is an invited professor at the Universidade Estadual de Campinas ("UNICAMP") and has been a visiting professor at USP, the University of Paris XIII, the University of Texas and the Ortega y Gasset Institute.

             Academic background:    Degree in Economics from USP; Master's degree in Economics from the Economic Research Institute of USP and a Ph.D. in Economics from Cornell University.

             José Mauro Mettrau Carneiro da Cunha, 62:    Director of Vale since June 2010.

             Other current director or officer positions:    Chairman of the Board of Directors of a number of publicly-held Brazilian telecommunication companies, including Tele Norte Leste Participações S.A., Telemar Norte Leste S.A., Coari Participações S.A. and Calais Participações S.A. since 2007, Tele Norte Celular Participações S.A. since 2008, and Brasil Telecom S.A. since 2009; Chairman of the Board of Directors of TNL PCS S.A. ("TNL"), a telecommunications company, since 2007; Member of the Board of Directors of Santo Antonio Energia S.A., a Brazilian energy company, since 2008, Log-In since 2007 and Lupatech S.A., a publicly-held oil and gas production support company, since 2006; Alternate Memer of the Board of Directors of Telemar Participações S.A., a Brazilian telecommunications company, since 2008.

             Professional experience:    Member of the Board of Directors of Braskem S.A., a Brazilian petrochemical company, from 2007 to April 2010, where he previously served as Vice-President of Strategic Planning from 2003 to 2005, Politeno Indústria e Comércio S.A., a manufacturer of polyethylene and thermoplastic resins, from 2003 to 2004, Banco do Estado do Espírito Santo ("BANESTES"), a financial institution, from 2008 to 2009, LIGHT Serviços de Eletricidade S.A., an energy distributor, from 1997 to 2000, Aracruz Celulose S.A., a paper manufacturer, from 1997 to 2002, and TNL from 1999 to 2003, where he also served as an Alternate Member of the Board of Directors in 2006.

             Academic background:    Degree in Mechanical Engineering from Universidade Católica de Petrópolis in Rio de Janeiro; executive education program in management at the Anderson School of Management at the University of California at Los Angeles.

             Paulo Soares de Souza, 46:    Director of Vale since April 2011.

             Professional experience:    Alternate Member of the Board of Directors of Vale from 2007 to 2009; union leader since 1997, and President of Itabira's Labor Union (Sindicato dos Trabalhadores nas Indústrias de Extração Mineral e de Pesquisa, Prospecção, Extração e Beneficiamento do Ferro e Metais Básicos e demais Minerais Metálicos e não Metálicos) since 2003.

122

---

Table of Contents

             Academic background:    Technical degree as an electrician from Serviço Social da Indústria (SESI) School of Technology.

Executive officers

             The executive officers are responsible for day-to-day operations and the implementation of the general policies and guidelines set forth by the Board of Directors. Our bylaws provide for a minimum of six and a maximum of 11 executive officers. The executive officers hold weekly meetings and hold additional meetings when called by any executive officer. Under Brazilian corporate law, executive officers must be Brazilian residents.

             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.

             Below is a summary of the business experience, activities and areas of expertise of our current executive officers.

             Murilo Pinto de Oliveira Ferreira, 58:    Chief Executive Officer of Vale and Member of Vale's Strategy and Disclosure Committees since May 2011.

             Other current director or officer positions:    President of the Board of Directors (Conselho de Gestor) of Associação Instituto Tecnológico Vale—ITV, a non-profit entity sponsored by Vale engaged in technological development, since 2011.

             Professional experience:    Executive Officer of Vale with responsibility over several different departments from 2005 to 2008, including Aluminum, Holdings, Business Development, Energy, Nickel and Base Metals; Chief Executive Officer of Vale Canada from 2007 to 2008 and member of the Board of Directors from 2006 to 2007; Chairman of the Board of Directors of Alunorte from 2005 to 2008, MRN from 2006 to 2008 and Valesul Alumíno S.A., a subsidiary of Vale involved in the production of aluminum, from 2006 to 2008; Member of the Board of Commissioners of PTVI, from 2007 to 2008. Mr. Ferreira has been a Member of the Board of Directors of several companies, including Usiminas, a Brazilian steel company, from 2006 to 2008, and was a partner at Studio Investimentos, an asset management firm with a focus on the Brazilian stock market, from October 2009 to March 2011.

             Academic background:    Degree in Business Administration from FGV in São Paulo; post-graduate degree in Business Administration and Finance from FGV in Rio de Janeiro and an executive education program in M&A at the IMD, Lausanne, Switzerland.

             Tito Botelho Martins, 49:    Chief Financial Officer and Executive Officer for Investor Relations, Procurement and Shared Services of Vale since November 2011.

123

---

Table of Contents

             Other current director or officer positions:    Chairman of the Board of Directors of MRN; Member of the Board of Directors of Hydro, a publicly held aluminum company in Norway.

             Professional experience:    Executive Officer of Vale with responsibility over several different departments since 2006, including Base Metals, Nonferrous Minerals, Energy, and Corporate Affairs; Chief Executive Officer of CAEMI, a mining company acquired by Vale, and Chairman and Chief Executive Officer of MBR from 2003 to 2006; and Managing Officer of the corporate finance department of Vale from August 1999 to September 2003. Previously, Mr. Martins was a Member of the Board of Directors of Fundação Vale do Rio Doce de Seguridade Social ("Valia"), a pension plan for Brazilian employees of Vale, Ferrovias Bandeirantes S.A. ("Ferroban"), a railway company, Aço Minas Gerais S.A. ("Açominas"), a steel company, Gulf Industrial Investment Company ("GIIC"), an iron ore pelletizing company in the country of Bahrain, and at our affiliated companies FCA, Samarco, Itabrasco and Hispanobras.

             Academic background:    Degree in Economics from the Universidade Federal de Minas Gerais; Master's degree in Business Administration from UFRJ; executive education programs at INSEAD (France) and at the Kellogg School of Management at Northwestern University.

             José Carlos Martins, 62:    Executive Officer for Ferrous Minerals Operations and Marketing of Vale since November 2011.

             Other current director or officer positions:    Member of the Board of Directors of Samarco.

             Professional experience:    Executive Officer of Vale with responsibility over several different departments since 2004, including Marketing, Sales and Strategy, Ferrous Minerals, and New Business Development. Member of the Board of Directors of Usiminas from 2005 to 2006 and from 2008 to 2009; President of South America Aluminum Can Production and Marketing for Rexam PLC, a global consumer packaging group; President of Latasa from 1999 until Rexam PLC bought Latasa in 2003; Executive Officer for Steel Production of CSN from 1997 until 1999; and Chief Executive Officer at Aços Villares, a steel manufacturer, where Mr. Martins also held several other important positions from 1986 until 1996.

             Academic background:    Degree in Economics from Pontifícia Universidade Católica in São Paulo.

             Eduardo de Salles Bartolomeo, 48:    Executive Officer for Fertilizer and Coal Operations and Marketing of Vale since November 2011.

             Other current director or officer positions:    Member of the Board of Directors of Log-In since 2007.

             Professional experience:    Executive Officer of Vale with responsibility over several different departments since 2007, including Integrated Operations, Logistics, Project Management, Sustainability, and Engineering. Mr. Bartolomeo was also President of Petroflex, a polyethylene duct and conduit manufacturer, from August to December 2006; Officer of the logistics operations department of Vale between January 2004 and July 2006; Manager of Corporate Planning, Plant Manager, Corporate Logistics Manager and Regional Director at Companhia de Bebidas das Américas ("Ambev"), a brewery company, from 1994 to 2003; and head of the steel conversion sector at COSIPA, a Brazilian steel producer, until 1991.

             Academic background:    Degree in Metallurgical Engineering from the Universidade Federal Fluminense and MBA from the Katholieke Universiteit in Leuven, Belgium.

             Galib Abrahão Chaim, 61:    Executive Officer for Implementation of Capital Projects of Vale since November 2011.

             Professional experience:    Project Director of Vale for the Department of Coal for projects in Australia, Mozambique, Zambia and Indonesia and Country Manager for Mozambique from 2005 to 2011; Industrial

124

---

Table of Contents

Director for Alunorte from 1994 to 2005; Industrial Superintendent for Albras from 1984 to 1994; and Technical Superintendent of MRN from 1979 to 1984.

             Academic Background:    Degree in Engineering from the Universidade Federal de Minas Gerais; Master's degree in Business Administration from Fundação Getulio Vargas.

             Humberto Ramos de Freitas, 58:    Executive Officer for Logistics and Mineral Exploration of Vale since November 2011.

             Other current director or officer positions:    Member of the Board of Directors of MRS since December 2010; Chairman of the Board of ABTP—Associação Brasileira de Terminais Portuários, a non-profit organization that deals with issues related to Brazilian ports, since May 2009.

             Professional experience:    Logistics Operations Director of Vale from September 2009 to June 2010; Director for Ports and Navigation of Vale from March 2007 to August 2009; President, from August 2003 to February 2007 and Chief Executive Officer, from August 2003 to February 2007, of Valesul Alumínio S.A., a subsidiary of Vale involved in the production of aluminum; General Superintendent of Ports for CSN from December 1997 to November 1998.

             Academic background:    Degree in Metallurgical Engineering from the Ouro Preto School of Mines; Executive Development Program at the Kellogg School of Management at Northwestern University; Business Development Partnership (EDP) from Fundação Dom Cabral; senior executive education program at M.I.T.

             Gerd Peter Poppinga, 52:    Executive Officer for Base Metals Operations, Marketing and Information Technology of Vale since November 2011.

             Other current director or officer positions:    President Commissioner of PTVI since March 2010 and Member of the Board of Commissioners since April 2009; President and Chief Executive Officer of Vale Canada since January 2012; Chairman of the Board of Directors of VNC since June 2011, and a Member since November 2007.

             Professional experience:    Executive Vice President for Asia Pacific of Vale Canada from November 2009 to November 2011; Director for Strategy, Business Development, Human Resources and Sustainability of Vale Canada from May 2008 to October 2009; Director for Strategy and Information Technology of Vale Canada from November 2007 to April 2008. From 1985 until 1999, Mr. Poppinga also held several positions at Mineração da Trinidade S.A.—SAMITRI, a publicly held mining company that was acquired by Vale in 2001.

             Academic Background:    Degree in Geology from Universidade Federal do Rio de Janeiro (UFRJ) and Universität Erlangen, Germany; post-graduate degree in Geology and Mining Engineering from the Universität Clausthal—Zellerfeld, Germany; specialization in Geostatistics from the Universidade Federal de Ouro Preto (UFOP); Executive MBA from Fundação Dom Cabral; Senior Leadership Program at M.I.T.; Leadership Program at IMD Business School, Lausanne, Switzerland; and Strategic Megatrends with Asia Focus program at Kellogg Singapore.

             Vânia Lucia Chaves Somavilla, 52:    Executive Officer for Human Resources, Health and Safety, Sustainability, Energy and Corporate Affairs of Vale since May 2011.

             Other current director or officer positions:    Chairman of the Board of Directors of Vale Florestar S.A. since 2011.

             Professional experience:    Director of the Department of the Environment Sustainability at Vale from January 2010 until May 2011; Director for Energy Commercialization of Vale from March 2004 until January 2010; Chief Executive Officer of the Instituto Ambiental Vale from 2010 until 2011; Member of the Board of

125

---

Table of Contents

Directors of Albras from 2009 to 2011; Chief Executive Officer of Vale Florestar S.A., during 2010. In connection with her roles at Vale, Ms. Somavilla was also member of the executive board of several companies and consortia in the energy sector from 2004 until 2010. She was also head of New Business Development for Energy Generation and of Project Development and Implementation for large and small hydroelectric plant projects at Companhia Energética de Minas Gerais—CEMIG, a publicly held company involved in the generation, transmission, distribution and sale of electricity, from 1995 until 2001.

             Academic Background:    Degree in Civil Engineering from UFMG; post-graduate degree in Dam Engineering from UFOP; specialization in Management of Hydro Power Utilities from SIDA, Stockholm, Sweden; MBA degree in Corporate Finance from IBMEC/Belo Horizonte; Transformational Leadership program from M.I.T. and Mastering Leadership program from IMD.

Conflicts of interest

             Under Brazilian corporate law, if a director or an executive officer has a conflict of interest with the Company in connection with any proposed transaction, the director or executive officer may not vote in any decision of the Board of Directors or of the board of executive officers regarding such transaction and must disclose the nature and extent of the conflicting interest for transcription in the minutes of the meeting. In any case, a director or an executive officer may not transact any business with the Company, except on reasonable or fair terms and conditions that are identical to the terms and conditions prevailing in the market or offered by unrelated parties.

Fiscal Council

             We have a fiscal council established in accordance with Brazilian law. The primary responsibilities of the fiscal council under Brazilian corporate law are to monitor management's activities, review the Company's financial statements, and report its findings to the shareholders. Pursuant to a written policy, our Fiscal Council requires management to obtain the Fiscal Council's approval before engaging any external auditor to provide any audit or permitted non-audit services to Vale or its consolidated subsidiaries. Under the policy, the Fiscal Council has pre-approved a detailed list of services based on detailed proposals from our auditors up to specified monetary limits. The list of pre approved services is updated periodically. Services that are not listed, that exceed the specified limits, or that relate to internal controls must be separately pre-approved by the Fiscal Council. The policy also sets forth a list of prohibited services. The Fiscal Council is provided with reports on the services provided under the policy on a periodic basis, review and monitor the Company's external auditor's independence and objectivity. The Fiscal Council has the power to review and evaluate the performance of the Company's external auditors on an annual basis and make a recommendation to the Board of Directors on whether the Company should remove and replace its existing external auditors. The Fiscal Council may also recommend withholding the payment of compensation to the independent auditors and has the power to mediate disagreements between management and the auditors regarding financial reporting.

             Under our bylaws, our Fiscal Council is also responsible for establishing procedures for the receipt, retention and treatment of any complaints related to accounting, controls and audit issues, as well as procedures for the confidential, anonymous submission of concerns regarding such matters.

             Brazilian law requires the members of a fiscal council to meet certain eligibility requirements. A member of our Fiscal Council cannot (i) hold office as a member of the board of directors, fiscal council or advisory committee of any company that competes with Vale or otherwise has a conflicting interest with Vale, unless compliance with this requirement is expressly waived by shareholder vote, (ii) be an employee or member of senior management or the Board of Directors of Vale or its subsidiaries or affiliates, or (iii) be a spouse or relative within the third degree by affinity or consanguinity of an officer or director of Vale.

126

---

Table of Contents

             We are required by both the SEC and the NYSE listed company audit committee rules to comply with Exchange Act Rule 10A-3, which requires, absent an exemption, a standing audit committee composed of members of the Board of Directors that meet specified requirements. In lieu of establishing an independent audit committee, we have given our Fiscal Council the necessary powers to qualify for the exemption set forth in Exchange Act Rule 10A-3(c)(3). We believe our Fiscal Council satisfies the independence and other requirements of Exchange Act Rule 10A-3 that would apply in the absence of our reliance on the exemption. Pursuant to our undertakings to the HKEx, the Fiscal Council must be comprised of at least three members who satisfy specified independence requirements set out in the HKEx Listing Rules. We have received a written confirmation of independence pursuant to Rule 3.13 of the HKEx Listing Rules from eaech of the members of our Fiscal Council appointed by Valepar and consider them able to satisfy these independence requirements.

             Our Board of Directors has determined that one of the members of our Fiscal Council, Mr. Aníbal Moreira dos Santos, is an audit committee financial expert. In addition, Mr. Moreira dos Santos meets the applicable independence requirements for Fiscal Council membership under Brazilian law and the NYSE independence requirements that would apply to audit committee members in the absence of our reliance on the exemption set forth in Exchange Act Rule 10A-3(c)(3).

             Members of the Fiscal Council are elected by our shareholders for one-year terms. The current members of the Fiscal Council and their respective alternates were elected on April 19, 2011. The terms of the members of the Fiscal Council expire at the next annual shareholders' meeting following election.

             Two members of our Fiscal Council (and the respective alternates) may be elected by non-controlling shareholders: one member may be appointed by our preferred shareholders and one member may be appointed by minority holders of common shares pursuant to applicable CVM rules.

             The following table lists the current and alternate members of the Fiscal Council.

             Below is a summary of the business experience, activities and areas of expertise of the members of our Fiscal Council.

             Antônio Henrique Pinheiro Silveira, 47:    Member of Vale's Fiscal Council since April 2011.

             Other director or officer positions:    Secretary of Economic Management of the Ministry of Finance since 2008; Director of Companhia de Seguros Aliança do Brasil, a private insurance company, since 2010, and of Norte Energia SA, a private energy company, since July 2010.

             Professional experience:    Assistant Secretary for Economic Management of the Ministry of Finance from 2007 to 2008 and Assistant Chief Economic Advisor of the Ministry of Planning, Budget and Management of Brazil from 2004 to 2007. He also served as Chairman of Banco Nordeste do Brasil, a privately-held bank, from 2008 to 2010; Director of Empresa Gestora de Ativos—EMGEA, a private asset management entity, from 2007 to 2008; and member of the senior management of Companhia Docas do Estado da Bahia, a port services provider, from 2005 to 2007.

             Academic Background:    Bachelor's, Master's and Ph.D. degrees in Economics from UFRJ.

127

---

Table of Contents

             Arnaldo José Vollet, 63:    Member of Vale's Fiscal Council since April 2011.

             Professional experience:    Executive Officer of BB DTVM, a subsidiary of Banco do Brasil, from 2002 to 2009; Finance and Investor Relations Officer of Companhia de Energia Elétrica da Bahia—Coelba, a publicly held electricity company, from 2000 to 2002; Member of the Fiscal Council of Telesp Celular Participações, a publicly held telecommunications company, from 1999 to 2000; Member of the Fiscal Council of CELP—Companhia de Eletricidade de Pernambuco, a publicly held electricity company, from 2004 to 2009; Director of Guaraniana, now called Neoenergia S.A., a publicly held electricity holding company, from 2002 to 2003; Alternate Member of the Board of Directors of CEMIG—Companhia de Energia de Minas Gerais, a publicly held electricity company, from 2003 to 2005; Member of the Board of Directors of Pronor and Nitrocarbono, both chemical companies, from 1997 to 1998.

             Academic background:    Degree in Mathematics from USP and MBA degree in Finance from IBMEC/RJ.

             Marcelo Amaral Moraes, 44:    Member of Vale's Fiscal Council since April 2004.

             Other director or officer positions:    Managing Executive Officer at Capital Dynamics Investimentos Ltda. since January 2012; Member of the Deliberative Council of ABVCAP since 2010.

             Professional experience:    Managing Executive Officer and partner responsible for specialized funds at Stratus Investimentos Ltda., a private equity and venture capital firm, from 2006 to 2010; Investment Manager at Bradespar from 2000 to 2006; worked in the mergers and acquisitions and capital markets departments of Banco Bozano, Simonsen from 1995 to 2000; Alternate Member of the Board of Directors of Net from 2004 to 2005; Alternate Member of the Board of Directors of Vale in 2003.

             Academic background:    Degree in Economics from UFRJ, an MBA with emphasis in finance from UFRJ/COPPEAD, and a post-graduate degree in business law and arbitration from FGV in São Paulo.

             Aníbal Moreira dos Santos, 73:    Member of Vale's Fiscal Council since April 2005.

             Other director or officer positions:    Member of Fiscal Council of Log-In since 2009.

             Professional experience:    From 1998 until his retirement in 2003, Mr. Moreira dos Santos served as Executive Officer of several CAEMI subsidiaries, including Caemi Canada Inc., Caemi Canada Investments Inc., CMM Overseas, Ltd., Caemi International Holdings BV and Caemi International Investments NV, and as Chief Accounting Officer of CAEMI from 1983 to 2003. He also served as Member of the Fiscal Council of CADAM from 1999 to 2003 and as an Alternate Member of the Board of Directors of MBR and Empreedimentos Brasileiros de Mineração, an iron ore asset holding company, from 1998 to 2003.

             Academic background:    Degree in Accounting from FGV in Rio de Janeiro.

128

---

Table of Contents

MANAGEMENT COMPENSATION

             Under our bylaws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our Board of Directors and our Board of Executive Officers, and the Board of Directors allocates the compensation among its members and the Board of Executive Officers.

             Our shareholders determine this annual aggregate compensation at the general shareholders' meeting each year. In order to establish aggregate director and officer compensation, our shareholders usually take into account various factors, which range from attributes, experience and skills of our directors and executive officers to the recent performance of our operations. Once aggregate compensation is established, the members of our Board of Directors are then responsible for distributing such aggregate compensation in compliance with our bylaws among the directors and executive officers. The Executive Development Committee makes recommendations to the Board concerning the annual aggregate compensation of the executive officers. In addition to fixed compensation, our executive officers are also eligible for bonuses and incentive payments.

             For the year ended December 31, 2011, the amount paid to the executive officers is set forth in the table below.

             We paid US$2.8 million in aggregate to the members of our Board of Directors for services in all capacities, all of which was fixed compensation. There are no pension, retirement or similar benefits for the members of our Board of Directors. As of March 31, 2012, the total number of common shares owned by our directors and executive officers was 54,344, and the total number of preferred shares owned by our directors and executive officers was 931,154. None of our directors or executive officers beneficially owns 1% or more of any class of our shares.

Fiscal Council

             We paid an aggregate of US$660,409 to members of the Fiscal Council in 2011. 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$189,538 to members of our advisory committees in 2011. Under Article 15 of our bylaws, those members who are directors or officers of Vale are not entitled to additional compensation for participating on a committee. Members of our advisory committees are reimbursed for travel expenses related to the performance of their functions.

129

---

Table of Contents

EMPLOYEES

             The following tables set forth the number of our employees by business and by location as of the dates indicated.

 

             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 Argentine, Australian, Brazilian, Canadian, French, Indonesian, Malawian, Mozambican, New Caledonian, Norwegian, Paraguayan, Peruvian and U.K. operations.

             We recently resolved two labor disputes that affected our Canadian operations. These were resolved in July 2010, with striking employees at our Canadian nickel operations in Sudbury and Port Colborne, Ontario, and in January 2011, with striking employees working in mining and mill operations at Voisey's Bay, Newfoundland, with the entering into of new five-year collective bargaining agreements with the unions representing the employees previously on strike. In September 2011, we entered into a three year collective agreement with the union representing the employees in our Thompson Manitoba Operations. The collective agreements include a defined contribution pension plan for new employees and adjustments in variable compensation programs that support the achievement of strategic objectives and rewards performance, among various other improvements to the collective bargaining agreement.

Wages and benefits

             Wages and benefits for Vale and its subsidiaries are generally established on a company-by-company basis. Vale establishes its wage and benefits programs for Vale and its subsidiaries, other than Vale Canada, in periodic negotiations with unions. In November 2011, Vale reached a two-year agreement with the Brazilian unions. A salary increase of 8.6% was implemented in November 2011, and another salary increase of 8% will be implemented in November 2012 for our employees in Brazil as part of that agreement. The provisions of Vale's collective bargaining agreements with its unions also apply to Vale's non-unionized employees. Vale Canada establishes wages and benefits for its unionized employees through collective agreements. For non-unionized employees, Vale Canada undertakes an annual review of salaries. Vale and its subsidiaries provide their employees and their dependents with other benefits, including supplementary medical assistance.

130

---

Table of Contents

Pension plans

             Brazilian employees of Vale and of most of its Brazilian subsidiaries are eligible to participate in pension plans managed by Valia. Sponsored by Vale and such subsidiaries, Valia is a nonprofit, complementary social security foundation with both financial and administrative autonomy.

             Most of the participants in plans held by Valia are participants in a plan named "Vale Mais," which Valia implemented in May 2000. This plan is primarily a defined contribution plan with a defined benefit feature relating to service prior to May 2000 and another defined benefit feature to cover temporary or permanent disability, pension and financial protection to dependents in case of death. Valia also operates a defined benefit plan, closed to new participants since May 2000, with benefits based on years of service, salary and social security benefits. This plan covers retired participants and their beneficiaries, as well as a relatively small number of employees that declined to transfer from the old plan to the "Vale Mais" plan when it was established in May 2000.

             Our wholly-owned subsidiary Vale Canada sponsors defined benefit pension plans and defined contribution pension plans, principally for employees in Canada, the United States, the United Kingdom and Indonesia. As a result of the collective bargaining agreement reached with the union representing employees at our Canadian nickel operations in Thompson, Manitoba, in September 2011, all of the defined benefit plans of Vale Canada are now closed to new employees. All new employees of Vale Canada participate in defined contribution pension plans. In addition, Vale Canada provides post-retirement benefits for eligible employees, including post-retirement health, dental and ophthalmological benefits.

             In the Asia-Pacific region, the types of pension plans we provide varies. Defined benefit plans exist in Singapore, Mongolia, Malaysia, Kazakhstan, South Korea, and Japan. Defined contribution plans exist in China, Philippines, India, Hong Kong and Thailand, with Hong Kong having no company match and China having various plans with a company match portion, based on city. One location, Taiwan, offers a hybrid plan with a mix of a defined benefit and defined contribution plan.

Performance-based compensation

             All Vale parent-company employees receive incentive compensation each year in an amount based on the performance of Vale, the performance of the employee's department and the performance of the individual employee. Similar incentive compensation arrangements are in place at our subsidiaries.

             Certain Vale employees are also eligible to receive deferred bonuses with vesting periods of three years based on Vale's performance as measured by total shareholder return relative to a group of peer companies over the vesting period. Since 2008, qualifying management personnel have been eligible to participate at their option in a bonus program tied to preferred share ownership. Under the program, each qualified employee may elect to invest part of their bonus either in Vale preferred shares for eligible employees receiving an incentive payment in Brazil, or in ADRs representing Vale preferred shares for eligible employees receiving an incentive payment outside Brazil. If the employee continues to be employed by us and has held the preferred shares (or ADRs) for the entire duration of the relevant cycle of the matching program, at the expiration of the applicable three year term of the program, the employee will receive a cash payment to be applied to purchase in the open market a number of additional preferred shares (or ADRs) equal to the number of preferred shares (or ADRs) purchased by the employee pursuant to the program. During the three-year term of the incentive program, participating employees have the right to sell all or part of the preferred shares (or ADRs) purchased through the program, however such employees forfeit the right to the matching reward for all shares sold prior to the expiration of the term of the program. For the 2011-2013 cycle, 1,122 employees participated in the program.

131

---

Table of Contents

V.           ADDITIONAL INFORMATION

LEGAL PROCEEDINGS

             We and our subsidiaries are defendants in numerous legal actions in the normal 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, 2011. See Note 20 to our consolidated financial statements for further information.

Praia Mole suit

             We are among the defendants in a public civil action filed by Brazilian federal government agencies in November 1997 seeking to annul the concession agreements under which the defendants operate the Praia Mole maritime terminal in the Brazilian state of Espírito Santo. The case was decided in our favor in November 2007 with a decision recognizing the validity of that concession agreement, however, the federal public prosecutor filed an appeal with the federal circuit court in April 2008, which is still pending.

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$2.686 billion (US$1.438 billion). There have been hearings in this action, a report favorable to Vale was issued, and a request for additional expert evidence presented by the municipality has been granted. A final decision is still pending.

             In the second action, filed in September 1996, the municipality of Itabira claims the right to be reimbursed for expenses it has incurred in connection with public services rendered as a consequence of our mining activities. The damages sought, as adjusted from the date of the claim, amount to approximately R$3.111 billion (US$1.665 billion). This case had been suspended pending consideration of our request to include favorable evidence from a separate lawsuit. In January 2012, our request was denied and, once the court is notified, the lawsuit will resume.

CFEM-related proceedings

             We are engaged in numerous administrative and judicial proceedings relating to the mining royalty known as the CFEM. For more information about CFEM, see Regulatory Matters—Royalties and other taxes on mining activities. These arise out of a large number of assessments by the DNPM, an agency of the Ministry of Mines and Energy of the Brazilian government. The proceedings concern different interpretations of the deductibility of tax and transportation expenditures, DNPM's method of estimating sales, the statute of limitations, due process of law, payment of royalties on pellet sales and CFEM charges on the revenues generated by our subsidiaries abroad.

             We believe that the DNPM's claims are without merit, and we are contesting them using the available avenues of recourse under Brazilian law, beginning with challenges in administrative tribunals and proceeding with challenges in the judicial courts. We have received some favorable decisions and some unfavorable decisions, but none of the disputes has been finally resolved and we cannot predict the amount of time required before final judicial resolutions. The federal government has established a working group with representatives of Vale and DNPM to review the basis of calculation of the CFEM, which is among the issues in dispute.

132

---

Table of Contents

             The aggregate amount claimed in the pending assessments is approximately R$5.640 billion (US$3.019 billion) (including interest and penalties through December 31, 2011).

ICMS tax assessments

             In December 2011, the tax authority of the Brazilian state of Minas Gerais issued six tax assessments (autos de infração) against us for additional payments of the value-added tax on services and circulation of goods (ICMS) on the iron ore we transport from our mining sites in the state of Minas Gerais to our facilities in the state of Espírito Santo. The tax authority asserts that the calculation of ICMS should be based on the market value of the iron ore transported, as opposed to the cost of production of the ore, which is the manner by which we calculated the ICMS owed in years past. These tax assessments cover the year 2006, in an aggregate amount of R$1.2 billion (US$642 million). We have already presented our defense against each of these assessments at the administrative level. While this issue remains unresolved, the tax authority is likely to issue additional assessments covering years subsequent to 2006.

Tax litigation in Switzerland

             We are engaged in a dispute with Swiss authorities concerning the application of a tax exemption to our Swiss subsidiary Vale International. The exemption provides for a 60% tax exemption, which increases to 80% if certain employment and investment conditions are met. Our position is that these conditions have been met, and the Swiss federal authority contends that they were not met for the tax years from 2006 through 2009. The Vaud cantonal authority had originally accepted our position, but reversed itself after the federal authority commenced litigation challenging its application of the exemption. In March 2012, the cantonal tax authority issued tax assessments against Vale International in the aggregate amount of 212 million Swiss francs (US$226 million), reflecting the position that the conditions for the additional 20% exemption were not met. We believe these assessments are unjustified, and we will contest them before the Swiss courts.

Tax litigation

             We are engaged in legal proceedings concerning the contention of the Brazilian federal tax authority (Receita Federal) that we should pay Brazilian corporate income tax and social security contributions on the net income of our non-Brazilian subsidiaries and affiliates. The position of the tax authority is based on Article 74 of Brazilian Provisional Measure 2,158-34/2001 ("Article 74"), a tax regulation issued in 2001 by Brazil's President, and on implementing regulations adopted by the tax authority under Article 74.

             For accounting purposes, we have determined that the payment of additional taxes under Article 74 is reasonably possible, but not probable, and accordingly we have not established any provision. We intend to continue to vigorously defend our interests in all the related proceedings.

Our direct judicial challenge

             In 2003, prior to receiving any assessment of taxes under Article 74, we initiated a legal proceeding (mandado de segurança) challenging the applicability of the regulation based on the following arguments: (i) Article 74 disregards certain provisions on the taxation of profits in double taxation treaties between Brazil and the countries where some of our subsidiaries and affiliates are based; (ii) the Brazilian Tax Code prohibits the establishment of conditions and timing of any such tax by means of a provisional measure; (iii) even if Article 74 is valid, currency exchange gains and losses must be excluded from the net income of our foreign subsidiaries and affiliates in the calculation of taxes owed; and (iv) the application of the regulation to net income generated before December 2001 would violate the constitutional principle prohibiting retroactive application of tax laws.

             In 2005, the court of first instance ruled against us on the merits of the case, and we appealed. In 2011, our appeal was rejected by the Federal Court of Appeals (Tribunal Regional Federal da 2^a Região).

133

---

Table of Contents

             In December 2011, we filed new appeals before the Superior Court of Justice, with respect to our arguments regarding the violations to federal law and international treaties, and the Supreme Court (Supremo Tribunal Federal), with respect to our constitutional arguments. In March 2012, we obtained a new ruling from the Superior Court of Justice suspending all collection efforts by the tax authorities in respect of Article 74 assessments, pending a final ruling on the merits of our challenge. The Brazilian federal tax authority has appealed from this decision.

             Constitutional challenges to Article 74 are pending before Brazil's Supreme Court. CNI (Confederação Nacional da Indústria), a major national industry association, filed a direct constitutional challenge (ação direta de inconstitucionalidade) in 2001, and a decision in that case would have general applicability with respect to the constitutional arguments against Article 74. Other taxpayers and groups have also appealed from lower courts to the Supreme Court in cases challenging Article 74, and in April 2012 the Supreme Court determined that its decision to be made in an appeal brought by Cooperativa Agropecuária Mourãoense (Coamo) will be generally applicable with respect to the constitutional arguments. Even if the Supreme Court decides the constitutional questions against the taxpayers, we intend to continue pursuing our other legal arguments.

Tax assessments and our administrative claims

             The tax authority has issued four tax assessments (autos de infração) against us for payment of taxes in accordance with Article 74, as follows (including interest and penalties through December 31, 2011):

•

Notice of assessment issued in 2007 covering the years 1996—2002, for taxes of R$992 million, plus interest and penalties of R$2.101 billion.



•

Notice of assessment issued in 2008 covering the years 2003—2006, for taxes of R$4.076 billion, plus interest and penalties of R$6.778 billion.



•

Notice of assessment issued in 2009 covering the year 2007, for taxes of R$5.742 billion, plus interest and penalties of R$7.497 billion.



•

Notice of assessment issued in 2010 covering the year 2008, for taxes of R$1.604 billion, plus interest and penalties of R$1.897 billion.

             We have challenged each assessment with the tax authority and on appeal to the CARF (Conselho Administrativo de Recursos Fiscais), which is an appellate administrative tribunal within the tax authority. Although each assessment relates to different factual circumstances and not all of our arguments apply to all four assessments, these challenges generally assert that Article 74 conflicts with certain provisions of Brazil's international tax treaties on the taxation of dividends, and they dispute the application and calculation of fines on the claimed amounts. We have raised other arguments in respect of the validity of Article 74 in our direct judicial challenge to the regulation, as discussed above. While challenges to Article 74 remain unresolved, the tax authority is likely to issue additional assessments covering years subsequent to 2008 in order to preserve its rights in light of the applicable statute of limitations. We intend to challenge any such assessments.

             Decisions of the tax administration may be challenged in judicial courts, with two or sometimes three levels of judicial review. While tax claims are being contested in administrative proceedings, the tax authority cannot seek to collect the assessed amounts. However, if the administrative review process concludes without dismissing the assessment, the tax authority can seek to collect payment, and the taxpayer can only suspend collection efforts if it challenges the administrative decision in the judicial courts. Under Brazilian law, a taxpayer that appeals to the courts must ordinarily provide a bond or security in commensurate amount with the court in order to suspend collection efforts. Although we may contest the application and scope of the bond requirement under the circumstances of our challenges to Article 74 if in the future we need to appeal administrative decisions to the judicial courts, it is likely that in such circumstances we would be required to post bond or some form of security with the court, and, depending on the nature, amount and scope of such bond, this may have a significant financial impact.

134

---

Table of Contents

             During the first quarter of 2012, we received demands for payment in respect of these assessments, because the tax authorities asserted that no further disputes were pending at the administrative level with respect to those amounts. These demands are suspended by the March 2012 injunction of the Superior Court of Justice in our direct judicial challenge to Article 74. While this injunction remains in force, the tax authorities cannot seek collection from us in respect of any Article 74 assessments and, for such time, we are thus not required to post bond in order to avoid collection.

Railway litigation

             In August 2006, the Brazilian federal rail network, Rede Ferroviária Federal S.A.—RFFSA, filed a breach of contract claim against us for R$3.054 billion (US$1.641 billion) in damages, stemming from a 1994 agreement regarding the construction of two railway networks. The RFFSA has since been succeeded as plaintiff by the Brazilian government.

             In 1994, prior to its privatization, Vale entered into a contract with RFFSA to build two railway networks in Belo Horizonte, Brazil, which were to be incorporated into an existing railway segment, in a project called "Transposição de Belo Horizonte." We subsequently entered into a related agreement with the Brazilian government to begin the construction of an alternative railway segment, because the initially agreed upon segments could not be built.

             Before the RFFSA lawsuit was filed, we filed a claim against RFFSA, now succeeded as defendant by the Brazilian government, which challenged the inflation adjustment provisions in the contract with RFFSA. We contend that the method of calculation employed by the Brazilian government is not lawful under Brazilian law.

             Pursuant to a partial settlement, the construction costs of the new segment will be set off against the damages sought under the original RFFSA claim, which would significantly reduce the amount we would be required to pay in damages if such claim is decided in the Brazilian government's favor.

Gold forward contracts litigation

             We were a defendant in a case brought by the pension fund Petros with respect to certain gold forward contracts entered into in 1988 and 1989, which, following a resolution passed by the Brazilian government, through the Brazilian Central Bank, we were obligated to settle in cash instead of by physical delivery. In its suit, Petros claimed that the inflation adjustment provided for in the contracts did not adequately compensate it for monetary losses arising from the government's measures to control inflation.

             In April 2011, the Superior Court of Justice ruled against us in this matter. Although this decision can still be reversed, we were required to pay the total amount of R$346.8 million (US$185.6 million) claimed by Petros in the lawsuit. If the decision is reversed, we will be entitled to recover this amount under a bank guarantee.

             There are ten other cases arising under similar facts. The total amount claimed in these cases is R$130.4 million (US$69.8 million).

Transger suit

             One of our subsidiaries, FCA, is a defendant in a suit first filed in state court in Minas Gerais by Transger S.A. ("Transger") and later moved to federal court. Transger seeks money damages and the annulment of certain General Meetings that occurred in early 2003, at which shareholders approved an increase in FCA's share capital, on the grounds of allegedly abusive acts by FCA's controlling group. The court of first instance initially ruled against the defendants, but subsequently rescinded the judgment to allow for the preparation of an additional expert report.

135

---

Table of Contents

MEMORANDUM AND ARTICLES OF ASSOCIATION

Company objectives and purposes

             Our corporate purpose is defined by our bylaws to include:

•

the exploration of mineral deposits in Brazil and abroad by means of research, extraction, processing, industrialization, transportation, shipment and commerce of mineral goods;



•

the building and operation of railways and the provision of our own or unrelated-party rail traffic;



•

the building and operation of our own or unrelated-party maritime terminals, and the provision of shipping activities and port services;



•

the provision of logistics services integrated with cargo transport, including inflow management, storage, transshipment, distribution and delivery, all within a multimodal transport system;



•

the production, processing, transport, industrialization and commercialization of any and all sources and forms of energy, including the production, generation, transmission, distribution and commercialization of our own products, derivatives and sub products;



•

the engagement, in Brazil or abroad, of other activities that may be of direct or indirect consequence for the achievement of our corporate purposes, including research, industrialization, purchases and sales, importation and exportation, the development, industrialization and commercialization of forest resources and the provision of services of any kind whatsoever; and



•

the establishment or participation, in any fashion, in other companies, consortia or associations directly or indirectly related to our business purpose.

Common shares and preferred shares

             Set forth below is certain information concerning our authorized and issued share capital and a brief summary of certain significant provisions of our bylaws and Brazilian corporate law. This description does not purport to be complete and is qualified by reference to our bylaws (an English translation of which we have filed with the SEC) and to Brazilian corporate law.

             Our bylaws authorize the issuance of up to 3.6 billion common shares and up to 7.2 billion preferred shares, in each case based solely on the approval of the Board of Directors without any additional shareholder approval.

             Each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of common shares are not entitled to any preference relating to our dividends or other distributions.

             Holders of preferred shares and the golden shares are generally entitled to the same voting rights as holders of common shares, except with respect to the election of members of the Board of Directors, and are entitled to a preferential dividend as described below. Non-controlling shareholders holding common shares representing at least 15% of our voting capital, and preferred shares representing at least 10% of our total share capital, have the right to appoint each one member and an alternate to our Board of Directors. If no group of common or preferred shareholders meets the thresholds described above, shareholders holding preferred or common shares representing at least 10% of our total share capital are entitled to combine their holdings to appoint one member and an alternate to our Board of Directors. Holders of preferred shares, including the golden shares, may elect one member of the permanent Fiscal Council and the respective alternate. Non-controlling holders of common shares may also elect one member of the Fiscal Council and an alternate, pursuant to applicable CVM rules.

136

---

Table of Contents

             The Brazilian government holds 12 golden shares of Vale. The golden shares are preferred shares that entitle the holder to the same rights (including with respect to voting and dividend preference) as holders of preferred shares. In addition, the holder of the golden shares is entitled to veto any proposed action relating to the following matters:

•

a change in our name;



•

a change in the location of our head office;



•

a change in our corporate purpose as regards mining activities;



•

any liquidation of the Company;



•

any disposal or winding up of activities in any of the following parts of our iron ore mining integrated systems:



(a)

mineral deposits, ore deposits, mines;



(b)

railways; or



(c)

ports and maritime terminals;



•

any change in the bylaws relating to the rights afforded to the classes of capital stock issued by us; and



•

any change in the bylaws relating to the rights afforded the golden shares.

Calculation of distributable amount

             At each annual shareholders' meeting, the Board of Directors is required to recommend, based on the executive officers' proposal, how to allocate our earnings for the preceding fiscal year. For purposes of Brazilian corporate law, a company's net income after income taxes and social contribution taxes for such fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees' and management's participation in earnings represents its "net profits" for such fiscal year. In accordance with Brazilian corporate law, an amount equal to our net profits, as further reduced by amounts allocated to the legal reserve, to the fiscal incentive investment reserve, to the contingency reserve or to the unrealized income reserve established by us in compliance with applicable law (discussed below) and increased by reversals of reserves constituted in prior years, is available for distribution to shareholders in any given year. Such amount, the adjusted net profits, is referred to herein as the distributable amount. We may also establish discretionary reserves, such as reserves for investment projects.

             The Brazilian corporate law provides that all discretionary allocations of net profits, including discretionary reserves, the contingency reserve, the unrealized income reserve and the reserve for investment projects, are subject to approval by the shareholders voting at the annual meeting and can be transferred to capital or used for the payment of dividends in subsequent years. The fiscal incentive investment reserve and legal reserve are also subject to approval by the shareholders voting at the annual meeting and may be transferred to capital but are not available for the payment of dividends in subsequent years.

             The sum of certain discretionary reserves may not exceed the amount of our paid-in capital. When such limit is reached, our shareholders may vote to use the excess to pay in capital, increase capital or distribute dividends.

             Our calculation of net profits and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with Brazilian corporate law. Our consolidated financial statements have been prepared in accordance with U.S. GAAP and, although our allocations to reserves and

137

---

Table of Contents

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.

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 depletion reserve. See—Calculation of distributable amount.

Dividend preference of preferred shares

             Pursuant to our bylaws, holders of preferred shares and the golden shares are entitled to a minimum annual non-cumulative preferential dividend equal to (i) at least 3% of the book value per share, calculated in accordance with the financial statements which serve as reference for the payment of dividends, or (ii) 6% of their pro rata share of our paid-in capital, whichever is higher. To the extent that we declare dividends in any particular year in amounts which exceed the preferential dividends on preferred shares, and after holders of common shares have received distributions equivalent, on a per share basis, to the preferential dividends on preferred shares, holders of common shares and preferred shares shall receive the same additional dividend amount per share. Since the first step of our privatization in 1997, we have had sufficient distributable amounts to be able to distribute equal amounts to both common and preferred shareholders.

Other matters relating to our preferred shares

             Our bylaws do not provide for the conversion of preferred shares into common shares. In addition, the preferred shares do not have any preference upon our liquidation and there are no redemption provisions associated with the preferred shares.

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. 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.

138

---

Table of Contents

Mandatorily convertible notes

             In 2009, our wholly owned subsidiary Vale Capital II issued mandatorily convertible notes in two series, both due June 15, 2012. The series VALE-2012 notes (US$293 million principal amount) are mandatorily convertible into ADSs representing an aggregate maximum of 18,415,859 common shares. The series VALE.P-2012 notes (US$649 million principal amount) are mandatorily convertible into ADSs representing an aggregate maximum of 47,284,791 preferred shares.

             The mandatorily convertible notes of Vale Capital II can convert before maturity under specified circumstances. The conversion rate for all series will depend on the market price of the ADSs on the conversion date. Under the indentures governing the notes, additional remuneration is due to each noteholder in an amount in U.S. dollars equal to any cash distribution net of any applicable withholding tax and fees paid by the Depositary of our ADSs to the holder of one ADS, multiplied by the number of ADSs that would be received by the noteholder upon conversion of the notes at the conversion rate specified in the applicable indenture.

Voting rights

             Each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of preferred shares are entitled to the same voting rights as holders of common shares except for the election of members of the Board of Directors, which will no longer apply in the event of any dividend arrearage, as described below. One of the members of the permanent Fiscal Council and his or her alternate are elected by majority vote of the holders of preferred shares. Holders of preferred shares and common shares may, in certain circumstances, combine their respective holdings to elect members of our Board of Directors, as described under—Common shares and preferred shares.

             The golden shares entitle the holder thereof to the same voting rights as holders of preferred shares. The golden shares also confer certain other significant veto rights in respect of particular actions, as described under—Common shares and preferred shares.

             The Brazilian corporate law provides that non-voting or restricted-voting shares, such as the preferred shares, acquire unrestricted voting rights beginning when a company has failed for three consecutive fiscal years (or for any shorter period set forth in a company's constituent documents) to pay any fixed or minimum dividend to which such shares are entitled and continuing until payment thereof is made. Our bylaws do not set forth any such shorter period.

             Any change in the preferences or advantages of our preferred shares, or the creation of a class of shares having priority over the preferred shares, would require the approval of the holder of the golden shares, who can veto such matters, as well as the approval of the holders of a majority of the outstanding preferred shares, voting as a class at a special meeting.

Shareholders' meetings

             Our Ordinary General Shareholders' Meeting is convened by April of each year for shareholders to resolve upon our financial statements, distribution of profits, election of Directors and Fiscal Council Members, if necessary, and compensation of senior management. Extraordinary General Shareholders' Meetings are convened by the Board of Directors as necessary in order to decide all other matters relating to our corporate purposes and to pass such other resolutions as may be necessary.

             Pursuant to Brazilian corporate law, shareholders voting at a general shareholders' meeting have the power, among other powers, to:

•

amend the bylaws;

139

---

Table of Contents

•

elect or dismiss members of the Board of Directors and members of the Fiscal Council at any time;



•

establish the remuneration of senior management and members of the Fiscal Council;



•

receive annual reports by management and accept or reject management's financial statements and recommendations including the allocation of net profits and the distributable amount for payment of the mandatory dividend and allocation to the various reserve accounts;



•

authorize the issuance of convertible and secured debentures;



•

suspend the rights of a shareholder in default of obligations established by law or by the bylaws;



•

accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of capital stock;



•

pass resolutions to reorganize our legal form, to merge, consolidate or split us, to dissolve and liquidate us, to elect and dismiss our liquidators and to examine their accounts; and



•

authorize management to file for bankruptcy or to request a judicial restructuring.

             Pursuant to CVM recommendations and as stipulated in our undertakings to the HKEx, all general shareholders' meetings, including the annual shareholders' meeting, require no fewer than 30 days notice to shareholders prior to the scheduled meeting date. Where any general shareholders' meeting is adjourned, 15 days prior notice to shareholders of the reconvened meeting is required. Pursuant to Brazilian corporate law, this notice to shareholders is required to be published no fewer than three times, in the Diário Oficial do Estado do Rio de Janeiro and in a newspaper with general circulation in the city where we have our registered office, in Rio de Janeiro. Our shareholders have previously designated Jornal do Commercio for this purpose. Also, because our shares are traded on the BM&FBOVESPA, we must publish a notice in a São Paulo based newspaper. Such notice must contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the meeting's subject matter. In addition, under our bylaws, the holder of the golden shares is entitled to a minimum of 15 days prior formal notice to its legal representative of any general shareholders' meeting to consider any proposed action subject to the veto rights accorded to the golden shares. See—Common shares and preferred shares.

             A shareholders' meeting may be held if shareholders representing at least one-quarter of the voting capital are present, except as otherwise provided, including for meetings convened to amend our bylaws, which require a quorum of at least two-thirds of the voting capital. If no such quorum is present, notice must again be given in the same manner as described above, and a meeting may then be convened without any specific quorum requirement, subject to the minimum quorum and voting requirements for certain matters, as discussed below. A shareholder without a right to vote may attend a general shareholders' meeting and take part in the discussion of matters submitted for consideration.

             Except as otherwise provided by law, resolutions of a shareholders' meeting are passed by a simple majority vote, abstentions not being taken into account. Under Brazilian corporate law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the types of action described below, as well as, in the case of the first two items below, a majority of issued and outstanding shares of the affected class:

•

creating a new class of preferred shares or disproportionately increasing an existing class of preferred shares relative to the other classes of preferred shares, other than to the extent permitted by the bylaws;

140

---

Table of Contents

•

changing a priority, preference, right, privilege or condition of redemption or amortization of any class of preferred shares or creating a new class of shares with greater privileges than the existing classes of preferred shares;



•

reducing the mandatory dividend;



•

changing the corporate purposes;



•

merging us with another company or consolidating or splitting us;



•

participating in a centralized group of companies as defined under Brazilian corporate law;



•

dissolving or liquidating us; and



•

canceling any ongoing liquidation of us.

             Whenever the shares of any class of capital stock are entitled to vote, each share is entitled to one vote. Annual shareholders' meetings must be held by April 30 of each year. Shareholders' meetings are called, convened and presided over by the chairman or, in case of his absence, by the vice-chairman of our Board of Directors. In the case of temporary impediment or absence of the chairman or vice-chairman of the Board of Directors, the shareholders' meetings may be chaired by their respective alternates, or in the absence or impediment of such alternates, by a director especially appointed by the chairman of the Board of Directors. A shareholder may be represented at a general shareholders' meeting by a proxy appointed in accordance with applicable Brazilian law not more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial institution.

Redemption rights

             Our common shares and preferred shares are not redeemable, except that a dissenting shareholder is entitled under Brazilian corporate law to obtain redemption upon a decision made at a shareholders' meeting approving any of the items listed above, as well as:

•

any decision to transfer all of our shares to another company in order to make us a wholly owned subsidiary of such company, a stock merger;



•

any decision to approve the acquisition of control of another company at a price which exceeds certain limits set forth in Brazilian corporate law; or



•

in the event that the entity resulting from (a) a merger, (b) a stock merger as described in clause (i) above or (c) a spin-off that we conduct fails to become a listed company within 120 days of the general shareholders' meeting at which such decision was taken.

             Only holders of shares adversely affected by shareholder decisions altering the rights, privileges or priority of a class of shares or creating a new class of shares may require us to redeem their shares. The right of redemption triggered by shareholder decisions to merge, consolidate or to participate in a centralized group of companies may only be exercised if our shares do not satisfy certain tests of liquidity, among others, at the time of the shareholder resolution. The right of redemption lapses 30 days after publication of the minutes of the relevant general shareholders' meeting, unless, as in the case of resolutions relating to the rights of preferred shares or the creation of a new class of preferred shares, the resolution is subject to confirmation by the preferred shareholders (which must be made at a special meeting to be held within one year), in which case the 30-day term is counted from the publication of the minutes of the special meeting.

             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

141

---

Table of Contents

book value per share, determined on the basis of the last balance sheet approved by the shareholders; provided that if the general shareholders' meeting giving rise to redemption rights occurred more than 60 days after the date of the last approved balance sheet, a shareholder would be entitled to demand that his or her shares be valued on the basis of a new balance sheet dated within 60 days of such general shareholders' meeting.

Preemptive rights

             Each of our shareholders has a general preemptive right to subscribe for shares in any capital increase, in proportion to his or her shareholding. A minimum period of 30 days following the publication of notice of a capital increase is assured for the exercise of the right, and the right is transferable. Under our bylaws and Brazilian corporate law, and subject to the requirement for shareholder approval of any necessary increase to our authorized share capital, our Board of Directors may decide not to extend preemptive rights to our shareholders, or to reduce the 30-day period for the exercise of preemptive rights, in each case with respect to any issuance of shares, debentures convertible into shares or warrants in the context of a public offering. In the event of a capital increase that would maintain or increase the proportion of capital represented by preferred shares, holders of preferred shares will have preemptive rights to subscribe only to newly issued preferred shares. In the event of a capital increase that would reduce the proportion of capital represented by preferred shares, shareholders will have preemptive rights to subscribe for preferred shares, in proportion to their shareholdings, and for common shares only to the extent necessary to prevent dilution of their overall interest in us. In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, shareholders will have preemptive rights to subscribe only to newly issued common shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of common shares will have preemptive rights to subscribe for preferred shares only to the extent necessary to prevent dilution of their overall interest in us.

Tag-along rights

             According to Brazilian corporate law, in the event of a sale of control of a company, the acquirer is obliged to offer to holders of voting shares the right to sell their shares for a price equal to at least 80% of the price paid for the voting shares representing control.

Form and transfer of shares

             Our preferred shares and common shares are in book-entry form registered in the name of each shareholder or its nominee. The transfer of such shares is made under Brazilian corporate law, which provides that a transfer of shares is effected by our transfer agent, Banco Bradesco S.A., upon presentation of valid share transfer instructions to us by a transferor or its representative. When preferred shares or common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange's clearing system. Transfers of shares by a foreign investor are made in the same way and are executed by the investor's local agent, who is also responsible for updating the information relating to the foreign investment furnished to the Central Bank of Brazil.

             The BM&FBOVESPA operates a central clearing system through Companhia Brasileira de Liquidação e Custódia, or CBLC. A holder of our shares may participate in this system and all shares elected to be put into the system will be deposited in custody with CBLC (through a Brazilian institution that is duly authorized to operate by the Central Bank of Brazil and maintains a clearing account with CBLC). The fact that such shares are subject to custody with the relevant stock exchange will be reflected in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of our beneficial shareholders that is maintained by CBLC and will be treated in the same way as registered shareholders.

142

---

Table of Contents

EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS

             Under Brazilian corporate law, there are no restrictions on ownership of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of preferred shares or common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investment be registered with the Central Bank of Brazil. These restrictions on the remittance of foreign capital abroad could hinder or prevent the depositary bank and its agents for the preferred shares or common shares represented by ADSs and HDSs from converting dividends, distributions or the proceeds from any sale of preferred shares, common shares or rights, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such amounts abroad. Delays in, or refusal to grant any required government approval for conversions of Brazilian currency payments and remittances abroad of amounts owed to holders of ADSs and HDSs could adversely affect holders of ADRs and HDRs.

             Under Resolution No. 2,689/2000 of the CMN, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. In accordance with Resolution No. 2,689/2000, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil.

             Under Resolution No. 2,689/2000, a foreign investor must:

(1)

appoint at least one representative in Brazil, with powers to perform actions relating to its investment,



(2)

complete the appropriate foreign investor registration form,



(3)

register as a foreign investor with the CVM, and register its foreign investment with the Central Bank of Brazil, and



(4)

appoint a custodian, duly licensed by the Central Bank of Brazil, if the Brazilian representative in item (1) is not a financial institution.

             Resolution No. 2,689/2000 specifies the manner of custody and the permitted means for trading securities held by foreign investors under the resolution.

             Moreover, the offshore transfer or assignment of securities or other financial assets held by foreign investors pursuant to Resolution No. 2,689/2000 is prohibited, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.

             Resolution No. 1,927/1992 of the CMN provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It provides that the proceeds from the sale of ADSs by holders of ADRs outside Brazil are not subject to Brazilian foreign investment controls and holders of ADSs who are not residents of a low-tax jurisdiction (país com tributação favorecida), as defined by Brazilian law, will be entitled to favorable tax treatment.

             An electronic registration has been issued to the custodian in the name of the depositary with respect to the ADSs and HDSs. Pursuant to this electronic registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the underlying shares into foreign currency and to remit the proceeds outside Brazil. If a holder exchanges ADSs or HDSs for preferred shares or common shares, the holder must, within five business days, seek to obtain its own electronic registration with the Central Bank of Brazil under Law No. 4,131/1962 and Resolution No. 2,689/2000. Thereafter, unless the holder has registered its investment with the Central Bank of Brazil, such holder may not convert into foreign

143

---

Table of Contents

currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such preferred shares or common shares.

             Under Brazilian law, whenever there is a serious imbalance in Brazil's balance of payments or reasons to foresee a serious imbalance, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil, and on the conversion of Brazilian currency into foreign currencies. Such restrictions may hinder or prevent the custodian or holders who have exchanged ADSs or HDSs for underlying preferred shares or common shares from converting distributions or the proceeds from any sale of such shares, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such U.S. dollars or Hong Kong dollars abroad. In the event the custodian is prevented from converting and remitting amounts owed to foreign investors, the custodian will hold the reais it cannot convert for the account of the holders of ADRs or HDRs who have not been paid. The depositary will not invest the reais and will not be liable for interest on those amounts. Any reais so held will be subject to devaluation risk against the U.S. dollar or Hong Kong dollar.

TAXATION

             The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the ownership and disposition of preferred shares, common shares, ADSs or HDSs. You should know that this summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a holder of preferred shares, common shares, ADSs or HDSs.

             Holders of preferred shares, common shares, ADSs or HDSs should consult their own tax advisors to discuss the tax consequences of the purchase, ownership and disposition of preferred shares, common shares, ADSs or HDSs, including, in particular, the effect of any state, local or other national tax laws.

             Although there is at present no treaty to avoid double taxation between Brazil and the United States, but only a common understanding between the two countries according to which income taxes paid in one may be offset against taxes to be paid in the other, both countries' tax authorities have been having discussions that may result in the execution of such a treaty. In this regard, the two countries signed a Tax Information Exchange Agreement on March 20, 2007. We cannot predict whether or when such a treaty will enter into force or how, if entered into, such a treaty will affect the U.S. holders, as defined below, of preferred shares, common shares or ADSs.

Brazilian tax considerations

             The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of preferred shares, common shares, ADSs or HDSs by a holder not deemed to be domiciled in Brazil for purposes of Brazilian taxation ("Non-Brazilian Holder"). It is based on the tax laws of Brazil and regulations thereunder in effect on the date hereof, which are subject to change (possibly with retroactive effect). This discussion does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Brazilian Holder. Therefore, Non-Brazilian Holders should consult their own tax advisors concerning the Brazilian tax consequences of an investment in preferred shares, common shares, ADSs or HDSs.

Shareholder distributions

             For Brazilian corporations, such as the Company, distributions to shareholders are classified as either dividend or interest on shareholders' equity.

Dividends

             Amounts distributed as dividends, including distributions in kind, will generally not be subject to withholding income tax if the distribution is paid by us from profits of periods beginning on or after

144

---

Table of Contents

January 1, 1996 (1) to the depositary in respect of our preferred shares or common shares underlying the ADSs or HDSs or (2) to a Non-Brazilian Holder in respect of our preferred shares or common shares. 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.

Interest on shareholders' equity

             Amounts distributed as interest on shareholders' equity are generally subject to withholding income tax at the rate of 15%, except where:

(1)

the beneficiary is exempt from tax in Brazil, in which case the distribution will not be subject to withholding income tax;



(2)

the beneficiary is located in a jurisdiction that does not impose income tax or where the maximum income tax rate is lower than 20% (a "Low Tax Jurisdiction") or where internal legislation imposes restrictions on the disclosure of the shareholding structure or the ownership of the investment, in which case the applicable withholding income tax rate is 25%; or



(3)

the effective beneficiary is resident in Japan, in which case the applicable withholding income tax rate is 12.5%.

             Interest on shareholders' equity is calculated as a percentage of shareholders' equity, as stated in the statutory accounting records. The interest rate applied may not exceed TJLP, the benchmark Brazilian long-term interest rate. In addition, the amount of distributions classified as interest on shareholders' equity may not be more than the greater of (1) 50% of net income (after the deduction of social contribution on net profits but before taking into account such payment of interest and the provision for corporate income tax) for the period in respect of which the payment is made and (2) 50% of the sum of retained earnings and profit reserves.

             Payments of interest on shareholders' equity are deductible for the purposes of corporate income tax and social contribution on net profit, to the extent of the limits described above. The tax benefit to the Company in the case of a distribution by way of interest on shareholders' equity is a reduction in the Company's corporate tax charge by an amount equivalent to 34% of such distribution.

Taxation of capital gains

             Taxation of Non-Brazilian Holders on capital gains depends on the status of the holder as either:

(1)

(i) not resident or domiciled in a Low Tax Jurisdiction or where internal legislation imposes restrictions on the disclosure of shareholding structure or the ownership of the investment and registered its investment in Brazil in accordance with Resolution No. 2,689 (a 2,689 Holder), or (ii) a holder of ADSs or HDSs; or



(2)

any other Non-Brazilian Holder.

             Investors identified in item 1 are subject to favorable tax treatment, as described below.

             According to Law No. 10,833, dated December 29, 2003, capital gains realized by a Non-Brazilian Holder from the disposition of "assets located in Brazil" are subject to taxation in Brazil.

             Preferred shares and common shares qualify as assets located in Brazil, and the disposition of such assets by a Non-Brazilian Holder may be subject to income tax on the gains assessed, in accordance with the rules described below, regardless of whether the transaction is carried out with another Non-Brazilian resident or with a Brazilian resident.

145

---

Table of Contents

             There is some uncertainty as to whether ADSs or HDSs qualify as "assets located in Brazil" for purposes of Law No. 10,833/03. Arguably, neither ADSs nor HDSs constitute assets located in Brazil and therefore the gains realized by a Non-Brazilian Holder on the disposition of ADSs or HDSs to another Non-Brazilian resident should not be subject to income tax in Brazil. However, it cannot be guaranteed that the Brazilian courts will uphold this interpretation of the definition of "assets located in Brazil" in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposition of ADSs or HDSs. Consequently, gains on a disposition of ADSs or HDSs by a Non-Brazilian Holder (whether in a transaction carried out with another Non-Brazilian Holder or a person domiciled in Brazil) may be subject to income tax in Brazil in accordance with the rules applicable to a disposition of shares.

             Although there are grounds to sustain otherwise, the deposit of preferred shares or common shares in exchange for ADSs or HDSs may be subject to Brazilian income tax if the acquisition cost of the preferred shares or common shares being deposited is lower than the average price of the preferred shares or common shares (as the case may be), which is determined as either:

(1)

the average price per preferred share or common share on the Brazilian stock exchange in which the greatest number of such shares were sold on the day of deposit; or



(2)

if no preferred shares or common shares were sold on that day, the average price on the Brazilian stock exchange in which the greatest number of preferred shares or common shares were sold in the 15 trading sessions immediately preceding such deposit.

             The positive difference between the average price of the preferred shares or common shares calculated as described above and their acquisition cost will be considered to be a capital gain subject to income tax in Brazil. In some circumstances, there are grounds to sustain that such taxation is not applicable with respect to any 2,689 Holder, provided he is not located in a Low Tax Jurisdiction.

             The withdrawal of ADSs or HDSs in exchange for preferred shares or common shares is not subject to Brazilian income tax, subject to compliance with applicable regulations regarding the registration of the investment with the Central Bank of Brazil.

             For the purpose of Brazilian taxation, the income tax rules on gains related to disposition of preferred shares or common shares vary depending on:

•

the domicile of the Non-Brazilian Holder;



•

the method by which such Non-Brazilian Holder has registered his investment with the Central Bank of Brazil; and



•

how the disposition is carried out, as described below.

             The gain realized as a result of a transaction on a Brazilian stock, future and commodities exchange is the difference between: (i) the amount in Brazilian currency realized on the sale or disposition and (ii) the acquisition cost, without any adjustment for inflation, of the securities that are the subject of the transaction.

             Any gain realized by a Non-Brazilian Holder on a sale or disposition of preferred shares or common shares carried out on the Brazilian stock exchange is:

•

exempt from income tax where the Non-Brazilian Holder (i) is a 2,689 Holder; and (ii) is not located in a Low Tax Jurisdiction;

146

---

Table of Contents

•

subject to income tax at a rate of 15% where the Non-Brazilian Holder either (A) (i) is not a 2,689 Holder and (ii) is not resident or domiciled in a Low Tax Jurisdiction or (B) (i) is a 2,689 Holder and (ii) is resident or domiciled in a Low Tax Jurisdiction; or



•

subject to income tax at a rate of 25% where the Non-Brazilian Holder (i) is not a 2,689 Holder and (ii) is resident or domiciled in a Low Tax Jurisdiction.

             The sale or disposition of common shares carried out on the Brazilian stock exchange is subject to withholding tax at the rate of 0.005% on the sale value. This withholding tax can be offset against the eventual income tax due on the capital gain. A 2,689 Holder that is not resident or domiciled in a Low Tax Jurisdiction is not required to withhold income tax.

             Any gain realized by a Non-Brazilian Holder on a sale or disposition of preferred shares or common shares that is not carried out on the Brazilian stock exchange is subject to income tax at a 15% rate, except for gain realized by a resident in a Low Tax Jurisdiction, which is subject to income tax at the rate of 25%.

             With respect to transactions arranged by a broker that are conducted on the Brazilian non-organized over-the-counter market, a withholding income tax at a rate of 0.005% on the sale value is also levied on the transaction and can be offset against the eventual income tax due on the capital gain. There can be no assurance that the current favorable treatment of 2,689 Holders will continue in the future.

             In the case of a redemption of preferred shares, common shares, ADSs or HDSs or a capital reduction by a Brazilian corporation, the positive difference between the amount received by any Non-Brazilian Holder and the acquisition cost of the preferred shares, common shares, ADSs or HDSs being redeemed is treated as capital gain and is therefore generally subject to income tax at the rate of 15%, while the 25% rate applies to residents in a Low Tax Jurisdiction.

             Any exercise of pre-emptive rights relating to our preferred shares or common shares will not be subject to Brazilian taxation. Any gain realized by a Non-Brazilian Holder on the disposition of pre-emptive rights relating to preferred shares or common shares in Brazil will be subject to Brazilian income taxation in accordance with the same rules applicable to the sale or disposition of preferred shares or common shares.

Tax on foreign exchange and financial transactions

Foreign exchange transactions

             Brazilian law imposes a tax on foreign exchange transactions, or an IOF/Exchange Tax, due on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. Currently, for most foreign currency exchange transactions, the rate of IOF/Exchange is 0.38%.

             Effective as of December 1, 2011, the inflow of resources into Brazil for the acquisition or subscription of common shares through public offerings in Brazilian financial and capital markets by a Non-Brazilian Holder are exempt from the IOF/Exchange rate, provided that the issuer has registered its shares for trading on the Brazilian stock exchange, as well as the inflow of resources into Brazil originating from the cancellation of depository receipts, provided that they are invested in the Brazilian stock exchange.

             The outflow of resources from Brazil related to investments carried out by a Non-Brazilian Holder in the Brazilian financial and capital markets is currently subject to IOF/Exchange at a zero percent rate. In any case, the Brazilian government may increase such rates at any time, up to 25%, with no retroactive effect.

147

---

Table of Contents

Transactions involving bonds and securities

             Brazilian law imposes a tax on transactions involving bonds and securities, or an IOF/Bonds Tax, including those carried out on the Brazilian stock exchange. The rate of IOF/Bonds Tax applicable to transactions involving publicly traded bonds and securities in Brazil is currently zero. However, the Brazilian Government may increase such rate at any time up to 1.5% of the transaction amount per day, but the tax cannot be applied retroactively. In addition, the transfer of shares traded on the Brazilian stock exchange to back the issuance of depositary receipts are subject to IOF/Bonds Tax at a rate of 1.5% starting November 19, 2009.

Other Brazilian taxes

             There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of preferred shares, common shares, ADSs or HDSs by a Non-Brazilian Holder, except for gift and inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by a Non-Brazilian Holder to individuals or entities resident or domiciled within such states in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of preferred shares or common shares or ADSs or HDSs.

U.S. federal income tax considerations

             This summary does not purport to be a comprehensive description of all the U.S. federal income tax consequences of the acquisition, holding or disposition of the preferred shares, common shares or ADSs. This summary applies to U.S. holders, as defined below, who hold their preferred shares, common shares or ADSs as capital assets and does not apply to special classes of holders, such as:

•

certain financial institutions,



•

insurance companies,



•

dealers in securities or foreign currencies,



•

tax-exempt organizations,



•

securities traders who elect to account for their investment in preferred shares, common shares or ADSs on a mark-to-market basis,



•

persons holding preferred shares, common shares or ADSs as part of hedge, straddle, conversion or other integrated financial transactions for tax purposes,



•

holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar,



•

partnerships or other holders treated as "pass-through entities" for U.S. federal income tax purposes,



•

persons subject to the alternative minimum tax, or



•

persons owning, actually or constructively, 10% or more of our voting shares.

             This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as in effect on the date hereof. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. There can be no assurance that the U.S. Internal Revenue Service (the "IRS") will not challenge one or more of the tax consequences discussed herein or that a court will not sustain such a challenge in the event of litigation. This summary does not address any aspect of state, local or non-U.S. tax law.

148

---

Table of Contents

             YOU SHOULD CONSULT YOUR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.

             This discussion is also based, in part, on representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.

             For purposes of this discussion, you are a "U.S. holder" if you are a beneficial owner of preferred shares, common shares or ADSs that is, for U.S. federal income tax purposes and are:

•

a citizen or resident alien individual of the United States,



•

a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, or



•

otherwise subject to U.S. federal income taxation on a net income basis with respect to the preferred shares, common shares or ADSs.

             The term U.S. holder also includes certain former citizens of the United States.

             In general, if you are the beneficial owner of American depositary receipts evidencing ADSs, you will be treated as the beneficial owner of the preferred shares or common shares represented by those ADSs for U.S. federal income tax purposes. Deposits and withdrawals of preferred shares or common shares by you in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. Your tax basis in such preferred shares will be the same as your tax basis in such ADSs, and the holding period in which preferred shares or common shares will include the holding period in such ADSs.

Taxation of dividends

             The gross amount of a distribution paid on ADSs, preferred shares or common shares, including distributions paid in the form of payments of interest on capital for Brazilian tax purposes, out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be taxable to you as foreign source dividend income and will not be eligible for the dividends-received deduction allowed to corporate shareholders under U.S. federal income tax law. The amount of any such distribution will include the amount of Brazilian withholding taxes, if any, withheld on the amount distributed. To the extent that a distribution exceeds our current and accumulated earnings and profits, such distribution will be treated as a nontaxable return of capital to the extent of your basis in the ADSs, preferred shares or common shares, as the case may be, with respect to which such distribution is made, and thereafter as a capital gain.

             You will be required to include dividends paid in reais in income in an amount equal to their U.S. dollar value calculated by reference to an exchange rate in effect on the date such distribution is received by the depositary, in the case of ADSs, or by you, in the case of common shares or preferred shares. If the depositary or you do not convert such reais into U.S. dollars on the date they are received, it is possible that you will recognize foreign currency loss or gain, which would be ordinary loss or gain, when the reais are converted into U.S. dollars. If you hold ADSs, you will be considered to receive a dividend when the dividend is received by the depositary.

             Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain noncorporate taxpayers, including individuals, prior to January 1, 2013 with respect to the ADSs will be subject to taxation at a maximum rate of 15% 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

149

---

Table of Contents

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 2010 or 2011 taxable year. In addition, based on Vale's audited financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, Vale does not anticipate becoming a PFIC for its 2012 taxable year.

             Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares and common shares will be treated as qualified dividends (and therefore whether such dividends will qualify for the maximum rate of taxation of 15%), because the preferred shares and common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs, preferred shares or common stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is unclear whether we will be able to comply with them. You should consult your own tax advisors regarding the availability of the reduced dividend tax rate in light of your own particular circumstances.

             Subject to generally applicable limitations and restrictions, you will be entitled to a credit against your U.S. federal income tax liability, or a deduction in computing your U.S. federal taxable income, for Brazilian income taxes withheld by us. You must satisfy minimum holding period requirements to be eligible to claim a foreign tax credit for Brazilian taxes withheld on dividends. The limitation on foreign taxes eligible for credit is calculated separately for specific classes of income. For this purpose dividends paid by us on our shares will generally constitute "passive income". Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which a U.S. holder's expected economic profit is insubstantial. You should consult your own tax advisors concerning the implications of these rules in light of your particular circumstances.

Taxation of capital gains

             Upon a sale or exchange of preferred shares, common shares or ADSs, you will recognize a capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realized on the sale or exchange and your adjusted tax basis in the preferred shares, common shares or ADSs. This gain or loss will be long-term capital gain or loss if your holding period in the preferred shares, common shares or ADSs exceeds one year. The net amount of long-term capital gain recognized by individual U.S. holders prior to January 1, 2013 generally is subject to taxation at a maximum rate of 15%. 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, preferred shares or common shares, and you do not receive significant foreign source income from other sources you may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian withholding tax. You should consult your own tax advisor regarding the application of the foreign tax credit rules to your investment in, and disposition of, ADSs, preferred shares or common shares.

             If a Brazilian tax is withheld on the sale or disposition of shares, the amount realized by a U.S. holder will include the gross amount of the proceeds of such sale or disposition before deduction of the Brazilian tax. See—Brazilian tax considerations above.

Information reporting and backup withholding

             Information returns may be filed with the Internal Revenue Service in connection with distributions on the preferred shares, common shares or ADSs and the proceeds from their sale or other disposition. You may be subject to United States backup withholding tax on these payments if you fail to provide your taxpayer identification number or comply with certain certification procedures or otherwise establish an

150

---

Table of Contents

exemption from backup withholding. If you are required to make such a certification or to establish such an exemption, you generally must do so on IRS Form W-9.

             The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

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, 2011. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

             Our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

             Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate and that the degree of compliance with the policies or procedures may deteriorate.

             Our management has assessed the effectiveness of Vale's internal control over financial reporting as of December 31, 2011 based on the criteria established in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on such assessment and criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2011. The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.

             Our management identified no change in our internal control over financial reporting during our fiscal year ended December 31, 2011 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

151

---

Table of Contents

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 domestic practice and the NYSE corporate governance rules.

152

---

Table of Contents

153

---

Table of Contents

CODE OF ETHICS

             We have adopted a code of ethical conduct that applies to all Board members, executive officers and employees, including the chief executive officer, the chief financial officer and the principal accounting officer. We have posted this code of ethical conduct on our Web site, at: http://www.vale.com (under English Version/Investors/Corporate Governance/Code of Ethics). 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.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

             PricewaterhouseCoopers Auditores Independentes billed the following fees to us for professional services in 2010 and 2011.

             "Audit fees" are the aggregate fees billed by PricewaterhouseCoopers for the audit of our annual financial statements, for 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 billed fees, which are services that only the independent auditor reasonably can provide, including the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. "Audit-related fees" are fees charged by PricewaterhouseCoopers for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees." In 2011 and 2010, "Audit-related fees"

154

---

Table of Contents

consisted primarily of fees for services related to due diligence and special reviews. "Tax fees" relate primarily to the review of annual tax returns and review of accuracy of the tax computation procedures with respect to income tax and sales taxes.

INFORMATION FILED WITH SECURITIES REGULATORS

             We are subject to various information and disclosure requirements in those countries in which our securities are traded, and file financial statements and other periodic reports with the CVM, BM&FBOVESPA, the SEC, the French securities regulator Autorité des Marchés Financiers, and the HKEx.

•

Brazil.    Vale's Common Shares and Class A Preferred Shares are listed on BM&FBOVESPA in São Paulo, Brazil, its primary listing venue. As a result, we are subject to the information and disclosure requirements of Brazilian Corporate Law, as amended. We are also subject to the periodic disclosure requirements of CVM rules applicable to listed companies and to BM&FBOVESPA's "Level 1" Corporate Governance Requirements. Our CVM filings are available from the CVM at http://www.cvm.gov.br or from BM&FBOVESPA at http://www.bmfbovespa.com.br. In addition, as with all of our security filings, they may be accessed at our website, http://www.vale.com.



•

United States.    As a result of our ADSs being listed on the New York Stock Exchange, we are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and accordingly file reports and other information with the SEC. Reports and other information filed by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C., 20549. You can obtain further information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect Vale's reports and other information at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which Vale's ADSs are listed. Our SEC filings are also available to the public from the SEC at http://www.sec.gov. For further information on obtaining copies of Vale's public filings at the New York Stock Exchange, you should call (212) 656-5060.



•

France.    As a result of the admission to listing and trading of the ADSs 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) and anti-fraud rules, which prohibit market-abuse practices and devices, including insider trading, market manipulation and disclosure of false or misleading information. In general, the Company is deemed to comply with the French periodic and ongoing disclosure rules through its compliance with U.S. disclosure rules.



•

Hong Kong.    As a result of the listing and trading of our HDSs on the HKEx, we must comply with the HKEx Listing Rules, subject to certain waivers granted by the HKEx, including certain periodic and ongoing disclosure rules, such as annual reports with audited financial statements and interim financial statements. In accordance with the HKEx Listing Rules, we are required to upload reports and other information onto the website of the HKEx.

155

---

Table of Contents

EXHIBITS

---

*

In accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

             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.

156

---

Table of Contents

GLOSSARY

157

---

Table of Contents

158

---

Table of Contents

159

---

Table of Contents

160

---

Table of Contents

161

---

Table of Contents

162

---

Table of Contents

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.

Date: April 17, 2012

163

---

Table of Contents

Vale S.A.

             

Index to Consolidated Financial Statements

F-1

---

Table of Contents

Report of independent registered
public accounting firm

To the Board of Directors and Stockholders
Vale S.A.

             In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of cash flows and of changes in stockholders' equity present fairly, in all material respects, the financial position of Vale S.A. and its subsidiaries (the "Company") at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

             A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

             Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Rio de Janeiro, February 15, 2012

F-2

---

Table of Contents

Management's Report on Internal Control over Financial Reporting

             The management of Vale S.A (Vale) is responsible for establishing and maintaining adequate internal control over financial reporting.

             The company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

             Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.

             Vale's management has assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2011 based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission—COSO. Based on such assessment and criteria, Vale's management has concluded that the company's internal control over financial reporting was effective as of December 31, 2011.

             The effectiveness of the company's internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.

February 15, 2012

F-3

---

Table of Contents

Consolidated Balance Sheets
Expressed in millions of United States dollars

F-4

---

Table of Contents

Consolidated Balance Sheets (Continued)
Expressed in millions of United States dollars
(Except number of shares)

   

The accompanying notes are an integral part of these financial statements.

F-5

---

Table of Contents

Consolidated Statements of Income
Expressed in millions of United States dollars
(Except per share amounts)

   

The accompanying notes are an integral part of these financial statements.

F-6

---

Table of Contents

Consolidated Statements of Comprehensive Income (deficit)
Expressed in millions of United States dollars

   

The accompanying notes are an integral part of these financial statements.

F-7

---

Table of Contents

Consolidated Statements of Cash Flows
Expressed in millions of United States dollars

F-8

---

Table of Contents

Consolidated Statements of Cash Flows (Continued)
Expressed in millions of United States dollars

   

The accompanying notes are an integral part of these financial statements.

F-9

---

Table of Contents

Consolidated Statements of Changes in Stockholders' Equity
Expressed in millions of United States dollars
(Except number of shares)

F-10

---

Table of Contents

Consolidated Statements of Changes in Stockholders' Equity (Continued)
Expressed in millions of United States dollars
(Except number of shares)

   

The accompanying notes are an integral part of these financial statements.

F-11

---

Notes to the Consolidated Financial Statements

Expressed in millions of United States dollars, unless otherwise stated

1    The Company and its operations

             Vale S.A., ("Vale", "Company" or "we") is a limited liability company incorporated in Brazil. Operations are carried out through Vale and our subsidiary companies, joint ventures and affiliates, and mainly consist of mining, basic metals production, fertilizers, logistics and steel activities.

             At December 31, 2011, our principal consolidated operating subsidiaries are the following:

2    Basis of consolidation

             All majority-owned subsidiaries in which we have both share and management control are consolidated. All significant intercompany accounts and transactions are eliminated. Subsidiaries over which control is achieved through other means, such as stockholders agreement, are also consolidated even if we hold less than 51% of voting capital. Our variable interest entities in which we are the primary beneficiary are consolidated. Investments in unconsolidated affiliates and joint ventures are accounted under the equity method (Note 14).

             We evaluate the carrying value of our equity investments in relation to publicly quoted market prices when available. If the quoted market price is lower than book value, and such decline is considered other than temporary, we write-down our equity investments to the level of the quoted market value.

             We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall entity management, based on a stockholders agreement. We define affiliates as businesses in which we participate as a noncontrolling interest but with significant influence over the operating and financial policies of the investee.

             Our participation in hydroelectric projects in Brazil is made via consortium contracts under which we have undivided interests in the assets, and are liable for our proportionate share of liabilities and expenses, which are based on our proportionate share of power output. We do not have joint liability for any obligations. No separate legal or tax status is granted to consortia under the Brazilian law. Accordingly, we recognize our proportionate share of costs and our undivided interest in assets relating to hydroelectric projects (note 12).

F-12

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

3    Summary of significant accounting policies

             The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, the selection of useful lives of property, plant and equipment, impairment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired in business combinations, income tax valuation allowances, employee post retirement benefits and other similar evaluations. Actual results could differ from those estimated.

a) Basis of presentation

             We have prepared our consolidated financial statements in accordance with United States generally accepted accounting principles ("US GAAP"), which differ in certain respects from the accounting practices adopted in Brazil ("BR GAAP"), compliant with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Board ("IASB"), which are the basis for our statutory financial statements.

             The Brazilian Real is the parent Company's functional currency. We have selected the US dollar as our reporting currency.

             In 2011, based on entity business assessment, the subsidiary Vale International had its functional currency changed from Brazilian Real to US dollar. This change did not cause significant effects in the financial statements presented.

             All assets and liabilities have been translated to US dollars at the closing rate of exchange at each balance sheet date (or, if unavailable, the first available exchange rate). All statement of income accounts have been translated to US dollars at the average exchange rates prevailing during the respective periods. Capital accounts are recorded at historical exchange rates. Translation gains and losses are recorded in the Cumulative Translation Adjustments account ("CTA") in stockholders' equity.

             The results of operations and financial position of our entities that have a functional currency other than the US dollar, have been translated into US dollars and adjustments to translate those statements into US dollars are recorded in the CTA in stockholders' equity.

             The exchange rates used to translate the assets and liabilities of the Brazilian operations at December 31, 2011 and 2010, were R$1.8683 and R$1.6662, respectively.

             The net transaction gain (loss) included in our statement of income ("Foreign exchange and indexation gains (losses), net") was US$ (1,382), US$102 and US$665 in the years ended December 31, 2011, 2010 and 2009, respectively.

F-13

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

3    Summary of significant accounting policies (Continued)

b) Information by Segment and Geographic Area

             The company discloses information by consolidated operational business segment and revenues by consolidated geographic area, in accordance with the principles and concepts used by decision makers in evaluating performance. The information is analyzed by segment as follows:

             Bulk Material—includes the extraction of iron ore and pellet production and transport systems of North, South and Southeast, including railroads, ports and terminals, related to mining operations. The manganese ore and ferroalloys are also included in this segment.

             Basic metals—comprises the production of non-ferrous minerals, including nickel operations (co-products and byproducts), copper and aluminum—includes the trading of aluminum, alumina refining and aluminum smelting metals and investments in joint ventures and associated bauxite mining.

             Fertilizers—comprises three major groups of nutrients: potash, phosphate and nitrogen. This business is being formed through a combination of acquisitions and organic growth. This is a new business reported in 2010.

             Logistic services—includes our system of cargo transportation for third parties divided into rail transport, port and shipping services.

             Others—comprises our investments in joint ventures and associate in other businesses.

c) Cash equivalents and short-term investments

             Cash flows from overnight investments and fundings are reported net. Short-term investments that have a ready market and original maturities of 90 days or less are classified as "Cash equivalents". The remaining investments, between 91 day and 360 day maturities are stated at fair value and presented as "Short-term investments".

d) Non-current assets and liabilities

             Assets and liabilities that are realizable or due more than 12 months after the balance sheet date are classified as non-current.

e) Inventories

             Inventories are recorded at the average cost of purchase or production, reduced to market value (net realizable value less a reasonable margin) when lower. Stockpiled inventories are accounted as processed when they are removed from the mine. The cost of finished goods is comprised of depreciation and all direct costs necessary to convert stockpiled inventories into finished goods.

             We classify proven and probable reserve quantities attributable to stockpiled inventories as inventories. These reserve quantities are not included in the total proven and probable reserve quantities used in the units of production, depreciation, depletion and amortization calculations.

F-14

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

3    Summary of significant accounting policies (Continued)

             We periodically assess our inventories to identify obsolete or slow-moving inventories and, if needed, we recognize definitive allowances for them.

f) Removal of waste materials to access mineral deposits

             Stripping costs (the costs associated with the removal of overburdened and other waste materials) incurred during the development of a mine, before production takes place, are capitalized as part of the depreciable cost of developing the property. Such costs are subsequently amortized during the useful life of the mine based on proven and probable reserves.

             Post-production stripping costs are included in the cost of the inventory produced (that is extracted), at each mine individually during the period that stripping costs are incurred.

g) Property, plant and equipment and intangible assets

             Property, plant and equipment are recorded at cost, including interest cost incurred during the construction of major new facilities. We compute depreciation on the straight-line method at annual average rates which take into consideration the useful lives of the assets, as follows: 3.73% for railroads, 1.5% for buildings, 4.23% for installations and 7.73% for other equipment. Expenditures for maintenance and repairs are charged to operating costs and expenses as incurred.

             We capitalize the costs of developing major new ore bodies or expanding the capacity of operating mines and amortize these to operations on the unit-of-production method based on the total probable and proven quantity of ore to be recovered. Exploration costs are expensed. Once the economic viability of mining activities is established, subsequent development costs are capitalized.

             Separately acquired intangible assets are shown at historical cost. Intangible assets acquired in a business combination are recognized at fair value at the acquisition date. All our intangible assets have definite useful lives and are carried at cost less accumulated amortization, which is calculated using the straight-line method over their estimated useful lives.

h) Business combinations

             We apply accounting for business combinations to record acquisitions of interests in other companies. The "purchase method", requires that we reasonably determine the fair value of the identifiable tangible and intangible assets and liabilities assumed of acquired companies and segregate goodwill as an intangible asset.

             We assign goodwill to reporting units and test each reporting unit's goodwill for impairment at least annually, and whenever circumstances indicating that recognized goodwill may not be fully recovered are identified. We perform the annual goodwill impairment tests during the last quarter of each year.

             Goodwill is reviewed for impairment utilizing a two step process. In the first step, we compare a reporting unit's fair value with its carrying amount to identify any potential goodwill impairment loss. If the carrying amount of a reporting unit exceeds the unit's fair value, based on a discounted cash flow analysis, we

F-15

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

3    Summary of significant accounting policies (Continued)

carry out the second step of the impairment test, measuring and recording the amount, if any, of the unit's goodwill impairment loss.

i) Impairment of long-lived assets

             All long-lived assets are tested to determine if they are recoverable from operating earnings on an undiscounted cash flow basis over their useful lives whenever events or changes in circumstance indicate that the carrying value may not be recoverable.

             When we determine that the carrying value of long-lived assets and definite-life intangible assets may not be recoverable, we measure any impairment loss based on a projected discounted cash flow method using a discount rate determined to be commensurate with the inherent risk of our current business model.

j) Available-for-sale equity securities

             Equity securities classified as "available-for-sale" are recorded pursuant to accounting for certain investments in debt and equity securities. Accordingly, we classify unrealized holding gains and losses, net of taxes, as a separate component of stockholders' equity until realized.

k) Compensated absences

             The liability for future compensation for employee vacations is fully accrued as earned.

l) Derivatives and hedging activities

             We apply accounting for derivative financial instruments and hedging activities, as amended. This standard requires that we recognize all derivative financial instruments as either assets or liabilities on our balance sheet and measure such instruments at fair value. Changes in the fair value of derivatives are recorded in each period in current earnings or in other comprehensive income, in the latter case depending on whether a transaction is designated as an effective hedge and has been effective during the period.

m) Asset retirement obligations

             Our asset retirement obligations consist primarily of estimated closure costs. The initial measurement is recognized as a liability discounted to present value and subsequently accreted through earnings. An asset retirement cost equal to the initial liability is capitalized as part of the related asset's carrying value and depreciated during the asset's useful life.

n) Revenues and expenses

             Revenues are recognized when title is transferred to the customer or services are rendered. Revenue from exported products is recognized when such products are loaded on board the ship. Revenues from products sold in the domestic market are recognized when delivery is made to the customer. Revenues from logistic services are recognized when the service order is fulfilled. Expenses and costs are recognized on the accrual basis.

F-16

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

3    Summary of significant accounting policies (Continued)

o) Income taxes

             The deferred tax effects of tax loss carryforwards and temporary differences are recognized pursuant to accounting for income taxes. A valuation allowance is made when we believe that it is more likely than not that tax assets will not be fully recovered in the future.

p) Earnings per share

             Earnings per share are computed by dividing net income by the weighted average number of common and preferred shares outstanding during the period.

q) Interest attributed to stockholders' equity (dividend)

             Brazilian corporations are 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 long-term interest rate (TJLP) determined by the Brazilian Central Bank. Also, such interest may not exceed 50% of net income for the year nor 50% of retained earnings plus revenue reserves as determined by "Brazilian GAAP".

             The notional interest charge is tax deductible in Brazil. The benefit to us, as opposed to making a dividend payment, is a reduction in our income tax charge. Income tax of 15% is withheld on behalf of the stockholders relative to the interest distribution. Under Brazilian law, interest attributed to stockholders' equity is considered as part of the annual minimum mandatory dividend (Note 17). This notional interest distribution is treated for accounting purposes as a deduction from stockholders' equity in a manner similar to a dividend and the tax credit recorded in income.

r) Pension and other post retirement benefits

             We sponsor private pensions and other post retirement benefits for our employees which are actuarially determined and recognized as an asset or liability or both depending on the funded or unfunded status of each plan in accordance with "employees' accounting for defined benefit pension and other post retirement plans". The cost of our defined benefit and prior service costs or credits that arise during the period and are not components of net periodic benefit costs are recorded in other cumulative comprehensive income (deficit).

4    Accounting pronouncements

Accounting standards adopted in 2011

             Accounting Standards Update—ASU number 2011-12 Comprehensive Income (Topic 220). The amendments in this update supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011.

F-17

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

4    Accounting pronouncements (Continued)

             ASU number 2011-11 Balance Sheet: Disclosures about Offsetting Assets and Liabilities (Topic 210). Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This pronouncement will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

             ASU number 2011-08 Intangibles—Goodwill and Other (Topic 350). The objective of this Update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

             ASU number 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The objective of this update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income, so an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

             ASU number 2011-04: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in USGAAP and IFRSs. The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. The amendments are effective during interim and annual periods beginning after December 15, 2011.

             ASU number 2011-03: Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The amendments in this update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The Company adopted this standard with no impact on our financial position, results of operations or liquidity. The amendments in this update are effective for the first interim or annual period beginning on or after December 15, 2011.

             ASU number 2011-02: Receivables (Topic 310)—A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this update would provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The Company adopted this standard with no impact on its financial position, results of operations or liquidity. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011.

F-18

---

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

5    Major acquisitions and disposals

a) Sale of aluminum assets

             In February 2011, we concluded the transaction announced in May, 2010 with Norsk Hydro ASA (Hydro), to transfer all of our stakes in Albras-Alumínio Brasileiro S.A. (Albras), Alunorte-Alumina do Norte do Brasil S.A. (Alunorte) and Companhia de Alumina do Pará (CAP), along with its respective off-take rights and outstanding commercial contracts, and 60% of Mineração Paragominas S.A (Paragominas), and all our other Brazilian bauxite mineral rights. On December 31, 2010 these assets were demonstrated as assets held for sale in our balance sheet.

             For this transaction we received US$ 1,081 in cash and 22% equivalent to 447,834,465 shares of Hydro's outstanding common shares outstanding (approximately US$ 3.5 billion according to Hydro's closing share price at the date of the transaction). Three and five years after the closing of the transaction, we will receive two equal tranches of US$ 200 each in cash, related to the remaining payment of 40% of Mineração Paragominas S.A. From the date of the transaction, Hydro has been accounted for by the equity method.

             The gain on this transaction, of US$ 1,513 was recorded in the income statement in the line Gain on sale of assets.

b) Fertilizers Businesses

             In 2010, we acquired 78.92% of the total capital and 99.83% of the voting capital of Vale Fertilizantes S.A and 100% of the total capital of Vale Fosfatados. In 2011 we concluded several transactions including a public offer to acquire the free floating shares of Vale Fertilizantes S.A. During this offer both the common and preferred shares were acquired for R$ 25.00 per share, amounting to a total of R$ 2,078 billion, equivalent to US$ 1,134 at the date the financial settlement of the transaction. After the public offer, we hold 99.05% of the total shares of Vale Fertilizantes S.A.

             The purchase price allocation based on the fair values of acquired assets and liabilities was based on studies performed by us with the assistance of external valuation specialists and was finalized during 2011.

F-19

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

5    Major acquisitions and disposals (Continued)

             The goodwill balance arises primarily due to the synergies between the acquired assets and the potash operations in Taquari-Vassouras, Carnalita, Rio Colorado and Neuquém and phosphates in Bayóvar I and II, in Peru, and Evate, in Mozambique. The future development of our projects combined with the acquisition of the portfolio of fertilizer assets will allow Vale to be one of the top players in the global fertilizer business.

c) Acquisition of NESA

             In 2011, we acquired 9% of Norte Energia S.A. (NESA) from Gaia Energia e Participações S.A. (Gaia) for US$ 70. NESA was established with the sole purpose of implementing, operating and exploring the Belo Monte hydroelectric plant, which is still in the early development stage. Vale estimated an investment of R$ 2,300 billion (Equivalent to US$ 1.2 billion) of future capital contributions arising from the acquired stake, until December 31, 2011 the total capital contribution was US$ 84.

6    Income taxes

             Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory composite enacted tax rate applicable in the periods presented is 34%. In other countries where we have operations, we are subject to various taxes rates depending on the jurisdiction.

             We analyze the potential tax impact associated with undistributed earnings by each of our subsidiaries. For those subsidiaries in which the undistributed earnings would be taxable when remitted to the parent company, no deferred tax is recognized, based on generally accepted accounting principles.

F-20

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

6    Income taxes (Continued)

             The amount reported as income tax expense in our consolidated financial statements is reconciled to the statutory rates as follows:

             Vale and some subsidiaries in Brazil were granted with tax incentives that provide for a partial reduction of the income tax due related to certain regional operations of iron ore, railroad, manganese, copper, bauxite, alumina, aluminum, kaolin and potash. The tax benefit is calculated based on taxable profit adjusted by the tax incentive (so-called "exploration profit") taking into consideration the operational profit of the projects that benefit from the tax incentive during a fixed period. In general such tax incentives last for 10 years. The Company's tax incentives will expire in 2020. The tax savings must be registered in a special capital (profit) reserve in the Stockholders' equity of the entity that benefits from the tax incentive and cannot be distributed as dividends to the stockholders.

             We are also allowed to reinvest part of the tax savings in the acquisition of new equipment to be used in the operations that have the tax benefit subject to subsequent approval from the Brazilian regulatory agencies Superintendência de Desenvolvimento da Amazônia—SUDAM and Superintendência de Desenvolvimento do Nordeste—SUDENE. When the reinvestment is approved, the corresponding tax benefit must also be accounted for in a special profit reserve and is also subject to the same restrictions with respect to future dividend distributions to the stockholders.

             We also have income tax incentives related to our Goro project under development in New Caledonia ("The Goro Project"). These incentives include an income tax holiday during the construction phase of the project and throughout a 15-year period commencing in the first year in which commercial production, as defined by the applicable legislation, is achieved followed by a five-year, 50 per cent income tax holiday. The Goro Project also qualifies for certain exemptions from indirect taxes such as import duties during the

F-21

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

6    Income taxes (Continued)

construction phase and throughout the commercial life of the project. Certain of these tax benefits, including the income tax holiday, are subject to an earlier phase out, should the project achieves a specified cumulative rate of return. We are subject to a branch profit tax commencing in the first year in which commercial production is achieved, as defined by the applicable legislation. To date, we have not recorded any taxable income for New Caledonian tax purposes. The benefits of this legislation are expected to apply with respect to taxes payable once the Goro Project is in operation. We obtained tax incentives for our projects in Mozambique, Oman and Malaysia, that will take effects when those projects start their commercial operation.

             We are subject to an examination by the tax authorities for up to five years regarding our operations in Brazil, up to ten years for Indonesia, and up to seven years for Canada for income taxes.

             Tax loss carry forwards in Brazil and in most of the jurisdictions where we have tax loss carry forwards have no expiration date, though in Brazil, offset is restricted to 30% of annual taxable income.

             The Company adopts the provision accounting for Uncertainty in Income Taxes.

             The reconciliation of the beginning and ending amounts is as follows: (see note 20(b)) tax—related actions)

---

(a)

In July 2011, we made a payment as a consequence of a Brazilian court decision in a case related to the exemption of the Social Contribution (Contribuição Social sobre o Lucro Líquido).

F-22

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

6    Income taxes (Continued)

7    Cash and cash equivalents

             All the above mentioned short-term investments are made through the use of low risk fixed income securities, in a way that those denominated in Brazilian Reais are concentrated in investments indexed to the CDI, and those denominated in US dollars are mainly time deposits, with the original due date less than three months.

F-23

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

8    Short-term investments

             Represent low risk investments with original due date over three months.

9    Accounts receivable

             Accounts receivable from customers in the steel industry represent 70.36% of receivables at December 31, 2011.

             No single customer accounted for more than 10% of total revenues.

             Additional allowances for doubtful accounts charged to the statement of income as expenses in 2011, 2010 and 2009 totaled US$2, US$23 and US$48, respectively. We wrote-off US$1 in 2011, US$37 in 2010 and US$8 in 2009.

10    Inventories

             On December 31, 2011, the inventory includes provision for adjustment to market value for the products nickel and manganese in the amount of US$ 14 and US$ 9, respectively, there were no adjustments at December 31, 2010.

F-24

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

11    Recoverable taxes

12    Property, plant and equipment and intangible assets

By type of assets:

             Losses on disposal of property, plant and equipment totaled US$ 223, US$623 and US$ 293 in December 31, 2011, 2010 and 2009 respectively. This mainly related to write-offs of ships and trucks, locomotives and other equipment, which were replaced in the normal course of business.

             Assets given in guarantee of judicial processes totaled US$ 97 as at December 31, 2011 (US$ 149 as at December 31, 2010).

Hydroelectric assets

             We participate in several jointly-owned hydroelectric plants, already in operation or under construction, in which we record our undivided interest in these assets as Property, plant and equipment.

             At December 31, 2011 the cost of hydroelectric plants in service totals US$2,261 (December 31, 2010 US$1,432) and the related depreciation in the year was US$428 (December 31, 2010 US$422). The cost

F-25

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

12    Property, plant and equipment and intangible assets (Continued)

of hydroelectric plant under construction totaled at December 31, 2011 totals US$59 (December 31, 2010 US$804). Income and operating expenses for such plants are not material.

Intangibles

             All of the intangible assets recognized in our financial statements were acquired from third parties, either directly or through a business combination and have definite useful lives from 6 to 30 years.

             At December 31, 2011 the intangibles amount to US$ 1,135 (December 31, 2010—US$1,274), and are comprised of rights granted by the government—Ferrovia Norte Sul of US$ 896 and off take-agreements of US$ 239.

13    Impairment of goodwill and long-lived assets

             As described in note 3(h), we test goodwill and long-lived assets for impairment when events or changes in circumstances indicate that they might be impaired. For impairment test purposes, goodwill is allocated to reporting units and are tested at least annually.

             No impairment charges were recognized in 2011 and 2010, as a result of the annual goodwill impairment tests performed.

             Management determined cash flows based on approved financial budgets. Gross margin projections were based on past performance and management's expectations of market developments. Information about sales prices are consistent with the forecasts included in industry reports, considering quoted prices when available and when appropriate. The discount rates used, reflect specific risks relating to the relevant assets in each reporting unit, depending on their composition and location.

             Recognition of additional goodwill impairment charges in the future would depend on several estimates including market conditions, recent actual results and management's forecasts. This information shall be obtained at the time when our assessment is to be updated. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

F-26

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)
Expressed in millions of United States dollars, unless otherwise stated

14    Investments in affiliated companies and joint ventures

F-27

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)
Expressed in millions of United States dollars, unless otherwise stated

14    Investments in affiliated companies and joint ventures (Continued)

F-28

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

15    Short-term debt

             Short-term borrowings outstanding on December 31, 2011 are from commercial banks for import financing denominated in US dollars with average annual interest rates of 1.81%.

16    Long-term debt

             The long-term portion at December 31, 2011 was as follows:

F-29

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

16    Long-term debt (Continued)

             At December 31, 2011 annual interest rates on long-term debt were as follows:

             The average cost of all derivative transactions is 3.22% per year in US dollars.

             Vale has non-convertible debentures in Brazilian Real denominated as follows:

             The indexation indices/rates applied to our debt were as follows (unaudited):

             On January 4, 2012, (subsequent event) we issued US$1 billion notes due 2022 sold at a price of 98.804% of the principal amount and will bear a coupon of 4.375% per year, payable semi-annually though our wholly-owned subsidiary Vale Overseas Limited.

F-30

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

16    Long-term debt (Continued)

Credit Lines

             Vale has available revolving credit lines that can be disbursed and paid at any time, during its availability period. On December 31, 2011, the total amount available under the revolving credit lines was US$4.1 billion, of which US$3 billion can be drawn by Vale S.A., Vale Canada Limited and Vale International, US$350 can be drawn by Vale International and the balance by Vale Canada Limited. As of December 31, 2011, none of the borrowers had drawn any amounts under these facilities, but letters of credit totaling US$107 had been issued and remained outstanding pursuant Vale Canada Limited's facility.

             In August 2011, we entered into an agreement with a syndicate of financial institutions to finance the acquisition of five large ore carriers and two capesize bulkers at two Korean shipyards. The agreement provides a credit line of up to US$530. As of December 31, 2011, Vale had drawn US$178 under the facility.

             In October 2010, we signed an agreement with Export Development Canada (EDC) to finance its investment program. Under the agreement, EDC will provide a credit line of up to US$1 billion. As of December 31, 2011, Vale disbursed US$ 500. In September 2010, Vale entered into agreements with The Export-Import Bank of China and the Bank of China Limited for the financing to build 12 very large ore carriers comprising a facility for an amount of up to US$1,229. The financing has a 13-year total term to be repaid, and the funds will be disbursed during 3 years according to the construction schedule. As of December 31, 2011, we had drawn US$467 under this facility.

             In June 2010, Vale established certain facilities with Banco Nacional de Desenvolvimento Econômico Social—BNDES for a total amount of R$774, (US$430), to finance the acquisition of domestic equipments. On March 31, 2011, Vale increased this facility through a new agreement with BNDES for R$ 103 (US$ 62). As of December 31, 2011, we had drawn the equivalent of US$329 under these facilities.

             In May 2008, the Company has signed agreements with Japanese long term financing credit agencies in the amount of US$ 5 billion, being US$ 3 billion with Japan Bank for International Cooperation (JIBC) and US$ 2 billion with Nippon Export and Investment Insurance (NEXI), to finance mining projects, logistics and energy generation. Until December 31, 2011, Vale through its subsidiary PT International Nickel Indonesia Tbk (PTI) withdrew US$300, under the credit facility from NEXI to finance the construction of the hydroelectric plant of Karebbe, Indonesia.

             In April 2008, Vale has signed a credit line in the amount of R$ 7.3 billion (US$ 4 billion) with Banco Nacional de Desenvolvimento Econômico e Social—BNDES to finance its investment program. Until December 31, 2011, Vale withdrew R$ 2,795 (US$1,496) in this line.

Guarantee

             On December 31, 2011, US$ 648 of the total aggregate outstanding debt was secured by fixed assets.

Covenants

             Our principal covenants require us to maintain certain ratios, such as debt to EBITDA and interest coverage. We have not identified any events of noncompliance as of December 31, 2011.

F-31

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

17    Stockholders' equity

             Each holder of common and preferred class A stock is entitled to one vote for each share on all matters brought before stockholders' meetings, except for the election of the Board of Directors, which is restricted to the holders of common stock. The Brazilian Government holds twelve preferred special shares which confer permanent veto rights over certain matters.

             Both common and preferred stockholders are entitled to receive a mandatory minimum dividend of 25% of annual adjusted net income under Brazilian GAAP, once declared at the annual stockholders' meeting. In the case of preferred stockholders, this dividend cannot be less than 6% of the preferred capital as stated in the statutory accounting records or, if greater, 3% of the Brazilian GAAP equity value per share.

             During 2011, Vale paid the minimum annual remuneration attributed to stockholder in 2010, as of interest on capital and dividends, and Vale paid the additional remuneration in amount of US$ 1,000. Additionally, we anticipate US$ 4,141 relating to dividends of annual remuneration attributed to stockholder in 2011.

             In November 2011, as part of the share buy-back program approved in June 2011, we concluded the acquisition of 39,536,080 common shares, at an average price of US$ 26.25 per share, and 81,451,900 preferred shares, at an average price of US$ 24.09 per share (including shares of each class in the form of American Depositary Receipts), for a total aggregate purchase price of US$ 3.0 billion. The repurchased shares represent 3.10% of the free float of common shares, and 4.24% of the free float of preferred shares, outstanding before the launch of the program. The shares acquired will be held in treasury for cancellation.

             In September, 2010, the Board of Directors approved a share buy-back program. The shares are to be held in treasury for subsequent sale or cancellation, amounting up to US$2 billion and involving up to 64,810,513 common shares and up to 98,367,748 preferred shares. As of December 31, 2010 we had acquired 21,682,700 common shares and 48,197,700 preferred shares.

             In June 2010, the notes series Rio and Rio P were converted into ADS and represent an aggregate of 49,305,205 common shares and 26,130,033 preferred class A shares respectively. The conversion was made using 75,435,238 treasury stocks held by the Company. The difference between the conversion amount and the book value of the treasury stocks of US$ 1,379 was accounted for in additional paid-in capital in the stockholder's equity.

             The outstanding issued mandatory convertible notes as of December 31, 2011, are as follows:

             The notes pay a quarterly coupon and are entitled to an additional remuneration equivalent to the cash distribution paid to ADS holders. These notes were classified as a capital instrument, mainly due to the fact that neither the Company nor the holders have the option to settle the operation, whether fully or partially, with cash, and the conversion is mandatory. Consequently, they were recognized as a specific component of shareholders' equity, net of financial charges.

F-32

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

17    Stockholders' equity (Continued)

             The funds linked to future mandatory conversion, net of charges are equivalent to the maximum of common shares and preferred shares, are as follows. All the shares are currently held in treasury.

             In November 2011, Vale paid additional remuneration to holders of mandatorily convertible notes, series VALE-2012 and VALE P-2012, in the amount of US$ 1.657454 and US$ 1.917027 per note, respectively.

             In September 2011, Vale paid additional remuneration to holders of mandatorily convertible notes, series VALE-2012 and VALE P-2012, in the amount of US$ 1.806046 and US$ 2.088890 per note, respectively.

             In April 2011, Vale paid additional remuneration to holders of mandatorily convertible notes, series VALE-2012 and VALE P-2012, in the amount of US$ 0.985344 and US$ 1.139659 per note, respectively.

             In January 2011, Vale paid additional remuneration to holders of mandatorily convertible notes, series VALE-2012 and VALE P-2012, US$ 0.462708 and US$ 0.535173 per note, respectively.

             Brazilian law permits the payment of cash dividends only from retained earnings as stated in the BR GAAP statutory records and such payments are made in Brazilian reais. Pursuant to the Company's statutory books, undistributed retained earnings at December 31, 2011, total US$36,145, comprising of the unrealized income and expansion reserves, which could be freely transferred to retained earnings and paid as dividends, if approved by the stockholders, after deducting of the minimum annual mandatory dividend, which is 25% of net income of the parent Company.

             No withholding tax is payable on distribution of profits earned, except for distributions in the form of interest attributed to stockholders' equity (Note 3 (q)).

             Brazilian laws and our By-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis, all determined in accordance with amounts stated in the statutory accounting records.

             The purpose and basis of appropriation to such reserves is described below:

             Unrealized income reserve—this represents principally our share of the earnings of affiliates and joint ventures, not yet received in the form of cash dividends.

             Expansion reserve—this is a general reserve for expansion of our activities.

             Legal reserve—this reserve is a requirement for all Brazilian corporations and represents the appropriation of 5% of annual net income up to a limit of 20% of capital stock all determined under Brazilian GAAP.

             Fiscal incentive investment reserve—this reserve results from an option to designate a portion of income tax otherwise payable, for investment in government approved projects and is recorded in the year following that in which the taxable income was earned. As from 2000, this reserve basically contemplates income tax incentives (Note 6).

F-33

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

17    Stockholders' equity (Continued)

Earnings per share

             Earnings per share amounts have been calculated as follows:

   

The Company does not include a calculation for diluted earnings per share because the effect is anti-dilutive.

F-34

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans

             The Company is the sponsor of pension plans mixed with characteristics of benefit and defined contribution (such as benefit plan Vale Mais), which includes retirement income and the risk benefits (death pension, retirement for disability and sickness benefit). These plans are calculated based on length of service, age, salary base and supplement to Social Security benefits. These plans are administered by Fundação Vale do Rio Doce de Seguridade Social—VALIA.

             The Company also sponsors a pension plan with defined benefit characteristics. This plan was funded by monthly contributions made by the sponsor and employees, calculated on the basis of periodic actuarial estimates. With the creation of the plan Vale Mais in May 2000, more than 98% of active employees opted to transfer. The defined benefit is still there, covering almost exclusively retired participants and their beneficiaries. This plan is also administered by VALIA.

             Additionally, a specific group of former employees are entitled to additional payments to the normal benefits of VALIA through Complementation Bonus plus a post-retirement benefit that covers medical, dental and pharmaceutical assistance to that specific group.

             Vale Fertilizantes and its wholly owned subsidiaries pay to employees who are eligible to the FGTS' fine according to union agreement and provide certain health benefits for retired employees who are eligible.

             The Company also has defined benefit plans and other post-employment benefits administered by other foundations and social security entities which, together, benefiting all employees.

             The following information details the status of the defined benefit elements of all plans in accordance with employers disclosure about pensions and other post retirement benefits, as well as costs related to them.

             We use a measurement date December 31 for our pension and post retirement benefit plans.

F-35

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

a) Change in benefit obligation

b) Change in plan assets

F-36

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

             A special contribution was made to the Vale Canada Limited defined underfunded benefit plans of US$342 during the period. The contribution was made to bring the adequate ratios which provide Vale Canada with more certain funding requirements for 2011-2013.

             Plan assets managed by Valia on December 31, 2011, December 31, 2010 and January 1, 2010 include investments in portfolio of our own stock of US$340, US$519 and US$587, investments in debentures worth US$63, US$64 and US$69 and equity investments from related parties amounting to US$84, US$81 and US$164, respectively. They also include on December 31, 2011, 31 December 2010 and January 1, 2010, US$3,552, US$4,150 and US$3,261 of securities of the Federal Government. The assets of the pension plans of Vale Canada Limited in securities of the Government of Canada on December 31, 2011, 2010 and January 1, 2010, amounted to US$653, US$436 and US$391, respectively. The assets of Vale Fertilizantes and Ultrafértil on December 31, 2011 and December 31, 2010 in securities of the Federal Government were worth US$149 and US$158, respectively.

c) Funded Status and Financial Position

d) Assumptions used (nominal terms)

             All calculations involve future actuarial projections for some parameters, such as salaries, interest, inflation, the behavior of INSS benefits, mortality, disability, etc. No actuarial results can be analyzed without prior knowledge of the scenario of assumptions used in the assessment.

             The economic actuarial assumptions adopted were formulated considering the long life of the plan and should therefore be examined in that light. So, in the short term, they may not necessarily be realized.

F-37

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

             For the evaluations the following economic assumptions were adopted:

 

e) Pension costs

F-38

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

 

 

f) Accumulated benefit obligation

g) Impact of 1% variation in assumed health care cost trend rate

F-39

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

h) Other Cumulative Comprehensive Income (Deficit)

i) Change in Other Cumulative Comprehensive Income (Deficit)

F-40

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

j) Plan assets

Brazilian Plans

             The Investment Policy Statements of pension plans sponsored for Brazilian employees are based on a long term macroeconomic scenario and expected returns. An Investment Policy Statement was established for each obligation by following results of a strategic asset allocation study.

             Plan asset allocations comply with pension funds local regulation issued by CMN—Conselho Monetário Nacional (Resolução CMN 3792/09). We are allowed to invest in six different asset classes, defined as Segments by the law, as follows: Fixed Income, Equity, Structured Investments (Alternative Investments and Infra-Structure Projects), International Investments, Real Estate and Loans to Participants.

             The Investment Policy Statements are approved by the Board, the Executive Directors and two Investments Committees. The internal and external portfolio managers are allowed to exercise investment discretion under the limitations imposed by the Board and the Investment Committees.

             The pension fund has a risk management process with established policies that intend to identify measure and control all kind of risks faced by our plans, such as: market, liquidity, credit, operational, systemic and legal.

Foreign plans

             The strategy for each of the pension plans sponsored by Vale Canada is based upon a combination of local practices and the specific characteristics of the pension plans in each country, including the structure of the liabilities, the risk versus reward trade-off between different asset classes and the liquidity required to meet benefit payments.

Overfunded pension plans

Brazilian Plans

             The Defined Benefit Plan (the "Old Plan") has the most part of its assets allocated in fixed income, mainly in Brazilian government bonds (such as TIPS) and corporate long term inflation linked corporate bonds with the objective of reducing the asset-liability volatility. The target is 55% of the total assets. This LDI (Liability Driven Investments) strategy, when considered together with the Loans to Participants segment, aims to hedge the plan's liabilities against inflation risk and volatility. The target allocation for each investment segment or asset class is as follows:

F-41

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

             The Investment Policy has the objective of achieving the adequate diversification, current income and long term capital growth through the combination of all asset classes described above to fulfill its obligations with the adequate level of risk. This plan has an average nominal return of 20% p.a. in dollars terms in the last 11 years.

             The Vale Mais Plan (the "New Plan") has obligations with both characteristics of defined benefit and variable contribution, as mentioned. The most part of its investments is in fixed income. It also implemented a LDI (Liability Driven Investments) strategy to reduce asset-liability volatility of the defined benefits plan's component by using inflation linked bonds (like TIPS). The target allocation for this strategy is 55% of total assets of this sub-plan. The target allocation for each investment segment or asset class is as follows:

             The Defined Contribution Vale Mais component offers three options of asset classes mix that can be chosen by participants. The options are: Fixed Income—100%; 80% Fixed Income and 20% Equities and 65% Fixed Income and 35% Equities. Loan to participants is included in the fixed income options. Equities management is done through investment fund that targets Ibovespa index.

             The Investment Policy has the objective of achieving the adequate diversification, current income and long term capital growth through the combination of all asset classes described above to fulfill its obligations with the adequate level of risk. This plan has an average nominal return of 16% p.a. in dollars terms in the last 11 years.

—Fair value measurements by category—Overfunded Plans

F-42

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

—Fair value measurements using significant unobservable inputs—Level 3 (Overfunded)

             The target return for private equity assets in 2012 is 11.94% p.a. for the Old Plan and 11.51% p.a.for the New Plan. The target allocation is 6% for the Old Plan and 5.3% for the New Plan, ranging between 2% and 10% for the Old Plan and ranging between 1% and 10% for the New Plan. These investments have a longer investment horizon and low liquidity that aim to profit from economic growth, especially in the infrastructure sector of the Brazilian economy. The fair value of usually non-liquid assets is close to acquisition cost or book value. Some private equity funds, alternatively, apply the following methodologies: discounted cash flows analysis or analysis based on multiples.

             The target return for loans to participants in 2012 is 16% p.a. The fair value pricing of these assets includes provisions for non-paid loans, according to the local pension fund regulation.

             The target return for real estate assets in 2012 is 12.80% p.a. Fair value for these assets is close to book value. The pension fund hires companies specialized in real estate valuation that do not act in the market as brokers. All valuation techniques follow the local regulation.

F-43

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

Underfunded pension plans

Brazilian Obligation

             The obligation has an exclusive allocation in fixed income. A LDI (Liability Driven Investments) was also used strategy for this plan. Most of the resources were invested in long term Brazilian government bonds (similar to TIPS) and inflation linked corporate bonds with the objective of minimizing asset-liability volatility and reduce inflation risk.

             The Investment Policy Statement has the objective of achieving the adequate diversification, current income and long term capital growth to fulfill its obligations with the adequate level of risk. This obligation has an average nominal return of 16% p.a. in local currency in the last 6 years.

Foreign plans

             All pension plans except PT Inco, have resulted in a target asset allocation of 60% in equity investments and 40% in fixed income investments, with all securities being traded in the public markets. Fixed income investments are in domestic bonds for each plan's market and involve a mixture of government and corporate bonds. Equity investments are primarily global in nature and involve a mixture of large, mid and small capitalization companies with a modest explicit investment in domestic equities for each plan. The Canadian plans also use a currency hedging strategy (each developed currency's exposure is 50% hedged) due to the large exposure to foreign securities. For PT Inco, the target allocation is 20% equity investment and the remainder in fixed income, with the vast majority of these investments being made within the domestic market.

—Fair value measurements by category—Underfunded Pension Plans

F-44

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

—Fair value measurements using significant unobservable inputs—Level 3 (Underfunded)

Underfunded other benefits

—Fair value measurements by category—Other Benefits

k)    Cash flow contributions

             Employer contributions expected for 2012 are US$262.

l)    Estimated future benefit payments

             The benefit payments, which reflect future service, are expected to be made as follows:

F-45

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

18    Pension plans (Continued)

m)    Summary of participant data

19    Long-term incentive compensation plan

             Under the terms of the long-term incentive compensation plan, the participants, restricted to certain executives, may elect to allocate part of their annual bonus to the plan. The allocation is applied to purchase preferred shares of Vale, through a predefined financial institution, at market conditions and with no benefit provided by Vale.

             The shares purchased by each executive are unrestricted and may, at the participant's discretion, be sold at any time. However, the shares must be held for a three-year period and the executive must be continually employed by Vale during that period. The participant then becomes entitled to receive from Vale a cash payment equivalent to the total amount of shares held, based on the market rates. The total shares linked to the plan at December 31, 2011 and December 31, 2010, are 3,012,538 and 2,458,627, respectively.

             Additionally, as a long-term incentive certain eligible executives have the opportunity to receive at the end of the triennial cycle, a certain number of shares at market rates, based on an evaluation of their career and performance factors measured as an indicator of total return to stockholders.

             We account for the compensation cost provided to our executives under this long-term incentive compensation plan, following the requirements for Accounting for Stock-Based Compensation. Liabilities are measured at each reporting date at fair value, based on market rates. Compensation costs incurred are recognized, over the defined three-year vesting period. At December 31, 2011, December 31, 2010 and December 31, 2009, we recognized a liability of US$109, US$120 and US$72, respectively, through the Statement of Income.

20    Commitments and contingencies

             a) In connection with the Girardin Act tax—advantaged lease financing arrangement sponsored by the French government, we provided guarantees to BNP Paribas for the benefit of the tax investors regarding certain payments due from VNC, associated with the Girardin Act lease financing. We also committed that

F-46

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

20    Commitments and contingencies (Continued)

assets associated with the Girardin Act lease financing would be substantially complete by December 31, 2011. In light of the delay in the start-up of the VNC processing facilities, we have proposed an extension to the previously agreed substantial completion date of December 31, 2011 to December 31, 2012. The French Government and tax investors have been briefed on this request and a formal request for extension has been submitted to them. We believe the likelihood of the guarantee being called upon to be remote.

             Sumic Nickel Netherlands B.V. ("Sumic"), a 21% stockholder of VNC, has a put option to sell to us 25%, 50%, or 100% of the shares they own of VNC if the defined cost of the initial nickel cobalt development project, as measured by funding provided to VNC, in natural currencies and converted to U.S. dollars at specified rates of exchange, in the form of Girardin Act lease financing, shareholder loans and equity contributions by shareholders to VNC, exceeded US$4.6 billion and an agreement cannot be reached on how to proceed with the project. On May 27, 2010 the threshold was reached. The put option discussion and decision period was stayed to January 1, 2012. We are currently in discussions with Sumic on their continued participation in VNC, and expect to reach a resolution during the second or third quarter of 2012 following a prescribed process which occurs over a five month period.

             In addition, in the course of our operations we have provided letters of credit and guarantees in the amount of US$465 million that are associated with items such as environment reclamation, asset retirement obligation commitments, insurance, electricity commitments, community service commitments and import and export duties.

             b) We and our subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of our legal counsel, management believes that the amounts recognized are sufficient to cover probable losses in connection with such actions.

             The provision for contingencies and the related judicial deposits is as follows:

             Labor and social security related actions principally comprise of claims by Brazilian current and former employees for (i) payment of time spent travelling from their residences to the work-place, (ii) additional health and safety related payments and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal and the one-third extra holiday pay.

             Civil actions principally relate to claims made against us by contractors in Brazil in connection with losses alleged to have been incurred by them as a result of various past Government economic plans, during

F-47

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

20    Commitments and contingencies (Continued)

which full inflation indexation of contracts was not permitted, as well as for accidents and land appropriation disputes.

             Tax related actions principally comprise of challenges initiated by us, on certain taxes on revenues and uncertain tax positions. We continue to vigorously pursue our interests in all these actions but recognize that we probably will incur some losses in the final instance, for which we have made provisions.

             Judicial deposits are made by us following court requirements in order to be entitled to either initiate or continue a legal action. These amounts are released to us upon receipt of a final favorable outcome from the legal action, and in the case of an unfavorable outcome, the deposits are transferred to the prevailing party.

             Contingencies settled during the year ended December 31, 2011, December 31, 2010 and December 31, 2009, totaled US$658, US$352 and US$236, respectively. Provisions recognized in the year ended December 31, 2011, December 31, 2010 and December 31, 2009, totaled US$526, US$112 and US$294, respectively, classified as other operating expenses.

             In addition to the contingencies for which we have made provisions, we are defendants in claims where in our opinion, and based on the advice of our legal counsel, the likelihood of loss is reasonably possible but not probable, in the total amount of US$ 22,449 at December 31, 2011, and for which no provision has been made (December 31, 2010—US$4,787). The increase in the values of reasonably possible tax contingencies refers mainly to tax assessments against us for regarding the payment of Income Tax and Social Contribution calculated based on the equity method in foreign subsidiaries.

             c) At the time of our privatization in 1997, the Company issued debentures to its then-existing stockholders, including the Brazilian Government. The terms of these debentures were set to ensure that the pre-privatization stockholders, including the Brazilian Government, would participate in possible future financial benefits that could be obtained from exploiting certain mineral resources.

             A total of 388,559,056 Debentures were issued at a par value of R$ 0.01 (one cent), whose value will be restated in accordance with the variation in the General Market Price Index (IGP-M), as set forth in the Issue Deed. In December 31, 2011 the total amount of these debentures was US$ 1,336 (US$ 1,284 in December 31, 2010).

             The debenture holders have the right to receive premiums, paid semiannually, equivalent to a percentage of net revenues from specific mine resources as set forth in the indenture.

             During 2011 we paid remuneration on these debentures of US$ 14.

d)    Description of Leasing Arrangements

             Part of our railroad operations include leased facilities. The 30-year lease is renewable for a further 30 years and expires in August, 2026 and is classified as an operating lease. At the end of the lease term, we are required to return the concession and the leased assets. In most cases, management expects that in the normal course of business, leases will be renewed.

F-48

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

20    Commitments and contingencies (Continued)

             The following is a schedule by year of future minimum rental payments required under the railroad operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2011.

             The total expenses of operating leases for the years ended December 31, 2011, 2010 and 2009 were US$87, US$90 and US$80, respectively.

             During 2008, we entered into operating lease agreements with our joint ventures Nibrasco, Itabrasco and Kobrasco, under which we leased four pellet plants. The lease terms are from 5 to 30 years.

             The following is a schedule by year of future minimum rental payments required under the pellet plants operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2011:

             The total expenses of operating leases for the years ended December 31, 2011, 2010 and 2009 were US$66, US$107 and US$114, respectively.

e)    Asset retirement obligations

             We use various judgments and assumptions when measuring our asset retirement obligations.

             Changes in circumstances, law or technology may affect our cash flow estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain.

F-49

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

20    Commitments and contingencies (Continued)

             The changes in the provisions for asset retirement obligations are as follows:

21    Other expenses

             The income statement line "Other operating expenses" totaled US$2,810 for the year ended December 31, 2011, (US$2,205 in 2010 and US$1,522 in 2009). It includes pre operational expenses of US$439 (US$360 in 2010 and US$0 in 2009), loss of materials of US$49 (US$108 in 2010 and US$9 in 2009) and idle capacity and stoppage operations expenses of US$854 (US$757 in 2010 and US$880 in 2009).

22    Fair value disclosure of financial assets and liabilities

             The Financial Accounting Standards Board, through Accounting Standards Codification and Accounting Standards Updates, defines fair value and sets out a framework for measuring fair value, which refers to valuation concepts and practices and requires certain disclosures about fair value measurements.

a)    Measurements

             The pronouncements define fair value as the exchange price that would be received for an asset, or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the inherent risks in the inputs to the valuation technique.

             These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Under this standard, those inputs used to measure the fair value are required to be classified on three levels. Based on the characteristics of the inputs used in valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed as follows:

Level 1—Unadjusted quoted prices on an active, liquid and visible market for identical assets or liabilities that are accessible at the measurement date;

F-50

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

22    Fair value disclosure of financial assets and liabilities (Continued)

Level 2—Quoted prices for identical or similar assets or liabilities on active markets, inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability;

Level 3—Assets and liabilities, for which quoted prices do not exist, or those prices or valuation techniques are supported by little or no market activity, unobservable or illiquid. At this point, fair market valuation becomes highly subjective.

b)    Measurements on a recurring basis

             The description of the valuation methodologies used for recurring assets and liabilities measured at fair value in the Company's Consolidated Balance Sheet at December 31, 2011 and December 31, 2010 are summarized below:

•

Available-for-sale securities

             They are securities that are not classified either as held-for-trading or as held-to-maturity for strategic reasons and have readily available market prices. We evaluate the carrying value of some of our investments in relation to publicly quoted market prices when available. When there is no market value, we use inputs other than quoted prices.

•

Derivatives

             The market approach is used to estimate the fair value of the swaps discounting their cash flows using the interest rate of the currency they are denominated it is also used for the commodities contracts, since the fair value is computed by using forward curves for each commodity.

•

Debentures

             The fair value is measured by the market approach method, and the reference price is available on the secondary market.

             The tables below presents the balances of assets and liabilities measured at fair value on a recurring basis as follows:

 

F-51

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

22    Fair value disclosure of financial assets and liabilities (Continued)

c)    Measurements on a non-recurring basis

             The Company also has assets under certain conditions that are subject to measurement at fair value on a non-recurring basis. These assets include goodwill and assets acquired and liabilities assumed in business combinations. During the year ended December 31, 2011, we have not recognized any impairment for those items.

d)    Financial Instruments

Long-term debt

             The valuation method used to estimate the fair value of our debt is the market approach for the contracts that are quoted on the secondary market, such as bonds and debentures. The fair value of both fixed and floating rate debt is determined by discounting future cash flows of Libor and Vale's bonds curves (income approach).

Time deposits

             The method used is the income approach, through the prices available on the active market. The fair value is close to the carrying amount due to the short-term maturities of the instruments.

             Our long-term debt is reported at amortized cost, and the income of time deposits is accrued monthly according to the contract rate. The estimated fair value measurement is disclosed as follows:

 

---

(*)

Less accrued charges of US$333 and US$343 as of December 31, 2011 and December 31, 2010, respectively.

(**)

Classified on "LT Loans and related parties".

F-52

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)
Expressed in millions of United States dollars, unless otherwise stated

23    Segment and geographical information

             The information presented to the Executive Board with the respective performance of each segment are usually derived from the accounting records maintained in accordance with the best accounting practices, with some reallocation between segments.

             Consolidated net income and principal assets are reconciled as follows:

Results by segment

F-53

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

23    Segment and geographical information (Continued)

Results by segment

---

(*)

Includes nickel co-products and by-products (copper, precious metals, cobalt and others).

(**)

Includes copper concentrate.

F-54

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

23    Segment and geographical information (Continued)

Results by segment

---

(*)

Includes nickel co-products and by-products (copper, precious metals, cobalt and others).

(**)

Includes copper concentrate.

F-55

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

23    Segment and geographical information (Continued)

Results by segment

F-56

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

24    Related party transactions

             Balances from transactions with major related parties are as follows:

             These balances are included in the following balance sheet classifications:

F-57

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

24    Related party transactions (Continued)

             Income and expenses from the principal transactions and financial operations carried out with major related parties are as follows:

---

(*)

Sold in April 2009.

             These amounts are included in the following statement of income line items:

             Additionally we have loans payable to Banco Nacional de Desenvolvimento Social and BNDES Participações S.A in the amounts of US$ 2,954 and US$ 902 respectively, accruing interest at market rates, which fall due through 2029. These operations generated interest expenses of US$ 138 and US$ 57. We also maintain cash equivalent balances with Banco Bradesco S.A. in the amount of US$ 16 in December 31, 2011. The effect of these operations in results was US$ 73.

25    Derivative financial instruments

Risk management policy

             Vale considers that the effective management of risk is a key objective to support its growth strategy, strategic planning and financial flexibility. Therefore Vale has developed its risk management strategy in order to provide an integrated approach of the risks the Company is exposed to. To do that, Vale evaluates not only the impact of market risk factors in the business results (market risk), but also the risk arising from third party obligations with Vale (credit risk), those inherent to inadequate or failed internal processes, people, systems or external events (operational risk), those arising from liquidity risk, among others.

F-58

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

             The Board of Directors established the corporate risk management policy in order to support the growth strategy, strategic planning and business continuity of the Company, strengthening its capital structure and asset management, ensure flexibility and consistency on the financial management and strengthen corporate governance practices.

             The corporate risk management policy determines that Vale measures and monitors its corporate risk on a consolidated approach in order to guarantee that the overall risk level of the Company remains aligned with the guidelines defined by the Board of Directors and the Executive Board.

             The Executive Risk Management Committee, created by the Board of Directors, is responsible for supporting the Executive Board in the risk analysis and for issuing opinion regarding the Company's risk management. It is also responsible for the supervision and revision of the principles and instruments of corporate risk management.

             The Executive Board is responsible for the approval of the policy deployment into norms, rules and responsibilities and for reporting to the Board of Directors about such procedures.

             The risk management norms and instructions complement the corporate risk management policy and define practices, processes, controls, roles and responsibilities in the Company regarding risk management.

             The Company may, when necessary, allocate specific risk limits to management activities that need them, including but not limited to, market risk limit and corporate and sovereign credit limit, in accordance with the acceptable corporate risk limit.

Market Risk Management

             Vale is exposed to the behavior of various 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 and the growth strategy of the Company, ensure its financial flexibility and monitor the volatility of future cash flows.

             When necessary, market risk mitigation strategies are evaluated and implemented in line with these objectives. Some of these strategies may incorporate financial instruments, including derivatives. The portfolios of the financial instruments are monitored on a monthly basis, enabling surveillance of financial results and then impact on cash flow, and ensuring adherence to the objectives of the strategies proposed.

             Considering the nature of Vale's business and operations, the main market risk factors which the Company is exposed to are:

•

Interest rates;



•

Foreign exchange;



•

Product prices and input costs

F-59

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

Foreign exchange rate and interest rate risk

             Vale's cash flows are exposed to volatility of several currencies. While most of the product prices are indexed to US dollars, most of the costs, disbursements and investments are indexed to currencies other than the US dollar, namely the Brazilian Real and the Canadian dollar.

             Derivative instruments may be used to reduce Vale's potential cash flow volatility arising from its currency mismatch.

             For hedges of revenue, costs, expenses and investment cash flows, the main risk mitigation strategies used are currency forward transactions and swaps.

             The swap transactions used to convert debt linked to Brazilian Real into US dollar have similar—or sometimes shorter—settlement dates than the final maturity of the debt instruments. Their notional amounts are similar to the principal and interest payments, subject to liquidity market conditions.

             The swaps 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 transactions partially offset the impact of the foreign exchange rate in Vale's obligations, contributing to stabilize the cash disbursements in US dollar.

             In the event of an appreciation (depreciation) of the Brazilian Real against the US dollar, the negative (positive) impact on Brazilian Real denominated debt obligations (interest and/or principal payment) measured in US dollars will be partially offset by a positive (negative) effect from a swap transaction, regardless of the US dollar/Brazilian Real exchange rate in the payment date. The same rationale applies to debt denominated in other currencies and their respective swaps.

             Vale is also exposed to interest rate risks on loans and financings. Its floating rate debt consists mainly of loans including export pre-payments, commercial banks and multilateral organizations loans. In general, the US dollar floating rate debt is subject to changes in the LIBOR (London Interbank Offer Rate in US dollar). To mitigate the impact of the interest rate volatility on its cash flows, Vale considers the natural hedges resulting from the correlation of commodities prices and US dollar floating rates. If such natural hedges are not present, Vale may search for the same effect by using financial instruments.

Product price and Input Cost risk

             Vale is also exposed to several market risks associated with commodities price volatilities. In line with the risk management policy, risk mitigation strategies involving commodities can also be used to adjust its risk profile and reduce the volatility of cash flow. In these cases, the mitigation strategies used are primarily forward transactions, futures contracts or zero-cost collars.

Embedded derivatives

             The cash flow of the Company is also exposed to various market risks associated with contracts that contain embedded derivatives or behave as derivatives. The derivatives may be embedded in, but are not limited to, commercial contracts, purchase agreements, leases, bonds, insurance policies and loans.

F-60

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

             Vale's wholly-owned subsidiary Vale Canada Ltd has nickel concentrate and raw materials purchase agreements, in which there are provisions based on the movement of nickel and copper prices. These provisions are considered embedded derivatives.

Hedge Accounting

             Under the Standard Accounting for Derivative Financial Instruments and Hedging Activities, all derivatives, whether designated in hedging relationships or not, are required to be recorded in the balance sheet at fair value and the gain or loss in fair value is included in the statement of income, unless if qualified as hedge accounting. A derivative must be designated in a hedging relationship in order to qualify for hedge accounting. These requirements include a determination of what portions of hedges are deemed to be effective versus ineffective. In general, a hedging relationship is effective when a change in the fair value of the derivative is offset by an equal and opposite change in the fair value of the underlying hedged item. In accordance with these requirements, effectiveness tests are performed in order to assess effectiveness and quantify ineffectiveness for all designated hedges.

             At December 31, 2011, Vale has outstanding positions designated as cash flow hedge. A cash flow hedge is a hedge of the exposure to variability in expected future cash flows that is attributable to a particular risk, such as a forecasted purchase or sale. If a derivative is designated as cash flow hedge, the effective portion of the changes in the fair value of the derivative is recorded in other comprehensive income and recognized in earnings when the hedged item affects earnings. However, the ineffective portion of changes in the fair value of the derivatives designated as hedges is recognized in earnings. If a portion of a derivative contract is excluded for purposes of effectiveness testing, the value of such excluded portion is included in earnings.

F-61

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

             The assets and liabilities balances of derivatives measured at fair value and the effects of their recognition are shown in the following tables:

F-62

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

F-63

---

Table of Contents

Notes to the Consolidated Financial Statements (Continued)

Expressed in millions of United States dollars, unless otherwise stated

25    Derivative financial instruments (Continued)

             Unrealized gains (losses) in the period are included in our income statement under the caption of gains (losses) on derivatives, net.

             Final maturity dates for the above instruments are as follows:

F-64

---