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, 2007
Commission file number: 001-15030

COMPANHIA VALE DO RIO DOCE

Fabio de Oliveira Barbosa, Chief Financial Officer
fax: +55 21 3814 8820
Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices)

Title of Each Class		Name of Each Exchange on Which Registered
Preferred class A shares of Vale, no par value per share		New York Stock Exchange*
American Depositary Shares (evidenced by American depositary		New York Stock Exchange
receipts), each representing one preferred class A share of Vale
Common shares of Vale, no par value per share		New York Stock Exchange*
American Depositary Shares (evidenced by American depositary receipts), each representing one common share of Vale		New York Stock Exchange
6.875% Guaranteed Notes due 2036, issued by Vale Overseas		New York Stock Exchange
8.250% Guaranteed Notes due 2034, issued by Vale Overseas		New York Stock Exchange
6.250% Guaranteed Notes due 2017, issued by Vale Overseas		New York Stock Exchange
6.250% Guaranteed Notes due 2016, issued by Vale Overseas		New York Stock Exchange
5.500% Mandatorily Convertible Guaranteed Notes due 2010, series RIOP, issued by Vale Capital		New York Stock Exchange
5.500% Mandatorily Convertible Guaranteed Notes due 2010, series RIO, issued by Vale Capital		New York Stock Exchange

2,999,797,716 common shares, no par value per share
1,919,516,400 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  þ      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  þ      No  o

     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 þ      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):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer  o

     Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP þ 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       Noþ

 

 

TABLE OF CONTENTS

		Page
Presentation of financial information			1
Forward-looking statements			2
PART I			3
Item 1. Identity of directors, senior management and advisors			3
Item 2. Offer statistics and expected timetable			3
Item 3. Key information			3
Selected financial data			3
Risk factors			5
Item 4. Information on the company			12
Business overview			12
General			12
Business strategy			14
Significant changes in our business			15
Lines of business			18
Ferrous minerals			20
Iron ore			20
Iron ore pellets			23
Manganese ore			26
Ferroalloys			26
Non-ferrous minerals			28
Nickel			28
Aluminum and related products			33
Copper			36
PGMs and other precious metals			37
Other non-ferrous minerals			38
Coal			39
Logistics			41
Other investments			45
Reserves			47
Regulatory matters			56
Capital expenditures			70
Item 4A. Unresolved staff comments			72
Item 5. Operating and financial review and prospects			72
Overview			72
Results of operations—2007 compared to 2006			78
Results of operations—2006 compared to 2005			83
Liquidity and capital resources			90
Shareholder debentures			92
Contractual obligations			92
Off-balance sheet arrangements			92
Critical accounting policies and estimates			93
Item 6. Directors, senior management and employees			96
Board of directors			96
Executive officers			99
Fiscal council			102
Advisory committees			103
Compensation of directors, executive officers, fiscal council members and advisory committees			104
Employees			105
Item 7. Major shareholders and related party transactions			106
Major shareholders			106
EX-8: LIST OF SUBSIDIARIES
EX-12.1: CERTIFICATION
EX-12.2: CERTIFICATION
EX-13.1: CERTIFICATION
EX-15.1: CONSENT OF PRICEWATERHOUSECOOPERS
EX-15.2: CONSENT OF HOSKINGS RESOURCE MANAGEMENT
EX-15.3: CONSENT OF ASEAMCO PTY LTD
EX-15.4: CONSENT OF IMC MINING SOLUTIONS PTY LTD
EX-15.5: CONSENT OF MB MINING CONSULTANTS
EX-15.6: CONSENT OF TASMAN MINING PTY LIMITED
EX-15.7: CONSENT OF SRK CONSULTING
EX-15.8: CONSENT OF SNOWDEN

TABLE OF CONTENTS
(cont’d)

		Page
Related party transactions			109
Item 8. Financial information			109
Legal proceedings			109
Distributions			111
Item 9. The offer and listing			113
Share price history			113
Stock trading markets			113
Item 10. Additional information			113
Memorandum and articles of association			113
Common shares and preferred shares			114
Material contracts			121
Exchange controls and other limitations affecting security holders			121
Taxation			122
Documents on display			128
Item 11. Quantitative and qualitative disclosures about market risk			128
Item 12. Description of securities other than equity securities			136
PART II			136
Item 13. Defaults, dividend arrearages and delinquencies			136
Item 14. Material modifications to the rights of security holders and use of proceeds			136
Item 15. Controls and procedures			136
Evaluation of disclosure controls and procedures			136
Management’s report on internal control over financial reporting			136
Changes in internal controls			137
Item 16A. Audit committee financial expert			137
Item 16B. Code of ethics			137
Item 16C. Principal accountant fees and services			137
Principal accountant fees			137
Audit committee pre-approval policies and procedures			137
Item 16D. Exemptions from the listing standards for audit committees			138
Item 16E. Purchases of equity securities by the issuer and affiliated purchasers			138
PART III			139
Item 17. Financial statements			139
Item 18. Financial statements			139
Item 19. Exhibits			139
Glossary			140
Signatures			145
Index to consolidated financial statements			F-1

PRESENTATION OF FINANCIAL INFORMATION

     We have prepared our financial statements appearing in this annual report in accordance with generally accepted accounting principles in the United States (U.S. GAAP), which differ in certain respects from accounting practices adopted in Brazil (Brazilian GAAP). Brazilian GAAP is determined by the requirements of Law No. 6,404, dated December 15, 1976, as amended, which we refer to as the Brazilian Corporation Law, and the rules and regulations of the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM.

     We also publish Brazilian GAAP financial statements and use them for reports to Brazilian shareholders, CVM filings, determining dividend payments and determining our tax liability. In December 2007, significant changes were made to the Brazilian Corporate Law to permit Brazilian GAAP to converge with International Financial Reporting Standards (“IFRS”). The changes will take effect for the fiscal year ended December 31, 2008. The impact on the BR GAAP income statement could include: a change in the means of calculating and amortizing goodwill, the recognition of exchange variations by foreign subsidiaries, the accounting for joint ventures and affiliates, and related tax effects. Detailed regulation outlining the impact on BR GAAP and transition requirements is not yet available.

     Our financial statements and the other financial information appearing 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.

     References to “real,” “reais” or “R$” are to Brazilian reais (plural) and to the Brazilian real (singular), the official currency of Brazil. References to “U.S. dollars” or “US$” are to United States dollars.

     Unless otherwise specified, we use metric units.

     References to “Vale” are to Companhia Vale do Rio Doce. References to “us” or “we” are to Vale and, except where the context otherwise requires, its consolidated subsidiaries. References to “Inco” are to Inco Limited, which we acquired in October 2006. We changed Inco’s name to Vale Inco Limited (“Vale Inco”) in November 2007.

     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 American Depositary Shares (our preferred ADSs), each of which represents one preferred class A share of Vale. American Depositary Shares are represented by American depositary receipts (ADRs) issued by the depositary.

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 privatization, acquisition or joint venture transactions or other investment opportunities;
	•		our acquisition or divestiture plans;
	•		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 declaration or payment of dividends;
	•		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 Item 3. Key information—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 the forward-looking statements as a result of various factors. These risks and uncertainties include factors relating to (a) the countries in which we operate, especially Brazil and Canada, (b) the global economy, (c) the financial markets, (d) the iron ore and nickel businesses and their dependence on the global steel industry, which is cyclical in nature, and (e) the highly competitive industries 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 Item 3. Key information—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.

PART I

Item 1. Identity of directors, senior management and advisors

     Not applicable.

Item 2. Offer statistics and expected timetable

     Not applicable.

Item 3. Key information

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 appearing in this annual report.

Statement of income data

		For the year ended December 31,
		2003				2004				2005				2006				2007
		(US$million)
Net operating revenues		US$	5,350			US$	8,066			US$	12,792			US$	19,651			US$	32,242
Cost of products and services			(3,128	)			(4,081	)			(6,229	)			(10,147	)			(16,463	)
Selling, general and administrative expenses			(265	)			(452	)			(583	)			(816	)			(1,245	)
Research and development			(82	)			(153	)			(277	)			(481	)			(733	)
Other expenses			(231	)			(257	)			(271	)			(570	)			(607	)
Operating income			1,644				3,123				5,432				7,637				13,194
Non-operating income (expenses):
Financial income (expenses)			(249	)			(589	)			(437	)			(1,011	)			(1,297	)
Foreign exchange and monetary gains, net			242				65				299				529				2,559
Gain on sale of investments			17				404				126				674				777
Subtotal			10				(120	)			(12	)			192				2,039
Income before income taxes, equity results and minority interests			1,654				3,003				5,420				7,829				15,233
Income taxes charge			(297	)			(749	)			(880	)			(1,432	)			(3,201	)
Equity in results of affiliates and joint ventures and change in provision for gains on equity investments			306				542				760				710				595
Minority interests			(105	)			(223	)			(459	)			(579	)			(802	)
Change in accounting practice for asset retirement obligations			(10	)			—				—				—				—
Net income		US$	1,548			US$	2,573			US$	4,841			US$	6,528			US$	11,825
Total cash paid to shareholders (1)		US$	675			US$	787			US$	1,300			US$	1,300			US$	1,875

Basic and diluted earnings per share

		For the year ended December 31, (1)
		2003				2004				2005				2006				2007
		(US$, except as noted)
Basic and diluted earnings per share:(2)
Per common share			0.34				0.56				1.05				1.35				2.41
Per preferred share			0.34				0.56				1.05				1.35				2.41
Per common share underlying convertible notes			—				—				—				—				3.51
Per preferred share underlying convertible notes			—				—				—				—				3.30
Weighted average number of shares outstanding (in thousands) (3):
Common shares			2,943,216				2,943,216				2,943,216				2,943,216				2,943,216
Preferred shares			1,662,856				1,662,864				1,662,864				1,908,852				1,889,171
Treasury common shares underlying convertible notes			—				—				—				—				34,510
Treasury preferred shares underlying convertible notes			—				—				—				—				18,478
Total			4,606,072				4,606,080				4,606,080				4,852,068				4,885,375
Distributions to shareholders per share (4):
In US			0.14				0.17				0.28				0.27				0.39
In reais		R$	0.41			R$	0.49			R$	0.67			R$	0.58			R$	0.74

Balance sheet data

		At December 31,
		2003				2004				2005				2006				2007
		(US$ million)
Current assets		US$	2,474			US$	3,890			US$	4,775			US$	12,940			US$	11,380
Property, plant and equipment, net			6,484				9,063				14,166				38,007				54,625
Investments in affiliated companies and joint ventures and other investments			1,034				1,159				1,672				2,353				2,922
Other assets			1,442				1,603				2,031				7,626				7,790
Total assets		US$	11,434			US$	15,715			US$	22,644			US$	60,926			US$	76,717
Current liabilities		US$	2,253			US$	2,455			US$	3,325			US$	7,312			US$	10,083
Long-term liabilities (1)			1,201				1,867				2,410				10,008				13,195
Long-term debt (2)			2,767				3,214				3,714				21,122				17,608
Total liabilities			6,221				7,536				9,449				38,442				40,886
Minority interest			329				788				1,218				2,811				2,555
Stockholders’ equity:
Capital stock			2,869				3,209				5,868				8,119				12,306
Additional paid-in capital			498				498				498				498				498
Mandatorily convertible notes — common ADSs			—				—				—				—				1,288
Mandatorily convertible notes — preferred ADSs			—				—				—				—				581
Reserves and retained earnings			1,517				3,684				5,611				11,056				18,603
Total shareholders’ equity			4,884				7,391				11,977				19,673				33,276
Total liabilities and shareholders’ equity		US$	11,434			US$	15,715			US$	22,644			US$	60,926			US$	76,717

RISK FACTORS

Risks relating to our business

     A decline in demand for steel would adversely affect our business.

     Demand for our most important products depends on global demand for steel. Iron ore and iron ore pellets, which together accounted for 44.2% of our 2007 gross revenues, are used to produce carbon steel. Nickel, which accounted for 30.3% of our 2007 gross revenues, is used mainly to produce stainless steel. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectoral factors, and demand for stainless steel is partly independent of demand for carbon steel. The prices of different steels and the performance of the global steel industry are highly cyclical, and these business cycles in the steel industry affect demand and prices for our products.

     In recent years, growing worldwide demand for carbon steel has led to strong demand and rising prices for iron ore and iron ore pellets. However, in the event of a sustained decline in prices or sales volumes for iron ore and iron ore pellets would have a material adverse effect on our revenues and earnings. Consolidation in the steelmaking industry may lead to backward integration, which could reduce the global seaborne trade of iron ore.

     Growing demand for stainless steel has contributed to strong demand and rising prices for nickel, leading to record-high nickel prices in the second quarter of 2007. In response to high prices, producers and consumers of stainless steel have been shifting to stainless steels with lower nickel content. A sustained decline in austenitic stainless steel production, which could potentially result from a technological development that reduces the amount of nickel required in stainless steel, would have a material adverse effect on our revenues from nickel.

Adverse economic developments in our principal markets, especially China, could reduce demand for our products, leading to lower revenues and profitability.

     The global economy is the primary driver of demand in the global market for minerals and metals. In recent years, China has been the main driver of minerals and metals demand and of our sales increases. In 2007, China represented approximately 49% of the global demand for seaborne iron ore, 24.2% of global demand for nickel, 33% for aluminum and 26.3% for copper.

     The percentage of our gross revenues attributable to sales to customers in China was 17.7% in 2007. The percentage of our gross revenues attributable to sales to customers from Asian countries other than China was 23.3% in 2007. The percentage of our gross revenues attributable to sales to European customers was 22.1% in 2007. A weakened global economy or a weakened economy in specific markets where we sell our products, such as China, could reduce demand for our products, leading to lower revenues and profitability.

The prices of nickel, aluminum and copper, which are actively traded on world commodity exchanges, are subject to significant volatility.

     Nickel, aluminum and copper are sold in an active global market and traded on commodity exchanges, such as the London Metal Exchange and the New York Mercantile Exchange. Prices for these 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, investments by commodity funds and others and actions of participants in the commodity markets. Prices for these metals are more volatile than contractual prices for products such as iron ore, iron ore pellets and metallurgical coal, because they respond more quickly to actual and expected changes in market conditions.

     Increased substitution of primary nickel could adversely affect our nickel business.

     Demand for primary nickel may be negatively impacted by the substitution of primary nickel with other materials in current applications. 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 2007, the stainless steel scrap ratio is estimated to have remained unchanged compared to 2006, at 48%. Nickel pig iron, a product developed by Chinese steel and alloy makers that utilizes low-grade lateritic nickel ores, competes with other nickel sources in the production of stainless steel. In 2007, nickel pig iron represented an estimated 6% of world primary nickel supply, compared to 2% in 2006.

A reduction of global demand for Brazilian steel or agriculture products could reduce the demand for our logistics services.

     The Brazilian agriculture and steel industries are currently the primary drivers of demand for our logistics services to customers. The percentage of our logistics revenues attributable to these industries was 83.9% in 2007. A reduction in world demand for Brazilian steel or agricultural products could reduce demand for our logistics services and harm the profitability of our logistics business.

     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 may also stem from acquisitions. We may not be able to successfully integrate acquired businesses or generate the cost savings and synergies anticipated, which could negatively affect our financial condition and results of operations.

     The mining industry is intensely competitive, and we may have difficulty effectively competing with other mining companies in the future.

     Intense competition characterizes the global mining industry. We compete with a large number of mining companies. Some of them possess substantial mineral deposits at locations closer to our principal customers. Competition from other producers may result in our loss of market share and revenues.

Demand for our products in peak periods may outstrip our production capacity, rendering us unable to satisfy customer demand.

     Our ability to rapidly increase production capacity to satisfy increases in demand for our products is limited. In periods when customer demand exceeds our production capacity, we may meet excess customer demand by reselling iron ore, iron ore pellets or nickel purchased from joint ventures or unrelated parties. If we are unable to satisfy excess customer demand in this way, we may lose customers. We may be unable to complete expansion and greenfield projects in time to take advantage of the current high levels of worldwide demand for iron ore and nickel.

     We have been operating at or above full capacity in our iron ore systems since 2003. As a result, disruptions in operations in any part of our integrated systems, or maintenance programs that require more time than expected, could result in lower volumes and lower revenues. In addition, operating at or above full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.

Political, economic, regulatory and social conditions in the countries in which we operate or have projects could adversely impact our business and the market price of our securities.

     Our financial performance may be negatively affected by general economic, political, regulatory and social conditions in countries in which we have significant operations or projects, particularly Brazil, Canada, Indonesia, Australia, New Caledonia and Mozambique. Actual or potential political changes and changes in economic policy may undermine investor confidence, result in economic slowdowns and otherwise adversely affect the economic and other conditions under which we operate in ways that could have a material adverse effect on our business. Governments in emerging economies such as Brazil, Indonesia and New Caledonia frequently intervene in the economy and occasionally make substantial changes in policy that could adversely affect exchange rates, inflation, interest rates, rates of taxes or royalties and the economic and regulatory environment in which we operate. In New Caledonia, a planned referendum in 2014 may result in New Caledonia becoming fully independent from France, which could result in significant political and economic changes in New Caledonia and may adversely affect our Goro project. See Item 4. Information on the company—Regulatory matters—Mining regulation.

     Acts by protestors may hamper our mining and logistics operations and projects.

     Protestors have taken actions to disrupt our operations and projects, and they may continue to do so in the future. For example, in New Caledonia, in the past protestors caused physical damage to our Goro project and have impeded the construction of the marine pipeline. Although we vigorously defend ourselves against illegal acts, while supporting the communities living near our operations, future attempts by protestors to harm our operations could adversely affect our business.

Our projects are subject to risks that may result in increased costs or delay or prevent their successful implementation.

     We are investing heavily to further increase our production capacity, logistics capabilities and to expand the scope of minerals we produce. Our expansion and mining 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 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.
	•		We may fail to obtain, or experience delays or higher than expected costs in obtaining, the required permits 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.
	•		Adverse mining conditions may delay and hamper our ability to produce the expected quantities of minerals.
	•		Some of our development projects are located in regions where tropical diseases, AIDS, malaria, yellow fever 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 business may be adversely affected.

     Our principal shareholder has significant influence over our company.

     At December 31, 2007, Valepar S.A. owned 53.3% of our outstanding common stock and 32.5% of our total outstanding capital. For a description of our ownership structure, see Item 7. Major shareholders and related party transactions—Major shareholders—Principal shareholder. As a result of its share ownership, Valepar can control the outcome of any action requiring shareholder approval, except for the appointment of certain directors and certain members of our fiscal council. Moreover, the Brazilian government owns 12 golden shares granting it limited veto power over certain actions that we could otherwise take. For a detailed description of the Brazilian government’s veto power by virtue of its ownership of these golden shares, see Item 10. Additional information—Common shares and preferred shares—General.

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.

Many of our operations depend on joint ventures or consortia, and our business could be adversely affected if our partners fail to observe their commitments.

     We currently operate important parts of our pelletizing, nickel, bauxite, coal and steel businesses through joint ventures with other companies. Important parts of our electricity business 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 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 Item 4. Information on the company—Lines of business.

Our operations depend on authorizations from regulatory agencies in many jurisdictions, and changes in regulations could adversely affect our business.

     Our operations depend on authorizations from and concessions by governmental regulatory agencies of the countries in which we operate, and we are subject to laws and regulations in many jurisdictions that can change at any time. Changes in laws and regulations may require modifications to our technologies and operations and result in unanticipated capital expenditures. For example, in Indonesia, the pending new mining legislation could have a material adverse effect on our PT Inco operations. For details about the authorizations and concessions upon which our operations activities depend, see Item 4. Information on the company—Regulatory matters.

Environmental, health and safety regulation may adversely affect our business.

     Our operations often involve the use, handling, disposal and discharge of hazardous materials into the environment or the use of natural resources, and nearly all aspects of our operations and development projects around the world are subject to environmental, health and safety regulation. Such regulation requires us to obtain operating licenses, permits and other approvals and to conduct environmental assessments prior to initiating projects or undertaking significant changes to existing operations. Difficulties in obtaining licenses may lead to construction delays or cost increases, and in some cases may lead us to abandon a project. Environmental regulation also imposes standards and controls on activities relating to mining, exploration, development, production, reclamation, closure, and the 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 environmentally-sustainable development, which could entail significant costs and reduce our profitability.

     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, creating new requirements for the issuance or renewal of environmental licenses, raising our costs or requiring us to engage in expensive reclamation efforts. For example, in Brazil, environmental protection laws restrict our ability to expand operations without undertaking extensive conservation efforts. They also impose fees on development in protected areas, and many Brazilian states are considering implementing water usage fees, while one state, São Paulo, in which we do not have any operations is already charging water usage fees. In Canada, we may be required to conduct investigations or undertake remediation efforts in connection with elevated levels of metals in the soils near our Canadian facilities, which may involve significant expenditures. In addition, compliance with sulphur dioxide emissions limits could have an adverse impact on nickel production levels to the extent we are required to operate our facilities at reduced levels to comply with such limits or are unable to bank or trade sufficient emission allowances in emissions trading markets. For more information on environmental, health and safety regulation applicable to our operations, see Item 4. Information on the company—Regulatory matters—Environmental regulation and Item 8. Financial information—Legal proceedings.

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 anticipated 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 many factors beyond our control. Reserve engineering involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate. Estimates of different engineers may vary, and results of our mining and production subsequent to the date of an estimate may lead to revision of estimates. Reserve estimates and estimates of mine life may require revision 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.

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 nonproductive. Our exploration programs, which involve significant capital 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.

Even if we discover mineral deposits, we remain subject to drilling and production risks, which 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 metals 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 write-offs. In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in 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. 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.

We face shortages of equipment, services and skilled personnel.

     The mining industry faces worldwide shortages of mining and construction equipment, spare parts, contractors and other skilled personnel as a result of high demand for minerals and metals and the large number of projects under development. We are experiencing longer lead-times for mining equipment and problems with the quality of contracted engineering, construction and maintenance services. We are competing with other mining companies for highly skilled executives and staff with relevant industry and technical experience, and we may not be able to attract and retain such people. These shortages could negatively impact our operations, resulting in higher production costs, production interruptions, higher inventory costs, project delays and potentially lower production and revenues.

Labor disputes have disrupted our operations, and such disputes could recur.

     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 renegotiation. Renegotiation may become more difficult, as labor unions seek wage increases based on the higher prices and increased profits in the mining and metals industries. Strikes or work stoppages have occurred recently in Canada and Indonesia and could reoccur in connection with negotiations of new labor agreements or during other periods for other reasons. Moreover, we could be adversely affected by labor disruptions involving unrelated parties who may provide us with goods or services. Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and the cost of our capital projects.

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

     To fulfill our energy needs, we depend on oil by-products, which represented 49.4% of total energy needs in 2007 in TOE (tons of oil equivalent), natural gas (11.5% on the same basis), coal (3.8% on the same basis) and electricity (35.3% on the same basis). Fuel costs, which represented 8.5% of our cost of goods sold in 2007, are a major component of our total costs in our logistics, iron ore pellets and nickel businesses and indirectly affect numerous other areas of our business, including our mining and alumina businesses. Fuel prices increased by 17.9% in 2007. Increases in oil and gas prices adversely affect margins in our logistics, mining, iron ore pellets, finished nickel and alumina businesses.

     Electricity costs are a significant component of the cost of our production, representing 5.3% of our total cost of goods sold in 2007. If we are unable to secure reliable access to electric energy 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 currently generate 24.5% of our worldwide electricity needs from our own hydroelectric power plants and we are developing hydroelectric and thermal power plants and engaging in natural gas exploration programs in order to increase the amount of energy we produce and reduce our future exposure to price and supply volatility of energy.

     Electricity shortages have occurred in Brazil in the past and could reoccur in the future, and there can be no assurance that the Brazilian government’s policies will succeed in encouraging growth in generation capacity. Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply of electricity for our Brazilian aluminum and ferroalloy operations. Changes in the laws, regulations or governmental policies regarding the power sector or concession requirements could reduce our expected returns from our investments in power generation. See Item 4. Information on the company—Regulatory matters—Electric energy regulation.

     Through our subsidiary PT Inco in Indonesia, we process lateritic nickel ores, which is energy-intensive. Although PT Inco currently generates a majority of the electricity for its operations from its own hydroelectric power plants, hydrological factors, such as low rainfalls, could adversely affect electricity production at PT Inco’s plants in the future, which could significantly increase the risk of higher costs. For more information on the regulations governing energy production, see Item 4. Information on the company—Regulatory matters—Electric energy regulation.

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

     We are affected by fluctuations in the prices of the currencies in which we conduct operations relative to the U.S. dollar. A substantial portion of our revenues and debt is denominated in U.S. dollars, and changes in exchange rates may result in losses or gains on our net U.S. dollar-denominated indebtedness and accounts payable. In 2007, 2006 and 2005, changes in exchange rates produced net foreign exchange gains of US$1.639 billion, US$452 million and US$227 million, respectively. In addition, the price volatility of the Brazilian real, the Canadian 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 (56.6% in 2007) and the Canadian dollar (23.3% in 2007), while our revenues are mostly U.S. dollar-denominated. Currency fluctuations are expected to continue to affect our financial income, expense and cash flow generation.

     Significant volatility in currency prices may also result in disruption of countries’ foreign exchange markets and may limit our ability to transfer or to convert such currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. The governments of countries in which we operate may institute restrictive exchange rate policies in the future.

Investor perceptions of risk in Brazil and other emerging market economies may undermine our ability to finance our operations at an acceptable cost or reduce the trading price of our securities.

     Although our acquisition of Inco in October 2006 significantly expanded the proportion of our non-Brazilian operations, our largest operations, corporate headquarters and senior management continue to be located in Brazil, which investors generally consider an emerging market. Economic crises in one or more emerging market countries may produce a contagion that reduces overall investor appetite for securities of emerging market issuers. Past economic crises in emerging markets, such as in Southeast Asia, Russia and Argentina, have resulted in significant outflows of U.S. dollars from Brazil and caused Brazilian companies to face higher costs for raising funds, both domestically and abroad, and have effectively impeded access to international capital markets for extended periods.

We cannot assure you that global capital markets will remain open to Brazilian companies or that prevailing interest rates in these markets will be advantageous to us. In addition, future financial crises in emerging market countries may have a negative impact on the Brazilian markets, which could adversely affect the trading price of our securities.

     Our market risk management strategy may not be effective.

     We are exposed to traditional market risks such as volatility in interest rates, exchange rates and commodity prices. We earn most of our revenues in U.S. dollars, but incur a substantial portion of our costs and expenses in currencies other than the U.S. dollar. The exchange rates for such currencies are very volatile. In order to manage market prices and rates exposure, our board of directors has established an enterprise risk management policy and a risk management committee. See Item 11. Quantitative and qualitative disclosures about market risk. Our strategy may not be successful in managing risk exposure, and we may fail to identify correlations between the various market risks to which we are subject. In addition, to the extent we choose to hedge our commodity price exposure, we may limit the upside benefits that we would otherwise experience if commodities prices were to increase.

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

     Our businesses are generally subject to a number of risks and hazards, including:

	•		industrial accidents;
	•		railroad accidents;
	•		port accidents;
	•		labor disputes;
	•		slope or pit-wall failures, cave-ins or rock falls;
	•		environmental hazards;
	•		electricity stoppages;
	•		equipment or vessel failures;
	•		severe weather and other natural phenomena such as seismic events;
	•		unavailability or late delivery of materials, supplies or equipment;
	•		unexpected ground, grade or water conditions; and
	•		unusual or unexpected geological formations or pressures.

     These occurrences could result in damage to, or destruction of, mineral properties, production facilities, logistics facilities, equipment or vessels. They could also result in personal injury or death, environmental damage, waste of resources or intermediate products, delays or interruption in mining, production or transportation activities, monetary losses and possible legal liability. 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.

Risks relating to the American Depositary Shares

If ADR holders exchange ADSs for the underlying shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.

     The Brazilian custodian for the shares underlying our ADSs will obtain an electronic registration from the Central Bank to entitle it to remit U.S. dollars abroad for payments of dividends and other distributions relating to the shares underlying our ADSs or upon the disposition of the underlying shares. If an ADR holder decides to exchange its ADRs for the underlying shares, it will be entitled to continue to rely, for five business days from the date of exchange, on the custodian’s electronic registration.

Thereafter, an ADR holder may not be able to obtain and remit U.S. dollars abroad upon the disposition of, or distributions relating to, the underlying shares unless it obtains its own electronic registration by registering the investment in the underlying shares under Resolution No. 2,689 of the National Monetary Council, which permits qualifying institutional foreign investors to buy and sell securities on the São Paulo stock exchange, or BOVESPA. For more information regarding these exchange controls, see Item 10. Additional information—Exchange controls and other limitations affecting security holders. If an ADR holder attempts to obtain its own electronic registration, it may incur expenses or suffer delays in the application process, which could delay the receipt of dividends or distributions relating to the underlying shares or the return of capital in a timely manner. We cannot assure ADR holders that the custodian’s electronic registration or any certificate of foreign capital registration obtained by them will not be affected by future legislative changes, or that additional restrictions applicable to ADR holders, the disposition of the underlying shares or the repatriation of the proceeds from disposition will not be imposed in the future.

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

     ADR holders that are residents of the United States may not be able to exercise preemptive rights, or exercise other types of rights, with respect to the underlying shares. The ability of ADR holders to exercise preemptive rights is not assured unless a registration statement is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement relating to preemptive rights with respect to the underlying shares or to undertake steps that may be needed to make exemptions from registration available, and we cannot assure ADR holders that we will file any registration statement or take such steps. If a registration statement is not filed and an exemption from registration does not exist, the depositary for our ADRs will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of the sale. However, the preemptive rights will expire if the depositary cannot sell them. For a more complete description of preemptive rights with respect to the underlying shares, see Item 10. Additional information—Common shares and preferred shares—Preemptive rights.

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

     ADR holders do not have the rights of shareholders. They have only the contractual rights set forth for their benefit under the deposit agreements. ADR holders are not permitted to attend shareholders’ meetings, and they may only vote by providing instructions to the depositary. In 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 to submit voting instructions, ADR 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.

     ADR holders may be disadvantaged by the fact that the Brazilian securities markets are not as highly regulated and supervised as the securities markets in the United States or in certain other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of minority shareholder interests may be less well-developed and enforced in Brazil than in the United States. For example, when compared to Delaware corporate law, Brazilian corporate law and practice has less detailed and well-established rules and judicial precedents relating to the review of management decisions against duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties, and sale-of-business transactions. Moreover, shareholders in Brazilian companies ordinarily do not have standing to bring a class-action lawsuit.

     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. For more information concerning our corporate governance policies, see Item 6. Directors, senior management and employees and Item 10. Additional Information—Memorandum and Articles of Association.

Item 4. Information on the company

BUSINESS OVERVIEW

General

     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 and kaolin. We are also one of the world’s largest producers of manganese ore and ferroalloys. We also produce bauxite, alumina, aluminum, copper, coal, cobalt, precious metals, potash and other products. To support our growth strategy, we are actively engaged in mineral exploration efforts in 21 countries around the globe. We operate large logistics systems in Brazil, including railroads, maritime terminals and a port, which are integrated with our mining operations. Directly and through affiliates and joint ventures, we have investments in the energy and steel businesses.

     The following table presents the breakdown of our total gross revenues attributable to each of our main lines of business, each of which is described following the table.

		Year ended December 31,
		2005				2006				2006 (1)				2007
Ferrous minerals:
Iron ore			55.2				49.2				39.0				36.0
Iron ore pellets			15.5				9.7				7.7				8.3
Manganese			0.6				0.3				0.2				0.2
Ferroalloys			3.7				2.5				2.0				2.1
Subtotal			75.0%				61.7%				48.9%				46.6%
Non-ferrous minerals:
Nickel (2)			—				11.6				25.6				30.3
Aluminum			10.5				11.7				9.3				8.2
Copper			2.9				5.3				7.1				6.0
PGMs (2)			—				0.4				1.0				1.0
Other precious metals (2)			—				0.1				0.7				0.3
Other non-ferrous minerals			2.4				1.9				1.6				1.7
Subtotal			15.8%				31.0%				45.3%				47.5%
Coal			—				—				—				0.5%
Logistics			9.1%				6.8%				5.4%				4.6%
Other investments			0.1%				0.5%				0.4%				0.8%
Total			100.0%				100.0%				100.0%				100.0%

	•		Iron ore, iron ore pellets, manganese and ferroalloys. We operate three systems in Brazil for producing and distributing iron ore. The Northern and the Southeastern Systems are fully integrated, consisting of mines, railroads, a maritime terminal and a port. The Southern System consists of the mines of our subsidiary MBR, the Oeste mines and the Guaíba Island and Itaguaí maritime terminals. We operate nine pellet-producing facilities in Brazil, five of which are joint ventures. We also have a 50% stake in a joint venture that owns two pelletizing plants in Brazil and a 25% stake in a pellet company in China. We conduct our manganese mining operations in Brazil, at the parent company level and through our subsidiary Urucum. We produce several types of manganese ferroalloys through subsidiaries in Brazil. France and Norway.
	•		Nickel. Our principal nickel mines and processing operations are carried out by our subsidiary Vale Inco, with mining operations in Canada and Indonesia. We operate or have interests in nickel refining facilities in the United Kingdom, Japan, Taiwan, South Korea and China.
	•		Aluminum. We are engaged in bauxite mining, alumina refining, and aluminum metal smelting. In Brazil, we own a bauxite mine and an alumina refinery, both of which we are currently expanding. We also own two aluminum smelters in Brazil. We have a 40% interest in Mineração Rio do Norte S.A. (“MRN”), a bauxite producer, operations of which are also located in Brazil.
	•		Copper. We have copper mining operations in Brazil and Canada. In Brazil, we produce copper concentrates at Sossego in Carajás, in the state of Pará. In Canada, we produce copper concentrate, copper anode and copper cathode in conjunction with our nickel mining operations at Sudbury and Voisey’s Bay.
	•		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, in the Province of Ontario, Canada, and refined at our precious metals refinery in Acton, England.
	•		Other precious metals. We produce gold and silver as by-products of our nickel mining and processing operations in Canada. Some of these precious metals are upgraded at our facilities in Port Colborne, Ontario, and all are refined by unrelated parties in Canada.

	•		Other non-ferrous minerals. We are the world’s second-largest producer of kaolin for the paper industry and Brazil’s sole producer of potash. We produce cobalt as a by-product of our nickel mining and processing operations in Canada and refine it at our Port Colborne facilities.
	•		Coal. In April 2007, we acquired 100% of AMCI Holdings Australia Pty and formally renamed it Vale Australia Holdings (“Vale Australia”). Vale Australia operates coal assets in Australia through wholly-owned subsidiaries and unincorporated joint ventures. We also have minority interests in Chinese coal and coke producers.
	•		Logistics. We are a leading provider of logistics services in Brazil, with railroads, maritime terminals and a port. Two of our three 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 have a 31.3% interest in Log-In Logística Intermodal S.A., or Log-In, which provides container-based logistics services.
	•		Other investments. We have investments in two steel companies and three joint ventures to produce steel slabs in Brazil. We also have investments in power generation plants.

     Vale’s legal and commercial name is Companhia Vale do Rio Doce. In November 2007, we launched a global brand unification project under the name “Vale,” which is aimed at communicating our transformation into a global mining company with a diversified portfolio of products.

     Vale is a stock corporation, or sociedade por ações, duly organized on January 11, 1943, and existing under the laws of the Federative Republic of Brazil. Vale was privatized in three stages between 1997 and 2002, beginning with the sale by the Brazilian government of a controlling stake in Vale to Valepar in 1997. The last stage of the privatization process took place in 2002, when the Brazilian government sold its remaining minority stake of common shares through a global equity offering. Vale is organized 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.

Business strategy

     Our mission is to transform mineral resources into prosperity and sustainable development. Our vision is to become the largest mining company in the world and to surpass current standards of excellence in research, development, project implementation and business operations. To this end, we are building on our strengths in iron ore and nickel and increasing our geographical and product diversification and logistics capabilities. We are focusing on organic growth in our core businesses, with a robust long-term strategic planning process. We also regularly review opportunities to make strategic acquisitions. We apply disciplined capital management in order to maximize return on invested capital and total return to shareholders. Below we highlight 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 2007 and 2006, we had an estimated market share of 32.5% of the total volume traded in the seaborne market. We are committed to maintaining our position in the global iron ore market by strengthening relationships with customers, focusing our product line to capture industry trends, increasing our production capacity in line with demand growth and controlling costs. We believe that our strong relationships with major customers, reinforced through long-term contracts, high quality products and a strong technical marketing strategy, will help us achieve this goal. We have also encouraged steelmakers to develop steel slab plants in Brazil, through minority stakes in joint ventures, 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, advanced technology and a robust growth profile. We believe our greenfield projects at Onça Puma and Vermelho in Brazil and Goro in New Caledonia will further support our leadership position in the nickel market.

Expanding our aluminum activities

     We are developing and increasing production capacity in our aluminum operations, focusing on the upstream portion of the production chain and developing low-cost bauxite and alumina projects. We have large, undeveloped high-quality bauxite reserves and opportunities for low-cost expansions in our alumina refinery. We are working on the development of these opportunities. We are also investing in mineral exploration to increase our bauxite resources. Our strategic focus for primary aluminum activities is locating opportunities to participate in smelter operations in countries with low energy costs.

Developing our copper resources

     We believe that our Brazilian copper projects, which are all situated in the Carajás mineral province, in the Brazilian state of Pará, could be among the most competitive in the world in terms of investment cost per metric ton of ore. We are developing the Salobo project, and we are testing new technology that, if successful, could permit the development of other copper projects in this region. We expect these copper mines to benefit from our infrastructure facilities serving the Northern System. We are also engaged in mineral exploration in several countries to increase our reserve base.

Investing in coal

     We are pursuing various opportunities to become a large global player in coal businesses. In April 2007, we acquired AMCI Holdings Australia Pty (renamed Vale Australia), which has coal operating assets and a portfolio of exploration projects in Australia. In the past several years, we have invested in two joint ventures in China, and we intend to continue pursuing organic growth in the coal business through the development of the Moatize project in Mozambique, development of more advanced coal exploration projects in Australia and mineral exploration initiatives in several countries.

Diversification and expansion of our resource base

     We are engaged in an active mineral exploration program, with efforts in 21 countries around the globe. We are mainly seeking new deposits of copper, manganese ore, iron ore, nickel, bauxite, phosphate, potash, coal, uranium, diamond and platinum group metals. Mineral exploration is an important part of our organic growth strategy.

Enhancing our logistics capacity

     We believe that the quality of our railway assets and our many years of 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 are expanding the capacity of our railroads through the expansion of the Northern and Southern Corridors, the construction of two new railroads, and the purchase of additional locomotives and wagons to serve the increasing needs of our iron ore and other businesses, as well as those of our customers.

Developing power generation projects

     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 are using the electricity from these projects to supply our internal needs. In 2007, we began investing in natural gas exploration in Brazil through consortia. We are seeking to diversify and optimize our energy grid through increased use of thermal coal, renewable fuels and natural gas.

Significant changes in our business

     The scope of our operations has been affected by acquisitions, by dispositions and by the completion of major investment projects. We summarize below the major acquisitions, divestitures, investment projects and other developments having a significant effect on our financial performance in 2007 and 2008.

Global brand unification

     In November 2007, we began using a single global brand, Vale, in all countries where we operate and adopted a new logo. The use of the name Vale and the new logo communicate the evolution, diversification and growth of the company in the past years, which transformed us into a global mining company with a diversified portfolio of products that are present and essential in people’s lives. There was no change in Vale’s legal name.

Acquisitions

     Conclusion of Inco acquisition

     In January 2007, we completed our acquisition of Inco (renamed Vale Inco), increasing our ownership from 87.73% to 100% and disbursing the final US$2.053 billion of the acquisition cost.

     Acquisition of AMCI Holdings

     In April 2007, we paid US$656 million to acquire 100% of AMCI Holdings Australia Pty (renamed Vale Australia). Vale Australia operates coal assets and has exploration projects in Australia.

     Acquisition of remaining interest in MBR

     In May 2007, we increased our ownership of our subsidiary Minerações Brasileiras Reunidas S.A. — MBR (“MBR”), which we consider to have some of the best iron ore assets in the world. We own 49% of MBR directly. The remaining 51% is owned by Empreendimentos Brasileiros de Mineração S.A. — EBM (“EBM”). Before May 2007, we owned 80% of the capital stock of EBM. In these transactions, we purchased an additional 6.25% of EBM’s capital stock and entered into a usufruct agreement giving us the benefit of the remaining 13.75% of EBM’s capital for the next thirty years. We paid US$231 million for the shares. For the usufruct agreement, we paid an initial installment of US$61 million and will pay 29 annual installments of US$48 million each. This transaction will allow us to benefit from synergies between Vale and MBR and to increase our exposure to the iron ore business.

Norte-Sul railroad concession

     In October 2007, we won the auction for the subconcession for commercial operation of a 720-kilometer segment of the Norte-Sul railroad in Brazil. Part of the line (225 km) is already operating, and the remaining segments are scheduled to be completed in late 2008 and early 2009. We will pay R$1.478 billion for the right to operate this stretch for 30 years. In December 2007, we paid the first installment of US$412 million, equivalent to 50% of the total price of the subconcession. This project will create a new corridor for the transportation of general cargo, mainly for the export of soybeans, rice and corn produced in central-northern Brazil.

Organic growth

     We have an ambitious program of investments in the organic growth of our businesses. 2008 is the first year in a new five-year plan to invest US$59 billion in organic growth, which follows a US$20 billion program for the period 2003-2007. Our main investment projects are summarized under “—Capital Expenditures,” and detailed in the discussion of each of our lines of business. The projects that have had the largest impact on our financial performance in 2007 and 2008 are summarized below.

	•		In our iron ore business, several projects have contributed to increased capacity. Since January 2007 we have been operating the Northern System (Carajás) at the level of 100 million metric tons per year, and our board of directors has approved a project for further expansion to 130 million metric tons by 2009. We started operations at the Brucutu mine in September 2006, and it will reach its full capacity of 30 million metric tons during 2008. Fazendão started up in the first quarter of 2008 and will have annual production capacity of 15.8 million metric tons of run-of-mine.
	•		In iron ore pellets, we are building a pellet plant, an iron ore concentration plant and a short iron ore slurry pipeline at Itabiritos. Operations are scheduled to begin in the second half of 2008, with a nominal production capacity of 7 million metric tons per year. We are also increasing production capacity at Samarco, our 50% joint venture with BHP Billiton, by 7.6 million metric tons per year, and operations began in April 2008.

	•		In our nickel business, operations at Goro, in New Caledonia, are scheduled to begin at the end of 2008 and to ramp up over a three-year period to a nominal annual production capacity of 60,000 metric tons of refined nickel and 4,600 metric tons of cobalt.
	•		In copper, we are developing a hydro-metallurgic plant to produce copper cathode at Sossego, in the Carajás region of the Brazilian state of Pará, with a nominal annual production capacity of 10,000 metric tons of copper. Operations are scheduled to begin in the first half of 2008.
	•		In our aluminum business, we started operations at the Paragominas bauxite mine in Brazil in the first quarter of 2007. The first expansion of Paragominas is scheduled to be completed in the first half of 2008. We are also completing the construction of stages 6 and 7 at our Alunorte alumina facility in Brazil, which will add 1.9 million metric tons to its nominal production capacity and is scheduled to start operating in the second half of 2008.

Divestitures and asset sales

     In line with our strategy, we have continued to reduce our holdings of non-strategic assets. We summarize below our key dispositions and asset sales since the beginning of 2007.

	•		Lion Ore. In July 2007, we sold our minority stake in Lion Ore Mining International, a Canadian nickel business, for US$105 million.
	•		Log-In. In June 2007, we conducted an initial public offering of the common shares of Log-In Logística Intermodal S.A. (“Log-In”), our formerly wholly-owned logistics business. We now own 31.3% of Log-In’s voting and total capital stock and are party to an agreement with Mitsui & Co. related to the appointment of board members. Log-In provides container-based logistics services.
	•		Usiminas. In the first half of 2007, we sold shares of Usiminas, a publicly traded Brazilian steelmaker, in a public offering for an aggregate of US$728 million. We continue to own 2.9% of Usiminas’ capital stock and to be party to a shareholders’ agreement.
	•		Jubilee Mines. In the first quarter of 2008, we sold our minority stake in Jubilee Mines, a nickel-producing company in Australia, for US$130 million.

LINES OF BUSINESS

     Our principal lines of business consist of mining and logistics. We also invest in energy to supply part of our consumption. Below is an outline of the information provided in this section:

The following map shows the locations of our operations worldwide.

1		Ferrous minerals
		Our ferrous minerals business segment includes:

	•		iron ore mining;
	•		iron ore pellet production;
	•		manganese ore mining; and
	•		ferroalloy production.

1.1

Iron ore

     1.1.1 Operations — iron ore

     We conduct our iron ore business in Brazil, primarily at the parent company level and through our subsidiaries Minerações Brasileiras Reunidas S.A. — MBR (“MBR”) and Urucum Mineração S.A. (“Urucum”). Our iron ore mining and related operations are concentrated in three systems, the Southeastern System, the Southern System and the Northern System, each with its own transportation capability.

     Southeastern System

     The Southeastern System mines are located in the southeastern state of Minas Gerais, in a region known as the Iron Quadrangle. The iron ore mines are divided into three mining areas: Itabira, Centrais, and Mariana. The ore reserves in the Southeastern System have high ratios of itabirite ore relative to hematite ore. Itabirite ore has iron content of 35% to 60% and requires concentration to achieve shipping grade, which is at least 63.5% average iron content. Hematite has average iron content of approximately 66%. We conduct open-pit mining operations in the Southeastern System. 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 own and operate integrated railroad and terminal networks in the Southeastern System. Our EFVM railroad connects the mines to the Tubarão port in Vitória, in the state of Espírito Santo. The Southeastern System is accessible by road or by spur tracks of the EFVM railroad. For a more detailed description of the networks, see Logistics, below. In 2007, we produced 100% of the electric energy consumed in the Southeastern System at our hydroelectric power plants (Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I and Capim Branco II).

     Southern System

     The Southern System mines are located in the state of Minas Gerais and consist of the Oeste mines and the mines of our subsidiary MBR. MBR presently operates three major mining complexes: the Pico complex (comprised of the three mines, with one major plant and three secondary plants); the Vargem Grande complex (comprised of three mines, and one major beneficiation plant); and the Paraopeba complex (comprised of three mines, and each of their beneficiation plants). We use wet beneficiation processes to convert run-of-mine obtained from open-pit mining operations into sinter feed, lump ore and pellet feed, in addition to hematitinha, a product used primarily by Brazilian pig-iron producers.

     We enter into freight contracts with our affiliate, the MRS Logística S.A. railway company (“MRS”), 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. In 2007, we produced 41% of the electric energy consumed in the Southern System at our hydroelectric power plants Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I, and Capim Branco II.

     Northern System

     The Northern System mines, located in the Carajás mineral province of the state of Pará, contain some of the largest iron ore deposits in the world. The reserves are divided into northern and southern ranges situated approximately 35 kilometers apart. Since 1983, we have been conducting mining activities in the northern range, which is divided into five main mining bodies. 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.

     Because of the high iron content (66.8% on average) of the Northern System deposits, we do not have 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, pellet feed, special fines for direct reduction processes and lump ore.

     We operate an integrated railroad and 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. Our operations in Carajás are accessible by road, air and rail. It obtains all of its electrical power at market prices from regional utilities. To support our Carajás operations, we have housing and other facilities in a nearby township.

     1.1.2 Production — iron ore

						Production for the year ended December 31,
																		Nominal				Recovery
Mine		Type				2005				2006				2007				capacity (1)				rate
						(million metric tons)																(%)
Southeastern System
Itabira mines
Cauê (2)		Open pit					23.5				23.7				24.8				24.6				72.1
Conceição (2)		Open pit					22.2				23.3				21.9				22.0				76.4
Centrais mines
Água Limpa / Cururu (3)		Open pit					3.9				4.2				4.2				4.0				49.6
Gongo Soco		Open pit					5.7				6.7				6.5				6.1				81.5
Brucutu		Open pit					7.2				7.7				21.9				18.0				76.7
Córrego do Meio		Open pit					0.9				—				—				—				—
Andrade (4)		Open pit					1.5				1.4				1.3				1.4				100.0
Mariana mines
Alegria		Open pit					12.3				12.9				13.5				12.4				72.7
Fábrica Nova (5)		Open pit					7.8				13.2				14.6				15.6				N/A
Fazendão (6)		Open pit					0.8				0.7				3.7				—				N/A
Timbopeba		Open pit					4.6				2.8				1.3				—				82.2
Total Southeastern System							90.4				96.6				113.8				104.1
Southern System
Oeste mines
Córrego do Feijão		Open pit					8.1				8.2				9.3				9.3				81.8
Segredo/João Pereira		Open pit					11.5				11.5				11.8				11.8				66.1
MBR System
Pico Complex
Pico/Sapecado/Galinheiro		Open pit					14.1				17.1				17.4				17.4				75.4
Vargem Grande Complex
Tamanduá (7)		Open pit					9.1				10.0				10.2				10.0				81.3
Capitão do Mato (7)		Open pit					9.6				11.4				11.5				11.5				81.3
Abóboras		Open pit					2.5				4.3				6.0				6.1				100.0
Paraopeba Complex
Jangada		Open pit					4.0				4.8				3.9				4.0				81.0
Capão Xavier		Open pit					11.1				13.5				13.3				13.3				79.5
Mar Azul (8)		Open pit					N/A				3.5				5.9				4.0				96.0
Total Southern System							70.0				84.3				89.3				87.4
Northern System
Serra Norte (9)
N4W		Open pit					21.9				34.3				40.3				—				89.3
N4E		Open pit					27.2				19.2				15.4				—				89.3
N5-W		Open pit					8.4				15.2				30.4				—				89.3
N5E		Open pit					12.7				10.2				5.0				—				89.3
N5E-N		Open pit					2.4				2.9				0.6				—				89.3
Total Northern System							72.6				81.8				91.7				100.4
Urucum		Open pit					1.1				1.4				1.1				0.3				60.0
Total Vale							233.9				264.2				295.9				292.2

1.1.3 Projects and exploration — iron ore

	•		Fazendão. We expect this project, located in the Southeastern System, to have annual production capacity of 15.8 million metric tons of run-of-mine, which will be used to feed the Alegria beneficiation plant and Samarco’s third pelletizing plant. Our estimated total investment in this project is US$129 million. The ramp-up process began in the first quarter of 2008.
	•		Carajás expansion. This brownfield project, located in the Northern System, will add 30 million metric tons per year to our capacity with the construction of a new composite primary crushing plant, beneficiation and classification units and significant investment in logistics (including car dumpers, stockyards and sideways terminals). Our estimated total investment in this project is US$2.478 billion. Completion is scheduled for second half of 2009.
	•		Maquiné-Baú. We expect this project, located in the Southeastern System, to have annual production capacity of 24 million metric tons. The estimated total cost of the project, which is subject to approval by our board of directors, is US$2.207 billion. Completion is scheduled for 2011.
	•		Serra Sul. This project, located in the Northern System, will be the largest greenfield site in our history and the largest iron ore project in the world. We expect it to have annual production capacity of 90 million metric tons of iron ore. We expect to begin work in 2008, subject to approval by our board of directors, and completion is scheduled for the first half of 2012. Our estimated total investment in this project is US$10.094 billion.

     We are currently engaged in mineral exploration efforts for iron ore deposits in several states in Brazil. We are also seeking iron ore exploration opportunities in Africa, Australia and India.

1.2 Iron ore pellets

     1.2.1 Operations — iron ore pellets

     Directly and through joint ventures, we produce iron ore pellets in Brazil and in China, as set forth in the following table.

Our share of capital

Company

Location

Voting

Total

Partners

(%)

Brazil:

Vale

Tubarão, Fábrica and São Luís

N/A

N/A

N/A

Hispanobras

Tubarão

51.0

50.9

Arcelor Mittal

Itabrasco

Tubarão

51.0

50.9

Ilva

Kobrasco

Tubarão

50.0

50.0

Posco

Nibrasco

Tubarão

51.1

51.0

Nippon Steel, Sumitomo, JFE Steel, Kobe Steel, Nisshin Steel, SOJITZ Corp.

Samarco

Germano and Ponta do Ubú

50.0

50.0

BHP Billiton

China:

Zhuhai YPM (1)

Zhuhai, Guangdong

25.0

25.0

Zhuyhai Yueyufeng Iron and Steel Co. Ltd Pioneer & Steel Group Co. Ltd.

     In the Tubarão port area, in the Brazilian state of Espírito Santo, we operate our own pelletizing plants, Tubarão I and II, and the plants of our joint ventures Hispanobras, Itabrasco, Kobrasco, and Nibrasco. We send iron ore from our Southeastern mines to these plants and use our logistics infrastructure to distribute their final products.

     Our São Luís pelletizing 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 pelletizing plant, located in the Brazilian state of Minas Gerais, is part of the Southern System. We send iron ore from the Fábrica mine to this plant and use MRS to transport its production to customers.

     Samarco has two operating sites. The Germano unit is in Minas Gerais, close to our Southeastern System, and the Ponta Ubu unit is in Espírito Santo and includes port facilities. Iron ore from Germano is sent to Ponta Ubu using a 396-km pipeline, the longest pipeline in the world for the conveyance of iron ore.

     The Zhuhai YPM pelletizing plant, in China, is part of the Yueyufeng Steelmaking Complex, which has port facilities that receive iron ore pellet feed from our mines in Brazil. Zhuhai YPM’s main customer is Yueyufeng Iron & Steel — YYS, which is also located in the Yueyufeng Steelmaking Complex.

     We sell pellet feed to our pelletizing joint ventures at market-based prices. Historically, we have supplied all of the iron ore requirements of our wholly-owned pelletizing plants and our joint ventures, except for Samarco and Zhuhai YPM, to which we supply only a portion of its needs. Of our total 2007 pellet production, 63.6% was blast furnace pellets, and the remaining 36.4% was direct reduction pellets, which are used in steel mills that use the direct reduction process rather than blast furnace technology.

     The following table sets forth information regarding our iron ore sales to our pelletizing joint ventures for the periods indicated.

		Sales for the year ended December 31,
		2005		2006		2007
		(million metric tons)
Hispanobras		4.5		4.9		4.7
Itabrasco		4.1		4.3		4.4
Kobrasco		5.2		5.3		4.4
Nibrasco		7.9		8.0		7.4
Samarco (1)		6.2		7.5		7.1
Zhuhai YPM (2)		—		—		—
Total		27.7		30.0		28.1

     We use our port and maritime terminals to ship our own and our joint ventures, iron ore pellets, except Samarco, which has its own port facilities.

     1.2.2 Production — iron ore pellets

		Production for the year ended December 31,
Company		2005		2006		2007		Nominal capacity
				(million metric tons)
Vale		16.4		14.2		17.6		15.7
GIIC (1)		4.0		1.3		—		4.0
Hispanobras		4.2		4.5		4.3		3.8
Itabrasco		3.9		4.0		4.0		3.3
Kobrasco		4.9		4.8		5.0		4.3
Nibrasco (2)		9.0		9.1		9.0		8.4
Samarco		13.7		13.9		14.3		14.0
Zhuhai YPM (3)		—		—		—		1.2
Total		56.1		51.8		53.7		53.5

     1.2.3 Projects — iron ore pellets

	•		Itabiritos project. We are building a pellet plant, located in the Brazilian state of Minas Gerais, with annual production capacity of 7 million metric tons. We are also building an iron ore concentration plant and a short iron ore slurry pipeline. The estimated total cost of this project is US$973 million. Operations are scheduled to begin in the second half of 2008.
	•		Samarco expansion. We are increasing annual pellet production capacity at Samarco by 7.6 million metric tons. Operations began in the first half of 2008. Samarco obtained its own financing for the project.
	•		Tubarão VIII. We plan to build a new pelletizing plant at our existing seven-plant complex at the port of Tubarão. We expect the plant to have annual production capacity of 7.5 million metric tons. Completion is scheduled for the second half of 2010. The estimated total cost of this project is US$636 million.
	•		Oman. In Oman, at the Sohar industrial complex, we plan to develop a pelletizing plant, a bulk terminal, a distribution center and a deep water port. The plant will have annual nominal production capacity of up to 9 million metric tons of direct reduction pellets. The estimated total cost of this project, which is subject to approval by our board of directors, is US$546 million. Operations are scheduled to begin in the second half of 2010.

1.3 Iron ore and iron ore pellets

     1.3.1 Customers, sales and marketing — iron ore and iron ore pellets

     We use all of our iron ore and iron ore pellets (including our share of joint-venture pellet production) to supply the steel-making 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 expected rates of economic growth.

     In 2007, China accounted for 31.9% of our iron ore and iron ore pellets shipments, and Asia as a whole accounted for 47.8%. Europe accounted for 24.6%, followed by Brazil with 19.8%. Sales to the Tubarão pelletizing joint ventures, at which most iron ore is transformed into iron ore pellets and then shipped to other countries, accounted for 6.9% of total shipments in 2007. Our 10 largest customers collectively purchased 134,357 million metric tons of iron ore and pellets from us, representing 45.3% of our 2007 iron ore and pellet shipments and 46.8% of our total iron ore and pellets revenues. With the exception of Arcelor Mittal, which accounted for 12% of our shipments of iron ore and pellets in 2007, no individual customer accounted for more than 10% of our shipments of iron ore and iron ore pellets for any of the three years ended December 31, 2007.

     In 2007, the Asian market (primarily China and Japan) 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 clients. We believe that our ability to provide customers with a total iron ore solution and the quality of our products are very important advantages helping us to improve our competitiveness in relation to competitors who may be more conveniently located geographically. In addition to offering technical assistance to our customers, Vale operates sales support offices in Tokyo, Japan; Seoul, South Korea; Singapore and Shanghai, China, which support the sales made by our international sales subsidiary located in Saint 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 — iron ore and iron ore pellets

     The global iron ore market is highly competitive, and several large producers operate in this market. The main factors affecting competition are price, quality, 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 and Rio Tinto Ltd. 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 believe we remain 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 the high iron content, the alumina content of our iron ore is very low compared to Australian ores, improving productivity in blast furnaces, which is particularly important during periods of high demand. 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 clients 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 helps us ensure that our products are delivered on time and at a relatively low cost. We have entered into long-term freight contracts to develop a dedicated shuttle service from Brazil to China, aimed at enhancing our ability to offer our products in the Chinese market at competitive prices and to increase our market share.

     In the European market, we are also competitive for the reasons we describe above, as well as the proximity of the Ponta da Madeira and Tubarão port facilities to European customers. Our principal competitors in Europe are:

Kumba Iron Ore Limited; Luossavaara Kiirunavaara AB — LKAB; Société Nationale Industrielle et Minière — SNIM; Rio Tinto Ltd; and BHP Billiton.

     The Brazilian iron ore market is competitive. There are several small iron ore producers and new companies with developing projects, such as MMX, MHAG, and Bahia Mineração. At the same time, there are integrated steel companies such as CSN and Mannesmann. Usiminas has become partially integrated with the recent acquisition of an iron ore company. 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. We have been charging Brazilian customers prices lower than the FOB global reference prices due to the lower logistics costs in delivering our products to their facilities.

     The global iron ore pellet market is highly competitive, and several large producers operate in this market. The main factors affecting competition are price, quality, range of products offered, reliability, operating costs and shipping costs. Our major competitors are Luossavaara Kiirunavaara AB, Cleveland-Cliffs Inc., Quebec Cartier Mining Co., Iron Ore Company of Canada (a subsidiary of Rio Tinto Ltd) and Gulf Industrial Investment Co.

1.4 Manganese ore

     We are one of the largest producers of manganese ore for the global seaborne market, with total shipments of 708,000 metric tons of manganese ore in 2007. We conduct our manganese mining operations in Brazil. At the parent company level, we produce manganese ore at the Azul mine in the Carajás mineral province of the state of Pará and at the Morro da Mina mine in the state of Minas Gerais. Through our subsidiary Urucum, we produce manganese ore at a mine in the Pantanal region of the state of Mato Grosso do Sul.

     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 and Urucum mines, which are accessible by road. The Azul and Urucum mines have high-grade ores (at least 40% manganese content), while our Morro da Mina mine has low-grade ores. All of the mines obtain electrical power at market prices from regional electric utilities.

     The following table sets forth information about our manganese production.

						Production for the year ended December 31,
Mine		Type				2005				2006				2007				Nominal capacity				Recovery rate
		(million metric tons)																				(%)
Azul (1)		Open Pit					2.2				1.7				0.9				2.5				69.0
Urucum (2)		Underground					0.4				0.4				0.3				0.5				75.0
Morro da Mina		Open Pit					0.3				0.2				0.1				0.3				88.0
Other (3)		Open Pit					0.1				0.0				0.0				—				—
Total							3.0				2.3				1.3				3.3

     We are seeking opportunities for mineral exploration and development of manganese deposits mainly in Africa and Brazil.

1.5 Ferroalloys

     We are one of the largest producers of ferroalloys for the global seaborne market, with total shipments of 488,000 metric tons of ferroalloys in 2007. We produce several types of manganese ferroalloys, such as high carbon and medium carbon ferro-manganese and ferro-silicon manganese. We conduct this business through the following subsidiaries:

	•		Rio Doce Manganês S.A. (“RDM”) (with five plants in Brazil);
	•		Rio Doce Manganèse Europe (“RDME”) (with one plant in Dunkerque, France);
	•		Rio Doce Manganese Norway AS (“RDMN”) (with one plant in Mo I Rana, Norway); and
	•		Urucum Mineração (“Urucum”) (with one plant in Brazil).

     In October 2007, we reactivated three furnaces at an RDM plant (Simões Filho) that had been shut down in January 2006 due to weak demand for ferroalloys. However, the RDME plant in Dunkerque was shut down from August to October 2007 due to technical problems.

     The production of ferroalloys consumes significant amounts of electricity, representing 7.7% of our total consumption in 2007. For information on the risks associated with potential energy shortages, see Item 3. Key Information—Risk Factors.

     The following table sets forth information about our ferroalloys production.

		Production for the year ended December 31,
Company		2005				2006				2007				Nominal capacity
		(thousand metric tons)
RDM (Brazil) (1)			347				260				288				368
RDME (France)			118				146				103				140
RDMN (Norway)			77				107				129				120
Urucum (2)			22				21				22				20
NES (3)			38				6				N/A				—
Total			602				540				542				648

1.6 Competition — manganese ore and ferroalloys

     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 and Australia. The main producers of low-grade ores are located in 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 and logistics and carbon content. 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.

2

Non-ferrous minerals

2.1 Nickel

     2.1.1 Operations — nickel

     We conduct our nickel operations primarily through our wholly-owned subsidiary Vale Inco and its 61%-owned subsidiary PT Inco. Vale Inco operates two nickel production systems, one in North America and Europe and the other in Asia, as set forth in the following table.

System		Location		Operations
North America & Europe		Canada — Sudbury, Ontario		Fully integrated mines, mill, smelter and refinery (producing finished nickel and by-products)
		Canada — Thompson, Manitoba		Fully integrated mines, mill, smelter and refinery (producing finished nickel and by-products)
		Canada — Voisey’s Bay, Newfoundland and Labrador		Mine and mill (producing nickel concentrate and by-products)
		U.K. — Clydach, Wales		Stand-alone nickel refinery (producing finished nickel)
Asia		Indonesia — Sorowako, Sulawesi (1)		Mining and processing operations (producing nickel matte, an intermediate product)
		Japan — Matsuzaka (2)		Stand-alone nickel refinery (producing finished nickel)
		Taiwan — Kaoshiung (3)		Stand-alone nickel refinery (producing finished nickel)
		China — Dalian, Liaoning (4)		Stand-alone nickel refinery (producing finished nickel)
		China — Kunshan, Jiangsu (5)		Processing operation (producing nickel salts)
		South Korea — Onsan (6)		Stand-alone nickel refinery (producing finished nickel)

     North America & Europe

     Sudbury operations

     Our long-established mines in Sudbury, Ontario, are primarily underground operations with nickel sulphide ore bodies. These ore bodies also contain co-deposits of copper, cobalt, platinum-group metals, 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 an intermediate product, nickel concentrate, 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, Japan and South Korea for processing into finished nickel.

     Thompson operations

     Our long-established mines in Thompson, Manitoba, are primarily underground operations with nickel sulphide ore bodies. The ore bodies also contain co-deposits of copper and cobalt. We 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.

     Voisey’s Bay operations

     Our Voisey’s Bay mine, in Newfoundland and Labrador, is an open-pit operation with the potential for underground operations at a later stage. We mine nickel sulphide ore bodies here, which also contain co-deposits of copper and cobalt. We 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). A portion of our Voisey’s Bay nickel concentrate is also toll-smelted and toll-refined by unrelated parties in Europe.

     Clydach operations

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

     Asia

     Our subsidiary PT Inco operates two open cast mines, Sorowako and Pomalaa, and a related processing facility in Sorowako on the Island of Sulawesi, Indonesia. PT Inco mines nickel laterite saprolite ore and produces an intermediate product (nickel matte), which is shipped primarily to our nickel refinery in Japan. Pursuant to life-of-mine off-take agreements, PT Inco sells 80% of its production to Vale Inco and 20% of its production to Sumitomo Metal Mining Co., Ltd. (“Sumitomo”). PT Inco is a public company whose shares are traded on the Indonesia Stock Exchange. Vale Inco holds 61% of its shares, Sumitomo holds 20% and the remaining 19% is publicly held.

     Our 67%-owned subsidiary, Vale Inco Japan Limited (formerly Inco TNC Limited) operates a refinery in Matsuzaka, which produces intermediate and finished nickel products, primarily using nickel matte sourced from PT Inco. Vale Inco Japan is a private company. The minority interest is held by Sumitomo (13%), Daido Steel Co., Ltd. (9%), Mitsui & Co., Ltd. (7%) and other Japanese companies (5%).

     We also operate or have investments in nickel refining operations in Taiwan, China and South Korea, through our 49.9% stake in Taiwan Nickel Refining Corporation (“TNRC”), our 98% interest in Inco New Nickel Materials (Dalian) Co. Ltd. (“INNM”) and our 25% stake in Korea Nickel Corporation (“KNC”). TNRC, INNM and KNC produce finished nickel for the local stainless steel industry in Taiwan, China and South Korea, primarily using intermediate products containing about 75% nickel (in the form of nickel oxide) from Vale Inco Japan and our Sudbury operations.

     Our 65%-owned joint venture, Jinco Nonferrous Metals Co., Ltd (“Jinco”) operates a nickel salts operation in China (Kunshan, province of Jiangsu). Jinco produces nickel sulphate and chloride, which are used in the nickel plating industry.

     Special Products

     Through our Special Products business unit, we develop, manufacture and sell value-added specialty nickel products, including powders, foams, flakes, oxides and nickel-coated graphite. These products, which are generally sold at a premium over the London Metal Exchange (LME) price, are used for such applications as consumer electronics, rechargeable batteries for consumer and hybrid vehicle use, fuel cells, powder metallurgy, automotive parts, electromagnetic interference shielding for computers and cellular telephones, catalysts and salts, metal injection molding, and hard metal binders. Our Special Products are sold through our global marketing network and produced at our refineries in Sudbury and Clydach. In addition, we have Special Product operations at the following locations:

	•		Mississauga, Ontario, Canada (including research and development facilities);
	•		Wyckoff, New Jersey, USA, through our wholly-owned subsidiary Novamet Specialty Products Corporation;
	•		Sauerlach, Germany, through our wholly-owned subsidiaries Inco GmbH and Alantum GmbH & Co. KG;
	•		Shenyang, Province of Liaoning, China, through our 77%-owned subsidiary Inco Advanced Technology Materials (Shenyang) Co. Ltd.; and

•

Dalian, Province of Liaoning, China, through our 76.7%-owned subsidiary Inco Advanced Technology Materials (Dalian) Co., Ltd.

     Recycling operations

     Through our wholly-owned subsidiary The International Metals Reclamation Company, Inc., or INMETCO, in the United States (Ellwood City, Pennsylvania), we process stainless steel waste, end-of-life batteries and other waste products primarily containing nickel, chromium, iron and cadmium. We sell the resulting recovered metals as a remelt alloy ingot to the stainless steel industry.

     2.1.2 Production — nickel

     The following table sets forth our annual mine production by operating mine (or on an aggregate basis for PT Inco because it has mining areas rather than mines) and the average percentage grades of certain metals (nickel and copper). 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 mine production at PT Inco represents the product from PT Inco’s dryer kilns delivered to PT Inco’s smelting operations and does not include nickel losses due to smelting. The following table sets forth information about ore production at our nickel mining sites.

				2007		2006		2005
				(thousands of metric tons, except percentages)
Ontario operating mines
Copper Cliff North		Production		1,078		1,341		1,264
		% copper		0.92		1.19		1.31
		% nickel		0.84		0.96		1.08
Copper Cliff South		Production		883		879		895
		% copper		1.71		1.94		1.82
		% nickel		1.46		1.63		1.34
Creighton		Production		963		997		980
		% copper		1.62		1.55		1.62
		% nickel		2.08		2.09		2.10
Stobie		Production		2,850		2,808		3,035
		% copper		0.68		0.68		0.79
		% nickel		0.72		0.75		0.86
Garson		Production		692		721		720
		% copper		1.58		1.19		1.09
		% nickel		1.59		1.60		1.67
Coleman		Production		1,408		1,348		1,381
		% copper		2.75		2.40		2.63
		% nickel		1.74		1.65		1.69
Gertrude		Production		12		207		451
		% copper		0.25		0.27		0.31
		% nickel		0.66		0.70		0.81
Total Ontario operations		Production		7,887		8,301		8,726
		% copper		1.39		1.32		1.35
		% nickel		1.25		1.25		1.28
Manitoba operating mines
Thompson		Production		1,380		1,214		1,326
		% nickel		1.83		2.08		2.01
Birchtree		Production		1,164		1,069		1,105
		% nickel		1.52		1.62		1.59
Total Manitoba operations		Production		2,545		2,283		2,432
		% nickel		1.69		1.86		1.82
Voisey’s Bay operating mines
Ovoid		Production		2,147		1,507		351
		% copper		2.47		2.22		1.77
		% nickel		3.74		3.77		3.44
Total Voisey’s Bay operations		Production		2,147		1,507		351
		% copper		2.47		2.22		1.77
		% nickel		3.74		3.77		3.44
Sulawesi operating mining areas
Sorowako		Production		4,615		4,459		4,689
		% nickel		2.03		1.95		1.84
Pomalaa		Production		645		685		350
		% nickel		2.30		2.30		2.31
Total Sulawesi operations		Production		5,260		5,144		5,039
		% nickel		2.06		2.00		1.87