United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the
Securities Exchange Act of 1934

Vale S.A.

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

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

(Check One) Form 20-F þ Form 40-F o

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))

(Check One) Yes o No þ

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))

(Check One) Yes o No þ

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

(Check One) Yes o No þ

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82-____.)

 

 

US GAAP

BM&F BOVESPA: VALE3, VALE5
NYSE: VALE, VALE.P
HKEx: 6210, 6230
EURONEXT PARIS: VALE3, VALE5
LATIBEX: XVALO, XVALP

www.vale.com
rio@vale.com

Departament of
Investor Relations

Roberto Castello Branco
Viktor Moszkowicz
Carla Albano Miller
Andrea Gutman
Christian Perlingiere
Fernando Frey
Marcio Loures Penna
Samantha Pons
Thomaz Freire
Tel: (5521) 3814-4540

CONTINUING TO CREATE VALUE

Performance of Vale in 3Q11

Rio de Janeiro, October 26, 2011 — Vale S.A. (Vale) reports another record-breaking quarter reflecting outstanding operational and financial performance. Production of iron ore, pellets, copper and thermal coal¹ reached all-time highs, alongside with records in operating revenues, operating income and cash generation.

While cash generation — fundamental to value creation — reached a record mark of US$ 9.6 billion in the quarter and US$ 36.7 billion in the last twelve months, accounting earnings suffered a non-cash impact of US$ 2.9 billion due to the depreciation of the Brazilian real, the functional currency of our parent company, against the US dollar². Despite the large magnitude of the non-cash charge, our net earnings reached US$ 4.9 billion, which constitutes a robust result.

Amidst an environment of high financial asset price volatility, which is taking a large toll on shareholders to the extent that a deep global recession is already priced into our shares, Vale is continuing to create value. Value creation is stemming from revenue growth and the attainment of high returns on the capital invested at rates far above our cost of capital.

New platforms of value creation have been delivered over the last few quarters: Bayóvar, Tres Valles, Onca Puma, Oman, Moatize I, Estreito and Karebbe. As they are just starting production and/or ramping up the full effects of the operation of these world-class assets on revenue and cash flow growth are still to be felt in the near future.

In the search for continuous improvement in capital allocation, we have developed several initiatives aiming at improving standards in project development to maximize shareholders’ returns, from environmental licensing until the transition to the operational phase.

At the same time, we adopted a more focused stance towards capital return to shareholders.

Dividend distribution in 2011 will reach US$ 9.0 billion, a record figure, three times last year’s payment, meaning a high dividend yield, thereby rewarding investors who have been confronted with poor performance in global stock markets.

3Q11

US GAAP

Simultaneously to the cash return through dividends, a share buy-back program is underway, with a goal to return up to US$ 3.0 billion until November 25, 2011, of which US$ 2.0 billion were executed in the 3Q11.

Despite financial markets pessimism on the macroeconomy, we remain confident in the long-term fundamentals of global minerals and metals markets and in our strong capacity to continue to deliver value through the business cycles.

The main highlights of Vale’s performance in 3Q11 were:

	•		Record operating revenues of US$ 16.7 billion in 3Q11, 9.1% above the previous record of US$ 15.3 billion in 2Q11.
	•		Record operating income, as measured by adjusted EBIT (earnings before interest and taxes) (a), of US$ 8.4 billion, 8.1% higher than the US$ 7.7 billion in 2Q11.
	•		Operational margin, as measured by adjusted EBIT margin, was 51.2% in 3Q11, in line with 51.7% in the previous quarter.
	•		Net earnings of US$ 4.935 billion, equal to US$ 0.94 per share on a fully diluted basis, 23.5% lower than 2Q11.
	•		Record cash generation, as measured by adjusted EBITDA(b) (earnings before interest, taxes, depreciation and amortization) of US$ 9.6 billion, 6.2% above the US$ 9.1 billion in 2Q11. The last 12-month adjusted EBITDA, ended on September 30, 2011, also reached a record of US$ 36.7 billion.
	•		Record sales of bulk materials — iron ore, pellets, manganese, ferroalloys and metallurgical and thermal coal — of US$ 12.8 billion in 3Q11, 9.3% higher than the previous record in 2Q11.
	•		Investments totaled US$ 4.5 billion, with US$ 3.5 billion spent on project execution and research and development (R&D).
	•		Corporate social responsibility investments of US$ 373 million in 3Q11, totaling US$ 894 million in the first nine months of 2011.
	•		Dividend of US$ 3.0 billion, US$ 0.5838 per share, to be paid on October 31, 2011, totaling an all-time high US$ 9.0 billion dividend distribution this year, equal to US$ 1.7354 per common or preferred share.
	•		Cash return to shareholders through share buy-back of US$ 2.0 billion up to September 30, 2011.
	•		Cash holdings of US$ 7.565 billion, supporting a healthy balance sheet with low debt leverage, measured by total debt/LTM adjusted EBITDA, equal to 0.63x, and long average debt maturity, of 10.1 years.

3Q11

US GAAP		3Q11

Table 1 — SELECTED FINANCIAL INDICATORS

		3Q10				2Q11				3Q11				%				%
US$ million		(A)				(B)				(C)				(C/A)				(C/B)
Operating revenues			14,496				15,345				16,741				15.5				9.1
Adjusted EBIT			7,836				7,747				8,373				6.9				8.1
Adjusted EBIT margin (%)			55.6				51.7				51.2
Adjusted EBITDA			8,815				9,069				9,631				9.3				6.2
Net earnings			6,038				6,452				4,935				(18.3	)			(23.5	)
Earnings per share fully diluted basis(US$ / share)			1.13				1.22				0.94
Total debt/ adjusted EBITDA (x)			1.3				0.7				0.6
ROIC1 (%)			25.5				34.2				36.9
Capex (excluding acquisitions)			3,081				4,036				4,529				47.0				12.2

		9M10				9M11				%
US$ million		(A)				(B)				(B/A)
Operating revenues			31,274				45,634				45.9
Adjusted EBIT			14,528				22,576	1			55.4
Adjusted EBIT margin (%)			47.8				50.7	1
Adjusted EBITDA			17,247				26,363	1			52.9
Net earnings			11,347				18,213				60.5
Capex (excluding acquisitions)			7,614				11,308				48.5
Acquisitions			6,372				299				(95.3	)

Except where otherwise indicated the operational and financial information in this release is based on the consolidated figures in accordance with US GAAP and, with the exception of information on investments and behavior of markets, quarterly financial statements are reviewed by the company’s independent auditors. The main subsidiaries that are consolidated are the following: Compañia Minera Misky Mayo S.A.C., Ferrovia Centro-Atlântica (FCA), Ferrovia Norte Sul S.A, PT Vale Indonesia Tbk (formerly International Nickel Indonesia Tbk), Vale Australia Pty Ltd., Vale Canada Limited (formely Vale Inco Limited), Vale Colômbia Ltd., Mineração Corumbaense Reunida S.A., Vale Fertilizantes S.A., Vale International, Vale Manganês S.A., Vale Manganèse France, Vale Manganese Norway S.A. and Vale Nouvelle Caledonie SAS.

US GAAP		3Q11

INDEX

CONTINUING TO CREATE VALUE			1
Table 1 — SELECTED FINANCIAL INDICATORS			3
BUSINESS OUTLOOK			5
REVENUES			9
Table 2 — OPERATING REVENUE BREAKDOWN			10
Table 3 — OPERATING REVENUE BY DESTINATION			10
COSTS			11
Table 4 — COGS BREAKDOWN			13
OPERATING INCOME			13
NET EARNINGS			13
BOX — EFFECTS OF CURRENCY PRICE VOLATILITY ON VALE’S FINANCIAL PERFORMANCE			15
CASH GENERATION			16
Table 5 — QUATERLY ADJUSTED EBITDA			16
Table 6 — ADJUSTED EBITDA BY BUSINESS AREA			16
INVESTMENTS			16
Table 7 — TOTAL INVESTMENT BY CATEGORY			18
Table 8 — TOTAL INVESTMENT BY BUSINESS AREA			18
DEBT INDICATORS			19
Table 9 — DEBT INDICATORS			19
PERFORMANCE OF THE BUSINESS SEGMENTS			19
Table 10 — FERROUS MINERALS			20
Table 11 — COAL			21
Table 12 — BULK MATERIALS			22
Table 13 — BASE METALS			23
Table 14 — FERTILIZER NUTRIENTS			24
Table 15 — LOGISTICS			25
FINANCIAL INDICATORS OF NON-CONSOLIDATED COMPANIES			26
CONFERENCE CALL AND WEBCAST			26
BOX — IFRS RECONCILIATION WITH USGAAP			27
ANNEX 1 — FINANCIAL STATEMENTS			28
Table 16 — INCOME STATEMENTS			28
Table 17 — FINANCIAL RESULTS			28
Table 18 — EQUITY INCOME BY BUSINESS SEGMENT			28
Table 19 — BALANCE SHEET			29
Table 20 — CASH FLOW			30
ANNEX 2 — VOLUMES SOLD, PRICES, MARGINS AND CASH FLOWS			31
Table 21 — VOLUME SOLD: MINERALS AND METALS			31
Table 22 — AVERAGE SALE PRICES			31
Table 23 — OPERATING MARGINS BY SEGMENT (EBIT ADJUSTED MARGIN)			32
ANNEX 3 — RECONCILIATION OF US GAAP and “NON-GAAP” INFORMATION			33

US GAAP		3Q11

•

BUSINESS OUTLOOK

The performance of the global economy improved in the last quarter, holding up better than expected as the effects of some drags, such as the Japanese earthquake and the oil and food price shock, vanished. However, global GDP growth is estimated to have remained below trend.

After a sharp deceleration since March, global industrial production reaccelerated and the latest data from August showed that it was running at 5% per year, primarily driven by China, the US and Japan. However, given the indications of a low level of the new orders to inventory ratio it is likely that industrial production will soften over the next few months.

Up until now, despite the surge in financial asset price volatility and wealth losses caused by the Eurozone sovereign debt crisis, there is no significant feedback loop of the financial turbulence into the real economy. Looking to the two largest economies in the world, the US and China³, there are no signs that they are heading in the direction of a hard landing. Recent data flows from both countries are encouraging as manufacturing output and retail sales continue growing steadily.

We see the risks of a prolonged period of slow growth in developed countries taking place alongside stagnation in some of these economies as a more likely event than a global recession.

Recoveries from recessions are in general characterized by above-trend growth rates which after some time tend to weaken, then converge to trend pace. But the recovery of the US and Eurozone economies from the Great Recession of 2008/2009 has been running at below-trend rates, despite the very large increases in government spending to stimulate economic activity and to recapitalize banks. Having failed to promote economic growth, fiscal spending left as by-products large public deficits and high and rising debt to GDP ratios. The fiscal disequilibrium raised doubts about debt sustainability, the primary source of this year’s financial turbulence.

Flexibility of markets has been a hallmark of the American economy and one of the main factors underlying its vigor and long-term growth. Despite the fact that companies in S&P 500 are on course to reach their eighth consecutive quarter of double-digit earnings growth, uncertainties created by the large public debt and the lack of political resolve to curb its path, on top of regulatory uncertainties and a historically high unemployment rate, have been contributing to slow the speed of the current recovery, with US real output growth estimated to be 10% below its long-term trend, the largest deviation since the thirties.

While the US is facing the risk of a protracted period of slow growth, the Eurozone seems to be sliding into a recession. The region is experiencing a confidence shock which is being amplified by a still vulnerable financial system. Although banks have access to unlimited funding from the ECB, the rise in funding stress leads to higher lending rates to retail customers, tighter lending standards and to a move by several banks towards deleveraging their balance sheets. These factors are likely to exert recessionary pressures on the economy in the following months.

At the same time, European corporates and households have better financial positions than in early 2008 and also lower levels of spending in durable goods and inventory accumulation, which contributes to soften the effects of the recessionary forces.

The difficult financial situation of some peripheral European economies, such as Greece, does not imply necessarily that a debt default is unavoidable. In addition to the very high costs of a debt default, the IMF has documented 18 episodes of developed countries making fiscal adjustments larger than 6% of the GDP over the last twenty years.⁴

Financial market volatility is challenging European authorities to bring with a comprehensive and credible policy response to guarantee debt sustainability, to limit contagion and to strengthen the banking system. However, even if their policy response is able to produce a significant reduction in financial markets concerns, it will not prevent a recession in the short-term.

US GAAP		3Q11

As a matter of fact, European economies are tightening fiscal policies, in a move that in the short-term reinforces recessionary pressures. To the extent that the fiscal adjustment programs are primarily conducted through expenditure cuts and privatizations jointly with labor market reforms to make them more flexible and meritocratic, they will have a better chance to be successful.

Former experience of large fiscal adjustments of developed economies more focused on a mixture of cuts in government spending and reforms tells that credibility tends to improve rapidly. It means a faster return to financial markets, lower real interest rates and incentives to private sector investment. Reduced labor demand pressure from government entities tends to lower real wages; this alongside productivity growth arising from reforms will be instrumental for the badly needed increase in competitiveness by some of the Eurozone economies.

However, it seems that tax rate hikes and/or the creation of new taxes are making up the bulk of the fiscal adjustment programs adopted by some European countries. This makes things more difficult, prolonging recessions and cutting into long-term potential growth rates, thus producing risks of stagnation.

The stagnation of the Italian economy over the last ten years, when per capita real output experienced negative growth, provides clear evidence that labor market rigidities, tight regulations and a high tax burden are detrimental to economic growth.

Even though globalization suggests a higher comovement of international business cycles, empirical evidence does not support this assumption. There has been a slight decrease in international business cycle synchronization while synchronization in business cycles within the groups of developed economies and emerging market economies has become higher with globalization.

This gives support to the decoupling hypothesis, as it suggests that business cycles among emerging market economies are more influenced now by their own specific dynamics as a consequence of the stronger trade and investment linkages between them. The latest global financial crisis provided an evidence of decoupling, as emerging market economies showed much greater resilience to the global downturn than the developed world.

In light of the mediocre growth outlook for the developed economies, we expect the global economy to continue to expand at below-trend pace over the next twelve months. In emerging market economies policy makers are shifting their focus from inflation to growth and we foresee robust performance in the near future, minimizing the negative spillover from the advanced economies.

China’s GDP growth has been more moderate than in the pre-2008 period, when expansion averaged 12% per annum, against 10.3% for 2009-2010, and 8.5% over the last couple of quarters.

Net exports are much less important now as a driver of aggregate demand than in 2007/2008, when it was responsible for 25/30% of the GDP expansion. Growth now has been entirely driven by domestic demand since 2009. As a consequence, an export decrease caused by an eventual global recession tends to generate a much smaller drag on growth than in the 2008/2009 period.

In addition to that, while in 2008 the property sector was facing contraction due to credit tightening, now it is growing with credit controls more focused on restraining investment in housing portfolios.

One major investor concern is about the likelihood of a sharp slowdown in the Chinese real estate industry as it is responsible for 25% of fixed asset investment, a key driver of economic growth, and for half of steel consumption.

New floor space starts increased by 24% in the first nine months of the year, giving support to steel consumption in the next twelve months. On the other hand, housing sales have been slowing and land sales are falling.

However, the social housing program is providing a cushion to the deceleration in private sector activity. Out of the 10 million units targeted for this year 98.6% had reported start of construction by September, and another 10 million units are scheduled for 2012.

Fiscal policy will likely turn more growth supportive, allowing expansion in infrastructure investment projects, particularly in the inland and western regions, in accordance with the guidelines of the 12^th five-year plan.

US GAAP		3Q11

Consumer price inflation, which is being spearheaded by food price increases, is very likely to drop, giving room for economic authorities to ease monetary policy and credit controls.

Equity and commodity markets have been pricing a deep global economic downturn regardless of fundamentals. Market multiples for mining companies reached similar levels to the lows of second half of 2008, when a major global financial shock took place. This year, in sharp contrast to 2008, when nickel prices were falling and inventories were climbing, nickel prices decreased 35.7% from their peak level in February with a simultaneous drop in inventories from peak to now by 37.0%.

Demand for nickel remains strong in the Asia Pacific region, especially in China where stainless steel producers have made a move towards a more intense utilization of primary nickel at the expense of nickel pig iron. Nickel prices have been nearing the cash cost level of less efficient nickel pig iron producers, a factor which tends to create some downward rigidity in prices.

While demand for nickel in Europe remains weak after the summer season, in the US non-stainless steel markets remain resilient to the slow growth scenario. For high nickel alloys, the aerospace engine business remains strong as well as orders in medical alloy and corrosion resistant alloy sectors. Demand from alloy steel and foundry businesses is also keeping strong.

Copper prices have been following a similar pattern. There was a sharp fall from their peak level in February this year, by 30.4%, even in face of a decline in stocks. Given the structural constraints to supply expansion, market deficit is likely to persist, given the tightness in the scrap market and the high physical premia in the Shanghai market, signaling the resurgence of a strong demand in China after a de-stocking period.

The global iron ore market has remained tight as suggested by price levels.

Global crude steel output in September increased by 9.7% on a year-on-year basis, running at 1.48 billion metric tons, on an annualized basis. China’s iron ore imports continued to expand, reaching 60.6 million metric tons in September, 15.2% higher than in same month of 2010. In the first nine months of the year Chinese imports totaled 508.7 million metric tons, 11.1% above the same period of last year.

Only recently have iron ore prices weakened, mainly as a result of two main factors. First, a seasonal supply increase in Brazil and Australia and the end of the monsoon season in India. Second, the effect of the Chinese credit policy on traders — large players in the spot market — who are not being allowed to use iron ore stocks as a guarantee for bank credit.

With its recent fall, iron ore prices are reaching levels very close to the cash costs of marginal suppliers, beginning to incentivize supply adjustment. Besides that, from the end of the year, due to seasonality, the iron ore production in Brazil, Australia and China tends to be reduced.

As stated early last year, Vale adopts a flexible stance towards iron ore pricing and we have implemented the quarterly pricing system very successfully on a global basis. It has brought transparency, flexibility and efficiency to iron ore pricing, simultaneously providing steelmakers with predictability about the prices of a key raw material to their industry.

Highly committed to meet the needs of its clients, Vale is ready to adapt iron ore pricing since it continues to reflect market conditions and preserves the principles of the quarterly pricing system.

Therefore, we foresee prices remaining high for a long period ahead as the global iron ore market is very likely to continue to show strong fundamentals, stemming from the economic development and structural transformation of emerging market economies and the constraints to supply growth.

Among the impediments to a fast response of iron ore supply to price incentives, we highlight the need to invest just to replenish lost capacity — amounting to an estimated minimum of 80 million metric tons per year on a global basis — and to build a costly logistics infrastructure alongside the increasing difficulties posed by environmental permitting, the increasing scarcity of high quality reserves of iron ore and skilled labor, and the tightness in equipment and engineering services supply.

US GAAP		3Q11

As the world’s lowest cost iron ore producer and with the largest and highest quality proven and probable reserves, we have been facing several constraints to the development of our project pipeline, a factor that has meant delays in their delivery.

In addition to these factors, there has been an upward shift of operating costs, resulting from rising input prices, the exploitation of low quality deposits and a global tendency to higher mining taxes in the aftermath of the global financial crisis of 2008.

US GAAP		3Q11

•

REVENUES

Gross operating revenues totaled US$ 16.741 billion in 3Q11, an all-time high figure in Vale’s history. This represented a 9.1% increase over US$ 15.345 billion in 2Q11 and 15.5% higher than 3Q10.

Compared to 2Q11, revenue increase fundamentally reflects the expansion of sales volumes, which produced a positive effect of US$ 1.442 billion, primarily driven by the rising shipments of bulk materials and base metals, with US$ 795 million and US$ 494 million, respectively. The fall in base metals prices, influenced by negative expectations on the macroeconomy, cut revenues by US$ 427 million, being partially offset by the effect of higher iron ore prices, US$ 282 million. As a whole, sales prices contributed to reduce revenues by US$ 46 million.

Sales revenues of bulk materials — iron ore, pellets, manganese ore, ferroalloy, metallurgical and thermal coal — represented 76.2% of the total operating revenues in 3Q11, in line with 76.1% in 2Q11.

The share of base metals in total revenues decreased to 13.7% from 14.5% in 2Q11, fertilizers increased to 6.2% from 5.7%, and logistics services were 3.0%, in line with 2Q11.

Sales to Asia accounted for 53.7% of total revenues, up from 52.1% in 2Q11. This is mainly explained by the rise of China’s share to 35.4% from 32.6%. Japan’s participation was 11.6%, in line with 11.7% in 2Q11. The Americas saw a slight decrease to 24.4% from 25.2%, as did Europe, which decreased to 18.9% from 20.0%.

On a country basis, China provided the largest share of our revenues with 35.4% in 3Q11, Brazil represented 17.8%, Japan 11.6%, Germany 6.7%, South Korea 4.2% and Italy 2.9%.

US GAAP		3Q11

Table 2 — OPERATING REVENUE BREAKDOWN

US$ million		3Q10				%				2Q11				%				3Q11				%
Bulk materials			11,257				77.7				11,680				76.1				12,765				76.3
Ferrous minerals			11,040				76.2				11,425				74.5				12,479				74.5
Iron ore			8,724				60.2				9,102				59.3				10,136				60.5
Pellets			2,076				14.3				2,113				13.8				2,149				12.8
Manganese ore			67				0.5				51				0.3				46				0.3
Ferroalloys			160				1.1				150				1.0				139				0.8
Pellet plant operation services			7				0.1				9				0.1				9				0.1
Others			6				—				—				—				—				—
Coal			217				1.5				256				1.7				285				1.7
Thermal coal			113				0.8				139				0.9				124				0.7
Metallurgical coal			104				0.7				117				0.8				161				1.0
Base metals			1,919				13.2				2,225				14.5				2,292				13.7
Nickel			891				6.1				1,461				9.5				1,437				8.6
Copper			395				2.7				491				3.2				646				3.9
PGMs			10				0.1				159				1.0				81				0.5
Precious metals			10				0.1				90				0.6				99				0.6
Cobalt			4				—				23				0.1				29				0.2
Aluminum			215				1.5				—				—				—				—
Alumina			387				2.7				—				—				—				—
Bauxite			7				—				—				—				—				—
Fertilizer nutrients			801				5.5				867				5.7				1,037				6.2
Potash			87				0.6				68				0.4				80				0.5
Phosphates			573				4.0				584				3.8				713				4.3
Nitrogen			131				0.9				194				1.3				216				1.3
Others			10				0.1				21				0.1				28				0.2
Logistics services			407				2.8				476				3.1				502				3.0
Railroads			308				2.1				357				2.3				358				2.1
Ports			99				0.7				119				0.8				144				0.9
Others			112				0.8				96				0.6				146				0.9
Total			14,496				100.0				15,345				100.0				16,741				100.0

Table 3 — OPERATING REVENUE BY DESTINATION

US$ million		3Q10				%				2Q11				%				3Q11				%
North America			506				3.5				679				4.4				786				4.7
USA			197				1.4				406				2.6				449				2.7
Canada			275				1.9				254				1.7				304				1.8
Mexico			34				0.2				19				0.1				33				0.2
South America			2,845				19.6				3,189				20.8				3,305				19.7
Brazil			2,639				18.2				2,904				18.9				2,985				17.8
Others			206				1.4				285				1.9				320				1.9
Asia			8,179				56.4				7,993				52.1				8,998				53.7
China			5,157				35.6				5,005				32.6				5,927				35.4
Japan			1,674				11.5				1,790				11.7				1,937				11.6
South Korea			650				4.5				626				4.1				701				4.2
Taiwan			303				2.1				299				1.9				236				1.4
Others			395				2.7				273				1.8				197				1.2
Europe			2,492				17.2				3,067				20.0				3,166				18.9
Germany			885				6.1				985				6.4				1,114				6.7
France			188				1.3				258				1.7				205				1.2
Netherlands			119				0.8				192				1.3				186				1.1

US GAAP		3Q11

US$ million		3Q10				%				2Q11				%				3Q11				%
UK			242				1.7				395				2.6				236				1.4
Italy			285				2.0				546				3.6				479				2.9
Turkey			118				0.8				84				0.5				138				0.8
Spain			148				1.0				129				0.8				136				0.8
Others			507				3.5				478				3.1				672				4.0
Middle East			258				1.8				255				1.7				277				1.7
Rest of the World			216				1.5				162				1.1				209				1.2
Total			14,496				100.0				15,345				100.0				16,741				100.0

•

COSTS

In 3Q11, COGS were up by US$ 531 million on a quarter-on-quarter basis, reaching US$ 6.252 billion. In net terms, if we discount the effect of higher sales volumes and depreciation charges, which added, respectively, US$ 330 million and US$ 33 million, and the appreciation of US dollar⁵, which mitigated costs by US$ 89 million, higher input and services prices led to an increase of COGS of US$ 257 million.

Although there is no doubt that cost increases are negative events, the 3Q11 rise was relatively small in face of substantial cyclical cost pressures, reflecting our focus on maximizing efficiency.

The higher costs were basically explained by the rise in purchase of products, US$ 87 million, royalties payments related to iron ore and nickel, US$ 50 million, expenses with materials, US$ 41 million, and gas and energy consumption, US$ 40 million.

Expenditures with outsourced services totaled US$ 1.202 billion — 19.2% of COGS — against US$ 1.088 billion in 2Q11. The US$ 114 million cost increase was chiefly caused by higher sales volumes, US$ 117 million, which was partially offset by the appreciation of the US dollar (US$ 18 million).

Cost of materials — 16.4% of COGS — was US$ 1.025 billion, up 12.8% against 2Q11. Excluding the effects of higher sales volumes (US$ 90 million) and currency price changes (cost decrease of US$ 15 million), costs of materials increased by US$ 41 million vis-à-vis 2Q11, showing the inflation pressure on input prices, such as ammonia in our fertilizer operations.

In 3Q11, expenses with energy consumption accounted for 13.0% of COGS. They amounted to US$ 811 million, showing an increase of 12.8% when compared to the previous quarter. Costs of electricity consumption of US$ 233 million were 11.5% higher than 2Q11, due to volume and price increases.

Expenditures with fuel and gases increased 13.3%, reaching US$ 578 million, mostly due to the seasonal increase in the movement of run-of-the-mine (ROM) material. We handled 13% more ROM in 3Q11, entailing a greater consumption of diesel oil.

Personnel costs reached US$ 819 million, representing 13.1% of COGS, against US$ 741 million in 2Q11. The collective agreement of our employees in Brazil and Canada increased personnel costs by US$ 48 million. In addition, it is worth noting that as a consequence of the expansion of Vale operations, headcount is increasing, entailing higher expenses. The number of employees rose to 77,055 workers in September 2011 from 74,076 in June 2011.

In September 2011 we settled a two-year agreement with a group of 14 labor unions in Brazil, representing 61% of our total employees. Under the agreement, there was an 8.6% wage increase in November 2011, which will be followed by another hike of 8% in November 2012. The collective agreement involved also: (a) a one-off bonus, which impacted COGS by US$ 17 million; (b) a retention bonus, which will accrue linearly over a 24-month period and which increased personnel costs by US$ 23 million in 3Q11. Also in September, we settled a new three-year collective agreement with our Thompson employees, which resulted in a one-off effect of bonus paid of US$ 8 million.

US GAAP		3Q11

The cost of purchasing products from third parties amounted to US$ 608 million — 9.5% of COGS — against US$ 555 million in 2Q11.

The purchase of iron ore and pellets amounted to US$ 331 million, against US$ 319 million in the previous quarter. The volume of iron ore bought from smaller miners was 2.4 million metric tons (Mt) in 3Q11 compared to 2.2 Mt in 2Q11. The acquisition of pellets from our joint ventures amounted to 444,000 metric tons in this quarter, a decrease of 516,000 metric tons.

Expenditures with the purchase of base metals products rose to US$ 194 million from US$ 178 million in 2Q11 impacted by higher copper ore purchases. We bought 11,300 t of copper ore against 4,200 t in 2Q11, which were partially offset by lower nickel purchases totaling to 4,000 t from 5,400 t in 2Q11.

Costs with shared services decreased by US$ 2 million to US$ 105 million in 3Q11, continuing to be affected by the rental of new hardware equipment.

Depreciation and amortization — 14.8% of COGS — amounted to US$ 923 million, against US$ 890 million in 2Q11.

Other operational costs reached US$ 759 million against US$ 712 million in 2Q11. The US$ 47 million increase was mainly influenced by the higher royalties paid for nickel mining at Voisey’s Bay (US$ 34 million) and iron ore mining in Brazil (US$ 16 million).

Sales, general and administrative expenses (SG&A) totaled US$ 654 million in 3Q11, US$ 220 million above 2Q11. Greater SG&A expenses were primarily caused by a rise in selling expenses (US$ 112 million), reflecting the adjustments for nickel and copper prices during 3Q11 (US$ 65 million), and administrative expenses (US$ 108 million), driven by outsourced services (US$ 39 million) and personnel services (US$ 19 million).

Research and development (R&D), which reflects our investment in creating long-term growth opportunities, amounted to US$ 440 million, US$ 77 million higher than 2Q11⁶.

Other operational expenses reached US$ 643 million, against US$ 724 million in 2Q11, due to the decrease of US$ 17 million in pre-operating and start-up related expenses, which reached US$ 328 million in 3Q11. This result was determined mainly by the pre-operating costs related to Onça Puma, which decreased by US$ 63 million, partially offset by the increase in start-up costs of VNC, to US$ 148 million from US$ 110 million in 2Q11. Besides the pre-operating and start-up costs, we recognized US$ 33 million of contingencies in 3Q11, a decrease of US$ 46 million when compared to 2Q11.

US GAAP		3Q11

Table 4 — COGS BREAKDOWN

US$ million		3Q10				%				2Q11				%				3Q11				%
Outsourced services			722				14.1				1,088				19.0				1,202				19.2
Cargo freight			215				4.2				333				5.8				368				5.9
Maintenance of equipments and facilities			196				3.8				193				3.4				203				3.3
Operational Services			179				3.5				210				3.7				295				4.7
Others			132				2.6				352				6.2				336				5.4
Material			732				14.3				909				15.9				1,025				16.4
Spare parts and maintenance equipment			342				6.7				381				6.7				374				6.0
Inputs			238				4.6				338				5.9				456				7.3
Tires and conveyor belts			37				0.7				61				1.1				57				0.9
Others			116				2.3				129				2.3				138				2.2
Energy			864				16.9				719				12.6				811				13.0
Fuel and gases			544				10.6				510				8.9				578				9.2
Electric energy			321				6.3				209				3.6				233				3.7
Acquisition of products			399				7.8				555				9.7				608				9.7
Iron ore and pellets			257				5.0				319				5.6				331				5.3
Aluminum products			68				1.3				—				—				—				—
Nickel products			63				1.2				178				3.1				194				3.1
Other products			11				0.2				58				1.0				83				1.3
Personnel			516				10.1				741				13.0				819				13.1
Depreciation and exhaustion			613				12.0				890				15.6				923				14.8
Shared services			69				1.4				107				1.9				105				1.7
Others			1,198				23.4				712				12.5				759				12.1
Total			5,113				100.0				5,721				100.0				6,252				100.0

•

OPERATING INCOME

Operating income, as measured by adjusted EBIT, reached US$ 8.373 billion in 3Q11, being the highest quarterly operating income recorded by Vale. It showed an increase of 8.1% from US$ 7.747 billion in 2Q11 and 6.9% from US$ 7.836 billion in 3Q10.

The increase in the adjusted EBIT of US$ 626 million was mainly due to the effect of higher sales volumes, US$ 1.112 billion, which were partly offset by lower sales prices, US$ 46 million, higher COGS, US$ 290 million, and higher SG&A, US$ 220 million.

The adjusted EBIT margin in 3Q11 was 51.2%, in line with 51.7% in 2Q11 but lower than 55.6% in 3Q10.

•

NET EARNINGS

Net earnings were US$ 4.935 billion in 3Q11, equal to US$ 0.94 per share on a fully diluted basis.

The depreciation of the Brazilian real against the US dollar was the main cause of the decrease of net earnings relative to 2Q11, when it reached US$ 6.452 billion⁷. While operating income was US$ 8.373 billion, the net financial result, which includes the effects of derivatives and exchange and monetary losses in addition to net financial expenses, reduced net earnings before taxes by US$ 3.393 billion.

US GAAP		3Q11

In the first nine months of 2011 (9M11), net earnings totaled US$ 18.213 billion, 60.5% higher than the US$ 11.347 billion in the same period of 2010.

Net financial expenses totaled US$ 634 million, from US$ 288 million in 2Q11. Financial revenues totaled US$ 188 million, below the US$ 226 million figure for last quarter. Financial expenses increased to US$ 822 million from US$ 514 million in the previous quarter, in part explained by the mark-to-market of shareholders’ debentures, which had caused a non-cash charge of US$ 94 million.

In 3Q11, the net effect of the mark-to-market of the transactions with derivatives had a negative charge on earnings of US$ 568 million, against a positive impact of US$ 358 million in 2Q11. These transactions produced a net positive cash flow impact of US$ 74 million.

The mark-to-market of the currency and interest rate swaps, structured to convert debt denominated in other currencies into US dollars to protect our cash flow from exchange rate volatility, produced a negative non-cash effect of US$ 593 million in 3Q11, but a positive cash flow impact of US$ 40 million.

Our positions with nickel derivatives produced a positive non-cash charge of US$ 23 million in 3Q11 against net earnings and a positive impact of US$ 21 million to our cash flow.

The derivative transactions related to bunker oil, structured to minimize the volatility of the cost of maritime freight, had a positive non-cash impact of US$ 1 million, and generated a positive impact on our cash flow of US$ 13 million.

As a consequence of the sharp depreciation of Vale’s functional currency, the Brazilian real, against the US dollar, foreign exchange and monetary variations caused a negative impact on our net earnings of US$ 2.191 billion⁸, against a positive impact of US$ 578 million in 2Q11.

Equity income was US$ 282 million against US$ 406 million in 2Q11. The non-consolidated affiliates in the bulk materials business were the major contributors with US$ 254 million, followed by base metals with US$ 67 million, and logistics with US$ 32 million. Other investments caused a negative effect of US$ 71 million on earnings.

In 3Q11, Norsk Hydro ASA (Hydro), an affiliated company, produced equity income equal to US$ 70 million. As Hydro is a publicly listed company, the impact of its performance was accounted for in our financial statements based only on public information and therefore, in some periods a lag could occur between the periods covered by the information.

In addition to Hydro, the greatest contributors to equity income were Samarco (US$ 207 million) and MRS (US$ 32 million).

US GAAP		3Q11

•

EFFECTS OF CURRENCY PRICE VOLATILITY ON VALE’S FINANCIAL PERFORMANCE

As a consequence of the heightened financial asset price volatility, the Brazilian real (BRL) underwent a significant depreciation in 3Q11 against the US dollar (USD). The price of the USD rose to BRL 1.8544 as of September 30, 2011, from BRL 1.5611 as of June 30, 2011. If we take only quarterly average exchange rates, the depreciation of BRL was milder: BRL 1.6357/ USD in 3Q11 against BRL 1.5962/USD.

A depreciation of the BRL against USD generates distinct types of effects: balance sheet and flow effects, cash and non-cash effects.

Although we report our financial performance in USD, the functional currency for accounting purposes of our parent company, Vale S. A., is the BRL.

Thus, given this accounting rule, a depreciation of the BRL against the USD produces a non-cash balance sheet effect on earnings before taxes through its impact on net financial liabilities — USD denominated debt minus cash availabilities in USD and accounts receivable in USD. This is recorded in the financial statements as “exchange and monetary losses” and amounted to US$ 2.191 billion in 3Q11, thus reducing our earnings before taxes by the same amount.

In addition to this stock or balance sheet effect there are two flow effects, the first channeled through impacts on derivatives used to minimize volatility of our cash flow in USD and the cash flow effect itself.

As described in our 3Q08 earnings release, “Reaching new highs”, October 23, 2008, Risk management box, pages 21-23⁹, we use foreign exchange swaps to convert our debt (principal and interest rates payments) denominated in BRL into USD. As of September 30, 2011, the value of our debt denominated in BRL swapped into USD was US$ 6.139 billion, with an average cost of 4.68% per annum after the currency swap.

In 3Q11, the mark-to-market of the fair value of the currency swaps from BRL to USD caused a one-off non-cash loss of US$ 688 million, which reduced our earnings before taxes but without producing any cash flow or even adjusted EBITDA effect. At the settlement date of the currency swap, all else constant, we will have a lower USD cash disbursement (in USD equivalent) to pay debt principal and interest, offset by a cash disbursement with the liquidation of the currency swap. Therefore, the effect of the currency depreciation through derivatives is cash neutral.

The second flow effect of the BRL depreciation affects earnings before taxes, operational cash flow, adjusted EBIT and adjusted EBITDA. Unless there is a reversal of the exchange rate variation, with the depreciation of 3Q11 being hypothetically offset by an appreciation of at least the same magnitude, this flow effect will continue to generate positive impacts on earnings before taxes, operational cash flow, adjusted EBIT and adjusted EBITDA for some time in the following quarters.

This effect stems from the asymmetry in the currency composition of our revenues and costs of goods sold. While most of our revenues are USD denominated, 59% of our costs of goods sold were denominated in BRL and 15% in Canadian dollars (CAD), with only a minor portion in USD (19%).

It had a much smaller impact than the negative non-cash balance sheet (US$ 2.191 billion) and derivatives (US$ 688 million) effects, producing a net positive influence on earnings before taxes, operational cash flow, adjusted EBIT and adjusted EBITDA of US$ 77 million. This is explained by the fact that the depreciation of the average BRL/USD exchange rate, relevant for the measurement of the impact on flow variables, was smaller (2.4%) than the one used for assessing the effect on stock variables (15.8%), as the bulk of the BRL devaluation took place during September, the last month of the quarter.

The revenue/cost flow effect is a cash effect and tends to continue to produce positive results on operational cash flow, adjusted EBIT, adjusted EBITDA and earnings before taxes over the future, the derivat ives effect is cash neutral and one-off, and the balance sheet effect is non-cash and one-off. The BRL depreciation generates positive effects on our cash flow, which is the source of value creation, not accounting earnings.

US GAAP		3Q11

•

CASH GENERATION

In 3Q11, cash generation, as measured by the adjusted EBITDA, was the highest in Vale’s history, reaching US$ 9.631 billion, with a 6.2% increase over the last record of US$ 9.069 billion set in 2Q11. The cash generated in the last 12-month period ended on September 30, 2011 also reached a new record, totaling US$ 36.745 billion.

Dividends received from non-consolidated affiliates were US$ 240 million, coming from Samarco, US$ 225 million, and Kobrasco, US$ 15 million.

The share of bulk materials in cash generation increased to 95.1% from 94.0% in 2Q11, while the base metals share decreased to 6.9% from 8.3% in the previous quarter, due to lower sales prices of nickel and copper. The share of fertilizers was 2.5% and logistics, 1.1%. R&D expenditures and the performance of other businesses reduced adjusted EBITDA by 5.6%.

Table 5 — QUARTERLY ADJUSTED EBITDA

US$ million		3Q10				2Q11				3Q11
Net operating revenues			14,102				14,989				16,361
COGS			(5,113	)			(5,721	)			(6,252	)
SG&A			(418	)			(434	)			(654	)
Research and development			(216	)			(363	)			(440	)
Other operational expenses			(519	)			(724	)			(643	)
Adjusted EBIT			7,836				7,747				8,373
Depreciation, amortization & exhaustion			696				979				1,018
Dividends received			283				343				240
Adjusted EBITDA			8,815				9,069				9,631

Table 6 — ADJUSTED EBITDA BY BUSINESS AREA

US$ million		3Q10				2Q11				3Q11
Bulk materials			8,336				8,524				9,159
Ferrous minerals			8,264				8,500				9,173
Coal			72				24				(14	)
Base metals			521				754				660
Fertilizer nutrients			54				209				239
Logistics			116				80				107
Others			(212	)			(498	)			(534	)
Total			8,815				9,069				9,631

•

INVESTMENTS

•

Capital allocation improvements

In the search for continuous improvement in capital allocation, we have developed several initiatives aiming at improving standards in project development to maximize shareholders’ returns, from environmental licensing until the transition to the operational phase.

Vale is developing several actions to expedite the environmental licensing, which has become the main risk factor in project development. Among these actions, we highlight investments in training programs, the development of a Best Practices Guide for Environmental Licensing and the Environment — which deals with the interface between the project implementation and environmental licensing phases — the assembly of teams of highly skilled specialists, increased involvement from the operational areas, stronger interaction with the environmental protection authorities and the creation of an Executive Committee of Environmental Licensing, which deliberates on actions to streamline licensing processes.

US GAAP		3Q11

Alongside these initiatives, we have adopted rigorous risk analysis of cost and deadline deviations in relation to planning as mandatory, with periodic reviews to allow preventive action, the implementation of processes to smooth the transition from project to operation, the use of value engineering, the intensification of training in procedures and practices of project management, and the sharing of the knowledge and lessons learned from project implementation.

•

Organic growth

In 3Q11, investments, excluding acquisitions, amounted to US$ 4.529 billion. US$ 3.113 billion was spent on project execution, US$ 387 million on research and development (R&D), and US$ 1.029 billion on the maintenance of existing operations.

Capex — excluding acquisitions — in the first nine months of the year totaled US$ 11.308 billion, with a significant increase of 49% over the US$ 7.614 billion invested in the same period of 2010, however still largely below budget. This is due to delays in environmental licensing and the tightness in labor, equipment and engineering services supply.

Our investments continue to reflect the focus on organic growth as the key strategic priority. Of the total disbursement in 9M11, 77% was allocated to finance growth, involving project execution and R&D.

In 3Q11, R&D investments comprised expenditures of US$ 110 million in mineral exploration, US$ 32 million in natural gas exploration, US$ 211 million in conceptual, pre-feasibility and feasibility studies for projects, and US$ 35 million to develop new processes and for technological innovations and adaptation of technologies.

Investments of US$ 1.659 billion were made in the bulk materials business, US$ 1.062 billion in base metals, US$ 1.131 billion in logistics, US$ 307 million in fertilizer nutrients, US$ 191 million in power generation, US$ 54 million in steel projects and US$ 126 million in corporate activities and other business segments.

The start-up of the Salobo copper mine, in Carajás, Brazil, was rescheduled to the second quarter of 2012. Delays on engineering works, which led to the replacement of the former contractors, were the cause for the postponement.

Projects started-up in 3Q11

Moatize I, the first phase of the Moatize coal project, in the province of Tete, Mozambique, started production in 3Q11. Moatize is a world-class asset, with long-life reserves, open cut mining and low mining and operating costs. It has a nominal production capacity of 11 Mtpy, comprising 8.5 Mtpy of metallurgical coal and 2.5 Mtpy of thermal coal. The main branded product to be sold is the Chipanga prime hard coking coal (HCC) while a regular HCC product is still under study.

Moatize is our first greenfield coal project and the first project concluded by Vale on the African continent. In 3Q11, the Board of Directors approved an increase of total capex to US$ 1.882 billion, to finalize the project, out of which US$ 1.637 billion was executed by September 2011.

In 3Q11, Vale started-up the two turbines of the Karebbe hydropower plant, in Sorowako, Indonesia. The operation of Karebbe will support expansion plans and at the same time will have an important role in our efforts to curb the production costs of our Indonesian nickel operations. The Karebbe capex approved by our Board of Directors amounts to US$ 410 million, out of which we executed US$ 377 million.

Projects recently approved by the Board of Directors

The expansion of Moatize and the Nacala Corridor project were approved by our Board of Directors after reaching a more advanced stage of development.

US GAAP		3Q11

Moatize II allows us to leverage our rich coal resources in Mozambique. The open cut mine project will add 11 Mtpy of nominal production capacity to our operations, which will total 22 Mtpy, by duplicating the CHPP and expanding the infrastructure. Moatize II production is estimated to be composed of 70% HCC and 30% thermal coal. Capex approved by the Board totals US$ 2.07 billion and the start-up is expected for the second half of 2014.

Given the logistics intensiveness of coal, we are investing in the Nacala Corridor, which encompasses railway construction/renovation and the building of a maritime terminal, with an estimated nominal capacity to handle 18 Mtpy of coal, with potential to reach in the future expansions up to 30 Mtpy. The start up of the project is expected for the second half of 2014 and the investments approved by the Board of Directors amount to US$ 4.444 billion, US$ 3.435 billion for the railroad and US$ 1.009 billion for the maritime terminal.

The 912 kilometers long Nacala railroad project involves the recovery of 682 kilometers of the existing railway in Malawi and Mozambique, and construction of 230 kilometers, composed of a 201-kilometer stretch connecting Moatize to the Nkaya, in Malawi, and 29.3 kilometers linking the existing railway to the new coal maritime terminal to be built in the coast of Mozambique. The Nacala coal maritime terminal, located in Nacala-à-Velha, Mozambique, is one of best ports in East Africa and will be able to receive Handymax, Panamax and Capesize ships.

Aligned with the decision to invest in the Nacala Corredor and following up on the initial acquisition of a 51% stake of Sociedade Desenvolvimento Corredor do Norte S.A. (SDCN) in September 2010, we acquired an additional 16% stake for US$ 8 million in 3Q11, reaching 67% participation in the company that controls each of the existing railways in Mozambique (CDN) and Malawi (CEAR).

Also in 3Q11, we disbursed US$ 70.1 million for a 9% stake in Norte Energia S.A. (NESA), which was established with the purpose of implementing, operating and exploring the Belo Monte hydroelectric plant in the Brazilian state of Pará, as previously disclosed.

Table 7 — TOTAL INVESTMENT BY CATEGORY

US$ million		3Q10				%				2Q11				%				3Q11				%
Organic growth			2,248				73.0				3,075				76.2				3,500				77.3
Projects			1,902				61.7				2,656				65.8				3,113				68.7
R&D			346				11.2				419				10.4				387				8.6
Stay-in-business			833				27.0				960				23.8				1,029				22.7
Total			3,081				100.0				4,036				100.0				4,529				100.0

Table 8 — TOTAL INVESTMENT BY BUSINESS AREA

US$ million		3Q10				%				2Q11				%				3Q11				%
Bulk materials			1,165				37.8				1,553				38.5				1,659				36.6
Ferrous minerals			948				30.8				1,253				31.1				1,318				29.1
Coal			217				7.0				300				7.4				341				7.5
Base metals			702				22.8				1,078				26.7				1,062				23.4
Fertilizer nutrients			204				6.6				293				7.3				307				6.8
Logistics			604				19.6				842				20.9				1,131				25.0
Power generation			209				6.8				105				2.6				191				4.2
Steel			28				0.9				43				1.1				54				1.2
Others			170				5.5				122				3.0				126				2.8
Total			3,081				100.0				4,036				100.0				4,529				100.0

US GAAP		3Q11

•

DEBT INDICATORS

Total debt was US$ 22.989 billion as of September 30, 2011, with an average maturity of 10.1 years and an average cost of 4.68% per annum. Net debt^(c) rose to US$ 15.424 billion from US$ 11.232 billion in 2Q11, mainly due to the decrease in cash holdings from US$ 13.227 billion to US$ 7.565 billion on September 30, 2011.

Debt leverage, as measured by total debt/LTM adjusted EBITDA^(d) ratio, was 0.63x on September 30, 2011, slightly lower than the 0.68x on June 30, 2011, and significantly lower than the 1.3x on September 30, 2010. Total debt/enterprise value^(e) was 17.2% on September 30, 2011, versus 13.9% on June 30, 2011.

Interest coverage, measured by the LTM adjusted EBITDA/LTM interest payment ratio^(f), increased to 29.2x compared to 28.4x on June 30, 2011 and 18.1 x on September 30, 2010.

Considering hedge positions, total debt on September 30, 2011 was composed of 24% of floating interest rates and 76% of fixed interest rates linked debt, while 97% was denominated in US dollars and the remainder in other currencies.

On June 30, 2011, the Board of Directors approved a share buy-back program of up to US$ 3.0 billion to be executed up to November 25, 2011. Up to September 30, 2011, we acquired 25,988,880 common shares, at the average price of US$ 26.87 per share, and 53,105,900 preferred shares, at the average price of US$ 24.52 per share, totaling US$ 2.0 billion and corresponding to 66.68% of the total approved.

Table 9 — DEBT INDICATORS

US$ million		3Q10				2Q11				3Q11
Total debt			25,267				24,459				22,989
Net debt			15,544				11,232				15,424
Total debt / adjusted LTM EBITDA (x)			1.3				0.7				0.6
Adjusted LTM EBITDA / LTM interest expenses (x)			18.1				28.4				29.2
Total debt / EV (%)			14.4				13.9				17.2

PERFORMANCE OF THE BUSINESS SEGMENTS

•

Bulk materials

•

Ferrous minerals

Sales of iron ore and pellets reached 77.453 Mt, 6.2% higher than 2Q11. Shipments of iron ore reached 67.008 Mt, 7.0% higher than 2Q11, while pellets sales amounted to 10.445 Mt, in line with 10.253 Mt in the previous quarter.

Despite the increase, sales were lower than the 85.032 Mt record output in 3Q11. The gap between production and sales was due to three main factors: (a) the need to rebuild operational stocks required by the maintenance of efficiency in distribution; (b) the accumulation demanded by the ramp up of pellet operations and the start-up of the distribution center in Oman; (c) the softening of iron ore demand in Brazil, which caused a transitory rise in inventories, as products are being reallocated to other markets. In 3Q11, the first of our two pellet plants in the industrial site of Sohar, Oman reached the full capacity operation at 4.5 Mt per year. The second pellet plant is expected to start the ramp-up process in 4Q11.

US GAAP		3Q11

The average sale price of iron ore was US$ 151.26 per metric ton, 4.1% higher than the previous quarter, while the average pellet price was US$ 205.79 per metric ton, in line with 2Q11. Although the reference prices used for 3Q11 did not change in relation to 2Q11, the elimination of the carry-over effect and slight changes in the product mix and their characteristics in terms of Fe content and moisture were responsible for the realized price increase.

China’s participation in the sales of iron ore and pellets increased to 45.3% from 41.9% in 2Q11. Although in absolute terms sales to Europe increased, its share decreased slightly to 19.8% from 20.1%, while sales to Japan increased to 11.5% from 11.0% in 2Q11. Sales to Brazilian steelmakers and pig iron producers fell to 8.880 Mt from 9.840 Mt, which resulted in a decline of its share in total sales to 11.5%.

It is important to highlight that reported revenues for iron ore and pellets are net of the costs of maritime freight, meaning that prices of cost and freight (CFR) sales are comparable to average FOB prices. In 3Q11, Vale sold 22.4 Mt of iron ore and pellets on a CFR basis, against 17.4 Mt in 2Q11.

Volumes of manganese ore sold in 3Q11 reached 356,000 metric tons, with a 27.1% increase over 2Q11, which were offset by the decrease of the average realized prices, to US$ 129.21 from US$ 182.14 per metric ton in 2Q11. Revenues dropped to US$ 46 million from US$ 51 million in 2Q11.

Sales of ferroalloys amounted to 101,000 metric tons, in line with 2Q11, and generated revenues of US$ 139 million, against US$ 150 million, in 2Q11. The average realized price decreased to US$ 1,376.24 per metric ton from US$ 1,485.15 in 2Q11.

Sales of ferrous minerals products — iron ore, pellets, manganese and ferroalloys — produced a total revenue of US$ 12.479 billion in 3Q11, increasing 9.2% vis-à-vis the US$ 11.425 billion in 2Q11.

The adjusted EBIT margin for the ferrous minerals business was 68.3% in 3Q11, in line with 69.0% in 2Q11.

Adjusted EBITDA for the ferrous minerals operations totaled US$ 9.173 billion in 3Q11, with an increase of 7.9% compared to 2Q11. The increase of US$ 673 million was mainly due to the impact of higher volumes (US$ 678 million) and sales prices (US$ 234 million), and the positive impact of exchange rate effects (US$ 53 million). These changes were partly offset by higher SG&A expenses (US$ 144 million) and COGS (US$ 97 million), with lower dividends received from non-consolidated affiliated companies (US$ 51 million).

Table 10 — FERROUS MINERALS BUSINESS PERFORMANCE
VOLUME SOLD BY DESTINATION — IRON ORE AND PELLETS

‘000 metric tons		3Q10				%				2Q11				%				3Q11				%
Americas			11,646				14.8				12,521				17.2				12,069				15.6
Brazil			10,208				13.0				11,026				15.1				10,063				13.0
Steel mills and pig iron producers			8,991				11.4				9,840				13.5				8,880				11.5
JVs pellets			1,217				1.5				1,186				1.6				1,183				1.5
USA			226				0.3				—				—				303				0.4
Others			1,212				1.5				1,496				2.1				1,703				2.2
Asia			51,097				65.0				44,051				60.4				48,055				62.0
China			36,166				46.0				30,568				41.9				35,114				45.3
Japan			8,204				10.4				8,034				11.0				8,899				11.5
South Korea			3,805				4.8				3,929				5.4				3,616				4.7
Others			2,922				3.7				1,520				2.1				426				0.6
Europe			13,868				17.6				14,650				20.1				15,339				19.8
Germany			5,637				7.2				5,301				7.3				6,049				7.8
United Kingdom			1,480				1.9				852				1.2				910				1.2
France			1,188				1.5				1,723				2.4				1,329				1.7
Italy			1,880				2.4				2,987				4.1				2,869				3.7
Turkey			837				1.1				504				0.7				856				1.1
Spain			936				1.2				775				1.1				696				0.9
Netherlands			214				0.3				1,199				1.6				1,021				1.3
Others			1,696				2.2				1,308				1.8				1,609				2.1
Middle East			1,028				1.3				1,052				1.4				1,085				1.4
Rest of the World			989				1.3				623				0.9				905				1.2
Total			78,628				100.0				72,897				100.0				77,453				100.0

US GAAP		3Q11

OPERATING REVENUE BY PRODUCT

US$ million		3Q10				2Q11				3Q11
Iron ore			8,724				9,102				10,136
Pellet plant operation services			7				9				9
Pellets			2,076				2,113				2,149
Manganese ore			67				51				46
Ferroalloys			160				150				139
Others			6				—				—
Total			11,040				11,425				12,479

AVERAGE SALE PRICE

US$/ metric ton		3Q10				2Q11				3Q11
Iron ore			128.21				145.30				151.26
Pellets			196.14				206.07				205.79
Manganese ore			285.91				182.14				129.21
Ferroalloys			1,774.27				1,485.15				1,376.24

VOLUME SOLD

‘000 metric tons		3Q10				2Q11				3Q11
Iron ore			68,043				62,644				67,008
Pellets			10,585				10,253				10,445
Manganese ore			233				280				356
Ferroalloys			90				101				101

•

Coal

Revenues from sales of coal products reached a record of US$ 285 million in 3Q11, showing an increase of 11.3% over the US$ 256 million in 2Q11. Revenues from shipments of thermal coal were US$ 124 million and US$ 161 million from metallurgical coal.

Total coal shipments were 1.832 Mt during 3Q11, of which 1.263 Mt of thermal coal shipments — vs. 1.454 Mt in 2Q11 — and 569,000 metric tons of metallurgical coal — vs. 456,000 metric tons in 2Q11. Although metallurgical coal sales improved, 3Q11 performance was still affected by the consequences of last year’s severe flooding in the state of Queensland, Australia, in 4Q10.

The average sale price of metallurgical coal in 3Q11 was US$ 282.54 per metric ton, being 10.1% higher than 2Q11. For thermal coal, the average sales price was US$ 98.28 per metric ton, slightly above the US$ 95.29 per metric ton in the previous quarter.

Adjusted EBTIDA for the coal business was negative US$ 14 million, in a swing from the positive cash generation of US$ 24 million in the previous quarter. Adjusting for the pre-operating expenses of Moatize of US$ 27 million, adjusted EBITDA amounts to US$ 13 million. As Moatize I starts generating revenues alongside the normalization of the Australian operations, we expect the coal operations to generate a robust cash flow.

Table 11 — COAL BUSINESS PERFORMANCE
OPERATING REVENUE BY PRODUCT

US$ million		3Q10				2Q11				3Q11
Thermal coal			113				139				124
Metallurgical coal			104				117				161
Total			217				256				285

US GAAP		3Q11

AVERAGE SALE PRICE

US$/ metric ton		3Q10				2Q11				3Q11
Thermal coal			98.73				95.29				98.28
Metallurgical coal			184.60				256.53				282.54

VOLUME SOLD

‘000 metric tons		3Q10				2Q11				3Q11
Thermal coal			1,139				1,454				1,263
Metallurgical coal			565				456				569

Table 12 — BULK MATERIALS: SELECTED FINANCIAL INDICATORS

		3Q10				2Q11				3Q11
Adjusted EBIT margin (%)
Ferrous minerals			70.3				69.0				68.3
Coal			(4.6	)			(23.4	)			(27.0	)
Adjusted EBITDA (US$ million)
Bulk materials			8,336				8,524				9,159
Ferrous minerals			8,264				8,500				9,173
Coal			72				24				(14	)

•

Base metals

Revenues from sales of base metals in 3Q11 amounted to US$ 2.292 billion, in line with US$ 2.225 billion in 2Q11. The price decline reduced revenues by US$ 427 million, while the volume increase added US$ 494 million.

Nickel sales revenues amounted to US$ 1.437 billion in 3Q11, 1.6% lower than 2Q11. The price decrease reduced revenues by US$ 306 million, while some production recovery after a period of maintenance and usage of accumulated inventory increased sales by US$ 282 million.

Nickel shipments increased to 68,000 t from 57,000 t in 2Q11. Average nickel price in 3Q11 fell 17.3% to US$ 21,132 per metric ton, versus US$ 25,542 in 2Q11.

Copper revenues were US$ 646 million in 3Q11, up 31.5% compared to US$ 491 million in 2Q11. Shipments reached 80,000 t, 45.0% higher than 2Q11, due to the all-time high output from our operations. The average copper price dropped to US$ 8,044 per metric ton from US$ 8,871 in 2Q11.

In 3Q11, revenues from the sale of PGMs (platinum group metals) were US$ 81 million, nearly half of the US$ 159 million in 2Q11. The decrease was chiefly due to the effect of the Copper Cliff smelter shutdown in 2Q11, which given the long production chain reduced the feed to Acton, our PGM refinery in the UK.

The adjusted EBIT margin dropped to 7.9% in 3Q11 from 11.4% in 2Q11. However, the EBIT margin would have increased to 16.4% if the costs of VNC, Onça Puma and Salobo were excluded. These operations are still pre-operational/ramping up and thus incurred costs but barely generated revenues.

Adjusted EBITDA in 3Q11 amounted to US$ 660 million, 12.5% lower than in the previous quarter. The decrease of US$ 94 million was mainly caused by the effect of the price drop, US$ 426 million, higher COGS, US$ 58 million, and a reduction in dividends received from non-consolidated affiliates, US$ 52 million. These negative effects were partially cushioned by the increase in sales volumes, US$ 390 million, lower SG&A expenses, US$ 41 million, and an exchange rate effect of US$ 11 million.

US GAAP		3Q11

Table 13 — BASE METALS BUSINESS PERFORMANCE
OPERATING REVENUE BY PRODUCT

US$ million		3Q10				2Q11				3Q11
Nickel			891				1,461				1,437
Copper			395				491				646
PGMs			10				159				81
Precious metals			10				90				99
Cobalt			4				23				29
Aluminum			215				—				—
Alumina			387				—				—
Bauxite			7				—				—
Total			1,919				2,225				2,292

AVERAGE SALE PRICE

US$/ metric ton		3Q10				2Q11				3Q11
Nickel			21,366.16				25,541.96				21,132.35
Copper			7,153.24				8,871.38				8,043.63
Platinum (US$/oz)			1,551.85				1,765.12				1,765.57
Cobalt (US$/lb)			13.61				15.83				18.71

VOLUME SOLD

‘000 metric tons		3Q10				2Q11				3Q11
Nickel			42				57				68
Copper			55				55				80
Precious metals (oz)			199				702				728
PGMs (oz)			11				136				70
Cobalt (metric ton)			134				659				703
Aluminum			97				—				—
Alumina			1,422				—				—
Bauxite			204				—				—

SELECTED FINANCIAL INDICATORS

US$ million		3Q10				2Q11				3Q11
Adjusted EBIT margin (%)			11.7				11.4				7.9
Adjusted EBITDA			521				754				660

•

Fertilizer nutrients

In 3Q11, total revenues from fertilizer nutrients continued to grow, reaching US$ 1.037 billion, 19.5% higher than the US$ 867 million in 2Q11.

Unlike mining products, whose prices are more influenced by demand conditions, fertilizer prices are more supply driven. As prices of food commodities, which tend to be strongly affected by weather conditions, increase, farmers are encouraged to increase their planted area and to foster productivity gains, thus using more fertilizers. After a sharp fall in 2009, the global demand for fertilizers expanded, and even with a higher capacity utilization of existing operations, prices have been trending upward.

Revenues from sales of potash totaled US$ 80 million in 3Q11, increasing 17.6% from the previous quarter. Sales volumes reached 152,000 t in 3Q11, 10.1% higher than the 138,000 t in the previous quarter. The average sales price increased to US$ 526.32 from US$ 492.75 in 2Q11.

Phosphate products’ sales reached US$ 713 million in 3Q11, 22.0% higher than 2Q11. Total shipments of MAP were 245,000 t, TSP 184,000 t, SSP 774,000 t, DCP 133,000 t and phosphate rock 680,000 t.

Sales of nitrogen fertilizers reached US$ 216 million, with an 11.6% increase from the US$ 194 million in the previous quarter. Sales of other related products totaled US$ 28 million in 3Q11.

US GAAP		3Q11

The EBIT margin of the fertilizer nutrients business was 8.0% in 3Q11, in line with the 7.9% in the previous quarter.

Adjusted EBITDA for the fertilizers business grew to US$ 239 million in 3Q11, 14.4% higher than the previous quarter. The major factors for the increase of US$ 30 million compared to 2Q11 were higher sales prices, US$ 72 million, and higher sales volumes, US$ 39 million, which were partly offset by higher COGS, US$ 67 million, and higher SG&A expenses, US$ 18 million.

Table 14 — FERTILIZER NUTRIENTS BUSINESS PERFORMANCE
OPERATING REVENUE BY PRODUCT

US$ million		3Q10				2Q11				3Q11
Potash			87				68				80
Phosphates			573				584				713
Nitrogen			131				194				216
Others			10				21				28
Total			801				867				1,037

AVERAGE SALE PRICE

US$/ metric ton		3Q10				2Q11				3Q11
Potash			401				493				526
Phosphates
MAP			486				718				711
TSP			386				621				603
SSP			218				278				299
DCP			558				705				731
Nitrogen			393				569				646