barbosa risk

8/8/2019 Barbosa Risk

http://slidepdf.com/reader/full/barbosa-risk 1/29



2

“This presentation may include declarations about Vale's expectations

regarding future events or results. All declarations based upon future

expectations, rather than historical facts, are subject to various risks and

uncertainties. Vale cannot guarantee that such declarations will prove to be

correct. These risks and uncertainties include factors related to the following:

(a) the countries where Vale operates, mainly Brazil and Canada; (b) the global

economy; (c) capital markets; (d) the mining and metals businesses and their

dependence upon global industrial production, which is cyclical by nature; and

(e) the high degree of global competition in the markets in which Vale

operates. To obtain further information on factors that may give rise to results

different from those forecast by Vale, please consult the reports filed with the

Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des

Marchés Financiers (AMF), and with the U.S. Securities and Exchange

Commission (SEC), including Vale’s most recent Annual Report on Form 20F

and its reports on Form 6K.”

Disclaimer



3

n In a highly uncertain environment, it is useful to

understand the long-term industry trend.

n The long cycle in minerals and metals: is it dead or it is just

a pause?

n Even the deepest downturns create opportunities for

financially sound companies with the right ideas and

strategy.

Looking beyond



-21.0

-17.0

-13.0

-9.0

-5.0

-1.0

3.0

7.0

11.0

1998 2000 2002 2004 2006 2008

A sharp declining global industrial productionhas caused an unprecedented demandcontraction for minerals and metals

Source: Vale and JP Morgan

Global industrial production% 3mma, saar



Base metal prices

Decline from peak to trough

1990-93 1998 2001 2008-09

Nickel -83% -64% -59% -84%Copper -57% -58% -34% -69%

Aluminum -76% -47% -29% -62%

Time from peak to trough

# of months 1990-93 1998 2001 2008-09

Nickel 66 47 21 16

Copper 60 45 14 5

Aluminum 65 50 22 7

A powerful negative demand shock: base metalprices have fallen deeper and faster than inpast global recessions



GDP growth%

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8 E

2 0 0 9 E

2 0 1 0 E

Global Emerging economies Developed economies

Despite their structural strength, growth inEM is under strong deceleration. However,“relative decoupling” is expected to continue

IMF projections

Jan 28, 2009Sources: IMF and Vale



n Terms of trade shock => Brazil and India.

n Export performance => Brazil, China and India.

n Tightening of external credit – moderate dependency on

international capital inflows => Brazil and India.

n Tightening of domestic credit supply => China.

n Banks in Brazil, China and India remain sound. No

overleveraging and asset price bubbles.

Growth deceleration in Brazil, Chinaand India is mainly driven by cyclicalfactors.



n Given their metal intensiveness, infrastructure spending, urbanization

and industrialization are the main underlying forces of demand growth

for minerals and metals.

n The UN estimates that EM population in urban areas will increase by1.2 billion over the next twenty years.¹

n The urbanization move will require significant investment in

infrastructure in EM economies.

n In addition, EM economies are expected to increase in infrastructurespending to pursue productivity gains and to fight poverty.

n Per capita income growth in EM will continue to generate demand

growth for consumer durables, another driver of the expansion of

metals consumption.

Notwithstanding its severity, the global recessionis not expected to cause a disruption of long-termfundamentals of mineral and metals

¹ Source: UN Department of Economics and Social Affairs



Urbanization is expected to remain amajor source of demand growth for minerals and metals

0%

10%

20%

30%

40%

50%

60%

70%

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2030E 2050E

Chinese urban population

% of total population

....

Sources: Vale, CEIC and UN

18%

60%

73%

44%

....



11

Contribution to global consumption growth2000-2007

110%

161%

97%

-10%

-61%

3%

Developed economies

Emerging market economies

China

Aluminum

Copper

Nickel

Sources: Vale and WBMS

74%

106%

106%

EM have been the drivers of globalconsumption growth of metals

Steel 3.5%

96.5%62.2%



12

n Increasing difficulties in environmental permitting.

n Natural resources nationalism.

n “Easy” discoveries are gone. New world-class assets are increasingly

dependent on more complex regions of the world.

n New mines tend to produce ores with lower grades, higher impurities

and higher stripping ratios.

n In certain segments, such as coal and copper, there is a trend towards

underground mining, which implies higher fixed costs.

n Technological challenges in processing ores into metals.

On the supply side, a meaningful response fromthe mining industry to price incentives has beenlimited by institutional and geological factors



13

n Financial conditions supported the supply expansion

of minerals and metals

n At the same time, they facilitated efficiency gains and

better risk management at the high-end and greater

competition at the low-end of the mining industry.

Nevertheless, liquid global financial marketscontributed to reshape the mining industry



14

n Mid-sized monoline companies across the globe were the main targetsof M&A transactions.

n Several mid-sized mining companies have been acquired over the last10 years by large mining companies:

Ø Brazil - Caemi, Samitri, Ferteco;

Ø Canada - Inco, Falconbridge, Noranda, Alcan, Canico;

Ø US - Phelps Dodge, Asarco, Cyprus, Stillwater, ReynoldsMetals;

Ø Europe - Alusuisse, Pechiney, OMX;

Ø Australia - North, Comalco, MIM, WMC, Jubilee.

n There was a consolidation of a small group of large diversifiedcompanies, which represent now 60% of the industry market capagainst 48% in 1999.

Consolidation at the high-end of themining industry took place…



15

n A strong demand for IPOs fueled the creation and

expansion of small mining companies.

n Junior mining companies led the recent boom in

global mineral exploration.

n New entrants with new projects.

…as well as the emergence of newcompetitors at the low-end



16

n The panic of 1907 led to the creation of the Federal Reserve Bank.

n Reaction to the Great Depression resulted in the creation of the FDIC

and SEC and the enactment of the Glass-Steagall act.

n Corporate governance problems of 2000-01 gave rise to the Sarbanes-

Oxley law.

n Changes in the regulatory framework, new institutions with new roles

and lower risk tolerance are expected to take place on a worldwidebase.

n In addition, financial crises use to be followed by major public debt

increases, crowding out private savings.

Reforms followed major US financialcrises with implications well beyondthe financial services industry



17

n Many mining projects have already been cancelled or

postponed.

n Higher risk aversion and higher public debt – increasinglycrowding out private savings – will make the supply of

capital more scarce.

n

Cost of capital is expected to be higher and access tocapital more limited.

n Expansion of small and financially weak companies

severely constrained by financial conditions.

A major structural change: financialconditions shift from a supportive to arestrictive role



18

2.5 2.9

3.5

4.65.2

3.7

2.8 2.6 2.2 1.92.4

3.8

5.1

7.5

10.0

13.2

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Global exploration investment likely tosuffer a major decrease

US$ billion

Source: Metal Economics Group



19

A US$200 billion shortfall in mininginvestment is estimated to take placeover the next five years

US$ billion

0

10

20

30

40

50

60

70

80

90

100

110

1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010E 2012E 2014E

Planned Estimated

Source: Credit Suisse

A h d di i li i it l ll ti



20

Capex

in US$ billion

Anchored on discipline in capital allocation,Vale has invested to maximize its exposureto the structural changes in EM economies

1 0 . 4

1 1 . 0

2 . 1

5 . 0

2 0 . 6

2004

2005

2006

2007

2008

Acquisitions

Maintenance, R&D and project development

Average ROIC¹

2003-08

49.2%

¹ pre-tax

Excellence in project execution:



21

Excellence in project execution:29 major projects delivered betweenJanuary 2002 and February 2009

2002 2003 2004 2005 2006 2007 2008 20092002 2003 2004 2005 2006 2007 2008 2009

Funil

Alunorte 3

Carajás

70 Mtpy

Sossego

Candonga

Aimorés

Alunorte4&5

São Luís

Trombetas

CapãoXavier

Pier IIIPDM

Mo I Rana

FábricaNova

Taquari-Vassouras

Brucutu

Carajás

85 Mtpa

CapimBranco II

Paragominas I

Carajás100 Mtpy

Dalian

Samarco III

Fazendão

ParagominasII

Alunorte6&7

Itabiritos

Capim

Branco I

Zhuhai

UHC

CorredorNorte

In addition to project development Vale



22

In addition to project development, Valehas acquired assets to pursue growthand diversification

ConsolidationConsolidationof of ironiron oreoreleadershipleadership

Acquisitions: US$ 25.1 billion

BecomingBecoming aaglobalglobal leaderleader

inin nickelnickel

GrowthGrowthplatformplatform inin

coalcoal

2000 – 2008

W d t t l b i



23

We used our strong natural resources base inBrazil to expand into a major global diversifiedmining company

Namibia

Fast growth and significant shareholder value



24

Fast growth and significant shareholder valuecreation consolidated our position as theworld’s second largest mining company

B H P B

R I O

T I N T O

A L C A N

B A R R I C K

A M P L A T S

A N G L O G O L D

N E W M O N T

A L C O A

V A L E

A N G L O

0

10

20

30

40

Dec 31, 2001

US$ 9.2 billion

Market capitalization

B H P B

R I O

T I N T O

A N G L O

F R E E P O R T

N O R I L S K

X S T R A T A

A N G L O G O L D

V A L E

N E W M O N T

B A R R I C K

0

30

60

90

120

150

Feb 20, 2009

US$ 69.2 billion

Currently Vale’s market cap is bigger than



25

Currently, Vale’s market cap is bigger thanthe total of a group of major miningcompanies¹

0

4

8

12

16

0 5 10 15 20 25

EBITDA² - US$ billion

N e t e a r n i n g s ²

- U S $ b

i l l i o n

ValeUS$ 69.2 billion

Rio TintoUS$ 35.7 billion

Anglo AmericanUS$ 19.6 billion

XstrataUS$ 9.1 billion

Reference

US$ 10 billion¹ Market cap as of February 20, 2009.

² Net earnings and EBITDA for 2008

Source: Credit Suisse

V l i i l iti d t t



26

n Financial strength: large cash holdings, availability of

medium and long-term credit lines, strong balance sheet,

long average debt maturity.

n World-class low-cost long-lived assets.

n An excellent track record of delivery: 29 major projects

concluded over the last six years.

n A wealth of growth options: current pipeline under

development comprises 23 major projects.

n 134 mineral exploration projects across the globe to

support long-term growth.

Vale is uniquely positioned to createshareholder value across the cycles

C ti i t l it i th



27

Iron ore and Pellets

Nickel

Coal

Copper

Bauxite and Alumina

Phosphate

Logistics

Power generation

Steel

Brownfield

Greenfield

US$ 1 billion

Goro

Tres Valles

Carajás 10 Mtpy

Carborough Downs

Barcarena

Salobo I

Tubarão VIII

Oman

Estreito

Bayovar

Karebbe

Paragominas III

Serra Sul

CAPMoatize

Litorânea Sul

Totten

Apolo

CSA

Continuing to exploit organic growth:23 major projects under development

Carajás 130 Mtpy

Salobo (expansion)

South corridor

Onça Puma

Sowing the seeds of long-term growth:



28

Sowing the seeds of long term growth:154 mineral exploration projects under development around the world

Nickel

Copper

Potash

Phosphate

Coal

Iron ore

Uranium

Bauxite

Manganese

Natural gas



29

Vale: a global leader

barbosa risk

Documents