VALE S PERFORMANCE IN 1Q16

Transcription

1 VALE S PERFORMANCE IN 1Q16

2 Tel.: (55 21) Investor Relations Department Rogério T. Nogueira André Figueiredo Carla Albano Miller Fernando Mascarenhas Andrea Gutman Bruno Siqueira Claudia Rodrigues Mariano Szachtman Renata Capanema BM&F BOVESPA: VALE3, VALE5 NYSE: VALE, VALE.P HKEx: 6210, 6230 EURONEXT PARIS: VALE3, VALE5 LATIBEX: XVALO, XVALP E xce p t w h e re o t h e rw i se i n d i ca t e d t h e o p e ra t i o n a l a n d f i n a n ci a l i n f o rm a t i o n i n t h i s re l e a se i s b a se d o n t h e co n so l i d a t e d f i g u re s i n a cco rd a n ce w i t h I F R S a n d, w i t h t h e e xce p t i o n o f i n f o rm a t i o n o n i n ve st m e n t s a n d b e h a vi o r o f m a rke t s, q u a rt e rl y f i n a n ci a l st a t e m e n t s a re re vi e w e d b y t h e co m p a n y s i n d e p e n d e n t a u d i t o rs. T h e m a i n su b si d i a ri e s t h a t a re co n so l i d a t e d a re t h e f o l l o w i n g : C o m p a ñ i a M i n e ra M i ski M a yo S. A. C., M i n e ra çã o C o ru m b a e n se R e u n i d a S. A., P T V a l e I n d o n e si a T b k (f o rm e rl y I n t e rn a t i o n a l N i cke l I n d o n e si a T b k), S a l o b o M e t a i s S. A, V a l e A u st ra l i a P t y L t d., V a l e I n t e rn a t i o n a l H o l d i n g s G M B H, V a l e C a n a d a L i m i t e d (f o rm e l y V a l e I n co L i m i t e d ), V a l e F e rt i l i za n t e s S. A., V a l e I n t e rn a t i o n a l S. A., V a l e M a n g a n ê s S. A., V a l e M o ça m b i q u e S. A., V a l e N o u ve l l e -C a l é d o n i e S A S, V a l e O m a n P e l l e t i zi n g C o m p a n y L L C a n d V a l e S h i p p i n g H o l d i n g P T E L t d.

3 Contents Vale s performance in 1Q Operating revenues Costs and expenses Adjusted earnings before interest, taxes, depreciation and amortization Net income Investments Free cash flow Debt indicators Performance of the business segments Ferrous Minerals Base Metals Coal Fertilizer Nutrients CONFERENCE CALL AND WEBCAST

4 Vale s performance in 1Q16 Rio de Janeiro, April 28, 2016 Vale S.A. (Vale) delivered a sound operational performance in 1Q16, reaching several production records for a first quarter, namely: (i) total iron ore production 1 of 77.5 Mt; (ii) Carajás iron ore production of 32.4 Mt; (iii) Tubarão pellet production of 7.2 Mt; (iv) nickel production of 73,500 t; and (v) copper production of 109,900 t. Net revenues totaled US$ billion in 1Q16, decreasing US$ 180 million vs. 4Q15 as a result of seasonally lower sales volumes of iron ore fines (US$ 612 million), base metals (US$ 107 million), and fertilizers (US$ 48 million), which were partly offset by higher sales prices for iron ore fines (US$ 584 million). Costs and expenses, net of depreciation charges, totaled US$ billion in 1Q16, decreasing by US$ 880 million vs. 4Q15. Costs decreased US$ 805 million (19%), mainly driven by lower sales volumes, and expenses decreased US$ 75 million (21%) as a result of lower SG&A, R&D and pre-operating and stoppage expenses. SG&A 2 totaled US$ 96 million in 1Q16, decreasing US$ 33 million (26%) from the US$ 129 million recorded in 4Q15, with reductions in personnel, services, selling expenses and others. R&D² totaled US$ 60 million in 1Q16, decreasing US$ 59 million (50%) from the US$ 119 million recorded both in 4Q15 and in 1Q15, with reductions across all business segments. Pre-operating and stoppage expenses² totaled US$ 102 million in 1Q16, decreasing US$ 136 million (57%) from the US$ 238 million recorded in 4Q15, mainly due to the absence of preoperating expenses for VNC and the Nacala Logistics Corridor in 1Q16. Adjusted EBITDA was US$ billion in 1Q16, 44% higher than in 4Q15 mainly as a result of the improvement in the EBITDA for Ferrous Minerals (US$ 329 million) and Base Metals (US$ 218 million). Adjusted EBITDA margin was 35.1% in 1Q16, increasing from the 23.6% recorded in 4Q15. Capital expenditures totaled US$ billion in 1Q16, decreasing by US$ 744 million vs. 4Q15. Investments in project execution totaled US$ 920 million in 1Q16, with expenditures associated with the S11D project accounting for 69% of this total. Sustaining capex totaled US$ 529 million in 1Q16, decreasing US$ 298 million from the US$ 827 million recorded in 4Q15. Net income totaled US$ billion in 1Q16 vs. a net loss of US$ billion in 4Q15. The US$ billion increase in net income was mostly driven by the higher EBITDA, the impairment charges recorded in 4Q15 and the positive effect on financial results of the 8.7% 1 E xcl u d i n g S a m a rco s a t t ri b u t a b l e p ro d u ct i o n a n d i n cl u d i n g i ro n o re a cq u i re d f ro m t h i rd p a rt i e s. 2 N e t o f d e p re ci a t i o n ch a rg e s. 4

5 end-to-end appreciation of the BRL against the USD in 1Q16. Underlying earnings were positive US$ 514 million in 1Q16, against negative US$ billion in 4Q15. Free cash flow (FCF) was negative US$ billion in 1Q16, despite the US$ billion adjusted EBITDA in the quarter, being negatively impacted mainly by the settlement of derivatives in the quarter (US$ 510 million) and by the increase in working capital in 1Q16 vs. 4Q15 stemming mostly from higher accounts receivable (US$ billion) 3 and lower supplier and contractor liabilities (US$ 383 million) 4. Accounts receivable increased, mainly driven by the concentration of iron ore sales volumes (sales not yet collected) at higher provisional prices at the end of the quarter. Working capital changes should have a positive impact on cash flows in 2Q16 as sales collections increase throughout the quarter. Gross debt totaled US$ billion as of March 31 st 2016, increasing US$ billion vs. the US$ billion as of December 31 st 2015, mainly as a result of the: (i) net addition to loans and financing of US$ billion and (ii) impact of the exchange rate on the translation of BRL denominated debt into USD 5. Net debt totaled US$ billion on March 31 st, 2016 vs. US$ billion as of December 31 st, 2015, with a cash balance of US$ billion. The increase in net debt was mainly driven by the: (i) impact of the exchange rate on the translation of BRL denominated debt into USD and (ii) negative free cash flow in 1Q16. EBITDA from the Ferrous Minerals business segment increased 23% in 1Q16 driven by higher realized prices and lower landed cash cost in China, despite the effects of seasonally lower sales volumes Adjusted EBITDA for Ferrous Minerals was US$ billion in 1Q16, US$ 329 million higher than the US$ billion achieved in 4Q15, mainly as a result of higher realized sales prices (US$ 565 million) and lower costs 6 (US$ 244 million), which were partially offset by seasonally lower sales volumes (US$ 209 million) and the positive one-off effect of the Asset Retirement Obligation (ARO) recorded in 4Q15 (US$ 322 million). Cash flow generation, simply measured by adjusted EBITDA less sustaining and growth capex, was US$ 829 million in 1Q16, increasing by US$ billion from the negative US$ 470 million recorded in 1Q15, despite the 23% drop in the Platts IODEX 62% reference price. 3 T h i s f i g u re re p re se n t s t h e a cco u n t s re ce i va b l e va ri a t i o n i n 1 Q 1 6 vs. 4 Q T h i s f i g u re re p re se n t s t h e su p p l i e r a n d co n t ra ct o r l i a b i l i t ie s va ri a t i o n i n 1 Q 1 6 v s. 4 Q I n 1 Q 1 6, f ro m e n d -to-end, t h e B R L a p p re ci a t e d 8. 7 % a g a i n st t h e U S D. 6 N e t e f f e ct o n co st s, a f t e r a d j u st i n g f o r vo l u m e a n d e xch a n g e ra t e i m p a ct s. 5

6 CFR dmt reference price for iron ore fines (ex-rom) increased by US$ 9.6/t from US$ 45.1/t in 4Q15 to US$ 54.7/t in 1Q16, equivalent to a price realization 13% higher than the average Platts IODEX 62% of US$ 48.3/t in 1Q16, whereas the CFR/FOB wmt price for iron ore fines (ex-rom) 7 increased by US$ 9.3/t from US$ 37.2/t in 4Q15 to US$ 46.5/t in 1Q16. Average Fe content on iron ore fines decreased slightly from 63.7% in 4Q15 to 63.5% in 1Q16, driven mostly by mine plan adjustments in the Southern and Southeastern systems in response to market demand and better pricing for higher silica ores. C1 cash cost FOB port per metric ton for iron ore fines, ex-royalties, totaled US$ 12.3/t in 1Q16, remaining practically in line with the US$ 12.2/t 8 recorded in 4Q15, despite the reduced fixed costs dilution on seasonally lower production volumes. C1 Cash cost FOB port per metric ton of iron ore fines in Brazilian Reais was R$ 47.5/t in 1Q16, practically in line with the R$ 47.0/t 9 recorded in 4Q15, mainly due to increases in operational productivity and the ongoing cost-cutting initiatives, despite less fixed-costs dilution on seasonally lower production volumes and higher inflationary pressures in Brazil. Unit maritime freight cost of iron ore fines per metric ton was US$ 11.3/t in 1Q16, US$ 2.8/t lower than the US$ 14.1/t recorded in 4Q Iron ore and pellets EBITDA break-even, measured by unit cash costs and expenses on a landed-in-china basis (and adjusted for quality, pellets margins differential and moisture, excluding ROM), decreased from US$ 31.0/dmt in 4Q15 to US$ 28.0/dmt in 1Q16, mainly driven by the US$ 2.80/t reduction on maritime freight costs. Sustaining capex for iron ore fines and pellets totaled US$ 208 million in 1Q16, US$ 18 million higher than in 4Q15 mainly driven by the impact of carryover of payments of mining equipment acquired in Physical progress reached 85% at the S11D mine and plant, 64% at the S11D logistic sites, and 85% at the S11D railway spur. 7 A f t e r a d j u st i n g f o r m o i st u re a n d t h e e f f e ct o f t h e l o w e r F O B sa l e s p ri ce s o n 35% o f t h e t o t a l sa l e s vo l u m e s. 8 U S $ / t i s e q u i va l e n t t o t h e U S $ / t re p o rt e d i n 4 Q 1 5 a f t e r a d j u st i n g f o r t h e n e w a l l o ca t i o n cri t e ri a f o r I C M S (U S $ / t ) a n d D i st ri b u t i o n C o st s ( -U S $ / t ) a s d e scri b e d i n t h e b o x M a n a g e ri a l A l l o ca t i o n C h a n g e s i n p a g e s o f t h e 4 Q 1 5 E a rn i n g s R e l e a se. A d d i t i o n a l a d j u st m e n t w a s m a d e t o i n cl u d e t h e co st o f T h i rd P a rt y O re P u rch a se s t o o u r C 1 co st s. 9 R $ / t i s e q u i va l e n t t o t h e R $ / t re p o rt e d i n 4 Q 1 5 a f t e r a d j u st i n g f o r t h e n e w a l l o ca t i o n cri t e ri a f o r I C M S a n d D i st ri b u t i o n C o st s a s d e scri b e d i n t h e b o x M a n a g e ri a l A l l o ca t i o n C h a n g e s i n p a g e s o f t h e 4 Q 1 5 E a rn i n g s R e l e a se. A d d i t i o n a l a d j u st m e n t w a s m a d e t o i n cl u d e t h e co st o f T h i rd P a rt y O re P u rch a se s (U S $ / t ) t o o u r C 1 co st s. 10 E xcl u d i n g t h e n e g a t i ve i m p a ct o f t h e b u n ke r o i l h e d g e i n 4 Q

7 EBITDA from the Base Metals business segment increased 196% despite lower nickel and copper LME prices Sales revenues totaled US$ billion in 1Q16, US$ 105 million lower than in 4Q15 as a result of lower sales volumes (US$ 107 million) and lower nickel realized prices (US$ 42 million), which were partly offset by better copper realized prices (US$ 46 million). Nickel realized prices were favorably impacted by improving premiums over the LME, decreasing only 6% in 1Q16 vs. 4Q15 vs. the 10% reduction on LME nickel prices in the same period. Copper realized prices increased 13% in 1Q16 vs. 4Q15 vs. the 4% reduction on LME copper prices in the same period, mainly due to the positive impact of the provisional pricing system on sales revenues of US$ 14 million in 1Q16 vs. negative US$ 60 million in 4Q15. Adjusted EBITDA was US$ 329 million in 1Q16, US$ 218 million higher than in 4Q15, as a result of the reduction in costs and expenses throughout all operations, with the highlight for the improvements in VNC and Salobo. Adjusted EBITDA for VNC totaled negative US$ 48 million in 1Q16, increasing US$ 59 million (55%) from the negative US$ 107 million recorded in 4Q15, mainly as a result of the good operational performance and the achievement of significant cost savings which enabled a reduction in the unit costs and pre-operating expenses net of by-product credits from US$ 17,380/t in 4Q15 to US$ 12,711/t in 1Q16. Salobo s EBITDA totaled US$ 131 million in 1Q16, increasing US$ 56 million (75%) from the US$ 75 million recorded in 4Q15, mainly driven by a 41% decrease in unit COGS 11 due to higher copper grades and higher by-product credits. Salobo achieved a monthly production record of 14,100 t of copper in concentrates in 1Q16 and is expected to reach its full production capacity in 2H16. EBITDA from the Coal business segment improved by 38% as a result of lower costs Adjusted EBITDA was negative US$ 93 million in 1Q16, compared to negative US$ 149 million in 4Q15, mainly driven by lower costs. Costs in Mozambique 12 decreased US$ 45 million in 1Q16 vs. 4Q15, mainly as a result of the ramp-up of the Nacala Logistic Corridor, while costs decreased US$ N e t o f d e p re ci a t i o n ch a rg e s a n d n e t o f b y - p ro d u ct s cre d i t. 7

8 million in Australia 13 in 1Q16 vs. 4Q15 due to the good operational performance at Carborough Downs, after the longwall move in 4Q15. Ramp-up of the Nacala Logistics Corridor continued as planned, with 747,000 t being transported on the railway in 1Q16 vs. 241,000 t in 4Q15 and with thirteen shipments concluded in 1Q16 vs. one shipment concluded in 4Q15. EBITDA from the Fertilizers business segment decreased, driven by lower market prices and seasonally lower volumes Adjusted EBITDA for the Fertilizer business segment decreased to US$ 70 million in 1Q16 from US$ 117 million in 4Q15, as a result of lower prices (US$ 48 million) and seasonally lower volumes (US$ 18 million), being partly offset by lower expenses (US$ 25 million). SG&A and other expenses, R&D and Pre-operating and stoppage expenses 14 decreased US$ 4 million, US$ 17 million and US$ 5 million, respectively, in 1Q16 vs. 4Q15. We successfully reduced our costs and expenses in all business segments, despite the seasonally lower production and sales volumes, and progressed with the implementation of our most important projects in 1Q16. We remain focused on maximizing our margins by leveraging our iron ore supply chain flexibility (22 mines, 11 pelletizing plants, 5 railways, 4 ports, 2 distribution centers etc.) to have a responsible and sustainable reaction to various market conditions. Together with Samarco and BHP Billiton, we reached an agreement with the Brazilian authorities which provides a long-term remedial and compensation framework for responding to the impact of the Samarco dam failure and accelerates both the environmental remediation measures and the reparations for the people affected. Finally, we acknowledge the recent improvement in iron ore prices but are cognizant of market volatility, thus remaining fully committed to strengthening our balance sheet through the reduction of our net debt as previously informed. We remain focused on our operating and capital allocation discipline and on progressing our divestment and asset optimization program. 12 A f t e r a d j u st i n g f o r t h e e f f e ct s o f h i g h e r vo l u m e s. 13 A f t e r a d j u st i n g f o r t h e e f f e ct s o f h i g h e r vo l u m e s a n d e xch a n g e ra t e. 14 N e t o f d e p re ci a t i o n ch a rg e s. 8

9 Selected financial indicators US$ million 1Q16 4Q15 1Q15 % % (A) (B) (C) (A/B) (A/C) Net operating revenues 5,719 5,899 6,240 (3.1) (8.3) Adjusted EBIT 1, Adjusted EBIT margin (%) Adjusted EBITDA 2,005 1,391 1, Adjusted EBITDA margin (%) Net income (loss) 1,776 (8,569) (3,119) Underlying earnings 514 (1,032) (679) Underlying earnings per share on a fully diluted basis (US$ / share) 0.10 (0.20) (0.13) Total gross debt 31,470 28,853 28, Cash and cash equivalent 3,809 3,619 3, Total Net Debt 27,661 25,234 24, Total gross debt/ adjusted EBITDA (x) Capital expenditures 1,449 2,193 2,210 (33.9) (34.4) 9

10 Operating revenues Net operating revenues in 1Q16 were US$ billion, 3.1% lower than in 4Q15. The decrease in sales revenues was mainly due to lower sales volumes in iron ore fines (US$ 612 million), nickel (US$ 89 million) and fertilizers (US$ 48 million), being partly offset by higher realized prices in iron ore fines (US$ 584 million). The tables below show net operating revenues by destination and by business areas, with the following highlights: Net revenue by destination was marked by: (i) the increase in sales to Asia from 54.7% in 4Q15 to 57.4% in 1Q16 (ii) the decrease in sales to Europe from 19.3% in 4Q15 to 16.4% in 1Q16. Contributions by business segments in 1Q16 were generally in line with 4Q15, with the Ferrous Minerals business segment representing 66.5% of Vale s total net revenues. Net operating revenue by destination US$ million 1Q16 % 4Q15 % 1Q15 % North America USA Canada Mexico South America , Brazil , Others Asia 3, , , China 2, , , Japan South Korea Others Europe , , Germany Italy Others Middle East Rest of the World Total 5, , ,

11 Net operating revenues by destination Net operating revenue by business areas US$ million 1Q16 % 4Q15 % 1Q15 % Ferrous minerals 3, , , Iron ore fines 2, , , ROM Pellets Manganese ore Ferroalloys Others Coal Metallurgical coal Thermal coal Base metals 1, , , Nickel Copper PGMs Gold Silver Others Fertilizer nutrients Potash Phosphates Nitrogen Others Others Total 5, , ,

12 Costs and expenses Costs and expenses decreased to US$ billion in 1Q16 from the US$ billion recorded in 4Q15, representing a reduction of 18.2%, mainly due to the impact of lower sales volumes (US$ 366 million), cost reduction initiatives (US$ 450 million) and lower preoperating and stoppage expenses (US$ 136 million). Costs and expenses decreased by US$ billion, or 22.8%, in 1Q16 vs. 4Q15 after excluding the positive one-off effect in expenses of the adjustment in Asset Retirement Obligations (ARO) of US$ 331 million in 4Q15. Costs and expenses US$ million 1Q16 4Q15 1Q15 Costs 4,249 5,119 5,168 Expenses Total costs and expenses 4,565 5,579 5,700 Depreciation ,035 Costs and expenses ex-depreciation 3,715 4,595 4,665 COST OF GOODS SOLD (COGS) COGS totaled US$ billion 15 in 1Q16, decreasing US$ 870 million in comparison with the US$ billion recorded in 4Q15, driven by the impacts of: (i) lower sales volumes (US$ 366 million); (ii) cost reduction initiatives in all businesses (US$ 450 million) and (iii) exchange rate variations (US$ 53 million). Further details on cost performance are provided in the Performance of the Business Segments section. COGS by business US$ million 1Q16 % 4Q15 % 1Q15 % Ferrous minerals 2, , , Base metals 1, , , Coal Fertilizers Other products Total COGS 4, , , Depreciation COGS, ex-depreciation 3,439 4,244 4, C O G S cu r re n cy e xp o su re i n 1 Q16 w a s a s f o l l o w s: 5 1 % B ra zi l i a n R e a i s, 3 0 % U S d o l l a r, 1 4 % C a n a d i a n d o l l a r, 3 % E u ro s a n d 2 % o t h e r cu rre n ci e s. A s p re vi o u sl y i n f o rm e d i n t h e P re ss R e l e a se V a l e s P e rf o rm a n ce i n , a s o f 1 Q 1 6, I C M S w a s re cl a ssi f i e d f ro m e xp e n se s t o co st s a m o u n t i n g t o U S $ 2 6 m i l l i o n i n 1 Q 1 6. T h e f i g u re s p re se n t e d i n t h i s re p o rt p ri o r t o 1 Q 1 6 d o n o t co n si d e r t h i s re cl a ssi f i ca t i o n. 12

13 EXPENSES Total expenses decreased 31% to US$ 316 million 16 in 1Q16 from the US$ 460 million recorded in 4Q15, due to the reduction in pre-operating and stoppage expenses (US$ 136 million), R&D (US$ 59 million) and SG&A (US$ 48 million), which were partially offset by the increase in other expenses (US$ 99 million). SG&A totaled US$ 119 million in 1Q16, representing a 28.7% decrease from the US$ 167 million recorded in 4Q15, and a 39.0% decrease from the US$ 195 million recorded in 1Q15. SG&A, net of depreciation, decreased by US$ 33 million in 1Q16 vs. 4Q15, mainly as a result of the impact of: (i) lower services expenses (-US$ 17 million); (ii) lower selling expenses (- US$ 5 million) and (iii) lower personnel expenses in 1Q16 after the collective bargaining agreement settled with our employees in Brazil in 4Q15 (-US$ 4 million). R&D expenses totaled US$ 60 million in 1Q16, representing a 49.6% decrease from the US$ 119 million recorded in both 4Q15 and 1Q15. R&D expenses stem mostly from iron ore and iron ore pellets (US$ 11 million) and nickel (US$ 14 million). Pre-operating and stoppage expenses totaled US$ 102 million in 1Q16, representing a 57.1% decrease from the US$ 238 million recorded in 4Q15, and a 61.4% decrease from the US$ 264 million recorded in 1Q15. Pre-operating expenses were no longer recorded for VNC upon the achievement of a production threshold in 1Q16. Other operating expenses totaled US$ 35 million in 1Q16, representing a decrease of 49.8% from 4Q15 and of 27.2% from 1Q15, after excluding the positive one-off effects of the: (i) reversal of the write-down of thermal coal inventories of US$ 69 million 17 in 1Q16; (ii) reallocation of US$ 26 million to COGS 16 in 1Q16; (iii) adjustment in ARO of US$ 331 million in 4Q15 and (iv) goldstream transaction of US$ 230 million in 1Q A s p re vi o u sl y i n f o rm e d i n t h e P re ss R e l e a se V a l e s P e rf o rm a n ce i n , a s o f 1 Q 1 6, I C M S w a s re cl a ssi f i e d f ro m e xp e n se s t o co st s a m o u n t i n g t o U S $ 2 6 m i l l i o n i n 1 Q 1 6. T h e f i g u re s p re se n t e d i n t h i s re p o rt p ri o r t o 1 Q 1 6 d o n o t co n si d e r t h i s re cl a ssi f i ca t i o n. I n cl u d e s d e p re ci a t i o n. 13

14 Evolution of Pre-operating and stoppage expenses US$ million Expenses US$ million 1Q16 % 4Q15 % 1Q15 % SG&A ex-depreciation SG&A Administrativ e Personnel Services Depreciation Others Selling R&D Pre-operating and stoppage expenses¹ VNC Long Harbour S11D Moatize Others Other operating expenses² (64) (13.9) (46) (8.6) Total Expenses Depreciation Expenses ex-depreciation ¹ In cl u d e s US $ 2 6 m i l l i o n o f d e p r e ci a ti o n ch a r g e s i n 1 Q 1 6, US $ 6 7 m i l l i o n i n 4 Q 1 5 a n d US $ 9 3 m i l l i o n i n 1 Q In cl u d e th e p o si ti ve o n e - o ff e ffe cts o f US $ m i l l i o n fr o m th e g o l d str e a m tr a n sa cti o n r e co r d e d i n 1 Q 1 5 a n d o f US $ m i l l i o n fr o m th e a d j u stm e n t i n A RO r e co r d e d i n 4 Q

15 Adjusted earnings before interest, taxes, depreciation and amortization 18 Adjusted EBITDA was US$ billion in 1Q16, 44.1% higher than in 4Q15 mainly as a result of the improvement in Ferrous Minerals (US$ 329 million) and Base Metals EBITDA (US$ 218 million). Adjusted EBITDA margin was 35.1% in 1Q16, increasing from the 23.6% recorded in 4Q15. Adjusted EBIT was US$ billion in 1Q16, being 261% higher than in 4Q15. Adjusted EBITDA US$ million 1Q16 4Q15 1Q15 Net operating revenues 5,719 5,899 6,240 COGS (4,249) (5,119) (5,168) SG&A (119) (167) (195) Research and development (60) (119) (119) Pre-operating and stoppage expenses (102) (238) (264) Other operational expenses (35) Adjusted EBIT 1, Depreciation, amortization & depletion ,035 Dividends received Adjusted EBITDA 2,005 1,391 1,602 Adjusted EBITDA by business area US$ million 1Q16 4Q15 1Q15 Ferrous minerals 1,738 1,409 1,027 Coal (93) (149) (128) Base metals Fertilizer nutrients Others (39) (97) (65) Total 2,005 1,391 1, N e t re ve n u e s l e ss co st s a n d e xp e n se s n e t o f d e p re ci a t i o n p l u s d i vi d e n d s re ce i ve d 15

16 Net income Vale recorded a net income of US$ billion in 1Q16 compared to a net loss of US$ billion in 4Q15. The US$ billion increase was mostly driven by the impairment charges of US$ billion recorded in 4Q15 and by the improvement in the EBITDA margin in 1Q16. Underlying earnings (after adjusting for one-off effects) were US$ 514 million in 1Q16, mainly after the adjustments for exchange rate variation (US$ billion) and currencies and interest rates swaps (US$ 486 million). Underlying earnings US$ million 1Q16 4Q15 1Q15 Underlying earnings 514 (1,032) (679) Items excluded from basic earnings Impairment on assets and investments - (9,372) - Gain (loss) on fair value on non-current assets - (29) 193 Shareholders Debentures (116) Foreign Exchange 1, (2,916) Monetary variation (56) (82) (103) Currency and interest rate swaps (1,263) Fair value on financial instruments (13) (80) - Gain (loss) on sale of investments Tax effects of Impairment - 1,164 - Income tax over excluded items (650) (361) 1,356 Net Income (loss) 1,776 (8,569) (3,119) Net financial results showed a gain of US$ billion compared to a gain of US$ 353 million in 4Q15. The main components of the 1Q16 net financial results are: (i) financial expenses (-US$ 630 million); (ii) financial revenues (US$ 60 million); (iii) foreign exchange and monetary gains (US$ billion); (iv) currency and interest rate swap gains (US$ 486 million) driven mainly by the appreciation of the BRL against the USD and (v) losses on other derivatives (-US$ 46 million), composed mainly of bunker oil derivatives losses of US$ 14 million T h e n e t d e ri va t i ve s g a i n s o f U S $ m i l l i o n i n 1 Q 1 6 i s co m p ri se d o f se t t l e m e n t l o sse s o f U S $ m i l l i o n a n d m a rke t -tom a rke t g a i n s o f U S $ m i l l i o n. 16

17 Financial results US$ million 1Q16 4Q15 1Q15 Financial expenses (630) (326) (219) Gross interest¹ (235) (229) (195) Tax and labour contingencies (21) (19) (34) Others² (260) Financial expenses (REFIS) (114) (121) (144) Financial income Deriv atives (1,340) Currency and interest rate swaps (1,263) Others (bunker oil, commodities, etc) (46) (289) (77) Foreign Exchange 1, (2,916) Monetary v ariation (56) (82) (103) Financial result, net 1, (4,511) ¹ T h e ca p i ta l i za ti o n o f i n te r e st o ve r a sse ts u n d e r co n str u c ti o n a m o u n te d to US $ m i l l i o n i n 1 Q 1 6, US $ m i l l i o n i n 4 Q 1 5 a n d US $ m i l l i o n i n 1 Q 1 5. ² O th e r fi n a n ci a l e xp e n s e s i n cl u d e th e m a r k - to- m a r ke t o f sh a r e h o l d e r d e b e n tu r e s wh i ch a m o u n te d to - US $ m i l l i o n i n 1 Q 1 6, US $ m i l l i o n i n 4 Q 1 5 a n d US $ m i l l i o n i n 1 Q 1 5. Equity income from affiliated companies Equity income from affiliated companies was US$ 156 million in 1Q16 against a negative US$ 37 million in 4Q15. The main contributors to equity income were CSP (US$ 113 million), the leased pelletizing companies in Tubarão (US$ 25 million) and MRS (US$ 20 million). 17

18 EFFECTS OF CURRENCY PRICE VOLATILITY ON VALE S FINANCIAL PERFORMANCE In 1Q16, from end to end, the Brazilian Real (BRL) appreciated 8.7% against the US Dollar (USD) from BRL 3.90/ USD as of December 31 st, 2015 to BRL 3.56/ USD as of March 31 st, On a quarterly average, the BRL depreciated 1.6%, from an average BRL 3.84/ USD in 4Q15 to an average BRL 3.90/ USD in 1Q16. The end-to-end appreciation of the BRL against the USD and other currencies caused mainly non-cash gains of US$ billion on our earnings before taxes in 1Q16, driven by its impact on: The net position of the USD and other currencies denominated liabilities and the USD and other currencies denominated assets (accounts receivable and others) which amounted to a gain of US$ billion in 1Q16, recorded in the financial statements as "Foreign exchange". The forward and swaps derivatives are used to reduce the volatility of our cash flows in USD. In 1Q16, the changes in fair value and the settlements of the currency swaps from the BRL and other currencies to the USD caused one-off gains of US$ 486 million. The BRL depreciation on a quarterly average had positive impacts on our cash flows. In 1Q16 most of our revenues were denominated in USD, while our COGS were 51% denominated in BRL, 30% in USD and 14% in Canadian dollars (CAD) and about 60% of our capital expenditures were denominated in BRL. The depreciation of the BRL and of other currencies in 1Q16 reduced our costs and expenses by US$ 51 million. 18

19 Investments Capital expenditures totaled US$ billion in 1Q16 with US$ 920 million in project execution and US$ 529 million in sustaining capital. Capital expenditures decreased US$ 744 million vs. the U$ billion spent in 4Q15. Project Execution and Sustaining by business area US$ million 1Q16 % 4Q15 % 1Q15 % Ferrous minerals , , Coal Base metals Fertilizer nutrients Power generation Steel Others Total 1, , , Project execution Vale s investments in project execution decreased from US$ billion in 4Q15 to US$ 920 million in 1Q16. The ferrous minerals and the coal business segments accounted for about 76% and 13%, respectively, of the total investment in project execution in 1Q16. Project execution by business area US$ million 1Q16 % 4Q15 % 1Q15 % Ferrous minerals , Coal Base metals Fertilizer nutrients Power generation Steel Total , , FERROUS MINERALS About 97% of the US$ 701 million invested in Ferrous Minerals in 1Q16 relates to project execution in iron ore, primarily on the S11D project and the expansion of its associated infrastructure (US$ 637 million). 19

20 S11D Mine Systems 1, 3 and 4 S11D (including mine, plant and associated logistics CLN S11D) achieved combined physical progress of 73% in 1Q16 with 85% progress at the mine site and 64% at the logistic sites. The duplication of the railway reached 48% physical progress with 173 Km delivered. The railway spur reached 85% physical progress and the off-shore pile-driving in the north berth was concluded. S11D Logistics - Onshore Port Stockyard 20

21 COAL Investments in the Moatize II project totaled US$ 29 million in 1Q16 and achieved physical progress of 99% in 1Q16 with commissioning of the handling system and cargo testing on both lines of the CHPP (Coal Handling Preparation Plant) in progress, both lines of the CHPP are expected to have cargo testing completed by June. The ramp-up of the Nacala Logistics Corridor (NLC) continued as planned, with 747,000 t being transported on the railway in 1Q16 against 241,000 t in 4Q15. Thirteen shipments were completed in 1Q16 against one shipment in 4Q15. Description and status of main projects Project Description Ferrous Minerals projects Carajás Serra Sul S11D Development of a mine and processing plant, located in the Southern range of Carajás, Pará, Brazil. Capacity (Mtpy) Status 90 Pre-stripping of S1 (system 1 out of a total of 4 systems) on the mine concluded Cold commissioning of the stacker reclaimer on the stockyard initiated Cold commissioning of the long distance conveyor belt initiated Delivery of the electrocenters of the mine 54% completed CLN S11D Duplication of 570 km railway, with construction of rail spur of 101 km. Acquisition of wagons, locomotives, and onshore and offshore expansions at PDM maritime terminal. (80) a Hot commissioning of the onshore port machinery initiated Duplication of the railway reached 48% physical progress, totaling 173 Km delivered Railway spur achieved 85% physical progress Offshore expansion achieved 83% physical progress Railway terminal achieved 94% physical progress CSP b Development of a steel slab plant in partnership with Dongkuk and Posco, located in Ceará, Brazil. 1.5 Testing of the stockyard machinery initiated Cold commissioning of the ore reclaimer initiated Coal Projects Moatize II New pit and duplication of the Moatize CHPP, as well as of all related infrastructure in Tete, Mozambique. 11 Commissioning on both lines of the CHPP in progress a Ne t a d d i ti o n a l ca p a ci ty b Re l a ti ve to V a l e s sta ke i n th e p r o j e ct 21

22 Progress indicators 20 Project Ferrous minerals projects Carajás Serra Sul S11D Capacity (Mtpy) Estimated start-up b 1H14 to CLN S11D 230 (80) 2H18 Executed capex (US$ million) Estimated capex (US$ million) 2016 Total 2016 Total Physical progress 90 2H , ,405 c 85% 384 4,851 1,154 7,850 d 64% CSP a 1.5 1H , ,224 e 99% Coal projects Moatize II 11 1H , f 2,068 g 99% a Re l a ti ve to V a l e s sta ke i n th e p r o j e ct. b Ne t a d d i ti o n a l ca p a ci ty. c O r i g i n a l ca p e x b u d g e t o f US $ b i l l i o n. d O r i g i n a l ca p e x b u d g e t o f US $ b i l l i o n e O r i g i n a l ca p e x o f US $ b i l l i o n ; O u t o f th e o r i g i n a l ca p e x - US $ b i l l i o n fi n a n ce d d i r e ctl y b y th e CS P p r o j e ct. f T h e r e wa s a n i n cr e a se o f US $ 2 9 m i l l i o n i n th e b u d g e t g O r i g i n a l ca p e x o f U$ b i l l i o n p l u s US $ b i l l i o n o f r o l l i n g sto ck Evolution of capital expenditures Sustaining capex Sustaining capital expenditures decreased from US$ 694 million in 1Q15 to US$ 529 million in 1Q16. The base metals and ferrous minerals business segment accounted for 51% and 41%, respectively, of the total sustaining capex in 1Q I n t h i s t a b l e w e d o n o t i n cl u d e p re -o p e ra t i n g e xp e n se s i n t h e e st i m a t e d ca p e x f o r t h e ye a r, a l t h o u g h t h e se e xp e n se s a re i n cl u d e d i n t h e t o t a l e st i m a t e d ca p e x co l u m n, i n l i n e w i t h o u r B o a rd o f D i re ct o rs a p p ro va l p ro ce ss. M o re o ve r, o u r e st i m a t e d ca p e x f o r t h e ye a r i s o n l y re vi e w e d o n ce a ye a r. 22

23 Sustaining capital expenditures for the ferrous minerals business segment included, among others: (i) the replacement and acquisition of new equipment (US$ 156 million), (ii) operational enhancements (US$ 25 million); (iii) the improvement in the current standards of health and safety and environmental protection (US$ 13 million), (iv) the maintenance, improvement and expansion of tailing dams (US$ 11 million). Maintenance of railways and ports in Brazil and Malaysia accounted for US$ 69 million. Sustaining investments in iron ore fines (excluding sustaining investments in pellets plants) amounted to US$ 169 million, equivalent to US$ 2.9/dmt of iron ore fines in 1Q16, representing a 32% increase vs. US$ 2.1/dmt in 4Q15 21, mainly driven by the impact of carryover of payments of mining equipment acquired in The sustaining investment for pellets totaled US$ 39 million, equivalent to US$ 3.7/dmt. Sustaining capex in the base metals business segment was mainly dedicated to: (i) operational enhancement (US$ 171 million), (ii) improvement in the current standards of health and safety and environmental protection (US$ 66 million); (iii) replacement and acquisition of new equipment (US$ 19 million), (iv) maintenance improvement and expansion of tailing dams (US$ 4 million). Sustaining capex by type - 1Q16 US$ million Ferrous Minerals Coal Base Metals Fertilizer TOTAL Operations Waste dumps and tailing dams Health and Safety CSR - Corporate Social Responsibility Administrative & Others Total Sustaining capex by business area US$ million 1Q16 % 4Q15 % 1Q15 % Ferrous minerals Coal Base metals Fertilizer nutrients Power generation Others Total T h e sa m e a l l o ca t i o n cri t e ri a i m p l e m e n t e d i n t h e i ro n o re f i n e s S G & A, a s d e scri b e d i n t h e b o x M a n a g e ri a l A l l o ca t i o n C h a n g e s i n p a g e s o f 4 Q 1 5 E a rn i n g s R e l e a se. T h e i n ve st m e n t o f U S $ 2. 3 / w m t i n t h e 4 Q 1 5 re p o rt d o e s n o t co n si d e r t h i s a l l o ca t i o n. 23

24 Corporate social responsibility Investments in corporate social responsibility totaled US$ 58 million in 1Q16, of which US$ 38 million dedicated to environmental protection and conservation and US$ 20 million dedicated to social projects. 24

25 Free cash flow Cash generated from operations was US$ 696 million in 1Q16, being significantly lower than the adjusted EBITDA of US$ billion, mainly due to the increase in working capital of US$ billion vs. 4Q15, stemming from higher accounts receivable (US$ billion) and lower supplier and contractor liabilities (US$ 383 million). Accounts receivable increase in 1Q16 vs. 4Q15 was mainly driven by: (i) final invoices not yet collected (with higher prices than the ones provisionally invoiced at end of 4Q15); (ii) concentration of iron ore sales volumes at the end of 1Q16 (sales not yet collected); and (iii) higher prices on volumes provisionally invoiced at the end of 1Q16. The decrease in supplier and contractor liabilities was mainly driven by the payment of accounts payable outstanding at the end of 4Q15, which reflect the higher level of investments at year-end. Working capital changes should have a positive impact on cash flows in 2Q16 as sales collections increase throughout the quarter. Non-operational uses of cash flow were mainly a result of: (i) interest on loans (US$ 460 million); (ii) income taxes and REFIS installments paid (US$ 234 million); (iii) settlement of derivatives in the quarter (US$ 510 million), of which US$ 233 million were related to bunker oil; and (iv) investments of US$ billion. Free cash flow was negative US$ billion in 1Q16. Net additions and repayments of loans totaled US$ billion in 1Q16. Free Cash Flow US$ million ¹ Di vi d e n d s a n d i n te r e st o n ca p i ta l r e ce i ve d fr o m a sso ci a te s a n d j o i n t ve n tu r e s a n d p a i d to n o n co n tr o l l i n g i n te r e st. ² In cl u d e s tr a n sa cti o n s wi th n o n - co n tr o l i n g sto ckh o l d e r s. 3 Ca sh fl o w b e fo r e d e b t a d d i ti o n s /r e p a y m e n t s a n d d i str i b u ti o n o f d i vi d e n d s. 4 T h e d i ffe r e n ce fr o m th e US $ m i l l i o n i n cr e a se i n ca sh p o si ti o n fr o m 4 Q 1 5 ste m s fr o m th e e xch a n g e r a te tr a n sl a ti o n i m p a ct o f US $ 6 8 m i l l i o n. 25

26 Debt indicators Gross debt totaled US$ billion as of March 31 st, 2016, increasing by US$ billion vs. the US$ billion as of December 31 st, 2015, mainly as a result of the: (i) net addition to loans and financing of US$ billion and (ii) impact of the exchange rate on the translation of BRL denominated debt into USD 22. Net debt increased by US$ billion compared to the end of the previous quarter, totaling US$ billion based on a cash position of US$ billion as of March 31 st, The increase in net debt was mainly driven by: (i) the impact of the exchange rate on the translation of BRL denominated debt into USD and (ii) the negative free cash flow (FCF) of US$ billion in 1Q16, despite the US$ billion adjusted EBITDA in the quarter. The negative FCF resulted mainly from the US$ billion increase in working capital in 1Q16 vs. 4Q15 stemming from the increase in accounts receivable (US$ billion) and the decrease in supplier and contractor liabilities (US$ 383 million). For more information on free cash flow and working capital changes, please see the Free Cash Flow section in this release. Debt position Gross debt after currency and interest rates swaps was 91% denominated in US dollars, being 34% based on floating and 66% based on fixed interest rates as of March 31 st, Average debt maturity was 7.6 years and average cost of debt, after the above-mentioned currency swaps, decreased to 4.03% per annum on March 31 st, 2016, against 4.47% per 22 I n 1 Q 1 6, f ro m e n d t o e n d, t h e B R L a p p re ci a t e d 8. 7 % a g a i n st t h e U S D. 26

27 annum on December 31 st, US$ 3 billion was disbursed from outstanding revolving credit lines of US$ 5 billion in January 12, 2016, having contributed to reduce both our average cost of debt and our average debt maturity. Interest coverage, measured by the ratio of the LTM 23 adjusted EBITDA to LTM interest payment, improved to 5.2x in 1Q16 vs. 4.8x in 4Q15. Gross debt to LTM adjusted EBITDA increased slightly to 4.2x as of March 31 st, 2016 against 4.1x as of December 31 st, Debt indicators US$ million 1Q16 4Q15 1Q15 Total debt 31,470 28,853 28,487 Net debt 27,661 25,234 24,802 Total debt / adjusted LTM EBITDA (x) Adjusted LTM EBITDA / LTM interest expenses (x) L a st t w e l ve m o n t h s. 27

28 Performance of the business segments The Ferrous Minerals business segment accounted for 86.7% of Vale s adjusted EBITDA in 1Q16, followed by 16.4% from the Base Metals business segment, 3.5% from the Fertilizers business segment, -4.6% from the Coal business segment and -2.0% from Others. Segment information 1Q16, as per footnote of financial statements US$ million Net Rev enues Cost¹ SG&A and others¹ Expenses R&D¹ Pre operating & stoppage¹ Div idends Adjusted EBITDA² Ferrous minerals 3,804 (1,851) (165) (11) (39) - 1,738 Iron ore fines 2,917 (1,309) (156) (11) (32) - 1,409 ROM Pellets 753 (437) (16) - (4) Others ferrous 83 (59) 5 - (1) - 28 Mn & Alloys 47 (46) 2 - (2) - 1 Coal 154 (293) 49 (2) (1) - (93) Base metals 1,353 (956) (21) (15) (32) Nickel 3 1,000 (764) (24) (14) (32) Copper (192) 3 (1) Fertilizer nutrients 384 (294) (11) (5) (4) - 70 Others 24 (45) 8 (27) - 1 (39) Total 5,719 (3,439) (140) (60) (76) 1 2,005 1 E xcl u d i n g d e p r e ci a ti o n a n d a m o r ti za ti o n. ² Excl u d i n g n o n - r e cu r r i n g e ffe cts. 3 In cl u d i n g co p p e r a n d b y - p r o d u ct s fr o m o u r n i cke l o p e r a ti o n s. 4 In cl u d i n g b y- p r o d u ct s fr o m o u r co p p e r o p e r a ti o n s. 28

29 Ferrous minerals Adjusted EBITDA of the Ferrous Minerals business segment was US$ billion in 1Q16, US$ 711 million higher than 1Q15, mainly as a result of lower sales prices (-US$ 255 million), which were offset by lower bunker oil prices (US$ 153 million), exchange rate variations (US$ 450 million) and real competitiveness gains of US$ 363 million such as: (i) marketing and commercial initiatives (US$ 59 million); (ii) higher sales volumes (US$ 88 million)); (iii) favorable renegotiations of chartering freight contracts (US$ 97 million); and (iv) the ongoing cost reduction initiatives (US$ 147 million). EBITDA variation 1Q16 vs. 1Q15 Ferrous Minerals business segment Iron ore EBITDA Adjusted EBITDA of iron ore fines was US$ billion in 1Q16, 28.7% higher than in 4Q15, mainly as a result of higher realized sales prices (US$ 584 million) and lower costs 24 (US$ 205 million), which were partially offset by seasonally lower sales volumes (-US$ 215 million), and the positive one-off effect of the Asset Retirement Obligation (ARO) recorded in 4Q15 (US$ 322 million). 24 N e t e f f e ct o n co st s, a f t e r a d j u st i n g f o r vo l u m e a n d e xch a n g e ra t e i m p a ct s. 29

30 SALES REVENUES AND VOLUME Net sales revenues of iron ore fines, excluding pellets and Run of Mine (ROM), amounted to US$ billion in 1Q16 vs. US$ billion in 4Q15, mainly as a result of higher iron ore fines sales prices (US$ 584 million) and lower sales volume (-US$ 612 million) in 1Q16. Vale s iron ore production, including third party purchases and excluding Samarco s attributable production, achieved a record for a first quarter of 77.5 Mt in 1Q16, 10.9 Mt lower than in 4Q15 due to weather-related seasonality and 0.1 Mt higher than in 1Q15. Production increased in the Northern system offsetting the halt in ROM production to supply Samarco and the decrease in production in the Mariana mining hub after the Samarco dam failure. Sales volumes of iron ore fines reached 62.7 Mt in 1Q16 vs Mt in 4Q15, 20.8% lower than in 4Q15 and 5.6% higher than in 1Q15 on the back of: (i) production and acquisition of ore from third parties of 77.5 Mt; (ii) deduction of 12.5 Mt of iron ore fines used for the production of pellets; (iii) build-up of 1.8 Mt of product inventories 25 and (iv) deduction of 0.5 Mt of ROM sales. CFR sales of iron ore fines decreased from 53.6 Mt in 4Q15 to 40.9 Mt in 1Q16, representing 65% of all iron ore fines sales volumes in 1Q16. The decrease was mainly due to the effects of seasonally lower production volumes in 1Q16. ROM sales totaled 0.5Mt in 1Q16 vs. 1.6Mt in 4Q15, reducing 1.1Mt due to the stoppage of the Fazendão mining operations in the state of Minas Gerais right after the Samarco dam failure. Net operating revenue by product US$ million 1Q16 4Q15 1Q15 Iron ore fines 2,917 2,945 2,716 ROM Pellets Manganese & Ferroalloys Others Total 3,804 3,830 3,868 Volume sold 000 metric tons 1Q16 4Q15 1Q15 Iron ore fines 62,744 79,213 59,420 ROM 520 1,627 2,915 Pellets 11,130 10,837 11,255 Manganese ore Ferroalloys I ro n o re i n ve n t o ri e s a re p e ri o d i ca l l y a d j u st e d d o w n w a rd s d u e t o m o i st u re a n d h a n d l i n g d u ri n g i t s p ro ce ssi n g p h a se s. T h o se a d j u st m e n t s a cco u n t e d f o r a re d u ct i o n o f 2. 7 M t o f i ro n o re i n 1 T 1 6 f ro m V a l e s co n so l i d a t e d i ro n o re i n ve n t o ri e s. 30

31 REALIZED PRICES Iron ore sales in 1Q16 were distributed across three pricing systems: (i) 48% based on the current quarter, month and daily spot prices, including provisional price sales that were settled within the quarter; (ii) 43% based on provisional prices with settlement price based on the market price defined on the delivery date, in which case prices had not yet been settled at the end of the quarter; and (iii) 9% linked to past prices (quarter-lagged). Vale s CFR dmt reference price for iron ore fines (ex-rom) increased by US$ 9.6/t from US$ /t in 4Q15 to US$ /t in 1Q16, equivalent to a price realization of 113% of the average Platts IODEX 62% of US$ 48.3/t in 1Q16. Vale s CFR/FOB wmt price for iron ore fines (ex-rom) increased by US$ 9.3/t from US$ 37.2/t in 4Q15 to US$ 46.5/t in 1Q16, after adjusting for moisture and the effect of FOB sales on 35% of the total sales volumes. Price realization in 1Q16 was impacted by: Provisional prices set at the end of 4Q15 at US$ 41.0/t, which were later adjusted based on the price of delivery in 1Q16, impacted prices in 1Q16 by US$ 2.3/t compared to a negative US$ 1.0/t in 4Q15, as a result of the higher realized prices in the beginning of 1Q16. Provisional prices set at the end of 1Q16 at US$ 51.7/t vs. the IODEX average of US$ 48.3/t in 1Q16, positively impacted prices in 1Q16 by US$ 1.5/t compared to a negative impact of US$ 2.4/t in 4Q15. Quarter-lagged contracts, priced at US$ 52.1/t based on the average prices for Sep- Oct-Nov positively impacted prices in 1Q16 by US$ 0.4/t compared to a positive impact of US$ 1.1/t in 4Q15. In 1Q16, iron ore sales of 26.9 Mt, or 43% of Vale s sales mix, were recorded under the provisional pricing system, which was set at the end of 1Q16 at US$ 51.7/t. The final prices of these sales and the required adjustment to sales revenues will be determined and recorded in 2Q16. Vale s FOB realized prices increased by US$ 0.4/t in 1Q16 compared to an increase of US$ 1.0/t in 4Q15. In addition to the renegotiation of commercial terms, the decrease in bunker oil prices in 1Q16 led to a lower freight deduction from the IODEX CFR reference price used to determine Vale s FOB price. 31

32 Price realization iron ore fines Average sale price US$/ metric ton 1Q16 4Q15 1Q15 Iron ore - Metal Bulletin 65% index Iron ore - Platts's 62% IODEX¹ Iron ore fines CFR reference price (dmt) Iron ore fines CFR/FOB realized price ROM Pellets CFR/FOB (wmt) Manganese ore Ferroalloys COSTS AND EXPENSES Costs for iron ore fines amounted to US$ billion (or US$ billion with depreciation charges) in 1Q16. Costs decreased by US$ 205 million vs. 4Q15, after accounting for the effects of lower sales volumes (-US$ 397 million) and exchange rate variations (-US$ 13 million). The decrease was mainly driven by lower freight costs (-US$ 139 million) and the absence of bunker oil hedge disbursements (-US$ 106 million). 32

33 Iron ore COGS 4Q15 x 1Q16 Variance driv ers US$ million 4Q15 Volume Exchange Others Total Variation 1Q16 Rate 4Q15 x 1Q16 Personnel 195 (40) (3) (7) (50) 145 Outsourced services and Materials Energy (Electricity, diesel & gas) 280 (58) (3) (21) (81) (24) (2) 8 (19) 99 Maintenance 236 (48) (4) 47 (5) 231 Maritime freight 757 (157) - (139) (296) 461 Bunker oil hedge 134 (28) - (106) (134) - Other operational 204 (43) (1) (12) (31) 173 Total costs before depreciation and amortization 1,924 (397) (13) (205) (615) 1,309 Depreciation 259 (53) (3) 18 (39) 220 Total 2,183 (450) (16) (187) (654) 1,529 Maritime freight costs, which are fully accrued as cost of goods sold, totaled US$ 461 million in 1Q16, having decreased US$ 139 million vs. 4Q15 after adjustments for lower volumes (- US$ 157 million). There was no negative impact from the bunker oil hedge position as the hedge accounting program terminated in Unit maritime freight cost per iron ore metric ton was US$ 11.3/t in 1Q16, US$ 2.8/t lower than the US$ 14.1/t (ex-hedge accounting) recorded in 4Q15. This US$ 2.8/t decrease is explained by the positive impact of lower bunker oil prices in our chartering contracts, the renegotiation of freight contracts and the higher exposure to the spot freight market. Vale s average bunker oil price decreased from US$ 235.0/t in 4Q15 to US$ 178.0/t in 1Q16. C1 CASH COST Total iron ore fines C1 cash cost at the port (mine, plant, railroad and port, ex-royalties) was US$ 848 million after deducting depreciation of US$ 220 million and iron ore maritime freight costs of US$ 461 million. C1 cash cost FOB port per metric ton for iron ore fines ex-royalties totaled US$ 12.3/t in 1Q16, remaining practically in line with the US$ 12.2/t 26 recorded in 4Q15, despite the reduced fixed-costs dilution on seasonally lower production volumes. C1 Cash cost FOB port per metric ton of iron ore fines in Brazilian Reais was R$ 47.5/t in 1Q16, practically in line with the R$ 47.0/t 27 recorded in 4Q15, mainly due to increases in 26 U S $ / t i s e q u i va l e n t t o U S $ / t re p o rt e d i n 4 Q 1 5 a f t e r a d j u st i n g f o r t h e n e w a l l o ca t i o n cri t e ri a f o r I C M S (U S $ / t ) a n d D i st ri b u t i o n C o st s ( -U S $ / t ) a s d e scri b e d i n t h e b o x M a n a g e ri a l A l l o ca t i o n C h a n g e s i n p a g e s o f 4 Q 1 5 E a rn i n g s R e l e a se. A n a d d i t i o n a l a d j u st m e n t w a s m a d e t o i n cl u d e t h e co st o f T h i r d P a rt y O re P u rch a se s (U S $ / t ) t o o u r C 1 co st s. 33

34 operational productivity and the ongoing cost-cutting initiatives. Costs remained stable despite the reduced fixed-costs dilution on seasonally lower production volumes and the inflationary pressures in Brazil. Iron ore expenses, net of depreciation, amounted to US$ 199 million in 1Q16 vs. the US$ 270 million recorded in 4Q15. R&D amounted to US$ 11 million, reducing US$ 15 million vs. 4Q15. Pre-operating and stoppage expenses, net of depreciation, amounted to US$ 32 million vs. US$ 50 million in 4Q15, mainly due to the lower stoppage expenses incurred in the southeastern mining system stemming from the Samarco dam failure and the increase in production from the Serra Leste mine. Evolution of iron ore fines cash cost, freight and expenses Unit cash costs and expenses (adjusted for quality, and moisture, excluding ROM) landed in China decreased from US$ 32.0/t in 4Q15 to US$ 29.2/t in 1Q16 for iron ore fines on a dry metric ton (dmt) basis, mainly due to lower unit freight costs per iron ore metric ton, which decreased by US$ 2.8/t as a result of the positive impact of lower bunker oil prices in our chartering contracts and the higher exposure to the spot freight market. 27 R $ / t i s e q u i va l e n t t o t h e R $ /t re p o rt e d i n 4 Q 1 5 a f t e r a d j u st i n g f o r t h e n e w a l l o ca t i o n cri t e ri a f o r I C M S a n d D i st ri b u t i o n C o st s a s d e scri b e d i n t h e b o x M a n a g e ri a l A l l o ca t i o n C h a n g e s i n p a g e s o f 4 Q 1 5 E a rn i n g s R e l e a se. I n a d d i t i o n t o t h e se a d j u st m e n t s, f ro m 1 Q 1 6 o n w a rd s T h i rd P a rt y O re P u rch a se s w i l l n o l o n g e r b e re p o rt e d se p a ra t e l y. 34

35 Iron Ore fines and pellets EBITDA break-even, calculated by adding the pellets margins differential of US$ 1.2/t to the referred unit cash costs and expenses landed in China, totaled US$ 28.0/t in 1Q16 on a dry metric ton (dmt) basis. For further details, please refer to the Iron Ore Pellets section below. Iron ore fines cash cost and freight 1Q16 4Q15 1Q15 Costs (US$ million) COGS, less depreciation and amortization 1,309 1,924 1,898 Distribution costs Maritime freight costs Bunker oil hedge FOB at port costs (ex-rom) 826 1,008 1,171 FOB at port costs (ex-rom and ex-royalties) ,085 Sales v olumes (Mt) Total iron ore volume sold Total ROM volume sold Volume sold (ex-rom) % of CFR sales 65.0% 68.0% 61.6% % of FOB sales 35.0% 32.0% 38.4% Vale's iron ore cash cost (ex-rom, ex-royalties), FOB (US$ /t) Freight Volume CFR (Mt) Vale's iron ore unit freight cost (US$/t) Vale's iron ore unit freight cost (ex- bunker oil hedge) (US$/t) Iron ore and pellets EBITDA break-even (cost + expenses adjusted for quality and moisture landed in China) US$/t 1Q16 4Q15 1Q15 Vale's iron ore cash cost (ex-rom, ex-royalties), FOB (US$ /t) Iron ore fines freight cost (ex-bunker oil hedge) Iron ore fines distribution cost Iron ore fines expenses¹ & royalties Iron ore fines moisture adjustment Iron ore fines quality adjustment Iron ore fines unit cost + expenses landed in China (US$/dmt) Iron ore fines pellet adjustment Iron ore fines and pellets unit cost + expenses landed in China (US$/dmt) ² Ne t o f d e p r e ci a ti o n Iron Ore Fines Costs and Expenses in BRL R$/t 1Q16 4Q15 1Q15 Costs¹ Expenses¹ Total ¹ Ne t o f d e p r e ci a ti o n 35

36 Evolution of iron ore fines sustaining per ton US$/dmt Iron ore pellets Adjusted EBITDA for pellets in 1Q16 was US$ 296 million, compared to the US$ 336 million in 4Q15. Adjusted EBITDA was negatively impacted by the lower sales prices (-US$ 48 million) and lower dividends received from the leased pelletizing plants (-US$ 22 million), which were partially offset by higher sales volumes (US$ 9 million), lower costs (US$ 23 million) and exchange rate variations (US$ 5 million) in 1Q16 vs. 4Q15. Net sales revenues for pellets amounted to US$ 753 million in 1Q16, decreasing US$ 27 million from the US$ 780 million recorded in 4Q15 as a result of the lower sales prices of US$ 67.7 per ton in 1Q16 vs. US$ 72.0 /t in 4Q15, being partially offset by the 0.3 Mt increase in sales volumes of 11.1 Mt in 1Q16 from the 10.8 Mt recorded in 4Q15. Production reached 11.5 Mt in 1Q16, 1.1 Mt higher than in 4Q15 mainly due to scheduled maintenance stoppages in some plants in 4Q15. Pellet CFR/FOB prices decreased by US$ 4.3/t, from US$ 72.0/t in 4Q15 to US$ 67.7 per metric ton in 1Q16, whereas the Platt s IODEX iron ore reference price (CFR China) decreased by US$ 1.7/t in the quarter. Vale s realized pellet price decreased while the average Platts IODEX increased as a result of the negative impact of Vale s pellet pricing systems in 1Q16 and slightly lower pellet premiums. 36

37 CFR pellet sales of 1.8 Mt in 1Q16 represented 16% of total pellets sales and were 0.6 Mt lower than in 4Q15. FOB pellet sales increased from 8.5Mt in 4Q15 to 9.3 Mt in 1Q16. Pellet costs totaled US$ 437 million (or US$ 512 million with depreciation charges) in 1Q16. Costs decreased by US$ 23 million vs. 4Q15 after adjusting for the effects of higher volumes (US$ 12 million) and exchange rate variations (-US$ 5 million). The decrease in pellets costs was mainly due to lower leasing costs (US$ 17 million) and lower service costs (US$ 6 million). Pre-operating and stoppage expenses for pellets were US$ 4 million in 1Q16, being US$ 1 million lower than in 4Q15. EBITDA unit margin for pellets ex-samarco was US$ 26.6/t in 1Q16, US$ 4.4/t lower than in 4Q15, mainly due to the decrease in sales prices (-US$ 78 million). Pellets - EBITDA ex-samarco US$ million US$/wmt US$ million US$/wmt Net Revenues / Realized Price Dividends Received (Leased pelletizing plants) ex-samarco Cash Costs (Iron ore, leasing, freight, overhead, energy and other) Expenses (SG&A, R&D and other) EBITDA ex-samarco Q16 4Q15 Iron Ore fines and pellets EBITDA break-even, measured by unit cash costs and expenses on a landed-in-china basis (and adjusted for quality, pellets margins differential and moisture, excluding ROM), decreased from US$ 31.0/t 28 in 4Q15 to US$ 28.0/t in 1Q16 on a dry metric ton (dmt) basis, mainly driven by the US$ 2.80/t reduction in maritime freight costs. Iron ore and pellets EBITDA break-even on a landed-in-china basis 28 A f t e r e xcl u d i n g t h e p o si t i ve o n e -o f f e f f e ct o f A sse t R e t i re m e n t O b l i g a t i o n s a n d t h e n e g a t i ve i m p a ct o f t h e b u n ke r o i l h e d g e. 37

38 Iron ore and Pellets cash break-even on a landed-in-china basis, calculated by adding sustaining capex per ton of US$ 2.9/t, amounted to US$ 30.9/t in 1Q16 on a dry metric ton (dmt) basis. Manganese and ferroalloys Adjusted EBITDA of Manganese ore and ferroalloys was US$ 1 million in 1Q16, US$ 35 million higher than the negative US$ 34 million in 4Q15, mainly due to higher prices (US$ 25 million), higher sales volumes (US$ 3 million) and lower costs (US$ 5 million). Net sales revenues for manganese increased to US$ 31 million from US$ 4 million in 4Q15 mainly due to provisional manganese ore price adjustments (US$ 28 million) in 4Q15. Production of manganese ore reached 596,000 t in 1Q16 vs. 651,000 t in 4Q15 and 592,000 t in 1Q15. Net sales revenues for ferroalloys amounted to US$ 17 million, increasing US$ 8 million from the US$ 9 million in 4Q15, due to higher sales volumes. Ferroalloys production increased to 25,000 t in 1Q16 from the 20,000 t recorded in 4Q15. Market outlook - iron ore Iron ore Platts IODEX 62% averaged US$48.30/dmt in 1Q16, decreasing 29% year-on-year but surprisingly increasing 3.5% quarter-on quarter. The higher than expected prices stem from better economic indicators in China, where, year-on-year in March 2016: i) manufacturing PMI surpassed the 50 points threshold; ii) industrial production increased by 5.8%; iii) bank lending rose 13.4% and; iv) retail sales grew 10.5%. Fixed asset investments (FAI) increased 10.7% year-on-year in 1Q16 driven by a rebound in the construction sector. New house starts gained momentum after better than expected property sales in tier 1 and tier 2 cities in the beginning of the year. Steel production boomed to 70.6Mt in March in response to better steel prices, however in 1Q16, production contracted 3.2% year-on-year. Outside China, crude steel production slowed down, decreasing 4.1% year-on-year in 1Q16. Iron ore demand is expected to remain strong in 2Q16 as the Chinese government stimulus continues to take effect. Although iron ore supply is expected to increase in 2016 with higher seasonal rebound in shipments in 2Q16, higher depletion should also play an important role to balance the market. 38

39 Volume sold by destination iron ore and pellets 000 metric tons 1Q16 % 4Q15 % 1Q15 % Americas 8, , , Brazil 6, , , Others 1, , , Asia 52, , , China 42, , , Japan 5, , , Others 3, , , Europe 11, , , Germany 4, , , France 1, , , Others 5, , , Middle East 1, , , Rest of the World Total 74, , , Selected financial indicators - ferrous minerals US$ million 1Q16 4Q15 1Q15 Net Revenues 3,804 3,830 3,868 Costs¹ (1,851) (2,497) (2,636) Expenses¹ (165) 120 (158) Pre-operating and stoppage expenses¹ (39) (61) (38) R&D expenses (11) (27) (35) Dividends received Adjusted EBITDA 1,738 1,409 1,027 Depreciation and amortization (347) (388) (470) Adjusted EBIT 1, Adjusted EBIT margin (%) ¹ Ne t o f d e p r e ci a ti o n a n d a m o r ti za ti o n Selected financial indicators - iron ore fines 1Q16 4Q15 1Q15 Adjusted EBITDA (US$ million) 1,409 1, Volume Sold (Mt) Adjusted EBITDA (US$/t) Selected financial indicators - pellets (excluding Samarco) 1Q16 4Q15 1Q15 Adjusted EBITDA (US$ million) Volume Sold (Mt) Adjusted EBITDA (US$/t) Selected financial indicators - iron ore fines and Pellets 1Q16 4Q15 1Q15 Adjusted EBITDA (US$ million) 1,705 1, Volume Sold (Mt) Adjusted EBITDA (US$/t)

40 Base Metals Adjusted EBITDA totaled US$ 329 million in 1Q16, increasing US$ 218 million vs. 4Q15 mainly as a result of lower expenses (US$ 148 million) and lower costs (US$ 57 million). SALES REVENUES AND VOLUMES Nickel sales revenues totaled US$ 650 million in 1Q16, decreasing US$ 132 million vs. 4Q15 as a result of the negative impact of lower sales volumes (US$ 89 million) and lower nickel realized prices in 1Q16 (US$ 43 million). Sales volumes were 74kt in 1Q16, 10kt lower than in 4Q15. Copper sales revenues totaled US$ 435 million in 1Q16, increasing US$ 22 million vs. 4Q15 as a result of higher copper realized prices in 1Q16 (US$ 46 million) and partially offset by the negative impact of lower sales volumes (US$ 24 million). Sales volumes were 101kt in 1Q16, 7kt lower than in 4Q15. PGMs (platinum group metals) sales revenues totaled US$ 96 million in 1Q16, in line with 4Q15. Sales volumes were 153,000 oz in 1Q16 vs. 140,000 oz in 4Q15. PGMs sales volumes increased due to higher smelter rates in Sudbury and higher production of PGM-rich material in matte processing. Gold sales revenues totaled US$ 130 million in 1Q16, increasing US$ 8 million vs. 4Q15 as a result of higher gold realized prices (US$ 8 million). Sales volumes were 115,000 oz in 1Q16, 1,000 oz higher than in 4Q15. Net operating revenue by product US$ million 1Q16 4Q15 1Q15 Nickel Copper PGMs Gold Silver Others Total 1,353 1,458 1,710 NICKEL REALIZED PRICES Nickel realized price was US$ 8,787/t, US$ 288/t higher than the average nickel LME price of US$ 8,499/t in 1Q16. Vale s nickel products are divided in two categories, refined nickel (pellets, powder, cathode, FeNi, Utility Nickel and Tonimet ) and intermediates (concentrates, matte, NiO and NHC). Refined nickel products have greater nickel content, typically commanding a premium over the average LME nickel price, whereas nickel intermediates are less pure as they are only 40

41 partially processed. Due to this difference, intermediate products are sold at a discount. The amount of the discount will vary depending on the amount of processing still required, product forms and level of impurities. The sales product mix is an important driver of nickel price realization. Refined nickel sales accounted for 90% of total nickel sales in 1Q16 vs. 88% in 4Q15. Sales of intermediate products accounted for the balance. The realized nickel price differed from the average LME price in 1Q16 due to the following impacts: Premium for refined finished nickel products averaging US$ 631/t, with an impact on the aggregate realized nickel price of US$ 571/t; Discount for intermediate nickel products averaging US$ 2,880/t, with an impact on the aggregate realized nickel price of -US$ 283/t. Price realization nickel COPPER REALIZED PRICES Copper realized price was US$ 4,323/t, US$ 349/t lower than the average copper LME price of US$ 4,672/t in 1Q16. Vale s copper products are mostly intermediate forms of copper, predominately in the form of concentrate which is sold at a discount to the LME. These products are sold on provisional pricing during the quarter with final prices determined at a future period, generally one to four months forward A t M a rch 3 1, , V a l e h a d p ro vi si o n a l l y p ri ce d co p p e r sa l e s t o t a l i n g 1 0 3, t o n s va l u e d a t a L M E f o rw a rd p ri ce o f U S $ 4, / t, su b j e ct t o f i n a l p ri ci n g o ve r t h e n e xt se ve ra l m o n t h s. 41

42 The realized copper price differed from the average LME price in 1Q16 due to the following impacts: Current period price adjustments: mark-to-market of invoices still open in the quarter based on the copper price forward curve 30 at the end of the quarter (US$ 171/t). Prior period price adjustment: variance between the price used in final invoices (and on the mark-to-market of invoices from previous quarters still open at the end of the quarter) and the provisional prices used for sales in previous quarters (-US$ 29/t). TC/RCs, penalties, premiums and discounts for intermediate products (-US$ 490/t). Excluding the effects of prior period price adjustments and the discounts for copper intermediate products, the copper gross realized price was US$ 4,842/t in 1Q16. Price realization copper The total positive impact of the provisional pricing system (mark-to-market of open invoices and differences between provisional and final prices) on sales revenues was US$ 14 million as the net result of: (i) current period price adjustment for the mark-to-market of invoices still open in the quarter based on the copper price forward curve (US$ 171/t on 101kt 31 of copper sales volumes, resulting in US$ 17 million); and (ii) prior period price adjustment based on the variance between the price used in final invoices (and on the mark-to-market of invoices from previous quarters still open at the end of the quarter) and provisional prices used in previous quarters (-US$ 29/t on 101kt of copper sales volumes, resulting in -US$ 3 million). 30 I n cl u d e s a sm a l l a m o u n t o f f i n a l i n vo i ce s t h a t w e re p ro vi si o n a l l y p ri ce d a n d se t t l e d w i t h i n t h e q u a rt e r. 31 C o p p e r d e l i ve ri e s i n cl u d e 4 4, t i n N o rt h A t l a n t i c n i cke l o p e ra t i o n s a n d 5 7, t i n S o u t h A t l a n t i c co p p e r o p e ra t i o n s. 42