Table of Contents

 

 

 

United States
Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 6-K/A

 

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

 

For the month of

 

February, 2013

 

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 x 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 x

 

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 x

 

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 x

 

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

 

 

 



Table of Contents

 

REASON FOR AMENDMENT

 

The reason for this amendment is to amend certain annual financial information for the year ended Dec 31, 2012 furnished to the SEC in a report on Form 6-K on February 27, 2013. Specifically, we made minor adjustments to Note 29 item b, which provides information about debentures, and made minor adjustments to Note 32 – Board of Directors, Fiscal Council, Advisory committee and Executives Officers.

 



Table of Contents

 

GRAPHIC

 

Financial Statements

 

December 31, 2012

 

BR GAAP/IFRS

 

 

 

Filed with the CVM, SEC and HKEx on

February 27, 2013

 



Table of Contents

 

GRAPHIC

 

Vale S.A.

Index to the Financial Statements

 

 

Page

 

 

Report of Independent Registered Public accounting Firm

2

 

 

Consolidated Statement of Financial Position as December 31, 2012, 2011 and 2010 and Parent Company as December 31, 2012 and 2011

4

 

 

Consolidated Statement of Income for the year ended December 31, 2012 and 2011

6

 

 

Parent Company Statement of income for the year ended December 31, 2012 and 2011

7

 

 

Consolidated and Parent Company Statement of Other Comprehensive Income for the year ended December 31, 2012 and 2011

8

 

 

Statement of Changes in Equity for the year ended December 31, 2012 and 2011

9

 

 

Consolidated Statement of Cash Flows for the year ended December 31, 2012 and 2011

10

 

 

Parent Company Statement of Cash Flows for the year ended December 31, 2012 and 2011

11

 

 

Consolidated Statement of Added Value for the year ended December 31, 2012 and 2011

12

 

 

Parent Company Statement of Added Value for the year ended December 31, 2012 and 2011

13

 

 

Notes to the Consolidated Financial Statements

14

 

2



Table of Contents

 

GRAPHIC

 

 

Independent auditor’s report

 

To the Board of Directors and Shareholders

Vale S.A.

 

We have audited the accompanying consolidated financial statements of Vale S.A. and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as at December 31, 2012 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for

the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.

 

In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vale S.A. and its subsidiaries as at December 31, 2012, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

Rio de Janeiro, February 27, 2012

 

PricewaterhouseCoopers

 

João César de Oliveira Lima Júnior

Auditores Independentes

 

Contador CRC 1RJ077431/O-8

CRC 2SP000160/O-5 “F” RJ

 

 

 

3



Table of Contents

 

GRAPHIC

 

Balance Sheet

 

In millions of Brazilian reais

 

 

 

 

 

Consolidated

 

Parent Company

 

 

 

Notes

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

7

 

11,918

 

6,593

 

12,636

 

688

 

575

 

Short-term investments

 

8

 

506

 

-

 

2,987

 

43

 

-

 

Derivatives at fair value

 

25

 

575

 

1,112

 

87

 

500

 

574

 

Accounts receivable

 

9

 

13,885

 

15,889

 

13,681

 

21,839

 

15,809

 

Related parties

 

30

 

786

 

154

 

160

 

1,347

 

2,561

 

Inventories

 

10

 

10,320

 

9,833

 

7,161

 

3,283

 

3,183

 

Recoverable taxes

 

12

 

4,620

 

4,190

 

2,671

 

2,071

 

2,317

 

Advances to suppliers

 

 

 

523

 

733

 

313

 

242

 

382

 

Others

 

 

 

1,973

 

1,647

 

1,010

 

574

 

183

 

 

 

 

 

45,106

 

40,151

 

40,706

 

30,587

 

25,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current Assets held for sale

 

11

 

935

 

-

 

11,877

 

-

 

-

 

 

 

 

 

46,041

 

40,151

 

52,583

 

30,587

 

25,584

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

30

 

833

 

904

 

48

 

864

 

446

 

Loans and financing agreements to receive

 

 

 

502

 

399

 

273

 

188

 

158

 

Judicial deposits

 

18

 

3,095

 

2,735

 

2,884

 

2,474

 

2,091

 

Deferred income tax and social contribution

 

20

 

8,134

 

3,539

 

2,263

 

5,558

 

2,109

 

Recoverable taxes

 

12

 

1,343

 

1,097

 

601

 

255

 

201

 

Derivatives at fair value

 

25

 

93

 

112

 

502

 

3

 

96

 

Reinvestment tax incentive

 

 

 

327

 

429

 

238

 

302

 

429

 

Others

 

 

 

1,234

 

1,095

 

788

 

458

 

389

 

 

 

 

 

15,561

 

10,310

 

7,597

 

10,102

 

5,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

13

 

13,044

 

14,984

 

7,321

 

123,871

 

113,150

 

Intangible assets

 

14

 

18,822

 

17,789

 

16,829

 

14,664

 

13,974

 

Property, plant and equipment, net

 

15

 

173,455

 

153,855

 

126,656

 

61,231

 

55,503

 

 

 

 

 

220,882

 

196,938

 

158,403

 

209,868

 

188,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

266,923

 

237,089

 

210,986

 

240,455

 

214,130

 

 

4



Table of Contents

 

GRAPHIC

 

Balance Sheet

 

In millions of Brazilian reais

(continued)

 

 

 

 

 

Consolidated

 

Parent Company

 

 

 

Notes

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

 

 

9,255

 

8,851

 

5,928

 

4,178

 

3,504

 

Payroll and related charges

 

 

 

3,025

 

2,442

 

1,889

 

2,001

 

1,582

 

Derivatives at fair value

 

25

 

710

 

136

 

58

 

558

 

117

 

Current portion of long-term debt

 

17

 

7,093

 

2,807

 

4,707

 

5,328

 

892

 

Short-term debt

 

17

 

 

40

 

232

 

 

 

Related parties

 

30

 

423

 

43

 

35

 

6,434

 

4,959

 

Taxes payable and royalties

 

 

 

664

 

979

 

440

 

333

 

330

 

Provision for income taxes

 

 

 

1,310

 

955

 

1,251

 

370

 

 

Employee post retirement benefits obligations

 

21

 

420

 

316

 

313

 

220

 

141

 

Railway sub-concession agreement payable

 

 

 

133

 

123

 

125

 

 

 

Asset retirement obligations

 

19

 

143

 

136

 

 

 

21

 

Dividends and interest on capital

 

 

 

 

2,207

 

8,068

 

 

2,207

 

Others

 

 

 

2,168

 

1,650

 

1,582

 

751

 

400

 

 

 

 

 

25,344

 

20,685

 

24,628

 

20,173

 

14,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities directly associated with assets held for sale

 

11

 

327

 

 

5,340

 

 

 

 

 

 

 

25,671

 

20,685

 

29,968

 

20,173

 

14,153

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives at fair value

 

25

 

1,601

 

1,239

 

102

 

1,410

 

953

 

Long-term debt

 

17

 

54,763

 

40,225

 

35,978

 

26,867

 

18,596

 

Related parties

 

30

 

146

 

171

 

3

 

29,363

 

28,654

 

Employee post retirement benefits obligations

 

21

 

3,390

 

2,846

 

3,337

 

544

 

406

 

Provisions for contingencies

 

18

 

4,218

 

3,145

 

3,409

 

2,867

 

1,928

 

Deferred income tax and social contribution

 

20

 

7,754

 

10,614

 

12,828

 

 

 

Asset retirement obligations

 

19

 

5,472

 

3,427

 

2,404

 

1,625

 

1,095

 

Stockholders’ Debentures

 

29

 

3,379

 

2,496

 

2,139

 

3,379

 

2,496

 

Redeemable noncontrolling interest

 

 

 

995

 

943

 

1,186

 

 

 

Others

 

 

 

3,901

 

4,617

 

3,306

 

1,839

 

2,374

 

 

 

 

 

85,619

 

69,723

 

64,692

 

67,894

 

56,502

 

Total liabilities

 

 

 

111,290

 

90,408

 

94,660

 

88,067

 

70,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

24

 

 

 

 

 

 

 

 

 

 

 

Preferred class A stock - 7,200,000,000 no-par-value shares authorized and 2,108,579,618 (2011 - 2,108,579,618) issued

 

 

 

29,475

 

29,475

 

19,650

 

29,475

 

29,475

 

Common stock - 3,600,000,000 no-par-value shares authorized and 3,256,724,482 (2011 - 3,256,724,482) issued

 

 

 

45,525

 

45,525

 

30,350

 

45,525

 

45,525

 

Mandatorily convertible votes - common shares

 

 

 

 

360

 

445

 

 

360

 

Mandatorily convertible votes - preferred shares

 

 

 

 

796

 

996

 

 

796

 

Treasury stock - 140,857,692 (2011 - 181,099,814) preferred and 71,071,482 (2011 - 86,911,207) common shares

 

 

 

(7,838

)

(9,917

)

(4,826

)

(7,838

)

(9,919

)

Results from operations with noncontrolling stockholders

 

 

 

(840

)

(71

)

685

 

(840

)

(71

)

Results in the translation/issuance of shares

 

 

 

50

 

 

1,867

 

50

 

 

Unrealized fair value gain (losses)

 

 

 

(1,126

)

220

 

(25

)

(1,126

)

220

 

Cumulative translation adjustments

 

 

 

8,692

 

(1,017

)

(9,512

)

8,692

 

(1,017

)

Retained earnings

 

 

 

78,450

 

78,105

 

72,487

 

78,450

 

78,106

 

Total company stockholders’ equity

 

 

 

152,388

 

143,476

 

112,117

 

152,388

 

143,475

 

Noncontrolling interests

 

 

 

3,245

 

3,205

 

4,209

 

 

 

Total stockholders’ equity

 

 

 

155,633

 

146,681

 

116,326

 

152,388

 

143,475

 

Total liabilities and stockholders’ equity

 

 

 

266,923

 

237,089

 

210,986

 

240,455

 

214,130

 

 

The accompanying notes are an integral part of these Financial Statements.

 

5



Table of Contents

 

GRAPHIC

 

Consolidated Statement of Income

 

In millions of Brazilian reais, except as otherwise stated

 

 

 

 

 

Year ended

 

 

 

Notes

 

December 31, 2012

 

December 31, 2011

 

Net operating revenue

 

 

 

93,511

 

102,019

 

Cost of goods solds and services rendered

 

27

 

(51,997

)

(42,451

)

Gross profit

 

 

 

41,514

 

59,568

 

 

 

 

 

 

 

 

 

Operating (expenses) income

 

 

 

 

 

 

 

Selling and administrative expenses

 

27

 

(4,381

)

(3,985

)

Research and development expenses

 

27

 

(2,912

)

(2,822

)

Other operating expenses, net

 

27

 

(7,216

)

(4,836

)

Impairment of assets

 

 

 

(8,211

)

 

 

Realized gain (loss) on non-current assets held for sales

 

 

 

(1,036

)

2,492

 

 

 

 

 

(23,756

)

(9,151

)

Operating profit

 

 

 

17,758

 

50,417

 

 

 

 

 

 

 

 

 

Financial income

 

28

 

2,619

 

4,494

 

Financial expenses

 

28

 

(11,024

)

(10,846

)

Equity results from associates

 

13

 

1,241

 

1,857

 

Impairment of investment

 

 

 

(4,002

)

 

Income before income tax and social contribution

 

 

 

6,592

 

45,922

 

Income tax and social contribution

 

 

 

 

 

 

 

Current tax

 

20

 

(4,987

)

(9,077

)

Deferred

 

 

 

 

 

 

 

Deferred of year

 

20

 

1,776

 

563

 

Reversal of Deferred Income Tax liabilities (see note 6.b.)

 

 

 

2,533

 

 

Effect of income tax on impairment

 

 

 

3,319

 

 

 

 

 

 

2,641

 

(8,514

)

Net income of the year

 

 

 

9,233

 

37,408

 

 

 

 

 

 

 

 

 

Loss attributable to non-controlling interests

 

 

 

(501

)

(406

)

Net income attributable to the Company’s stockholders

 

 

 

9,734

 

37,814

 

Earnings per share attributable to the Company’s stockholders:

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

Preferred share and Common (in brazilian reais)

 

 

 

1.91

 

7.21

 

 

The accompanying notes are an integral part of these Financial Statements.

 

6



Table of Contents

 

GRAPHIC

 

Parent Company Statement of Income

 

In millions of Brazilian reais, except as otherwise stated

 

 

 

 

 

Year ended

 

 

 

Notes

 

December 31, 2012

 

December 31, 2011

 

Net operating revenue

 

 

 

57,429

 

66,082

 

Cost of goods sold and services rendered

 

27

 

(24,245

)

(20,958

)

Gross profit

 

 

 

33,184

 

45,124

 

 

 

 

 

 

 

 

 

Operating (expenses) income

 

 

 

 

 

 

 

Selling and administrative expenses

 

27

 

(2,339

)

(2,176

)

Research and development expenses

 

27

 

(1,619

)

(1,460

)

Other operating expenses, net

 

27

 

(3,023

)

(1,704

)

Impairment of assets

 

 

 

(5,968

)

 

Equity results from subsidiaries

 

13

 

(350

)

5,647

 

Realized gain (loss) on non-current assets held for sales (equity on parent company) (*)

 

 

 

(1,036

)

2,492

 

 

 

 

 

(14,335

)

2,799

 

Operating profit

 

 

 

18,849

 

47,923

 

 

 

 

 

 

 

 

 

Financial income

 

28

 

1,566

 

2,958

 

Financial expenses

 

28

 

(10,084

)

(8,552

)

Equity results from joint controlled entities and associates

 

13

 

1,241

 

1,857

 

Impairment of investments

 

 

 

(1,804

)

 

Income before income tax and social contribution

 

 

 

9,768

 

44,186

 

 

 

 

 

 

 

 

 

Income tax and social contribution

 

 

 

 

 

 

 

Current

 

20

 

(3,492

)

(6,671

)

Deferred

 

20

 

816

 

299

 

Effect of income tax on impairment

 

 

 

2,642

 

 

 

 

 

 

(34

)

(6,372

)

Net income of the exercise

 

 

 

9,734

 

37,814

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

Preferred share and Common (in brazilian reais)

 

 

 

1.91

 

7.21

 

 


(*)  Except for the loss of R$ 722 in 2012 about coal assets sale, recorded in other operating expenses.

 

The accompanying notes are an integral part of these Financial Statements.

 

7



Table of Contents

 

GRAPHIC

 

Statement of Other Comprehensive Income

 

In millions of Brazilian reais

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Net income

 

9,233

 

37,408

 

Cumulative translation adjustments

 

10,073

 

8,828

 

Unrealized gain (loss) on available-for-sale investments

 

 

 

 

 

Gross balance as of the year end

 

(3

)

6

 

 

 

(3

)

6

 

Cash flow hedge

 

 

 

 

 

Gross balance as of the year end

 

(230

)

219

 

Effect of tax

 

(12

)

21

 

 

 

(242

)

240

 

Total comprehensive income of the year

 

19,061

 

46,482

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

(137

)

(72

)

Comprehensive income attributable to the Company’s stockholders

 

19,198

 

46,554

 

 

 

19,061

 

46,482

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Net income

 

9,734

 

37,814

 

Other comprehensive income

 

 

 

 

 

Cumulative translation adjustments

 

9,709

 

8,495

 

Unrealized gain (loss) on available-for-sale investments

 

 

 

 

 

Gross balance as of the year end

 

(2

)

6

 

Effect of tax

 

(1

)

 

 

 

(3

)

6

 

Cash flow hedge

 

 

 

 

 

Gross balance as of the year end

 

(229

)

218

 

Effect of tax

 

(13

)

21

 

 

 

(242

)

239

 

Total comprehensive income of the year

 

19,198

 

46,554

 

 

The accompanying notes are an integral part of these Financial Statements.

 

8



Table of Contents

 

GRAPHIC

 

Statement of Changes in Equity

 

In millions of Brazilian reais

 

 

 

Year ended

 

 

 

Capital

 

Results in the
translation of
shares

 

Mandatorily
convertible
notes

 

Revenue
reserves

 

Treasury stock

 

Unrealized fair
value gain (losses)

 

Gain (loss) from
operation with
noncontrolling
stockholders

 

Cumulative
translation
adjustment

 

Retained
earnings

 

Total Company
stockholder’s
equity

 

Noncontrolling
stockholders’s
interests

 

Total stockholder’s
equity

 

January 01, 2011

 

50,000

 

1,867

 

1,441

 

72,487

 

(4,826

)

(25

)

685

 

(9,512

)

 

112,117

 

4,191

 

116,308

 

Net income of the year

 

 

 

 

 

 

 

 

 

37,814

 

37,814

 

(406

)

37,408

 

Capitalization of reserves

 

25,000

 

(1,867

)

 

(23,133

)

 

 

 

 

 

 

 

 

Capitalization of noncontrolling stockholders advances

 

 

 

 

 

 

 

 

 

 

 

55

 

55

 

Gain on conversion of shares

 

 

 

 

 

(5,091

)

 

 

 

 

(5,091

)

 

(5,091

)

Additional remuneration for mandatorily convertible notes

 

 

 

(285

)

 

 

 

 

 

 

(285

)

 

(285

)

Cash flow hedge, net of taxes

 

 

 

 

 

 

239

 

 

 

 

239

 

1

 

240

 

Unrealized results on valuation at market

 

 

 

 

 

 

6

 

 

 

 

6

 

 

6

 

Translation adjustments for the year

 

 

 

 

 

 

 

 

8,495

 

 

8,495

 

333

 

8,828

 

Dividends to noncontrolling stockholders

 

 

 

 

 

 

 

 

 

 

 

(180

)

(180

)

Redeemable noncontrolling stockholders’ interest

 

 

 

 

 

 

 

 

 

 

 

351

 

351

 

Acquisitions and disposal of noncontrolling stockholders

 

 

 

 

 

 

 

(756

)

 

 

(756

)

(1,140

)

(1,896

)

Destination of earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interim dividends

 

 

 

 

 

 

 

 

 

(2,207

)

(2,207

)

 

(2,207

)

Additional remuneration proposed

 

 

 

 

 

 

 

 

 

(6,856

)

(6,856

)

 

(6,856

)

Appropriation to undistributed retained earnings

 

 

 

 

28,751

 

 

 

 

 

(28,751

)

 

 

 

 

December 31, 2011

 

75,000

 

 

1,156

 

78,105

 

(9,917

)

220

 

(71

)

(1,017

)

 

143,476

 

3,205

 

146,681

 

Net income of the year

 

 

 

 

 

 

 

 

 

9,734

 

9,734

 

(501

)

9,233

 

Capitalization of noncontrolling stockholders advances

 

 

 

 

 

 

 

 

 

 

 

84

 

84

 

Remuneration for mandatorily convertible notes

 

 

 

(128

)

 

 

 

 

 

 

(128

)

 

(128

)

Cash flow hedge, net of taxes

 

 

 

 

 

 

(242

)

 

 

 

(242

)

 

(242

)

Unrealized results on valuation at market

 

 

 

 

 

 

(3

)

 

 

 

(3

)

 

(3

)

Translation adjustments for the year

 

 

 

 

 

 

 

 

9,709

 

 

9,709

 

364

 

10,073

 

Dividends to noncontrolling stockholders

 

 

 

 

 

 

 

 

 

 

 

(146

)

(146

)

Redeemable noncontrolling stockholders’ interest

 

 

 

 

 

 

 

 

 

 

 

350

 

350

 

Acquisitions and disposal of noncontrolling stockholders

 

 

 

 

 

 

 

(769

)

 

 

(769

)

(111

)

(880

)

Gain on conversion of shares

 

 

50

 

(1,028

)

 

2,079

 

(1,101

)

 

 

 

 

 

 

Realization of expansion and investment reserve

 

 

 

 

(740

)

 

 

 

 

740

 

 

 

 

Destination of earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriation to undistributed retained earnings

 

 

 

 

1,085

 

 

 

 

 

(1,085

)

 

 

 

Remuneration intermediate

 

 

 

 

 

 

 

 

 

(9,389

)

(9,389

)

 

(9,389

)

December 31, 2012

 

75,000

 

50

 

 

78,450

 

(7,838

)

(1,126

)

(840

)

8,692

 

 

152,388

 

3,245

 

155,633

 

 

The accompanying notes are an integral part of these Financial Statements.

 

9



Table of Contents

 

GRAPHIC

 

Consolidated Statement of Cash Flows

In millions of Brazilian reais

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Cash flow from operating activities:

 

 

 

 

 

Net income

 

9,233

 

37,408

 

Adjustments to reconcile net income to cash from operations

 

 

 

 

 

Results of equity investments and associates

 

(1,241

)

(1,857

)

Realized losses (gains) on assets held for sale

 

1,036

 

(2,492

)

Depreciation, amortization and depletion

 

8,397

 

6,638

 

Deferred income tax and social contribution

 

(1,776

)

(563

)

Reversal of deferred income tax

 

(2,533

)

 

Deferred Income Tax of impairment

 

(3,319

)

 

 

Foreign exchange and indexation (gain) losses, net

 

3,590

 

5,156

 

Impairment on assets

 

12,213

 

 

Loss on disposal of property, plant and equipment

 

422

 

435

 

Unrealized derivative (gains) losses, net

 

1,236

 

957

 

Stockholders’ Debentures

 

212

 

412

 

Others

 

218

 

(208

)

Decrease (increase) in assets:

 

 

 

 

 

Accounts receivable from customers

 

3,704

 

(1,940

)

Inventories

 

(451

)

(2,364

)

Recoverable taxes

 

425

 

(900

)

Others

 

441

 

(862

)

Increase (decrease) in liabilities:

 

 

 

 

 

Suppliers and contractors

 

47

 

2,288

 

Payroll and related charges

 

550

 

502

 

Taxes and contributions

 

(301

)

(3,026

)

Others

 

978

 

105

 

Net cash provided by operating activities

 

33,081

 

39,689

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Short-term investments

 

(506

)

2,987

 

Loans and advances

 

609

 

(177

)

Guarantees and deposits

 

(232

)

(363

)

Additions to investments

 

(892

)

(1,362

)

Additions to property, plant and equipment

 

(31,993

)

(26,311

)

Dividends/interest on capital received from Joint controlled entities and associates

 

932

 

1,766

 

Proceeds from disposal of investments held for sale

 

1,989

 

1,795

 

Acquisitions/sales of subsidiaries

 

 

 

Net cash used in investing activities

 

(30,093

)

(21,665

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Short-term debt

 

 

 

 

 

Additions

 

1,067

 

2,313

 

Repayments

 

(1,106

)

(1,601

)

Long-term debt

 

16,812

 

2,407

 

Repayments:

 

 

 

 

 

Financial institutions

 

(2,054

)

(4,659

)

Dividends and interest on capital paid to stockholders

 

(11,596

)

(15,053

)

Dividends and interest on capital attributed to noncontrolling interest

 

(90

)

(72

)

Transactions with noncontrolling stockholders

 

(793

)

(2,084

)

Capital increase

 

 

 

Repurchase of treasury stock

 

 

(5,092

)

Net cash provided by (used in) financing activities

 

2,240

 

(23,841

)

Increase (decrease) in cash and cash equivalents

 

5,228

 

(5,817

)

Cash and cash equivalents of cash, beginning of the year

 

6,593

 

12,175

 

Effect of exchange rate changes on cash and cash equivalents

 

97

 

235

 

Cash and cash equivalents from new incorporated subsidiary

 

 

 

Cash and cash equivalents, end of the year

 

11,918

 

6,593

 

Cash paid during the year for:

 

 

 

 

 

Short-term interest

 

(16

)

(5

)

Long-term interest

 

(2,572

)

(1,893

)

Income tax and social contribution

 

(2,320

)

(11,662

)

Non-cash transactions:

 

 

 

 

 

Additions to property, plant and equipment - interest capitalization

 

684

 

289

 

 

Conversion of mandatory convertible notes using 56,081,560 treasury stocks. (Note 24c.)

 

The accompanying notes are an integral part of these Financial Statements.

 

10



Table of Contents

 

GRAPHIC

 

Parent Company Statement of Cash Flows

In millions of Brazilian reais

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Cash flow from operating activities:

 

 

 

 

 

Net income

 

9,734

 

37,814

 

Adjustments to reconcile net income to cash from operations

 

 

 

 

 

Results of equity investments

 

(891

)

(7,504

)

Realized gain on assets held for sale

 

1,036

 

(2,492

)

Depreciation, amortization and depletion

 

2,563

 

1,964

 

Deferred income tax and social contribution

 

(816

)

(299

)

Deferred Income Tax of impairment

 

(2,642

)

 

Foreign exchange and indexation (gain) losses, net

 

4,363

 

7,003

 

Impairment on assets

 

7,772

 

 

Loss on disposal of property, plant and equipment

 

372

 

383

 

Unrealized derivative (gains) losses, net

 

1,089

 

661

 

Dividends / interest on capital received from subsidiaries

 

 

2,196

 

Stockholders’ debentures

 

212

 

412

 

Others

 

(141

)

(26

)

Decrease (increase) in assets:

 

 

 

 

 

Accounts receivable from customers

 

(6,030

)

2,569

 

Inventories

 

267

 

(630

)

Recoverable taxes

 

927

 

(433

)

Others

 

932

 

(43

)

Increase (decrease) in liabilities:

 

 

 

 

 

Suppliers and contractors

 

675

 

640

 

Payroll and related charges

 

419

 

311

 

Taxes and contributions

 

349

 

(4,583

)

Others

 

964

 

(463

)

Net cash provided by operating activities

 

21,154

 

37,480

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Short-term investments

 

(43

)

 

Loans and advances

 

1,141

 

(33

)

Guarantees and deposits

 

(226

)

(72

)

Additions to investments

 

(7,324

)

(5,985

)

Additions to property, plant and equipment

 

(15,699

)

(14,615

)

Dividends/interest on capital received from joint controlled entities and associates

 

1,190

 

 

Proceeds from disposal of investments held for sale

 

745

 

 

Net cash used in investing activities

 

(20,216

)

(20,705

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Short-term debt

 

 

 

 

 

Additions

 

1,007

 

1,092

 

Repayments

 

(4,604

)

(5,064

)

Long-term debt

 

 

 

 

 

Additions

 

15,023

 

3,891

 

Repayments:

 

 

 

 

 

Financial institutions

 

(655

)

(891

)

Dividends and interest on capital attributed to noncontrolling interest

 

(11,596

)

(14,960

)

Treasury stock

 

 

(5,091

)

Net cash provided by (used in) financing activities

 

(825

)

(21,023

)

Increase (decrease) in cash and cash equivalents

 

113

 

(4,248

)

Cash and cash equivalents of cash, beginning of the year

 

575

 

4,823

 

Cash and cash equivalents, end of the year

 

688

 

575

 

Cash paid during the year for:

 

 

 

 

 

Short-term interest

 

(2

)

(1

)

Long-term interest

 

(1,892

)

(1,904

)

Income tax and social contribution

 

(312

)

(9,638

)

Non-cash transactions:

 

 

 

 

 

Additions to property, plant and equipment - interest capitalization

 

28

 

(73

)

 

Conversion of mandatory convertible notes using 56,081,560 treasury stocks. (Note 24c.)

 

The accompanying notes are an integral part of these Financial Statements.

 

11



Table of Contents

 

GRAPHIC

 

Consolidated Statement of Added Value

In millions of Brazilian reais

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Generation of added value

 

 

 

 

 

Gross revenue

 

 

 

 

 

Revenue from products and services

 

95,577

 

104,350

 

Gain (loss) on realization of assets available for sale

 

(1,036

)

2,492

 

Other revenue

 

(2

)

(11

)

Revenue from the construction of own assets

 

29,673

 

28,389

 

Allowance for doubtful accounts

 

20

 

11

 

Less:

 

 

 

 

 

Acquisition of products

 

(2,718

)

(3,887

)

Outsourced services

 

(19,319

)

(16,593

)

Materials

 

(26,508

)

(26,807

)

Oil and gas

 

(4,050

)

(3,644

)

Energy

 

(1,689

)

(1,540

)

Freight

 

(5,660

)

(3,772

)

Impairment

 

(12,213

)

 

Other costs and expenses

 

(13,406

)

(10,763

)

Gross added value

 

38,669

 

68,225

 

 

 

 

 

 

 

Depreciation, amortization and depletion

 

(8,397

)

(6,638

)

Net added value

 

30,272

 

61,587

 

 

 

 

 

 

 

Received from third parties

 

 

 

 

 

Financial income

 

1,760

 

2,944

 

Equity results

 

1,241

 

1,857

 

Total added value to be distributed

 

33,273

 

66,388

 

 

 

 

 

 

 

Personnel

 

9,120

 

7,342

 

Taxes, rates and contribution

 

7,396

 

3,828

 

Current income tax

 

4,987

 

9,077

 

Deferred income tax

 

(7,628

)

(563

)

Remuneration of debt capital

 

6,019

 

5,829

 

Monetary and exchange changes, net

 

4,146

 

3,467

 

Net income attributable to the Company’s stockholders

 

9,734

 

37,814

 

Loss attributable to noncontrolling interest

 

(501

)

(406

)

Distribution of added value

 

33,273

 

66,388

 

 

The accompanying notes are an integral part of these Financial Statements.

 

12



Table of Contents

 

GRAPHIC

 

Parent Company Statement of Added Value

In millions of Brazilian reais

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Generation of added value

 

 

 

 

 

Gross revenue

 

 

 

 

 

Revenue from products and services

 

58,551

 

67,618

 

Gain (loss) on realization of assets available for sale

 

(1,036

)

2,492

 

Revenue from the construction of own assets

 

16,166

 

14,824

 

Allowance for doubtful accounts

 

13

 

7

 

Less:

 

 

 

 

 

Acquisition of products

 

(1,384

)

(2,547

)

Outsourced services

 

(11,313

)

(9,222

)

Materials

 

(13,054

)

(13,602

)

Fuel oil and gas

 

(2,382

)

(1,964

)

Energy

 

(1,207

)

(862

)

Impairment

 

(7,772

)

 

Other costs and expenses

 

(6,611

)

(5,289

)

Gross added value

 

29,971

 

51,455

 

 

 

 

 

 

 

Depreciation, amortization and depletion

 

(2,563

)

(1,964

)

Net added value

 

27,408

 

49,491

 

 

 

 

 

 

 

Received from third parties

 

 

 

 

 

Financial income

 

799

 

1,825

 

Equity results

 

891

 

7,504

 

Total added value to be distributed

 

29,098

 

58,820

 

 

 

 

 

 

 

Personnel

 

4,674

 

3,989

 

Taxes, rates and contribution

 

5,339

 

3,226

 

Current income tax

 

3,492

 

6,671

 

Deferred income tax

 

(3,458

)

(299

)

Remuneration of debt capital

 

5,181

 

4,351

 

Monetary and exchange changes, net

 

4,136

 

3,068

 

Net income attributable to the Company’s stockholders

 

9,734

 

9,063

 

Reinvested

 

 

28,751

 

Distribution of added value

 

29,098

 

58,820

 

 

The accompanying notes are an integral part of these Financial Statements.

 

13



Table of Contents

 

GRAPHIC

 

Notes to Financial Statements

Expressed in millions of Brazilian Reais, unless otherwise stated

 

1-                                    Operational Context

 

Vale S.A. (“Vale” or “Parent Company”) is a publicly-listed company with its headquarters at 26 Avenida Graça Aranha, Downtown, Rio de Janeiro, Brazil with shares traded on the stock exchanges of Sao Paulo (“BM&F BOVESPA”), New York (“NYSE”), Paris (“NYSE Euronext”) and Hong Kong (“HKEx”).

 

The Company and its direct and indirect subsidiaries (“Group”, “Company” or “we”) is principally engaged in the research, production and marketing of iron ore and pellets, nickel, fertilizer, copper, coal, manganese, iron alloys, cobalt, platinum group metals and precious metals. The Company also operates in the segments of energy, logistics and steel.

 

At December 31, 2012, our principal consolidated operating subsidiaries the following:

 

Subsidiaries

 

% ownership

 

% voting capital

 

Location

 

Principal activity

 

Compañia Minera Miski Mayo S.A.C

 

40.00

 

51.00

 

Peru

 

Fertilizers

 

Ferrovia Centro-Atlântica S. A.

 

99.99

 

99.99

 

Brazil

 

Logistics

 

Ferrovia Norte Sul S.A.

 

100.00

 

100.00

 

Brazil

 

Logistics

 

Mineração Corumbaense Reunida S.A.

 

100.00

 

100.00

 

Brazil

 

Iron ore and Manganese

 

PT Vale Indonesia Tbk

 

59.20

 

59.20

 

Indonesia

 

Nickel

 

Sociedad Contractual Minera Tres Valles

 

90.00

 

90.00

 

Chile

 

Copper

 

Vale Australia Pty Ltd.

 

100.00

 

100.00

 

Australia

 

Coal

 

Vale Canada Limited

 

100.00

 

100.00

 

Canada

 

Nickel

 

Vale Fertilizantes S.A

 

100.00

 

100.00

 

Brazil

 

Fertilizers

 

Vale International Holdings GMBH

 

100.00

 

100.00

 

Austria

 

Holding and Research

 

Vale International S.A

 

100.00

 

100.00

 

Switzerland

 

Holding and Trading

 

Vale Manganês S.A.

 

100.00

 

100.00

 

Brazil

 

Manganese and Ferroalloys

 

Vale Mina do Azul S.A.

 

100.00

 

100.00

 

Brazil

 

Manganese

 

Vale Moçambique S.A.

 

95.00

 

95.00

 

Mozambique

 

Coal

 

Vale Nouvelle-Calédonie SAS

 

80.50

 

80.50

 

New Caledonia

 

Nickel

 

Vale Oman Pelletizing Company LLC

 

70.00

 

70.00

 

Oman

 

Pellet

 

Vale Shipping Holding PTE Ltd.

 

100.00

 

100.00

 

Singapore

 

Logistics

 

 

2 -                                  Summary of the Main Accounting Practices and Accounting Estimates

 

a)                                    Basis of preparation

 

The consolidated financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and the interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”), implemented in Brazil by the Accounting Pronouncements Committee (‘CPC’) and interpretations (“ICPC”) and guidelines (“OCPC”), approved by the Securities Commission (“CVM”).

 

The individual financial statements of the Company have been prepared in accordance with accounting practices adopted in Brazil issued by CPC and is published in conjunction with the consolidated financial statements.

 

In the case of Vale, the accounting practices adopted in Brazil applicable to individual financial statements differ from IFRS applicable to separate financial statements, only the measurement of investments at equity method in subsidiaries, joint controlled entities and affiliates, as under the rules of IFRS would be the cost or at fair value.

 

The financial statements have been prepared under the historical cost convention adjusted to reflect the fair value of available for sale financial assets, and financial assets and liabilities (including derivative instruments) measured at fair value through the Statement of Income.

 

For certain contracts, we carry the risks concerning the transportation of the products and determine the freight price directly to our customer. However, for these contracts in 2011 and 2010 the major part of the freight related to CFR (Incoterm for cost and freight) for iron ore and pellets sales, was recorded as if Vale was acting as an agent, resulting in the net presentation of freight revenues. We revised the 2011 and 2010 income statement presentation to appropriately reflect the revenue of such sales by the total amount billed to customers and as a consequence present the related freight costs as cost of product sold and therefore we increase the 2011 sales of ore and metals in amount of R$3,275 (R$3,054 in 2010) with the corresponding increase in cost of ores and metals sold. The revision did not result in any other changes in the income statement presentation.

 

14



Table of Contents

 

GRAPHIC

 

b)                                    Functional currency and presentation currency

 

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”), which in the case of the Parent Company is the Brazilian Real (“R$” or “Reais”). For presentation purposes, these consolidated financial statements are presented in United States Dollars (“US$”) as a convenience to facilitate analysis by our international investors.

 

Operations in others currencies are translated into the functional currency of each entity using the actual exchange rates in force on the respective transaction dates. The foreign exchange gains and losses resulting from the settlement of these transactions and from the translation at the exchange rates in force at the end of the year, of monetary assets and liabilities in other currencies, are recognized in the Statement of Income as financial expense or income.

 

In 2011, based on an entity business assessment, the subsidiary Vale International changed its functional currency from the Brazilian Real to the US Dollar. This change did not have any significant effects on the financial statements presentation.

 

The exchange rates of the major currencies that impact our operations against the functional currency were:

 

 

 

Exchange rates used for conversions in reais

 

 

 

December 31, 2012

 

December 31, 2011

 

US dollar - US$

 

2.0435

 

1.8683

 

Canadian dollar - CAD

 

2.0546

 

1.8313

 

Australian dollar - AUD

 

2.1197

 

1.9092

 

Euro - EUR or €

 

2.6954

 

2.4165

 

 

Translation differences on non-monetary financial assets and liabilities are recognized in income as part of fair value gain or loss. The exchange rate gain or loss of non-monetary financial assets, such as investments in shares classified as available for sale, are included in Stockholders’ equity under the caption Unrealized fair value gain (losses).

 

The net income and balance sheet of all Group entities whose functional currency is different from the presentation currency are translated into the presentation currency as follows: (i) The assets and liabilities for each Statement of Balance Sheet presented are translated at the closing rate at the Statement of Balance Sheet date; (ii) income and expenses for each Statement of Income are translated at the average exchange rates, except in specific transactions that, considering their relevance, are translated at the rate at the dates of transactions and; (iii) The components for each Stockholders’ equity are translated at the rate at the dates of transactions. All resulting exchange differences are recognized in a separate component of the Stockholder’s equity, named “Cumulative Translation Adjustment”.

 

c)                                     Consolidation and investments

 

The consolidated financial statements reflect the balances of assets and liabilities and the transactions of the Parent Company and its direct and indirect subsidiaries. Subsidiaries over which control is achieved through other means, such as stockholders agreement, are also consolidated even if we hold less than 51% of the voting capital.

 

For associates, entities over which the Company has significant influence but not control, and jointly controlled entities, the investments are accounted for using the equity method.

 

Accounting practices of subsidiaries, joint ventures and associated companies are set to ensure consistency with the policies adopted by the Parent Company. Transactions between consolidated companies, as well as balances, unrealized profits and losses on these transactions are eliminated. Unrealized gains on operations with affiliates and joint controlled entities are eliminated on the proportion of Company’s participation.

 

We evaluate the carrying value of our equity investment with reference to the publicly quoted market prices when available. If the quoted market price is lower than book value, and this decline is considered other than temporary, we will write-down our equity investments to the level of the quoted market value.

 

For interests in joint arrangements (e.g.: consortium agreements), the assets, liabilities and transactions of these enterprises are recognized in the proportion held by Vale.

 

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d)                                    Business Combinations

 

When Vale acquires control over an entity, the identifiable assets acquired the liabilities and contingent liabilities assumed and the noncontrolling stockholders’ interests recognized are measured initially at their fair values at at the acquisition date.

 

The excess of the consideration transferred plus the fair value as at the acquisition date of any previous equity interests in the acquiree, over the fair value of the identifiable net assets acquired is recorded as goodwill, which is allocated to each cash-generating unit.

 

e)                                     Segment Information

 

Operating and geographic segments are reported consistently with the internal reporting provide to, and used by, the Company’s decision makers when evaluating performance and taking investment decisions. The financial information is analyzed under the following operating segment as follows:

 

Bulk Material — includes the extraction of iron ore and pellet production and the transport systems of Brazil, including railroads, ports and terminals, linked to mining operations. The manganese ore, ferroalloys and coal are also included in this segment.

 

Basic metals — includes the production of non-ferrous minerals, including nickel operations (co-products and by-products), copper and investment in aluminum affiliate.

 

Fertilizers — comprises three major groups of nutrients: potash, phosphate and nitrogen.

 

Logistical services — includes our system of cargo transportation for third parties divided into rail transport, port and shipping services.

 

Other - comprises our investments in joint ventures and associated companies in other businesses.

 

f)                                      Current and non-current assets and liabilities

 

Vale classifies assets and liabilities as current when it expects to realize the assets or to settle the liabilities, within 12 months of the end of the reporting period. Others assets and liabilities are classified as non-current.

 

g)                                    Cash and Cash Equivalents and Short-term Investments

 

The amounts recorded as cash and cash equivalents correspond to the values available in cash, bank deposits and short-term investments that have immediately liquidity and original maturities of 90 days or less and insignificant risk of change in fair value. Other investments with maturities between 91 and 360 days are recognized at fair value through income and recorded in short-term investments.

 

h)                                    Accounts Receivables

 

Represent receivables from sales of products and services. Receivables are initially recorded at fair value and subsequently measured at amortized cost, net of impairment losses, when applicable.

 

i)                                       Financial Assets

 

The Company classifies its financial assets in accordance with the purpose for which they were purchased, and determines the classification and initial recognition according to the following categories:

 

·                                         Financial assets measured at fair value through the Statement of Income — financial assets held for trading acquired for the purpose of selling in the short term.

 

·                                         Loans and receivables — non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially measured at fair value and subsequently at amortized cost using the effective interest method.

 

·                  Available for sale - non-derivative financial assets not classified in another category of financial instrument. They are recognized at fair value in other comprehensive income. After initial recognition, financial assets available for sale which are not quoted in an active market and whose fair values cannot be reliably measured, are held at acquisition cost less impairment.

 

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j)                                       Inventory

 

Inventory is stated at the lower of the average cost of acquisition or production and the net realizable value. The inventory production cost is determined on the basis of variable and fixed costs, and direct and indirect costs of production, using the average cost method. An allowance for losses on obsolete on slow-moving inventories is recognized.

 

Stockpiled inventory is accounted for as in processed inventory when ore is extracted from the mine. The cost of finished goods is comprised of depreciation and any direct cost necessary to convert stockpiled inventory into finished goods.

 

k)                                    Non-current assets held for sale

 

Non-current assets are classified as assets held for sale linked to discontinued operations are recorded as current assets when their carrying amounts are to be recovered principally through a sale transaction and a sale is considered highly probable, evaluated at the lower of their carrying amount and fair value, less cost of sales.

 

l)                                       Stripping Costs

 

Stripping costs (the cost associated with the removal of overburdened and other waste materials) incurred during the development of mine, before production takes place, are capitalized as part of the depreciable cost of developing the mining property. These costs are subsequently amortized over the useful life of the mine based on proven and probable reserves.

 

Post-production stripping costs are included in the cost of inventory, except when a new project is developed to permit access to a significant body of ore. In such cases, the costs are capitalized and amortized during the extraction of the ore body.

 

m)                                Intangible Assets

 

Intangible assets are evaluated at the acquisition cost, less accumulated amortization and impairment losses, when applicable.

 

Intangible assets that have finite useful lives are amortized considering their effective use, while those with indefinite useful lives are not amortized but are tested at least annually in terms of their recoverability (impairment test).

 

The Company holds concessions to exploit railway assets over a certain period o f time. Railways are classified as intangible assets and amortized over the shorter of their useful lives and the concession term will returned to the government.

 

Intangible assets acquired in a business combination are recognized separately from goodwill.

 

n)                                    Property, Plant and Equipment

 

Property, plant and equipment are carried at acquisition or production cost. The asset costs include costs directly attributable to bringing the asset into use, financial charges incurred during the construction period, acquisition expenses, after deducting trade discounts and rebates, and estimated decommissioning and site restoration expenses (asset retirement obligations — Note 2t).

 

Assets are depreciated using the straight-line method based on the estimated useful lives, from the date on which the assets become available for their intended use, except for land which is not depreciated. The depletion of reserves is calculated based on the ratio between actual production and the total amount of proven reserves.

 

The depreciation and depletion are determined in accordance with the following estimated useful lives:

 

Buildings

 

between 20 and 50 years

Installations

 

between 20 and 33 years

Equipment

 

between 10 and 33 years

Computer Equipment

 

5 years

Mineral rights

 

between 2 and 33 years

Locomotives

 

25 years

Wagon

 

33 years

Railway equipment

 

25 years

Ships

 

between 5 and 20 years

Others

 

between 2 and 50 years

 

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The residual values and useful lives of assets are reviewed and adjusted, if necessary, at the end of each fiscal year.

 

Significant industrial maintenance costs (for example, ships and other such assets), including spare parts, assembly services, and others, are recorded in property, plant and equipment and depreciated through the next programmed maintenance overhaul.

 

o)                                     Non-controlling stockholders’ interests

 

The Company treats transactions with non-controlling stockholders’ interests as transactions with equity owners of the Group. For purchases of non-controlling stockholders’ interests, the difference between any consideration paid and the portion acquired of the carrying value of net assets of the subsidiary is recorded in stockholders’ equity. Gains or losses, on disposals of non-controlling stockholders’ interest, are also recorded in stockholders’ equity.

 

When the Company ceases to hold control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. Furthermore, any amounts previously recognized in other comprehensive income relating to that entity are accounted for as if the Group had directly sold the related assets or liabilities. This means that the amounts previously recognized in other comprehensive income are reclassified in income.

 

p)                                     Impairment of assets

 

The Company assesses, at each reporting date whether there is evidence that the carrying amount of financial assets measured through amortized cost and long-live non-financial asset, should be impaired.

 

For financial assets measured through amortized cost, Vale compare the carrying amount with expected cash flows for the asset, and if there is some indication that the value is not recoverable, the carrying value is adjusted.

 

For long term non-financial assets, when impairment indication are identified, the test is conducted by determining the recoverable value of these assets grouped at the lowest levels for which there are separately identifiable cash flows of the cash-generating unit to which the asset belongs to their carrying amount. If we identify the need for adjustment, it is consistently appropriate to each asset’s cash-generating unit.

 

For investments in affiliated companies with publicly traded stock, Vale assesses recoverability of assets when there is prolonged or significant decline in market value. The balance of their investments in relation to the market value of the shares, when available. If the market value is less than the carrying value of investments, and reducing for seasonal, the Company performs the adjustment of the investment to the realizable value quoted in the market.

 

Company determines its cash flows based on approved budgets, considering mineral reserves and mineral resources calculated by internal experts, costs and investments based on the best estimate of past performance, sale prices consistent with the projections used in reports published by industry considering the market price when available and appropriate. Cash flows used are designed based on the life of each cash-generating unit (consumption of reserve units in the case of minerals) and considering discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit, depending on their composition and location.

 

Regardless the indication of impairment of its carrying amount, goodwill balances arising from business combinations and intangible assets with indefinite useful lives are tested for impairment at least once a year.

 

q)                                     Research and development

 

i.            Expenditures on ore research

 

Expenditures on ore research are considered operating expenses until the effective proof of the economic feasibility of the commercial exploration of a given ore body. From then on, expenditures incurred are capitalized as mine development costs.

 

ii.        Expenditures on feasibility studies and new technologies and others research

 

Vale also conducts feasibility studies for many other businesses which operate and researching new technologies to optimize the mining process. After proven to generate future benefits to the Company, the expenditures incurred are capitalized.

 

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r)                                      Leases

 

The Company classifies its contracts as finance leases or operating leases based on the substance of the contract as to whether it is linked to the transfer of substantially all risks and benefits of the assets ownership to the Company during their useful life.

 

For finance leases, the lower of the fair value of the leased asset and the present value of minimum lease payments is recorded in tangible fixed assets and the corresponding obligation recorded in liabilities. For operating leases, payments are recognized on a straight line basis during the term of the contract as a cost or expense in the Statement of Income.

 

s)                                       Accounts payable to suppliers and contractors

 

Accounts payable to suppliers and contractors are obligations to pay for goods and services that were acquired in the ordinary course of business, and are initially recognized at fair value and subsequently measured at amortized cost using effective interest rate method.

 

t)                                        Loans and Financing

 

Loans and Financing are initially measured at fair value, net of transaction costs incurred and are subsequently carried at amortized cost and updated using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the Statement of Income over the period of the loans, using the effective interest rate method. The fees paid in obtaining the loan are recognized as transaction costs.

 

Compound financial instruments include financial liability (debt) components and Stockholders’ equity components. The liability component of a compound financial instrument is initially recognized at fair value that is determined using discounted cash flow, considering the interest rate market for a non-convertible debt instrument with similar characteristics (period, value, credit risk). After initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The Stockholders’ equity component is recognized at the difference between the total values received by the Company with the issuance of the securities, and the initial recognition amount of the liability component. After initial recognition, the stockholders’ equity component of a compound financial instrument is not remeasured until its conversion.

 

u)                                     Provision

 

Provisions are recognized only when there is a present obligation (legal or constructive) resulting from a past event, and it is probable that settlement of this obligation would result in an outflow of resources and the amount of the obligation may be reasonably estimated. Provisions are reviewed and adjusted to reflect the current best estimate at the end of each reporting period. Provisions are measured at the present value of the expenditure expected to be required to settle an obligation using a pre-tax rate, which reflects current market assessments of time value of money and the risks specific to the obligation. The increase in the obligation due to the passage of time is recognized as interest expense.

 

v)                                     Employee benefits

 

i.                      Current benefits — wages, vacations and related taxes

 

Payments of benefits such as wages, vacation past due or accrued vacation, as well their related social security taxes over those benefits, are recognized monthly in income, at the accrual basis.

 

ii.                  Current benefits — profit sharing

 

The Company has a profit sharing policy, based on the achievement of the Company is whole, specific areas as well as employees individual performance goals. The Company recognizes provision based on the recurring measurement of the compliance with goals, using the accrual basis and recognition of present obligation arising from past events in the estimated outflow of resources in the future. The counter entry of the provision is recorded as cost of sales or service rendered or operating expenses in accordance with the activity of each employee.

 

iii.              Non-current benefits — non-current incentive

 

The Company has established a procedure to award certain eligible executives (Matching Plan and Long-Term Incentive Plan - ILP) with the goal of encouraging retention and sustained performance among others. The Matching plan establishes that these executives eligible to the plan are entitled to a specific quantity of their own preferred class A stocks of the Company, and shall be entitled at the end of three years to a cash sum corresponding to the market value of the shares lot initially linked by the executives,

 

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provided that they are under the ownership of executives throughout the entirety of the period. As well as matching, the ILP provides at the end of three years the payment in the amount equivalent to a certain number of shares based on the assessment of the executives’ career and Company performance factors in relation to a group of companies of similar size (per group). Liabilities are measured at each reporting date, at fair value, based on market quotations. Obligations are measured at each reporting date, to the fair value based on market quotations. The compensation costs incurred are recognized in income during the three-year vesting period as defined.

 

iv.        Non-current benefit — pension cost and other post-retirement benefits

 

The Company maintains several retirement plans for its employees.

 

For defined contribution plans, the Company’s obligation is limited to a monthly contribution linked to a pre-defined percentage over remuneration of employees related to these plans.

 

For defined benefit plans, actuarial calculations are periodically obtained for liabilities determined in accordance with the Projected Unit Credit Method in order to estimate the Company’s obligation. The liability recognized in the Balance Sheet is the present value of the defined benefit obligation at the Balance Sheet date, less the fair value of plan assets, with adjustments for past service cost not recognized. Actuarial gain and loss are appointed and controlled at corridor method. This method separates the amounts which exceed the limits of 10% of amounts of assets or liabilities, whichever is greater; amortizing it based on the remaining life expectancy active participants of plan. For plans without active participants, the excess amount is recognized fully in the income. Past service costs that arise with changes in plans are released immediately in income.

 

For plans with a surplus position, the Company does not recognize any asset or benefit in the Balance Sheet or Statement of Income, in the absence of a clear position on the use of this surplus. For plans with a deficit position, the Company recognizes liabilities and results arising from the actuarial valuation and actuarial gains and losses generated by the evaluation of these plans in income, according to the corridor method.

 

w)            Derivative financial instruments and hedging operations

 

The Company uses derivative instruments to manage its financial risks as a way to hedge these risks. The Company does not use derivative instruments for speculative purposes. Derivative financial instruments are recognized as assets or liabilities on the Statement of Balance Sheet and are measured at fair value. Changes in fair value of derivatives are recorded in each year as gains or losses in the statements of income or in unrealized fair value gain/ (losses) in stockholders’ equity when the transaction is illegible and characterized as an effective cash flow hedge.

 

The Company documents the relationship between hedging instruments and hedged items with the objective of risk management and strategy for carrying out hedging operations. The Company also documents its assessment, both initially and continuously, that the derivatives used in hedging transactions are highly effective in their changes in fair value or cash flows of hedged items.

 

The variations in fair value of derivative financial instruments designated as cash flow hedges have their effective component recorded in unrealized fair value gain/ (losses) and recognized as stockholders’ equity; and their ineffective component recorded in income. The amounts recorded in Comprehensive Income, will only be transferred to the income in an appropriate account (cost, operating expense or financial expense) when the hedged item is actually performed.

 

x)            Current and Deferred Income Tax and Social Contribution

 

The amounts of income tax and social contribution are recognized in the Statement of Income, except for items recognized directly in stockholders’ equity, in which cases the tax is also recognized in stockholders’ equity.

 

The provision for income tax is calculated individually for each entity in the Group based on tax rates and tax rules in force in the location of the entity. The recognition of deferred taxes is based on temporary differences between carrying value and the tax basis of assets and liabilities as well as net operating losses carry forwards. Deferred tax liabilities are fully recognized. The deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against fiscal current liabilities and when the deferred income tax assets and liabilities are related to income taxes recorded by the same taxation authority on the same taxable entity.

 

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y)            Particpation of noncontrolling shareholders

 

The Company treats transactions with noncontrolling minority interest as transactions with equity owners of the entity. For purchases from noncontrolling interests, the difference between any consideration paid and the book value of the share of net assets of acquired subsidiary is recorded in equity. Gains or losses on disposals to noncontrolling shareholders are also recorded in equity.

 

When the control of the Company ceases, any retained interest in the entity is remeasured to fair value, with the change in carrying amount recognized in earnings. In addition, any amounts previously recognized in equity in income from transactions with noncontrolling shareholders, in respect of that entity are accounted for as if the entity had directly disposed of the related assets or liabilities. This means that the amounts previously recognized in operations results with noncontrolling interests in income statement are reclassified.

 

z)             Capital

 

The Company periodically practices the repurchase of shares to remain in treasury for future sale or cancellation. These shares are recorded in a specific account as reduction of stockholders´ equity at acquisition value and kept at cost value. These programs are approved by the Board with a term and quantities by determined type of shares.

 

Incremental costs directly attributable to the issue of new shares or options are demonstrated in Stockholders’ equity as a deduction from the amount raised, net of taxes.

 

aa)          Revenue Recognition

 

Revenue is recognized when Vale transfers to its customers all significant risks and rewards of ownership of the product sold and services rendered. Revenue excludes any applicable sales taxes and is recognized at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Vale and the revenues and costs can be reliably measured.

 

In most instances sales revenue is recognized when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer’s premises. However, when the model negotiated with the customer is transferring risks and benefits of the product in shipment, revenue is recognized at the time.

 

In some cases, the sale price is determined on a provisional basis at the date of sale as the final selling price is subject to escalation clauses in contracts up to the date of final pricing. Revenue from the sale of provisionally priced is recognised when risks and rewards of ownership are transferred to the customer and revenue can be measured reliably. At this date, the amount of revenue to be recognized are estimated based on the forward price of product sold.

 

Amounts billed to customers for shipping correspond to products sold by the Company are recognized as revenue when that is responsible for shipping. Shipping costs are recognized as operating costs.

 

bb)          Government Grants and Support

 

Government grants and support are accounted for when the Company complies with reasonable security conditions set by the government related to grants and support received. The Company records via the Statement of Income, as reductions in taxes or spending according to the nature of the item, through the distribution of results in the Statement of Income, retained earnings in stockholders’ equity.

 

cc)           Basic and Diluted earnings per share

 

Basic earnings per share are calculated by dividing the income attributable to stockholders of the Company, deducted from the remuneration of holders of equity securities, at the weighted average number of shares outstanding (total shares less treasury shares).

 

Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding to assume conversion of all diluted potential shares. Vale has in your records, securities mandatory convertible shares, which will be converted using treasury shares held by the Company. These securities were recorded as an equity instrument, there is no other option, both for Company and the holders to liquidate all or partially using financial resources, therefore, it has recognized as net of finance charges in a specific shareholders’ equity component.

 

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dd)          Statement of Added Value — DVA

 

The company publishes its consolidated and the parent company statements of added value (DVA) in accordance with the accounting practices adopted in Brazil applicable to public companies which are submitted as part of the financial statements in accordance with Brazilian accounting practices. For IFRS, this statement is presented as additional information, without prejudice to the set of financial statements.

 

ee)           Interest on stockholder´s equity (Dividends)

 

Vale is permitted to distribute interest attributable to stockholders’ equity. The calculation is based on the stockholders’ equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long-term interest rate (TJLP) determined by the Brazilian Central Bank. Also, such interest may not exceed 50% of net income for the year or 50% of retained earnings plus revenue reserves as determined by Brazilian corporate law.

 

The benefit to Vale, as opposed to making a dividend payment, is a reduction in our income tax burden because this interest charge is tax deductible in Brazil. Income tax of 15% is withheld on behalf of the stockholders relative to the interest distribution. Under Brazilian law, interest attributed to stockholders’ equity is considered as part of the annual minimum mandatory dividend (Note 24-f). This notional interest distribution is treated for accounting purposes as a deduction from stockholders’ equity in a manner similar to a dividend and the tax credit recorded in income.

 

3.             Critical Accounting Estimates and Assumptions

 

The preparation of financial statements requires the use of certain critical accounting estimates and also the exercise of judgments by management of the Company.

 

These estimates are based on the best knowledge existing in each period. Changes in facts and circumstances may lead to the revision of the estimates, because those actual future results may differ from estimates.

 

The significant estimates and assumptions used by management in preparing these financial statements are presented as such:

 

a)            Mineral reserves and mine useful life

 

The estimates of proved reserves and probable reserves are regularly evaluated and updated. The proved and probable reserves are determined using generally accepted geological estimates. The calculation of reserves requires the Company to take positions on expected future conditions that are highly uncertain, including future ore prices, exchange rates, inflation rates, mining technology, availability of permits and production costs. Changes in some of these assumptions could have a significant impact on proved reserves and probable reserves recorded.

 

The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mines, and also for the estimated useful life which is a major factor to quantify the provision for asset retirement obligation and environmental rehabilitation of mines. Any change to the estimates of the volume of mine reserves and the useful life of assets may have significant impact on charges for depreciation, depletion and amortization recognized in the financial statements as cost of goods sold. Changes in estimated useful life of the mines could cause significant impact on the estimates of environmental provision and impairment analysis.

 

b)            Asset Retirement

 

The provision made by the Company refers basically to the cost of mine closure, upon the completion of mining activities and removal of assets related to mine. The provision is set up initially by recording long-term liabilities with a counter entry to property, plant and equipment. The long-term liabilities are subsequently carried at amortize cost, considering the original discount rate with changes registered against the income of the period, as interest expenses. The asset is depreciated on a straight line by useful life of the main asset, and recorded against income.

 

The Company considers the accounting estimates related to closure costs of a mine as a critical accounting policy because they involve significant values for the provision and are estimated using several assumptions, such as interest rate, inflation, useful life of the asset considering the current state of closure and the projected date of depletion of each mine. The estimates are reviewed annually.

 

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c)            Deferred income tax and social contribution

 

The Company recognizes the effects of deferred taxes arising from tax losses and temporary differences on its consolidated and Parent Company’s financial statements. It recognizes impairment where it believes that tax credits are not fully recoverable in the future.

 

The determination of the provision for income taxes or deferred income tax, assets and liabilities, and any impairment on tax credits requires estimates by the Company. For each future credit tax, the Company assesses the probability that part or all of the tax assets may not be recovered. The impairment made with respect to accumulated tax losses depends on the assessment of the Company on the probability of the generation of future taxable profits based on production and sales planning, commodity prices, operational costs, restructuring plans, reclamation costs and planned capital costs.

 

d)            Litigation loss

 

Provisions are recorded when the possibility of loss is considered probable by our legal department and legal advisors regarding legal processes and contingent liabilities.

 

The provisions are recorded when the amount of loss can be reasonably estimated. By their nature, contingencies will be resolved when one or more future event occurs or fails to occur. Typically, the occurrence of such events does not depend on our performance, which complicates the realization of precise estimates about the date on which such events are verified.

 

Assessing such liabilities, particularly in the uncertain Brazilian legal jurisdictions that the Company operates, environment and other jurisdictions, involves the exercise of significant estimates and judgments of management regarding the results of future events.

 

e)            Post retirement benefits for employees

 

The amount recognized and disclosed depend on a number of factors that are determined based on actuarial calculations using several assumptions in order to determine costs, liabilities, among others. One of the assumptions used in determining the amounts to be recorded in accounting is the discount rate. Any changes to these assumptions will affect the amount accounted.

 

The Company, together with external actuaries, reviews at the end of each year, the assumptions that should be used for the following year. These premises are used for upgrades and estimated of fair value of assets and liabilities, costs and expenses and determination of future values of estimated cash outflows, which are recorded in the plan obligations.

 

f)             Impairment

 

The Company tests impairment of tangible and intangible assets segregated by cash-generating units, usually using discounted cash flow that depends on several estimates, which are influenced by market conditions prevailing at the time the impairment test, is performed.

 

g)            Fair Value of derivatives and others financial instruments

 

Fair value of financial instruments not traded in active market is determined by using valuation techniques. Vale uses its own judgment to choose the various methods and assumptions and set which are based on market conditions, at the end of the year.

 

The analysis of the impacts, if actual results were different from management’s estimate, is presented in note 25(d) sensitivity analysis.

 

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4.             Accounting Standards

 

The Company prepared its consolidated financial statements under IFRS based on the standards issued by the Brazilian Accountant Standards Committee (“Comitê de Pronunciamentos Contábeis” or “CPC”) and approved by Securities and Exchange Commission of Brazil (“Comissão de Valores Mobiliários” or “CVM). The standards issued by the IASB, with adoption required for the years ending after December 31, 2012, but not approved by CVM, will not be adopted by the Company in advance.

 

a)                 Pronouncements, interpretations, guidelines or revisions approved by CVM for adoption prior to December 31, 2012

 

Considering the option as last amended by CPC 19 (R1) Investment in joint venture (JV), issued on August 4, 2011 and anticipating the consequences of CPC 18 (R2) - Investments in Associates, Subsidiaries and Colligates (correlative to IFRS 11), the Company, for purposes of the consolidated statements, no longer has participation in join venture by the proportional consolidation method and  decided to present their investment in these entities using equity method in the year of 2012.

Introducing the new policy as if it had always been adopted, apply the amendments retrospectively by adjusting the opening balances of the comparative periods.

 

b)                 Standards, interpretations or updates issued by the IASB for adoption after December 31, 2012

 

Investment Entities - In October 2012 the IASB issued an update statement to IFRS 10 - Consolidated Financial Statements, IFRS 12 - Disclosure of Interests in other Entities and IAS 27 - Separate Financial Statements, which, among other rules, defines the concept of entity investment and introduces an exception to the consolidation of subsidiaries for specific investment entities. The adoption of the updates will be applied from January 1, 2014 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance - In June 2012 the IASB issued an update statement to IFRS 10 - Consolidated Financial Statements, IFRS 11 - Joint Arrangements and IFRS 12 - Disclosure Of Interests In Other Entities, which, among other rules, clarifies issues on the date of adoption of IFRS 10 and aspects relating to the presentation of comparative information of IFRS 11 and IFRS 12. The adoption of the updates will be applied from January 1, 2013 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

Annual Improvements to IFRSs - In May 2012 the IASB issued updates consolidated annual for the year 2012. The updates represent changes not urgent, but necessary, to general pronouncements. The standard were affected: IFRS 1 - First-time Adoption of International Financial Reporting Standards, IAS 1 - Presentation of Financial Statements, IAS 16 - Property, Plant and Equipment, IAS 32 - Financial Instruments: Presentation and IAS 34 - Interim Financial Reporting. The adoption of the updates will be applied from January 1, 2013 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

Offsetting Financial Assets and Financial Liabilities - In December 2011 the IASB issued an update statement to IAS 32 - Financial Instruments: Presentation updated guide to applying this standard about the recognition of financial assets and liabilities on a gross and net. The adoption of required updates will be applied from January 1, 2014 and we are analyzing potential impacts regarding this update on our financial statements.

 

Mandatory Effective Date and Transition Disclosures - In December 2011 the IASB issued an update statement to IFRS 9 - Financial Instruments and IFRS 7 - Financial Instruments: Disclosures postponing the date of initial adoption of IFRS 9 and IFRS 7 updates have occurred in January 1, 2013 to January 1, 2015. Vale does not expect this change to take material impact on its financial statements.

 

IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine - In October 2011 the IASB issued IFRIC 20 which defines rules for the measurement and recognition of the costs of stripping of surface mine in production. The adoption of this interpretation will be applied from January 1, 2013 and Vale does not expect this interpretation produce relevant impacts on its financial statements.

 

IAS 19 - Employee Benefits - In June 2011 the IASB remitted the standard IAS 19 on employee benefits. Among the amendments, with the most significant highlight: (i) the exclusion of the possibility of using the “corridor method” - which allowed the actuarial gains and losses up to a maximum of 10% of the present value of the defined benefit obligation or Fair value of plan assets, whichever is higher, would be allocated to income over the average remaining working lives of the employees participating in the plan, (ii) the full recognition of actuarial gains and losses in Other Comprehensive Income and (iii) the financial revenue and expenditure plan shall be recognized on a net basis in the discount rate. The adoption of this standard will be required from January 1, 2013. Vale is quantifying the impact on financial statements.

 

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IFRS 10 - Consolidated Financial Statements - In May 2011 the IASB issued IFRS 10, which, among other changes, creates a specific statement to the consolidated financial statements, determines that the jointly-controlled companies will no longer be consolidated accounts for the aspects of the definition of control and significant influence and eliminates conflicts between this standard, IAS 28 and IAS 27. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those changes produce significant impacts on its financial statements.

 

IAS 28 - Investments in Associates and Joint Ventures - In May 2011 the IASB remitted the standard IAS 28 on investment related companies, which among other changes, equates the jointly-controlled companies and affiliates determines that investment in both is measured by equity method. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those changes produce significant impacts on its financial statements.

 

IAS 27 - Separate Financial Statements - In May 2011 the IASB remitted the standard IAS 27 on separate financial statements, which remains the only regulating separate statements and reflects updates introduced by IFRS 10 and IAS 28 remitted, which are the relevant separate statements. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those changes produce significant impacts on its financial statements.

 

IFRS 11 - Joint Arrangements - In May 2011 the IASB issued IFRS 11, standard on contracts together, which regulates the measurement, recognition and presentation of contracts and operating agreements together, specifically for cases where no constituting entities. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

IFRS 12 - Disclosure of Interests in Other Entities - In May 2011 the IASB issued IFRS 12 on the standard investments in entities that in general, determine the accounting treatment for investments in other entities, making references to IFRS 10, IFRS 11, IAS 28 remitted and IAS 27 remitted. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

IFRS 13 - Fair Value Measurement - In May 2011 the IASB issued IFRS 13 on fair value measurements which defines the fair value measurement applied in all cases where it is required and presents specific rules for the disclosure of fair value. The adoption of this standard will be applied from January 1, 2013 and Vale does not expect those upgrades produce significant impacts on its financial statements.

 

IFRS 9 - Financial Instruments - In October 2010 the IASB issued IFRS 9 standard that, among other things, amends and simplifies the criteria for recognizing and measuring financial assets and financial liabilities and some contracts to buy and sell non-financial assets. After update in December 2011, the adoption of the statement will be required from January 1, 2015 and is still worth analyzing potential impacts regarding this update on its financial statements.

 

For all statements, interpretations and updates above were issued and approved, or are in the process of issuing and approval by the CVM, with the same dates of adoption.

 

c)                  Standards, interpretations, guidelines or revisions approved by the CVM for adoption after December 31, 2012

 

CPC 46 - Fair Value Measurements - In December 2012, the CVM approved CPC 46 about Fair Value Measurements, substantially correlated with IFRS 13.

 

CPC 36(R3) - Consolidated Financial Statements- In December 2012, the CVM approved the revisions to the standard CPC 36 about consolidated financial statements, substantially correlated with IFRS 10.

 

CPC 45 - Disclosure of Interests in other Entities - In December 2012, the CVM approved CPC 45 about disclosure of interests in other entities, substantially correlated with IFRS 12.

 

CPC 18(R2) — Investments in Associates, Subsidiaries and Joint Venture - In December 2012, the CVM approved the revisions to the standard CPC 18 about investments in associates and joint ventures, making it substantially correlated with the updated IAS 28.

 

CPC 33(R1) — Employee Benefits- In December 2012, the CVM approved the revisions to the standard CPC 33 about employee benefits, substantially correlated with IAS 19.

 

CPC 19(R2) — Business Combination- In November 2012, the CVM approved the revisions to the standard CPC 19 about Business Combination, substantially correlated with IFRS 11.

 

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5.         Risk Management

 

Vale considers that an effective risk management is a key objective to support its growth plan, strategic planning and financial flexibility. Therefore, Vale has developed its risk management strategy in order to provide an integrated approach of the risks the company is exposed to. To do that, Vale evaluates not only the impact in the results of the business caused by variables traded in financial markets (market risk), but also the risk from counterparties obligations (credit risk), those relating to inadequate or failed internal processes, people, systems or external events (operational risk), those arising from liquidity risk, among others.

 

a)    Risk management policy

 

The Board of Directors established a risk management policy in order to support the company’s growth plan, strategic planning and business continuity, to improve its capital structure and assets management, to ensure flexibility and strength in financial management and to strengthen its corporate governance practices.

 

The corporate risk management policy determines that Vale should measure and monitor regularly its corporate risk on a consolidated approach in order to guarantee that the overall risk level of the Company remains aligned with the guidelines defined by the Board of Directors and the Executive Board.

 

The Executive Risk Management Committee, created by the Board of Directors, is responsible for supporting the Executive Board in the risk assessments and for issuing opinion regarding the Company’s risk management. It’s also responsible for the supervision and revision of the principles and instruments of corporate risk management.

 

The Executive Board is responsible for the approval of the policy deployment into norms, rules and responsibilities and for reporting to the Board of Directors about such procedures.

 

The risk management norms and instructions complement the corporate risk management policy and define practices, processes, controls, roles and responsibilities in the Company regarding risk management.

 

The Company may, when necessary, allocate specific risk limits to management activities, including but not limited to, market risk limit, corporate and sovereign credit limit, in accordance with the acceptable corporate risk limit.

 

b)    Liquidity risk management

 

The liquidity risk arises from the possibility that Vale might not perform its obligations on due dates, as well as face difficulties to meet its cash requirements due to market liquidity constraints.

 

To mitigate such risk, Vale has a revolving credit facility to assist the short term liquidity management and to enable more efficiency in cash management, being consistent with the strategic focus on cost of capital reduction. The revolving credit facility available today was acquired from a syndicate of several global commercial banks.

 

c)     Credit risk management

 

Vale’s credit risk arises from potential negative impacts in its cash flows due to uncertainty in the ability of counterparties to meet their contractual obligations. To manage that risk, Vale has procedures and processes, such as the controlling of credit limits, the obligation of exposure diversification through several counterparties and the monitoring of the portfolio’s credit risk.

 

Vale’s counterparties can be divided into three main categories: the customers, responsible by obligations regarding receivables from payment term sales; financial institutions with whom Vale keeps its cash investments or negotiates derivatives transactions; and suppliers of equipment, products and services in the case of payments in advance.

 

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( )            Commercial Credit Risk Management

 

For the commercial credit exposure, which arises from sales to final customers, the risk management department, in accordance with the current delegation level, approves or request the approval of credit risk limits for each counterpart. Besides that, the Executive Board sets annually global commercial credit risk limits for the customer’s portfolio. The approved global limit and the working capital cost inbuilt on this limit are monitored on a monthly basis.

 

Vale attributes an internal credit risk rating for each counterparty using its own quantitative methodology for credit risk analysis, based on three main sources of information: i) Expected Default Frequency (EDF) provided by KMV (Moody’s); ii) credit ratings from the main international credit agencies; iii) customer financial statements from which financial ratios are built.

 

On 31 December 2012, 83% of accounts receivable due to Vale commercial sales had low or insignificant risk, 14% had moderate risk and only 3% high risk.

 

Whenever considered necessary, the quantitative credit risk analysis is complemented by a qualitative analysis which takes into consideration the payment history of that counterparty, its commercial relationship with Vale and the customer’s strategic position in its economic sector, among others variables.

 

Based on the counterparty’s credit risk or based on Vale´s consolidated credit risk profile, risk mitigation strategies are used to minimize the Company`s credit risk in order to meet the acceptable level of risk approved by the Executive Board. The main credit risk mitigation strategies used by the Company are credit insurance, mortgage, letter of credit and corporate guarantees, among others.

 

Vale has a well-diversified accounts receivable portfolio from a geographical standpoint, being China, Europe, Brazil and Japan the regions with more significant exposures. According to each region, different guarantees can be used to enhance the credit quality of the receivables.

 

Vale controls its account receivables portfolio through Credit and Cash Collection committees, in which representatives from risk management, cash collection and commercial departments monitor periodically each counterparty`s position. Finally, Vale has an automatic control that blocks additional sales to customers in default.

 

(i)            Treasury Credit Risk Management

 

The management of exposure arising from cash investments and derivatives instruments is realized through the following procedures: annual approval by the Executive Board of the credit limits by counterparty, controls of portfolio diversification, counterparties` credit spread variations and the treasury portfolio overall credit risk. There’s also a monitoring of all positions, exposure versus limit control and periodic report to the Executive Risk Management Committee.

 

The calculation of the exposure to a counterparty that has several derivative transactions with Vale it`s considered the sum of exposures of each derivative acquired with this counterparty. The exposure for each derivative is defined as the future value calculated within the life of the derivative, considering the variation of the market risk factors that affect the value of the derivative instrument.

 

Vale also assess the creditworthiness of its counterparties in treasury operations following an internal methodology similar to  commercial credit risk management that aims to define a default probability for each counterparty.

 

Depending on the counterparty’s nature (banks, insurance companies, countries or corporations), different inputs will be considered: i) expected default probability given by KMV; ii) CDS (Credit Default Swaps) and bond market spreads; iii) credit ratings defined by the main international rating agencies; iv) financial statements data and indicators analysis.

 

·      Market risk management

 

Vale is exposed to the behavior of various market risk factors that can impact its cash flow. The assessment of this potential impact arising from the volatility of risk factors and their correlations is performed periodically to support the decision making process and the growth strategy of the Company, ensure its financial flexibility and monitor the volatility of future cash flows.

 

When necessary, market risk mitigation strategies are evaluated and implemented in line with these objectives. Some strategies may incorporate financial instruments, including derivatives. The portfolios of the financial instruments are monitored on a monthly basis, enabling financial results surveillance and its impact on cash flow, and ensuring strategies adherence to the proposed objectives.

 

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Considering the nature of Vale’s business and operations, the main market risk factors which the Company is exposed to are:

 

· Interest rates;

· Foreign exchange;

· Product prices and input costs.

 

(ii)           Foreign exchange and interest rate risk

 

The company’s cash flow is subjected to volatility of several currencies, once its product prices are predominantly indexed to US dollar, while most of the costs, disbursements and investments are indexed to other currencies, mainly Brazilian real and Canadian dollar.

 

In order to reduce the potential impact that arises from this currency mismatch, derivatives instruments can be used as a risk mitigation strategy.

 

In the case of cash flow foreign exchange protection regarding revenues, costs, disbursements and investments, the main risk mitigation strategies used are forwards and swaps.

 

Vale implemented hedge transactions to protect its cash flow against the market risks that arises from its debt obligations — mainly currency volatility. We use swap transactions to convert debt linked to Brazilian real and Euros into US dollar that have similar - or sometimes shorter - settlement dates than the final maturity of the debt instruments. Their notional amounts are similar to the principal and interest payments, subjected to liquidity market conditions.

 

Swaps with shorter settlement dates are renegotiated through time so that their final maturity matches - or becomes closer - to the debts` final maturity. At each settlement date, the results of the swap transactions partially offset the impact of the foreign exchange rate in Vale’s obligations, contributing to stabilize the cash disbursements in US dollar.

 

In the case of debt instruments denominated in Brazilian real, in the event of an appreciation (or depreciation) of the Brazilian Real against the US Dollar, the negative (or positive) impact on Vale`s debt service (interest and/or principal payment) measured in US dollars will be partially offset by the positive (or negative) effect from the swaps, regardless of the US$/R$ exchange rate on the payment date. The same rationale is applicable to debts denominated in other currencies and their respective swaps.

 

Vale has also exposure to interest rates risks over loans and financings. The US Dollar floating rate debt in the portfolio consists mainly of loans including export pre-payments, commercial banks and multilateral organizations loans. In general, such debt instruments are indexed to the LIBOR (London Interbank Offer Rate in US dollar). Considering the impact of interest rate volatility on the cash flow, Vale observes the potential natural hedges effects between US Dollar floating rates and commodities prices in the decision process of acquiring financial instruments.

 

(iii)         Risk of product and Input prices

 

Vale is also exposed to market risks regarding commodities prices and input volatilities. In accordance with risk management policy, risk mitigation strategies involving commodities can be used to adjust the cash flow risk profile and reduce Vale’s cash flow volatility. For this kind of risk mitigation strategy, Vale uses predominantly forwards, futures or zero-cost collars.

 

·      Operational risk management

 

The operational risk management is the structured approach that Vale uses to manage uncertainty related to possible inadequate or failure in internal processes, people, systems and external events.

 

Thus, the operational risk mitigation is performed by creating new controls and improving the existing ones, new mitigation plans, as well as the risk transferring through insurance.  Therefore, the Company seeks to have a clear view of its major risks, of the best cost-benefit mitigation plans and of the controls in place, monitoring the potential impact of operational risk and allocating capital efficiently.

 

·      Capital Management

 

The Company’s policy aims, to manage its capital, to seek a structure that will ensure the continuity of your business in the long term. Within this perspective, the Company has been able to deliver value to stockholders through dividend payments and capital gain, and at the same time maintain a debt profile suitable for its activities, with an amortization well distributed over the years, on average 10 years, thus avoiding a concentration in one specific period.

 

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·                  Insurance

 

Vale hires several types of insurance, such as operational risks insurance, civil responsibility, engineering risks insurance (projects), life insurance policy for their employees, among others. The coverage of these policies is similar to the ones used in general by the mining industry and is contracted in line with the objectives defined by the Company, with the corporate risk management policy and the limitation imposed by the insurance and reinsurance global market.

 

Insurance management is performed with the support of existing insurance committees in the various operational areas of the Company. Among the management instruments, Vale uses captive reinsurance companies that allows to contract insurances on a competitive basis as well as direct access to key international markets of insurance and reinsurance.

 

6.                                      Acquisitions and Divestitures

 

a)                                     Belvedere Coal Project

 

In 2012 Vale conclude the purchase option on additional 24.5% participation in the Belvedere Coal Project owned by Aquila Resources Limited (“Aquila”) in the amount of AUD 150 million (R$318).

 

The acquisition is subject to approvals from the government of Queensland, Australia. As a result of this transaction, Vale will increase its participation in Belvedere to 100%. Additionally, Vale agreed to pay AUD 20 million (R$42) to end litigations and disputes relating to the Belvedere with Aquila.

 

The project is still in stage of development and, consequently, subject to approval of the Board of Directors of Vale. At the end of transaction, Vale will have paid US$338 million (R$691) for 100% of Belvedere.

 

b)                                     Fertilizer Business

 

In 2010, through our wholly owned subsidiary Mineração Naque S.A. (“Naque”), we acquired 78.92% of the total capital (being 99.83% of the voting capital) of Vale Fertilizantes S.A. and 100% of the total capital of Vale Fosfatados. In 2011 and beginning of 2012, we concluded several transactions including a public offer to acquire the free floating of Vale Fertilizantes S.A. and its delisting which resulted in the current ownership of 100% of the total capital of this subsidiary.

 

The purchase consideration of the business combination effected in 2010, when control was obtained, amounted to R$10,696. The purchase price allocation exercise was concluded in 2011 and generated a deferred tax liability on the fair value adjustments, determined based on the temporary differences between the accounting basis of those assets and liabilities at fair  values and their tax basis represented by the historical carrying values at the acquired entity. According to current Brazilian tax regulations, goodwill generated in connection with a business combination as well as the fair values of assets and liabilities acquired are only tax deductible post a legal merger between the acquirer and the acquired.

 

In June 2012, we have decided to legally merge Naque and Vale Fertilizantes. As a result, the carrying amounts of acquired assets and liabilities accounted for at Naque’s consolidated financial statements, represented by their amortized fair values from acquisition date, became their tax basis. Therefore, upon concluding the merger, there are no longer differences between tax basis and carrying amounts of the net assets acquired, and consequently there is no longer deferred tax liability amount to be recognized. The outstanding balance of the initially recognized deferred tax liability (accounted for in connection with the purchase accounting) totaling R$2,533 was entirely recycled through P&L for the year ended December 31, 2012, in connection with the legal merger of Vale Fertilizantes into Naque.

 

In addition, Naque was then renamed as Vale Fertilizantes S.A.

 

c)                                      Sale of coal

 

In June 2012, we have concluded the sale of our thermal coal operations in Colombia to CPC S.A.S., an affiliate of Colombian Natural Resources S.A.S. (“CNR”), a privately held company.

 

The thermal coal operations in Colombia constitute a fully-integrated mine-railway-port system consisting of a coal mine and a coal deposit; a coal port facility; and an equity participation in a railway connecting the coal mines to the port.

 

The loss on this transaction, of R$ 722 was recorded in the Statement of income in the line “Gain (loss) on sale of assets”

 

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d)                                     Acquisition of EBM shares

 

Continuing the process of optimization its corporate structure, during the second quarter 2012 Vale acquired additional 10.46% of Empreendimentos Brasileiros de Mineração S. A. (“EBM”), whose main asset is the participation in Minerações Brasileiras Reunidas S. A. (“MBR”), which owns mines sites Itabirito, Vargem Grande and Paraopeba. As a result of the acquisition, we increased our share of the capital of EBM to 96.7% and of MBR to 98.3%, and the amount of R$500 are recognized as a result from operations with non-controlling interest in “Stockholders Equity”.

 

e)                                      Manganese and ferroalloys

 

In October 2012, we have concluded the sale of the manganese ferroalloys operations in Europe to subsidiaries of Glencore International Plc., a company listed on the London and Hong Kong Stock Exchanges, for US$160 million (R$318) in cash, subject to the fulfillment of certain precedent conditions. We recognized a loss of US$ 22 million (R$45) presented in our statement of income as “gain (loss) on sale of assets”.

 

The manganese ferroalloys operations in Europe consist of: (a) 100% of Vale Manganèse France SAS, located in Dunkerque, France; and (b) 100% of Vale Manganese Norway AS, located in Mo I Rana, Norway.

 

f)                                       Participation of Vale Oman Pelletizing

 

In October 2012, Vale sold 30% of participation in Vale Oman Pelletizing LLC for the Oman Oil Company, wholly owned subsidiary of the Government of the Sultanate of Oman, for US$71 million (R$145). We recognized a gain of US$63 million (R$129) recorded in Stockholder’s Equity.

 

7 -                                Cash and Cash Equivalents

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Cash and bank accounts

 

2,440

 

1,770

 

933

 

36

 

177

 

Short-term investments

 

9,478

 

4,823

 

11,703

 

652

 

398

 

 

 

11,918

 

6,593

 

12,636

 

688

 

575

 

 

Cash and cash equivalents includes cash values, demand deposits, and financial investments with insignificant risk of changes in value, being part Brazilian Reais indexed at the rate of Brazilian interbank certificates of deposit (“DI Rate”or”CDI”)  and part in US Dollars in time deposits with a maturity of less than three months.

 

The increase in cash equivalents during the 2012, is mainly related to the cash provided by operating activities and the notes issued during 2012 (note 17).

 

8 -                                Short-term investment

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Short-term investments

 

506

 

 

2,987

 

43

 

 

 

This includes the financial investments in low risk investments with a maturity of between 91 and 360 days, classified as a financial asset fair value through profit or loss (note 22).

 

9 -                                  Accounts Receivables

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Denominated in reais “brazilian Reais”

 

1,734

 

2,295

 

2,044

 

1,519

 

2,238

 

Denominated in other currencies, mainly US$

 

12,384

 

13,791

 

11,833

 

20,434

 

13,698

 

 

 

14,118

 

16,086

 

13,877

 

21,953

 

15,936

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

(233

)

(197

)

(196

)

(114

)

(127

)

 

 

13,885

 

15,889

 

13,681

 

21,839

 

15,809

 

 

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Accounts receivables related to the steel industry market represent 71,26% and 67.9%, of receivables on December 31, 2012 and December 31, 2011, respectively.

 

No one customer represents over 10% of receivables or revenues.

 

The loss estimates for credit losses recorded in income as at December 31, 2012 and December 31, 2011 totaled R$70 and R$3, respectively. Write offs as at December 31, 2012, and December 31, 2011 totaled R$34 and R$2, respectively.

 

10 -                         Inventory

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Inventories of products

 

 

 

 

 

 

 

 

 

 

 

Finished

 

4,575

 

4,881

 

2,976

 

2,080

 

2,170

 

In process

 

2,776

 

2,569

 

1,613

 

 

 

 

 

7,351

 

7,450

 

4,589

 

2,080

 

2,170

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories of spare parts and maintenance supplies

 

2,969

 

2,383

 

2,572

 

1,203

 

1,013

 

Total

 

10,320

 

9,833

 

7,161

 

3,283

 

3,183

 

 

On December 31, 2012, Inventories included provisions to adjustment in manganese, nickel e copper products amounting to R$0, R$6 and R$6 (on December 31, 2011 R$16, R$ 27 and R$ 0), respectively.

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Changes in the inventory

 

 

 

 

 

Balance on begin of year

 

7,450

 

4,609

 

Addition

 

43,635

 

40,105

 

Transfer on maintenance supplies

 

8,341

 

6,276

 

Write-off by sale

 

(51,997

)

(42,451

)

Write-off by inventory adjustment

 

 

(1,051

)

(write-off) by lower cost or market adjustment

 

(78

)

(38

)

Balance on ended of year

 

7,351

 

7,450

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Changes in the inventory

 

 

 

 

 

Balance on begin of year

 

2,170

 

1,535

 

Addition

 

20,486

 

18,700

 

Transfer on maintenance supplies

 

3,730

 

3,181

 

Write-off by sale

 

(24,245

)

(20,958

)

Write-off by inventory adjustment

 

 

(261

)

Write-off by lower cost or market adjustment

 

(61

)

(27

)

Balance on ended of year

 

2,080

 

2,170

 

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Changes on Inventory of consumable materials

 

 

 

 

 

Balance on begin of year

 

2,383

 

2,563

 

Addition

 

8,927

 

6,096

 

Consumption

 

(8,341

)

(6,276

)

Balance on ended of year

 

2,969

 

2,383

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Changes on Inventory of consumable materials

 

 

 

 

 

Balance on begin of year

 

1,013

 

782

 

Addition

 

3,920

 

3,412

 

Consumption

 

(3,730

)

(3,181

)

Balance on ended of year

 

1,203

 

1,013

 

 

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11 -                          Non-current assets and liabilities held for sale

 

In December 2012, we have signed with Petróleo Brasileiro S.A. (Petrobras) an agreement to sell Araucária, operation for production of nitrogens, located in Araucária, in the Brazilian state of Paraná, for US$234 million (R$478). The purchase price will be paid by Petrobras through installments accrued quarterly, adjusted by 100% of the Brazilian Interbank Interest rate (CDI), in amounts equivalent to the royalties due by Vale related to the leasing of potash assets and mining of Taquari-Vassouras and of the Carnalita project.

 

At December 31, 2012 this assets are recognized in Assets Held for Sale, in the subgroup property, plant and equipment.

 

 

 

December 31, 2012

 

Assets held for sale

 

 

 

Accounts receivable

 

29

 

Recoverable taxes

 

42

 

Inventories

 

41

 

Property, plant and equipment

 

794

 

Other

 

29

 

Total

 

935

 

 

 

 

 

Liabilities related to assets held for sale

 

 

 

Suppliers

 

24

 

Deferred income tax

 

225

 

Others

 

78

 

Total

 

327

 

 

12                               Recoverable Taxes

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Income tax

 

2,371

 

1,496

 

765

 

168

 

169

 

Value-added tax

 

2,090

 

1,913

 

806

 

1,056

 

731

 

Brazilian Federal Contributions (PIS - COFINS)

 

1,370

 

1,768

 

 

1,014

 

1,536

 

Others

 

132

 

110

 

1,701

 

88

 

82

 

Total

 

5,963

 

5,287

 

3,272

 

2,326

 

2,518

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

4,620

 

4,190

 

2,671

 

2,071

 

2,317

 

Non-current

 

1,343

 

1,097

 

601

 

255

 

201

 

Total

 

5,963

 

5,287

 

3,272

 

2,326

 

2,518

 

 

32



Table of Contents

 

GRAPHIC

 

13                                Investments

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Balance on begin of year

 

14,984

 

7,321

 

Additions

 

892

 

7,357

 

Disposals

 

(62

)

(8

)

Cumulative translation adjustment

 

1,087

 

443

 

Equity

 

1,241

 

1,851

 

Valuation Adjustment

 

66

 

(28

)

Dividends declared

 

(1,162

)

(1,952

)

Impairment

 

(4,002

)

 

Balance on ended of year

 

13,044

 

14,984

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Balance on begin of year

 

113,150

 

92,111

 

Additions

 

7,334

 

6,284

 

Disposals

 

(1,252

)

(579

)

Cumulative translation adjustment

 

8,432

 

8,168

 

Equity

 

749

 

9,996

 

Valuation Adjustment

 

(1,105

)

(765

)

Dividends declared

 

(1,461

)

(2,065

)

Impairment

 

(1,976

)

 

Balance on ended of year

 

123,871

 

113,150

 

 

33


 


Table of Contents

 

GRAPHIC

 

Investments (Continued)

 

 

 

Investments

 

Equity results

 

Received dividends

 

 

 

As of

 

Year ended

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

Subsidiaries and affiliated companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and indirect subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aços Laminados do Pará S.A.

 

319

 

266

 

85

 

(7

)

(48

)

 

 

ALBRAS - Alumínio Brasileiro S.A. (a)

 

 

 

1,088

 

 

 

 

 

ALUNORTE - Alumina do Norte do Brasil S.A. (a)

 

 

 

2,732

 

 

 

 

 

Balderton Trading Corp

 

326

 

341

 

313

 

(46

)

(28

)

 

 

Biopalma da Amazonia S.A. (a)

 

349

 

442

 

 

(115

)

(37

)

 

 

Companhia Portuária da Baía de Sepetiba - CPBS

 

454

 

350

 

347

 

231

 

152

 

126

 

155

 

Compañia Minera Miski Mayo S.A.C (a)

 

528

 

446

 

356

 

66

 

6

 

 

 

Ferrovia Centro-Atlantica S.A. (a)

 

2,926

 

2,359

 

1,916

 

(190

)

(136

)

 

 

Ferrovia Norte Sul S.A.

 

1,717

 

1,740

 

1,743

 

(23

)

(4

)

 

3

 

Mineração Corumbaense Reunida S.A.

 

1,365

 

1,113

 

913

 

266

 

297

 

93

 

 

Mineração Paragominas S.A.

 

 

 

1,813

 

 

 

 

 

Minerações Brasileiras Reunidas S.A. - MBR (b)

 

4,538

 

3,792

 

3,291

 

224

 

230

 

258

 

 

Potasio Rio Colorado S.A. (a)

 

6,016

 

2,776

 

1,736

 

(31

)

(72

)

 

 

Rio Doce Australia Pty Ltd.

 

(36

)

752

 

1,157

 

(2,080

)

(507

)

 

 

Salobo Metais S.A. (a)

 

6,343

 

4,625

 

3,271

 

(208

)

19

 

 

 

Sociedad Contractual Minera Tres Valles (a)

 

460

 

432

 

394

 

(95

)

(76

)

 

 

SRV Reinsurance Company S.A.

 

1,248

 

837

 

177

 

24

 

(184

)

 

 

Vale International Holdings GMBH (b)

 

8,193

 

7,849

 

1,626

 

(2,124

)

1,036

 

 

 

Vale Canada Holdings

 

1,000

 

902

 

899

 

(22

)

(23

)

 

 

Vale Canada Limited (b)

 

11,809

 

9,746

 

8,992

 

(2,602

)

(215

)

 

 

Vale Colombia Holding Ltd. (f)

 

 

1,183

 

826

 

(64

)

18

 

 

 

Vale Fertilizantes S.A. (e)

 

 

10,735

 

6,055

 

(53

)

203

 

 

 

Vale Fertilizantes S.A. (antiga Mineração Naque S.A.) (a) (b)

 

13,602

 

1,921

 

4,932

 

2,417

 

(92

)

 

 

Vale International S.A. (b)

 

35,762

 

38,820

 

35,977

 

3,788

 

8,105

 

 

 

Vale Manganês S.A.

 

687

 

717

 

890

 

(29

)

25

 

1

 

382

 

Vale Mina do Azul S.A.

 

203

 

154

 

 

49

 

13

 

 

 

Vale Emirates Limited

 

5,886

 

771

 

326

 

(257

)

(438

)

 

 

Vale Shipping Holding Pte. Ltd.

 

5,118

 

3,944

 

1,245

 

226

 

55

 

 

 

VBG Vale BSGR Limited (a)

 

869

 

757

 

833

 

(130

)

(175

)

 

 

VLI Multimodal S.A. (a) (b)

 

607

 

206

 

174

 

65

 

33

 

 

 

Others

 

538

 

190

 

683

 

56

 

(18

)

95

 

55

 

 

 

110,827

 

98,166

 

84,790

 

(664

)

8,139

 

573

 

595

 

Direct and indirect affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

California Steel Industries, INC

 

342

 

301

 

258

 

29

 

21

 

19

 

11

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

219

 

208

 

208

 

50

 

55

 

40

 

54

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

213

 

214

 

212

 

73

 

34

 

74

 

32

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

130

 

150

 

143

 

16

 

78

 

36

 

71

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

364

 

372

 

333

 

42

 

75

 

51

 

36

 

CSP- Companhia Siderugica do PECEM

 

1,020

 

499

 

30

 

(13

)

(6

)

 

 

Henan Longyu Energy Resources CO., LTD.

 

697

 

529

 

416

 

113

 

140

 

107

 

 

LOG-IN - Logística Intermodal S/A (c)

 

192

 

212

 

224

 

(18

)

(12

)

 

 

Mineração Rio Grande do Norte S.A. - MRN

 

277

 

248

 

236

 

42

 

13

 

14

 

 

MRS Logística S.A.

 

1,197

 

1,028

 

851

 

236

 

219

 

119

 

92

 

Norsk Hydro ASA (d)

 

4,572

 

6,029

 

 

(77

)

160

 

95

 

84

 

Norte Energia S.A.

 

246

 

137

 

 

(5

)

 

 

 

Samarco Mineração S.A.

 

1,288

 

745

 

676

 

1,247

 

1,453

 

373

 

1,384

 

Teal Minerals (Barbados) Incorporated

 

516

 

437

 

150

 

(9

)

(9

)

 

 

Tecnored Desenvolvimento Tecnologico S.A. (a)

 

79

 

86

 

66

 

(42

)

(13

)

 

 

Thyssenkrupp CSA Companhia Siderúrgica do Atlântico

 

1,092

 

3,003

 

3,065

 

(327

)

(309

)

 

 

Vale Florestar Fundo de Investimento em participações

 

224

 

227

 

235

 

(3

)

(8

)

 

 

Vale Soluções em Energia S.A.

 

146

 

272

 

199

 

(110

)

(28

)

 

 

Zhuhai YPM Pellet Co

 

48

 

43

 

42

 

1

 

 

 

 

Others

 

182

 

244

 

(23

)

(4

)

(6

)

4

 

2

 

 

 

13,044

 

14,984

 

7,321

 

1,241

 

1,857

 

932

 

1,766

 

 

 

123,871

 

113,150

 

92,111

 

577

 

9,996

 

1,505

 

2,361

 

 


(a) Investment balance includes the values of advances for future capital increase;

(b) Excluded from equity, investment companies already detailed in note;

(c) Market value on December 31, 2012 was R$246 and on December 31, 2011 was R$ 197; and

(d) Avaiable for market;

(e) Incorporated in Vale Fertilizantes S.A. (old Mineração Naque S.A.)

(f) Company sold in June 2012

 

Dividends received by the Parent company during the year ended at December 31, 2012 and 2011 was R$1,190 and R$2.196, respectively.

 

34



Table of Contents

 

GRAPHIC

 

 

 

December 31, 2012

 

December 31,
2011

 

 

 

Total %

 

Voting %

 

Assets

 

Liabilities

 

Adjusted
stockholders

equity (*)

 

Adjusted
operating
results (*)

 

Adjusted net
income for the
year (*)

 

Adjusted net
income for the
year (*)

 

Subsidiaries and affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and indirect subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aços Laminados do Pará S.A.

 

100.00

 

100.00

 

318

 

(1

)

319

 

(6

)

(7

)

(48

)

Balderton Trading Corp

 

100.00

 

100.00

 

413

 

87

 

326

 

(44

)

(46

)

(28

)

Biopalma da Amazonia S.A.

 

70.00

 

70.00

 

1,372

 

883

 

489

 

(79

)

(165

)

(53

)

Companhia Portuária da Baía de Sepetiba - CPBS

 

100.00

 

100.00

 

572

 

118

 

454

 

352

 

231

 

152

 

Compañia Minera Miski Mayo S.A.C

 

40.00

 

51.00

 

1,682

 

432

 

1,250

 

230

 

165

 

15

 

Ferrovia Centro-Atlantica S.A.

 

99.99

 

99.99

 

3,289

 

363

 

2,926

 

(191

)

(190

)

(136

)

Ferrovia Norte Sul S.A.

 

100.00

 

100.00

 

1,883

 

166

 

1,717

 

(17

)

(23

)

(4

)

Mineração Corumbaense Reunida S.A.

 

100.00

 

100.00

 

2,159

 

794

 

1,365

 

344

 

266

 

297

 

Minerações Brasileiras Reunidas S.A. - MBR

 

98.32

 

98.32

 

6,357

 

956

 

5,401

 

268

 

370

 

392

 

Potasio Rio Colorado S.A.

 

100.00

 

100.00

 

4,815

 

339

 

4,476

 

(22

)

(31

)

(72

)

Rio Doce Australia Pty Ltd.

 

100.00

 

100.00

 

4,673

 

4,482

 

191

 

(2,893

)

(2,080

)

(507

)

Salobo Metais S.A.

 

100.00

 

100.00

 

7,406

 

1,063

 

6,343

 

(271

)

(208

)

19

 

Sociedad Contractual Minera Tres Valles

 

90.00

 

90.00

 

652

 

197

 

455

 

(101

)

(106

)

(84

)

SRV Reinsurance Company S.A.

 

100.00

 

100.00

 

1,638

 

390

 

1,248

 

11

 

24

 

(184

)

Vale International Holdings GMBH

 

100.00

 

100.00

 

104,250

 

7,412

 

96,838

 

(2,191

)

(1,317

)

1,036

 

Vale Canada Holdings

 

100.00

 

100.00

 

29,958

 

28,958

 

1,000

 

(9

)

(22

)

(23

)

Vale Canada Limited

 

100.00

 

100.00

 

69,102

 

53,161

 

15,941

 

(1,393

)

(2,573

)

(194

)

Vale Fertilizantes S.A. (Antiga Mineração Naque S.A.)

 

100.00

 

100.00

 

24,741

 

3,266

 

21,475

 

(142

)

2,399

 

130

 

Vale International S.A.

 

100.00

 

100.00

 

141,523

 

59,029

 

82,494

 

2,223

 

1,050

 

7,796

 

Vale Manganês S.A.

 

100.00

 

100.00

 

929

 

242

 

687

 

51

 

(29

)

25

 

Vale Mina do Azul S.A.

 

100.00

 

100.00

 

460

 

257

 

203

 

100

 

49

 

13

 

Vale Emirates Limited

 

100.00

 

100.00

 

6,437

 

551

 

5,886

 

(283

)

(257

)

(438

)

Vale Shipping Holding Pte. Ltd.

 

100.00

 

100.00

 

5,307

 

189

 

5,118

 

84

 

226

 

55

 

VBG Vale BSGR Limited

 

51.00

 

51.00

 

3,815

 

2,282

 

1,533

 

(129

)

(255

)

(343

)

VLI Multimodal S.A.

 

100.00

 

100.00

 

4,981

 

89

 

4,892

 

95

 

(143

)

(118

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and indirect affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

California Steel Industries, INC

 

50.00

 

50.00

 

1,457

 

774

 

683

 

95

 

58

 

42

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

50.00

 

50.00

 

471

 

34

 

437

 

138

 

100

 

109

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

50.89

 

51.00

 

506

 

87

 

419

 

78

 

143

 

66

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

50.90

 

51.00

 

324

 

69

 

255

 

42

 

31

 

153

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

51.00

 

51.11

 

814

 

101

 

713

 

108

 

83

 

148

 

CSP- Companhia Siderugica do PECEM

 

50.00

 

50.00

 

2,171

 

132

 

2,039

 

(41

)

(27

)

(12

)

Henan Longyu Energy Resources CO., LTD.

 

25.00

 

25.00

 

3,322

 

532

 

2,790

 

583

 

453

 

561

 

LOG-IN - Logística Intermodal S/A

 

31.33

 

31.33

 

1,831

 

1,257

 

574

 

23

 

(54

)

(35

)

Mineração Rio Grande do Norte S.A. - MRN

 

40.00

 

40.00

 

2,043

 

1,350

 

693

 

192

 

104

 

33

 

MRS Logística S.A.

 

47.59

 

46.75

 

6,245

 

3,730

 

2,515

 

756

 

502

 

524

 

Norte Energia S.A.

 

9.00

 

9.00

 

7,463

 

4,734

 

2,729

 

(66

)

(47

)

 

Samarco Mineração S.A.

 

50.00

 

50.00

 

10,272

 

7,696

 

2,576

 

3,393

 

2,493

 

2,906

 

Teal Minerals (Barbados) Incorporated

 

50.00

 

50.00

 

1,962

 

931

 

1,031

 

(11

)

(18

)

(18

)

Tecnored Desenvolvimento Tecnologico S.A.

 

49.21

 

49.21

 

164

 

11

 

153

 

(86

)

(86

)

(22

)

Thyssenkrupp CSA Companhia Siderúrgica do Atlântico

 

26.87

 

26.87

 

16,334

 

5,558

 

10,776

 

(978

)

(1,217

)

(1,150

)

Vale Soluções em Energia S.A.

 

53.13

 

53.13

 

457

 

183

 

274

 

(523

)

(532

)

(52

)

Zhuhai YPM Pellet Co

 

25.00

 

25.00

 

353

 

160

 

193

 

6

 

6

 

 

 


(*) Matches the individual contribution of each entity in consolidated

 

35



Table of Contents

 

GRAPHIC

 

14 -         Intangible Assets

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Cost

 

Amortization

 

Net

 

Cost

 

Amortization

 

Net

 

Cost

 

Amortization

 

Net

 

Indefinite useful lifetime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

9,407

 

 

9,407

 

8,990

 

 

8,990

 

8,654

 

 

8,654

 

 

 

9,407

 

 

9,407

 

8,990

 

 

8,990

 

8,654

 

 

8,654

 

Finite useful lifetime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concession and subconcession

 

10,981

 

(3,307

)

7,674

 

9,997

 

(2,813

)

7,184

 

9,449

 

(2,936

)

6,513

 

Right to use

 

732

 

(113

)

619

 

1,133

 

(80

)

1,053

 

1,101

 

(48

)

1,053

 

Others

 

2,504

 

(1,382

)

1,122

 

1,682

 

(1,120

)

562

 

1,465

 

(856

)

609

 

 

 

14,217

 

(4,802

)

9,415

 

12,812

 

(4,013

)

8,799

 

12,015

 

(3,840

)

8,175

 

Total

 

23,624

 

(4,802

)

18,822

 

21,802

 

(4,013

)

17,789

 

20,669

 

(3,840

)

16,829

 

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Cost

 

Amortization

 

Net

 

Cost

 

Amortization

 

Net

 

Indefinite useful lifetime

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

9,407

 

 

9,407

 

8,990

 

 

8,990

 

 

 

9,407

 

 

9,407

 

8,990

 

 

8,990

 

Finite useful lifetime

 

 

 

 

 

 

 

 

 

 

 

 

 

Concession and subconcession

 

6,410

 

(2,414

)

3,996

 

5,920

 

(2,105

)

3,815

 

Right to use

 

222

 

(83

)

139

 

679

 

(72

)

607

 

Others

 

2,504

 

(1,382

)

1,122

 

1,682

 

(1,120

)

562

 

 

 

9,136

 

(3,879

)

5,257

 

8,281

 

(3,297

)

4,984

 

Total

 

18,543

 

(3,879

)

14,664

 

17,271

 

(3,297

)

13,974

 

 

The useful life of the concessions and sub-concessions are detailed (note 29d).

 

The rights of use refers basically to the usufruct contract entered into with non-controlling stockholders to use the Empreendimentos Brasileiros de Mineração S.A. shares (owner of the shares of MBR) and intangible identified in business combination of Vale Canada. The amortization of the right to use will expires in 2037 and Vale Canada’s intangible will end in September 2046.

 

36



Table of Contents

 

GRAPHIC

 

The table below shows the movement of intangible assets during the period:

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Goodwill

 

Concessions and
Subconcessions

 

Right to use

 

Others

 

Total

 

Balance at January 1, 2012

 

8,990

 

7,184

 

1,053

 

562

 

17,789

 

Addition through acquisition

 

 

1,044

 

 

825

 

1,869

 

Write off

 

 

(20

)

(455

)

 

(475

)

Amortization

 

 

(534

)

(32

)

(265

)

(831

)

Translation adjustment

 

417

 

 

53

 

 

470

 

Balance at December 31, 2012

 

9,407

 

7,674

 

619

 

1,122

 

18,822

 

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Goodwill

 

Concessions and
Subconcessions

 

Right to use

 

Others

 

Total

 

Balance at January 1, 2011

 

8,654

 

6,514

 

1,054

 

607

 

16,829

 

Addition through acquisition

 

 

1,378

 

 

373

 

1,751

 

Write off

 

 

(81

)

 

(2

)

(83

)

Amortization

 

 

(858

)

(24

)

(185

)

(1,067

)

Translation adjustment

 

336

 

 

23

 

 

359

 

Others

 

 

231

 

 

(231

)

 

Balance at December 31, 2011

 

8,990

 

7,184

 

1,053

 

562

 

17,789

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

Goodwill

 

Concessions and
Subconcessions

 

Right to use

 

Others

 

Total

 

Balance at January 1, 2012

 

8,990

 

3,815

 

607

 

562

 

13,974

 

Addition through acquisition

 

 

537

 

 

825

 

1,362

 

Write off

 

 

(17

)

(455

)

 

(472

)

Amortization

 

 

(339

)

(13

)

(265

)

(617

)

Translation adjustment

 

417

 

 

 

 

417

 

Balance at December 31, 2012

 

9,407

 

3,996

 

139

 

1,122

 

14,664

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

Goodwill

 

Concessions and
Subconcessions

 

Right to use

 

Others

 

Total

 

Balance at January 1, 2011

 

8,654

 

3,824

 

631

 

455

 

13,564

 

Addition through acquisition

 

 

332

 

 

294

 

626

 

Write off

 

 

(30

)

 

(2

)

(32

)

Amortization

 

 

(311

)

(24

)

(185

)

(520

)

Translation adjustment

 

336

 

 

 

 

336

 

Balance at December 31, 2011

 

8,990

 

3,815

 

607

 

562

 

13,974

 

 

37


 

 


Table of Contents

 

GRAPHIC

 

15 -         Property, plant and equipment

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Cost

 

Accumulated
Depreciation

 

Net

 

Cost

 

Accumulated
Depreciation

 

Net

 

Cost

 

Accumulated
Depreciation

 

Net

 

Land

 

1,381

 

 

1,381

 

1,331

 

 

1,331

 

593

 

 

593

 

Buildings

 

15,755

 

(3,304

)

12,451

 

13,977

 

(2,552

)

11,425

 

10,452

 

(2,334

)

8,118

 

Installations

 

33,350

 

(9,326

)

24,024

 

28,699

 

(7,885

)

20,814

 

30,821

 

(5,724

)

25,097

 

Equipment

 

2,014

 

(1,245

)

769

 

1,737

 

(1,053

)

684

 

479

 

(40

)

439

 

Mineral assets

 

48,440

 

(9,887

)

38,553

 

41,954

 

(7,319

)

34,635

 

45,414

 

(4,753

)

40,661

 

Others

 

54,673

 

(17,526

)

37,147

 

51,290

 

(15,249

)

36,041

 

44,478

 

(12,639

)

31,839

 

Construction in progress

 

59,130

 

 

59,130

 

48,925

 

 

48,925

 

19,909

 

 

19,909

 

 

 

214,743

 

(41,288

)

173,455

 

187,913

 

(34,058

)

153,855

 

152,146

 

(25,490

)

126,656

 

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Cost

 

Accumulated Depreciation

 

Net

 

Cost

 

Accumulated Depreciation

 

Net

 

Land

 

1,162

 

 

1,162

 

762

 

 

762

 

Buildings

 

5,695

 

(1,319

)

4,376

 

6,131

 

(1,111

)

5,020

 

Installations

 

16,428

 

(4,128

)

12,300

 

15,674

 

(3,586

)

12,088

 

Equipment

 

942

 

(724

)

218

 

857

 

(638

)

219

 

Mineral assets

 

4,402

 

(588

)

3,814

 

3,750

 

(529

)

3,221

 

Others

 

16,821

 

(7,533

)

9,288

 

16,508

 

(6,449

)

10,059

 

Construction in progress

 

30,073

 

 

30,073

 

24,134

 

 

24,134

 

 

 

75,523

 

(14,292

)

61,231

 

67,816

 

(12,313

)

55,503

 

 

38



Table of Contents

 

GRAPHIC

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Land

 

Building

 

Facilities

 

Computer
equipment

 

Mineral assets

 

Others

 

Constructions
im progress

 

Total

 

Balance in January 1, 2012

 

1,331

 

11,425

 

20,814

 

684

 

34,635

 

36,041

 

48,925

 

153,855

 

Acquisitions

 

 

 

 

 

 

 

33,433

 

33,433

 

Disposals

 

(2

)

(127

)

(100

)

(18

)

(114

)

(704

)

(1,125

)

(2,190

)

Transfer to non-current assets held for sale

 

 

(51

)

(67

)

 

(3

)

(1,919

)

(24

)

(2,064

)

Impairment

 

 

(2,227

)

(554

)

(2

)

(1,074

)

(2,841

)

(1,684

)

(8,382

)

Depreciation and amortization

 

 

(617

)

(1,807

)

(179

)

(1,598

)

(3,791

)

 

(7,992

)

Translation adjustment

 

(199

)

714

 

(273

)

334

 

2,932

 

2,483

 

804

 

6,795

 

Transfers

 

251

 

3,334

 

6,011

 

(50

)

3,775

 

7,878

 

(21,199

)

 

Balance in December 31, 2012

 

1,381

 

12,451

 

24,024

 

769

 

38,553

 

37,147

 

59,130

 

173,455

 

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Land

 

Building

 

Facilities

 

Computer
equipment

 

Mineral assets

 

Others

 

Constructions
im progress

 

Total

 

Balance in January 1, 2011

 

593

 

8,118

 

25,097

 

439

 

40,661

 

31,839

 

19,909

 

126,656

 

Acquisitions

 

 

 

 

 

 

 

22,768

 

22,768

 

Disposals

 

 

(64

)

(21

)

(1

)

(37

)

(69

)

(191

)

(383

)

Depreciation and amortization

 

 

(197

)

(823

)

(125

)

(251

)

(2,962

)

 

(4,358

)

Translation adjustment

 

 

(6

)

(2,368

)

7

 

953

 

6,290

 

4,296

 

9,172

 

Transfers

 

738

 

3,574

 

(1,071

)

364

 

(6,691

)

943

 

2,143

 

 

Balance in December 31, 2011

 

1,331

 

11,425

 

20,814

 

684

 

34,635

 

36,041

 

48,925

 

153,855

 

 

39



Table of Contents

 

GRAPHIC

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

Land

 

Building

 

Facilities

 

Computer
equipment

 

Mineral assets

 

Others

 

Constructions
im progress

 

Total

 

Balance in January 1, 2012

 

762

 

5,020

 

12,088

 

219

 

3,221

 

10,059

 

24,134

 

55,503

 

Aquisition

 

 

 

 

 

 

 

14,650

 

14,650

 

Disposals

 

 

(1

)

(19

)

(1

)

(19

)

(87

)

(432

)

(559

)

Impairment

 

 

(2,227

)

(554

)

(2

)

(550

)

(817

)

(1,922

)

(6,072

)

Depreciation and amortization

 

 

(184

)

(575

)

(95

)

(135

)

(1,302

)

 

(2,291

)

Transfers

 

400

 

1,768

 

1,360

 

97

 

1,297

 

1,435

 

(6,357

)

 

Balance in December 31, 2012

 

1,162

 

4,376

 

12,300

 

218

 

3,814

 

9,288

 

30,073

 

61,231

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

Land

 

Building

 

Facilities

 

Computer
equipment

 

Mineral assets

 

Others

 

Constructions
im progress

 

Total

 

Balance in January 1, 2011

 

362

 

2,543

 

8,579

 

177

 

2,765

 

12,074

 

17,962

 

44,462

 

Aquisition

 

 

 

 

 

 

 

13,990

 

13,990

 

Disposals

 

 

(3

)

(15

)

 

(25

)

(44

)

(352

)

(439

)

Depreciation and amortization

 

 

(114

)

(509

)

(103

)

(94

)

(1,690

)

 

(2,510

)

Others

 

400

 

2,594

 

4,033

 

145

 

575

 

(281

)

(7,466

)

 

Balance in December 31, 2011

 

762

 

5,020

 

12,088

 

219

 

3,221

 

10,059

 

24,134

 

55,503

 

 

The depreciation of the year, allocated to production cost and expense was R$ 8,397 and R$ 6,638 In 2012 and 2011 in the consolidated and R$2,563 and R$1,964 in 2012 and 2011 in the parent company, respectively.

 

The property, plant and equipment (net book value given as guarantee for judicial claims at December 31, 2012 and December 31, 2011 amounted to R$ 197 and R$146 in the consolidated and R$ 161 and R$134 in the parent company, respectively.

 

40



Table of Contents

 

GRAPHIC

 

16 -                       Impairment

 

In 2012 we identified evidence of impairment on some investments and fixed assets of the nickel, aluminium, coal and other cash generating units. Tests were conducted to determine whether the recoverable amount is less than the carrying amount

 

To determine the fair value of the assets to Vale uses discounted cash flows.

 

The discount rates applied to the future cash flow forecasts represent an estimate of the rate the market would apply to comply with the risk of the assets under valuation, Vale weighted average cost of capital is used as a basic point for determining the discount rates, with appropriate adjustments for the risk profile of the countries in which the individual cash-generating units operate.

 

The following impairment charges were recorded:

 

As of December 31, 2012

 

Assets

 

Cash generating unit

 

Carrying amount

 

Recoverable amount

 

Adjustment for impairment

 

Investment

 

 

 

 

 

 

 

 

 

Aluminum

 

Hydro

 

6.598

 

4.572

 

2.026

 

Steel

 

Thyssenkrupp CSA

 

4.387

 

2.583

 

1.804

 

Energy

 

VSE

 

207

 

35

 

172

 

 

 

 

 

11.192

 

7.190

 

4.002

 

Property plant and equipment

 

 

 

 

 

 

 

 

 

Nickel

 

Onça Puma

 

7.653

 

1.884

 

5.769

 

Coal

 

Australia

 

3.365

 

1.226

 

2.139

 

Others

 

 

 

386

 

83

 

303

 

 

 

 

 

11.404

 

3.193

 

8.211

 

 

 

 

 

22.596

 

10.383

 

12.213

 

 

(i)            Investment

 

·                  Investment in Hydro

 

The volatility of aluminum prices and uncertainties about the European economy have contributed to a reduction in the fourth quarter of 2012 in the traded market value of our 22% stake in Hydro, a  Norwegian- controlled aluminum producer, to a level lower than the carrying value of the investment.

 

The market value of the investment at December 31 was obtained based on the market value of the shares of Hydro, which are traded in the capital market and had odds of U$ 4.99 per share on that date, resulting in a value of investment of R$ 4,572.

 

·                  Investment in Thyssenkrupp CSA

 

We recorded an impairment charge against the carrying value of our 26.87% interest in Thyssenkrupp CSA to reflect a reduction in the investment recoverable amount. The fair value based on future cash flow and does not take into account the inherent value o our rights as the exclusive suppliers of ore to the mill which comprise an integral component o four investment strategy.

 

·                  Investment in VSE

 

Changes in the investment strategy of the Company have altered the expected cash flows from operations of our joint venture Vale Soluções de Energia (“VSE”).

 

The recoverable amount for VSE was ascertained from the new cash flow projections from financial budgets recently approved by management for joint venture.

 

41



Table of Contents

 

GRAPHIC

 

(ii)        Propert plant and equipment

 

·                  Onça Puma nickel assets

 

Problems with the two furnaces in the Onça Puma project have led to the total stoppage of its iron-nickel operations since June 2012. After reviewing the case, Vale decided to rebuild one of the furnaces and plans to resume operations in the fourth quarter of 2013.  Given this event and the current market environment for iron-nickel, the net book value of Onça Puma’s assets required an adjustment for impairment.

 

The recoverable amount of Onça Puma’s assets was ascertained by determining their value in use from cash flow projections based on financial budgets approved by management for the life of the mine. The projected cash flow was adjusted to reflect the effects of the quantities sold at the commodity futures prices and on the expected demand for the product.

 

The key assumptions used by management to calculate the impairment are the sales values of the commodities and the discount rate, reflecting the volatile nature of the business.

 

In order to estimate the value in use of the assets, Vale uses the discounted cash flow.

 

·                  Coal assets in Australia

 

Increasing costs, falling market prices, reduced production levels and financially unfavorable regulatory changes were identified in the coal sector, leading us to carry out impairment tests.

 

The recoverable amount for the Australian assets was ascertained by determining through the calculation of value in use their value in use from cash flow projections based on financial budgets approved by management for the life of the mine. The projected cash flow was adjusted to reflect the effects of the quantities sold at the commodity futures prices and on the expected demand for the product.

 

The key assumptions used by management to calculate the impairment of coal assets in Australia are the commodities prices and the discount rate, reflecting the volatile nature of the business.

 

·                  Others

 

Changes in the Company’s strategy have altered the expected cash flows from operations on our other operation, as of oil and gas  and other projects.

 

The recoverable amount of these assets was ascertained from the new cash flow projections from financial budgets recently revised and approved by management.

 

(iii)    Goodwill and intangible assets of indefinite life

 

The goodwill arose from the process of acquisition of part of our business mainly represented by buck materials (R$4,287), base metals (R$3,791) and fertilizer (R$1,329).

 

The annual impairment review resulted in no impairment charge both for 2012 and 2011. For impairment testing purpose, we used a specific discount rate by asset, which consider a premium for country and business segment risk, ranging from 7.8% to 8.6%.

 

The key assumption to which the discounted cash flow is more sensitive is the sales prices and production cost.

 

42



Table of Contents

 

GRAPHIC

 

17 -                          Loans and Financing

 

a)                                    Short term debts

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Working capital

 

 

40

 

232

 

 

 

 

 

 

40

 

232

 

 

 

 

Financings raised in the short term for exports, denominated in U.S. dollars with average interest rates as at December 31, 2012 of 1.81% per years.

 

b)                                     Long term

 

 

 

Consolidated

 

 

 

Current Liabilities

 

Non-current liabilities

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

Long-term contracts abroad

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and financing in:

 

 

 

 

 

 

 

 

 

 

 

 

 

United States dollars

 

1,235

 

944

 

3,972

 

6,906

 

5,014

 

4,215

 

Others currencies

 

29

 

17

 

33

 

535

 

97

 

365

 

Fixed rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes indexed in United Stated dollars (fixed rates)

 

253

 

761

 

 

27,499

 

18,823

 

17,066

 

Euro

 

 

 

 

4,043

 

1,812

 

1,671

 

Perpetual notes

 

 

 

 

 

 

130

 

Accrued charges

 

662

 

413

 

388

 

 

 

 

 

 

2,179

 

2,135

 

4,393

 

38,983

 

25,746

 

23,447

 

Long-term contracts in Brazil

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed to TJLP, TR, IGP-M e CDI

 

358

 

461

 

127

 

12,395

 

9,799

 

6,483

 

Basket of currencies

 

4

 

3

 

2

 

21

 

 

208

 

Loans in United States dollars

 

346

 

 

 

2,590

 

 

1,230

 

Non-convertible debentures into shares

 

4,000

 

 

2

 

774

 

4,680

 

4,610

 

Accrued charges

 

206

 

208

 

183

 

 

 

 

 

 

4,914

 

672

 

314

 

15,780

 

14,479

 

12,531

 

 

 

7,093

 

2,807

 

4,707

 

54,763

 

40,225

 

35,978

 

 

 

 

Parent Company

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

Long-term contracts abroad

 

 

 

 

 

 

 

 

 

Loans and financing in:

 

 

 

 

 

 

 

 

 

United States dollars

 

275

 

165

 

5,135

 

3,325

 

Others currencies

 

 

 

2

 

 

Fixes rates:

 

 

 

 

 

 

 

 

 

United States dollars

 

 

 

3,065

 

 

Euro

 

 

 

4,043

 

1,812

 

Accrued charges

 

212

 

81

 

 

 

 

 

487

 

246

 

12,245

 

5,137

 

Long-term contracts in Brazil

 

 

 

 

 

 

 

 

 

Indexed to TJLP, TR, IGP-M e CDI

 

306

 

447

 

12,032

 

9,459

 

Loans in United States dollars

 

346

 

 

2,590

 

 

Non-convertible debentures into shares

 

4,000

 

 

 

4,000

 

Accrued charges

 

189

 

199

 

 

 

 

 

4,841

 

646

 

14,622

 

13,459

 

 

 

5,328

 

892

 

26,867

 

18,596

 

 

43



Table of Contents

 

GRAPHIC

 

The long-term portion as at December 31, 2012 has maturities as follows:

 

 

 

Consolidated

 

Parent Company

 

2014 

 

2,802

 

2,411

 

2015 

 

2,459

 

1,556

 

2016 

 

3,850

 

1,610

 

2017 onwards

 

45,652

 

21,290

 

 

 

54,763

 

26,867

 

 

As at December 31, 2012, the annual interest rates on the long-term debts were as follows:

 

 

 

 

Consolidated

 

Parent Company

 

Up to 3%

 

11,123

 

8,376

 

3,1% to 5% (*)

 

11,630

 

4,864

 

5,1% to 7%

 

25,329

 

9,209

 

7,1% to 9% (**)

 

10,056

 

7,207

 

9,1% to 11% (**)

 

2,734

 

2,539

 

Over 11% (**)

 

983

 

 

Variable

 

1

 

 

 

 

61,856

 

32,195

 

 


(*) Includes Eurobonds. For this operation we have entered into derivative transactions at a cost of 4.51% per year in US dollars.

 

(**) Includes non-convertible debentures and other Brazilian Real denominated debt that bears interest at the CDI and Brazilian Government Long-term Interest Rates (“TJLP”), plus spread. For these operations, we have entered into derivative transactions to mitigate our exposure to the floating rate debt denominated in Brazilian Real, totaling R$ 16.812 (US$ 8.227 million) of which R$ 16.123 (US$ 7.890 million) has an original interest rate above 5.1% per year. The average cost of debts not denominated in U.S. Dollars after derivatives contracting is 3.16% per year in US dollars.

 

 

 

Quantity as of December 31, 2012

 

 

 

 

 

Balance

 

Non Convertible Debentures

 

Issued

 

Outstanding

 

Maturity

 

Interest

 

December 31, 2012

 

December 31, 2011

 

31 de dezembro de
2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2nd Series

 

400,000

 

400,000

 

November 20, 2013

 

100% CDI + 0.25%

 

4,032

 

4,049

 

4,047

 

Tranche “B” - Salobo

 

5

 

5

 

No date

 

6.5% p.a + IGP-DI

 

774

 

680

 

611

 

 

 

 

 

 

 

 

 

 

 

4,806

 

4,729

 

4,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term portion

 

 

 

 

 

 

 

 

 

3,999

 

 

 

 

 

Long-term portion

 

 

 

 

 

 

 

 

 

774

 

4,680

 

4,610

 

Accrued charges

 

 

 

 

 

 

 

 

 

33

 

49

 

48

 

 

 

 

 

 

 

 

 

 

 

4,806

 

4,729

 

4,659

 

 

In October 2012, Vale issued a Export Credit Note by amounting to R$ 2,5 billion (US$ 1,2 million) from a Commercial Brazilian bank by 10 years of term. The amount was total paid in December 31,2012.

 

In September 2012, Vale signed a loan agreement of U.S. $ 3.9 billion ($ 1.9 billion) financing agreement with Banco Nacional de Desenvolvimento Econômico Social (“BNDES”) to finance the implementation of the CLN 150 Mtpy project, which will expand logistics infrastructure in Vale’s Northern System. As of December 2012, Vale had drawn  R$ 2.1 billion ($ 1.0 billion) on the line.

 

In September 2012, Vale issued R$ 3,065 million (US$1,5009 million) notes due 2042. The 2042 notes were sold at a price of 99.198% of the principal amount and will bear a coupon of 5.625% per year, payable semi-annually.

 

In August 2012, Vale International entered into a bilateral Pre-export Financing Agreement with a commercial bank in an amount of R$ 307 million (US$ 150 million) maturing in 5 years from its disbursement date. As of December 31, 2012, Vale International withdrew the total amount of this facility.

 

In July 10, 2012 we issued R$ 1,862 million (€750 million), equivalent to US$ 919, euro-denominated notes due 2023. These notes will bear a coupon of 3.75% per year, payable annually, at a price of 99.608% of the principal amount.

 

In April 2012, through our wholly-owned subsidiary Vale Overseas Limited, we received the amount related to the issue of R$ 2,554 (US$ 1,250 million) notes due 2022 that were priced in March 2012 at a price of 101.345% of the principal amount. The notes will bear a coupon of 4.375% per year, payable semi-annually and will be consolidated with, and form a single series with, Vale Overseas’s R$ 2 billion (US$ 1 billion) 4.375% notes due 2022 issued on January 2012. Those notes issued in January, 2012 were sold at a price of 98.804% of the principal amount.

 

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GRAPHIC

 

 

 

 

 

Credit line

 

 

 

 

 

 

 

 

 

 

 

Amounts drawn on December 31,

 

Financial Intitution

 

Contractual
Currency

 

Date of
agreement

 

Available
until

 

Total amount
available

 

2012

 

2011

 

2010

 

Revolving Credit Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility - Vale/ Vale International/ Vale Canada

 

US$

 

April 2011

 

5 years

 

6,131

 

 

 

 

Credit Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nippon Export and investment Insurance (“Nexi”)

 

US$

 

May 2008

*(a)

5 years **

 

4,087

 

613

 

613

 

307

 

Japan Bank for International Cooperation (“JBIC”)

 

US$

 

May 2008

*(b)

5 years **

 

6,131

 

 

 

 

Banco Nacional de Desenvolvimento Econômico Social (“BNDES”)

 

R$

 

April 2008

*(c)

5 years **

 

7,300

 

3,582

 

2,795

 

1,922

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Export-Import Bank of China e Bank of China Limited

 

US$

 

September 2010

(d)

13 years

 

2,511

 

1,710

 

954

 

595

 

Export Development Canada (“EDC”)

 

US$

 

October 2010

(e)

10 years

 

2,044

 

1,992

 

1,022

 

511

 

Korean Trade Insurance Corporation (“K-Sure”)

 

US$

 

August 2011

(f)

12 years

 

1,079

 

836

 

329

 

 

Banco Nacional de Desenvolvimento Econômico Social (“BNDES”)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vale Fertilizantes

 

R$

 

November 2009

(g)

9 years

 

40

 

40

 

36

 

36

 

PSI 4,50%

 

R$

 

June 2010

(h)

10 years

 

774

 

700

 

528

 

205

 

Vale Fertilizantes

 

R$

 

October 2010

(i)

8 years

 

247

 

225

 

222

 

185

 

PSI 5,50%

 

R$

 

March 2011

(j)

10 years

 

103

 

87

 

87

 

 

CLN 150

 

R$

 

September 2012

(k)

10 years

 

3,883

 

2,109

 

 

 

Vale Fertilizantes

 

R$

 

October 2012

(l)

6 years

 

89

 

89

 

 

 

PSI 2,50%

 

R$

 

December 2012

(m)

10 years

 

182

 

 

 

 

 


* Memorandum of Understanding (“MOU”) signature date

** The availability for application of projects is 5 years.

 

(a)                                 Mining projects, logistics and energy generation. Vale through its subsidiary PT Vale Indonesia Tbk (PTVI) applied in the amount of US$ 300 million for the financing of the construction of the hydroelectric plant of Karebbe, Indonesia and withdrew totally.

(b)                                 Mining projects, logistics and energy generation.

(c)                                  Credit Lines to finance projects.

(d)                                 Acquisition of twelve large ore carriers from Chinese shipyards.

(e)                                  Financing investments in Canada and Canadian exports.

(f)                                   Acquisition of five large ore carriers and two capesize bulkers from two Korean shipyards.  The maturity period is counted from each vessel delivery.

(g)                                  Gypsum storage in Uberaba plant.

(h)                                 Acquisition of domestic equipments.

(i)                                     Expansion of production capacity of phosphoric and sulfuric acids at Uberaba plant (Phase III).

(j)                                    Acquisition of domestic equipments.

(k)                                 Capacitação Logística Norte 150 Project (CLN 150).

(l)                                     Supplemental resources to expand production capacity of phosphoric and sulfuric acids at Uberaba plant (Phase III).

(m)                             Acquisition of wagons by VLI Multimodal.

 

d)                                     Guarantee

 

On December 31, 2012, R$ 2,963 (US$ 1,450 million) of the total aggregate outstanding debt was secured by property, plant and equipment and receivables.

 

e)                                      Covenants

 

Our principal covenants require us to maintain certain ratios, such as debt to EBITDA and interest coverage. We have not identified any events of noncompliance as of December 31, 2012.

 

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18 -                          Provision for litigation

 

Vale is a party to labor, civil, tax and other ongoing lawsuits and is discussing these issues both administratively and in court.  When applicable, these lawsuits are supported by judicial deposits, where required. Provisions for losses resulting from these processes are estimated and updated by the Company, supported by the legal advice of the legal board of the Company and by its  legal consultants.

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation
provision

 

Balance as January 1, 2012

 

1,224

 

455

 

1,405

 

61

 

3,145

 

Additions

 

1,175

 

285

 

638

 

22

 

2,120

 

Reversals

 

(155

)

(111

)

(374

)

(11

)

(651

)

Payments

 

(318

)

(74

)

(63

)

(4

)

(459

)

Monetary update

 

113

 

20

 

(67

)

2

 

68

 

Transfer to assets held for sale

 

 

 

(5

)

 

(5

)

Balance as December 31, 2012

 

2,039

 

575

 

1,534

 

70

 

4,218

 

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation
provision

 

Balance as January 1, 2011

 

1,249

 

848

 

1,234

 

78

 

3,409

 

Additions

 

69

 

121

 

711

 

11

 

912

 

Reversals

 

(85

)

(349

)

(155

)

(16

)

(605

)

Payments

 

(57

)

(154

)

(377

)

(26

)

(614

)

Monetary update

 

48

 

(11

)

(8

)

14

 

43

 

Balance as December 31, 2011

 

1,224

 

455

 

1,405

 

61

 

3,145

 

 

 

 

Parent Company

 

 

 

Year ended

 

Non-current liabilities

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation
provision

 

Balance as January 1, 2012

 

442

 

223

 

1,217

 

46

 

1,928

 

Additions

 

1,129

 

107

 

581

 

7

 

1,824

 

Reversals

 

(127

)

(48

)

(384

)

(8

)

(567

)

Payments

 

(312

)

(51

)

(38

)

(4

)

(405

)

Monetary update

 

81

 

16

 

(12

)

2

 

87

 

Balance as December 31, 2012

 

1,213

 

247

 

1,364

 

43

 

2,867

 

 

 

 

Parent Company

 

 

 

Year ended

 

Non-current liabilities

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation
provision

 

Balance as January 1, 2011

 

325

 

680

 

1,072

 

31

 

2,108

 

Additions

 

37

 

57

 

660

 

11

 

765

 

Reversals

 

(2

)

(349

)

(145

)

 

(496

)

Payments

 

(7

)

(143

)

(347

)

(15

)

(512

)

Monetary update

 

89

 

(22

)

(23

)

19

 

63

 

Balance as December 31, 2011

 

442

 

223

 

1,217

 

46

 

1,928

 

 

Provisions for tax litigation - The nature of Vale´s tax contingencies the tax cases relate substantially to  discussions about how to calculate the Financial Compensation for Exploiting Mineral Resources (“CFEM”) and the objectionsto compensation claims for credits in the settlement of federal taxes in Brazil, and mining taxes for our foreign subsidiaries. The other cases refer to claims for Additional Port Workers Compensation (“AITP”) and questions regarding the entity´s location for the purpose of charging Service Tax (“ISS”).

 

In September 2012, we considered as loss related to the deductibility of transportation expenditures to be probable when arriving at the amount upon which the CFEM is calculated, resulting in an increase in the provision by R$1.1 bilhão.  At the fourth quarter of 2012, we paid R$301 of CFEM. As at December 31, 2012 the total liability in relation to CFEM was R$1,060.

 

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GRAPHIC

 

Provisions for civil litigation — Consists of claims involving contracts between Vale group companies and certain service providers, challenging differences in values causing alleged losses due to various Brazilian government stabilization economic plans in the past. Other claims are related to accidents and actions for damages and monetary .

 

Provisions for labor and social security litigation - Consists of lawsuits filed by employees and service providers, questioning employment relationship. The most recurring objects are payment of overtime, travel health and safety issues. The social security contingencies included legal and administrative disputes between the INSS and the Vale/group companies.

 

Vale has judicial deposits in order to guarantees the actions required in court. They are inflation indexed/accrue interest and reported in the noncurrent assets until it the court`s decision release these deposits to the other party or return them to Vale when its position prevails. Judicial deposits are as follows:

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Tax contingencies

 

889

 

771

 

736

 

549

 

474

 

Civil contingencies

 

350

 

283

 

683

 

286

 

184

 

Labor contingencies

 

1,845

 

1,671

 

1,457

 

1,629

 

1,425

 

Environmental contingencies

 

11

 

10

 

8

 

10

 

8

 

Total

 

3,095

 

2,735

 

2,884

 

2,474

 

2,091

 

 

The Company is involved in administrative and judicial legal actions where the expectation of loss is considered possible, and accordingly, has recorded no provision. These possible contingent are classified as follows:

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Tax contingencies

 

33,702

 

33,569

 

2,854

 

30,675

 

30,814

 

Civil contingencies

 

2,296

 

2,772

 

1,806

 

1,784

 

1,567

 

Labor contingencies

 

3,531

 

3,592

 

3,277

 

3,053

 

3,348

 

Environmental contingencies

 

3,417

 

2,010

 

38

 

3,388

 

2,009

 

Total

 

42,946

 

41,943

 

7,975

 

38,900

 

37,738

 

 

The increase tax contingencies for which risk of losses are deemed to be possible refers mainly to tax assessments relating to Income Tax and Social Contribution, on the equity results of foreign subsidiaries.

 

The Brazilian federal tax authority (Receita Federal do Brasil) contends that Vale should pay income  taxes on the earnings  of its non-Brazilian subsidiaries and affiliates. The position of the tax authority is based on Article 74 of Brazilian Provisional Measure 2,158-35/2001. The tax authority has issued five tax assessments against us for the requiring the payment of R$12 billion and R$12 billion at December 31, 2012 and 2011, respectively, in taxes in accordance pursuant Article 74 for the tax years 1996 through 2008, plus interest and penalties of R$18 billion as at December 31, 2012 and R$ 18 billion at December 31, 2011, through December 31, 2012 and 2011, amounting to a total of R$31 billion and R$30 billion, respectively.

 

47



Table of Contents

 

GRAPHIC

 

19 -                           Asset retirement obligation

 

The Company uses various judgments and assumptions when measuring its obligations related to the retirementof assets. The accrued amounts is of these obligations are not deducted from the potential costs covered by insurance or indemnities, because their recovery is considered to be uncertain.

 

The long term interest rates used to discount these obligations to their present values and to update the provisions as at December 31, 2012 and December 31, 2011 were 5.03% p.a. and 5.82% p.a., respectively. The liability is periodically updated based on these discount rates plus the inflation index (“IGP-M”) for the period in reference.

 

The changes in the provision for asset retirement obligation areas follows:

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Balance on begin of exercise

 

3,563

 

2,528

 

Increase expense

 

333

 

211

 

Liquidation in the current exercise

 

(28

)

(95

)

Revisions in estimated cash flows

 

1,598

 

815

 

Cumulative translation adjustments

 

149

 

104

 

Balance on ended of exercise

 

5,615

 

3,563

 

 

 

 

 

 

 

Current

 

143

 

136

 

Non-current

 

5,472

 

3,427

 

 

 

5,615

 

3,563

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Balance on begin of exercise

 

1,116

 

805

 

Increase expense

 

154

 

102

 

Liquidation in the current exercise

 

(4

)

(52

)

Revisions in estimated cash flows

 

359

 

261

 

Balance on ended of exercise

 

1,625

 

1,116

 

 

 

 

 

 

 

Current

 

 

21

 

Non-current

 

1,625

 

1,095

 

 

 

1,625

 

1,116

 

 

20 -                           Deferred Income Tax and Social Contribution

 

We  analyzed the potential tax impact associated with the undistributed earnings of each of its subsidiaries and affiliates. For those subsidiaries in which undistributed earnings are intended to be reinvested indefinitely, no deferred tax is recognized. The undistributed earnings of foreign consolidated subsidiaries and affiliates for which no deferred income tax has been recognized for possible future remittances to the Parent company totaled R$ 54,766 (US$ 26,800 millions) as at December 31, 2012 and R$ 49,140 (US$26,300 millions) as at December 31, 2011.  These amounts are considered to be indefinitely reinvested in the Company’s international businesses.  It is not practicable to determine the amount of the unrecognized deferred tax liability associated with these amounts.  If at a future date the Company did determine to repatriate these earnings, there would be various methods available to us, each with different tax consequences.  There would be also uncertainty as to the timings and amounts, of foreign tax credits that would be available, if any, as the calculation of the available foreign tax credits is dependent upon the timing of the repatriation and the projections of significant and uncertain future events.  The wide range of potential outcomes that could result from these factors, among others, makes it impracticable to calculate the amount of tax that hypothetically, would be recognized on these earnings if they were repatriated.

 

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Table of Contents

 

GRAPHIC

 

The  deferred balances were as follows:

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Recoverable income tax

 

2,604

 

1,709

 

1,266

 

 

 

Temporary differences:

 

 

 

 

 

 

 

 

 

 

 

Pension plan

 

922

 

891

 

1,223

 

93

 

134

 

Provision for litigation

 

1,173

 

872

 

945

 

1,062

 

708

 

Impairment of assets

 

1,727

 

1,478

 

946

 

853

 

748

 

Fair value of financial instruments

 

1,647

 

991

 

631

 

1,647

 

994

 

Allocated goodwill

 

(10,279

)

(12,290

)

(11,543

)

 

 

Impairment of assets

 

3,206

 

 

 

2,575

 

 

 

Others

 

(620

)

(726

)

(459

)

(672

)

(475

)

Total

 

380

 

(7,075

)

(6,991

)

5,558

 

2,109

 

Social contribution

 

 

 

(3,574

)

 

 

Total

 

380

 

(7,075

)

(10,565

)

5,558

 

2,109

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

8,134

 

3,539

 

2,263

 

5,558

 

2,109

 

Liabilities

 

(7,754

)

(10,614

)

(12,828

)

 

 

 

 

 380

 

(7,075

)

(10,565

)

5,558

 

2,109

 

 

Changes in deferred taxes are presented as follows:

 

 

 

Consolidated

 

Parent Company

 

 

 

Assets

 

Liabilities

 

Total

 

Assets

 

Total amount in January 1, 2011

 

2,263

 

12,828

 

(10,565

)

(1,785

)

Net income effect

 

1,085

 

525

 

560

 

299

 

Subsidiary acquisition

 

 

128

 

(128

)

 

Cumulative translation adjustment

 

170

 

707

 

(537

)

 

Deferred social contribution

 

 

(3,574

)

3,574

 

3,574

 

Other comprehensive Income

 

21

 

 

21

 

21

 

Total amount in December 31, 2011

 

3,539

 

10,614

 

(7,075

)

2,109

 

Net income effect

 

1,238

 

(538

)

1,776

 

816

 

Impairments

 

3,319

 

 

3,319

 

2,642

 

Subsidiary acquisition

 

(36

)

(411

)

375

 

 

Cumulative translation adjustment

 

87

 

622

 

(535

)

 

Reversal of deferred tax

 

 

(2,533

)

2,533

 

 

Other comprehensive income

 

(13

)

 

(13

)

(9

)

Total amount in December 31, 2012

 

8,134

 

7,754

 

380

 

5,558

 

 

The deferred assets and liabilities for income tax and social contributions arising from tax losses and temporary differences are recognized taking into consideration the projections of future performance, based on economic and financial projections, prepared based on internal and macroeconomic assumptions, trade and tax scenarios that may be subject to changes in the future.

 

These temporary differences in the future:

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

December 31, 2012

 

December 31, 2011

 

Deferred income tax and social contribution

 

 

 

 

 

 

 

 

 

 

 

to be recovered within 12 months

 

727

 

581

 

433

 

466

 

316

 

to be recovered after than 12 months

 

(347

)

(7,656

)

(10,998

)

5,092

 

1,793

 

 

 

 380

 

(7,075

)

(10,565

)

5,558

 

2,109

 

 

The nominal composite income tax and social contribution statutory rate applicable for the year presented is 34%. In other countries where we have operations, we are subject to various rates depending on the jurisdiction.

 

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GRAPHIC

 

The total income tax and social contributions in the Statement of Income reconciled with the nominal composite rates, as follows:

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Income before tax and social contribution

 

6,592

 

45,922

 

(-) Impairment on investments

 

2,198

 

 

Results of equity investments

 

(1,241

)

(1,857

)

Exchange variation - not taxable

 

346

 

43

 

 

 

7,895

 

44,108

 

Income tax and social contribution at statutory rates - 34%

 

(2,684

)

(14,997

)

Adjustments that affects the basis of taxes:

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

2,601

 

2,776

 

Tax incentive

 

393

 

1,195

 

Results of overseas companies taxed by different rates which differs from the parent company rate

 

352

 

2,315

 

Deductible Social Contribution paid

 

 

886

 

Reversal of deferred tax

 

(445

)

(485

)

Reversal of deferred tax (see note 6b)

 

2,533

 

 

Deferred Income tax - impairment of assets

 

 

 

 

Others

 

(109

)

(204

)

Income tax and social contribution on the profit for the year

 

2,641

 

(8,514

)

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Income before tax and social contribution

 

9,768

 

44,186

 

Results of equity investments

 

(576

)

(9,996

)

 

 

9,192

 

34,190

 

Income tax and social contribution at statutory rates - 34%

 

(3,125

)

(11,625

)

Adjustments that affects the basis of taxes:

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

2,601

 

2,755

 

Tax incentive

 

390

 

1,188

 

Deductible Social Contribution paid

 

 

886

 

Others

 

100

 

424

 

Income tax and social contribution on the profit for the year

 

(34

)

(6,372

)

 

In Brazil, Vale has a tax incentive which allows for a partial reduction of income tax from business results in the North and Northeast regions with iron, railroads, manganese, copper, bauxite, kaolin and potash. The incentive is calculated based on the taxable profit from the activity ,which takes into consideration the allocation of operating profit according to incentives for production levels during the periods specified for each product as guarantee Generally, these expire after 10 years and are in the case of Company prescribe in 2020. An amount equal to  the tax incentive must be appropriated from retained earnings to a reserve account in Stockholders’ equity, and may not be distributed as dividends.

 

Vale benefits from the allocation of portion of income tax to be reinvested in the purchase of equipment in incentive operation, subject to subsequent approval by the regulatory agency in the incentive area Superintendence for the Development of Amazonia (SUDAM) and the Northeast Development Superintendence (SUDENE). When the reinvestment is approved, the tax benefit is also appropriated from retained earnings to a non-distributable reserve.

 

Vale also has tax incentives related to the production of nickel from Vale New Caledonia (VNC). These incentives include temporary exemptions from the income tax during the construction phase of the project, and for a period of 15 years beginning in the first year of commercial production as defined by the applicable law, followed by five years of a refund of 50% . In addition, VNC is eligible for certain exemptions from indirect taxes such as import tax during the construction phase and throughout the commercial life of the project. Some of these tax benefits, including temporary tax incentives, are subject to an earlier interruption if the project achieves a specified cumulative rate of return. VNC is taxable for a portion of the profits starting in the first year in which commercial production commences, as defined by the applicable law. So far, there has been no taxable income realized in New Caledonia. Vale also benefits from tax incentives for projects in Mozambique, Oman and Malaysia.

 

Vale is subject to revision by local tax authorities for up to five years for its companies operating in Brazil, generally ten years for its operations in Indonesia and up to seven years for companies with operations in Canada.

 

50



Table of Contents

 

GRAPHIC

 

21.          Employee Benefits Obligations

 

a)            Retirement Benefits Obligations

 

The Company is the sponsor of pension plans mixed with characteristics of benefit and defined contribution (such as benefit plan Vale Mais), which includes retirement income and the risk benefits (death pension, retirement for disability and sickness benefit). These plans are calculated based on length of service, age, salary base and supplement to Social Security benefits. These plans are administered by Fundação Vale do Rio Doce de Seguridade Social — VALIA.

 

The Company also sponsors a pension plan with defined benefit characteristics. This plan was funded through monthly contributions made by the sponsor and employees, calculated on the basis of periodic actuarial estimates. With the creation of the plan Vale Mais in May 2000, more than 98% of active employees opted to transfer. The defined benefit is still there, covering almost exclusively retired participants and their beneficiaries. This plan is also administered by VALIA.

 

Additionally, a specific group of former employees are entitled to payments in addition to the normal benefits of Valia through a Supplemental Bonus plus a post-retirement benefit that covers medical, dental and pharmaceutical assistance to that specific group.

 

The Company also has defined benefit plans and other post-employment benefits administered by other foundations and social security entities which, together, benefiting all employees.

 

The following information details the status of defined benefit elements of all the plans, as well as costs related to them.

 

The results of the actuarial valuations were as follows:

 

i.              Changes in the present value of obligations

 

 

 

Consolidated

 

Parent Company

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Present value of obligations on January 1, 2011

 

6,036

 

8,820

 

2,500

 

5,276

 

2,767

 

387

 

Initial liability recognized with new consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

Current service cost

 

2

 

148

 

52

 

 

28

 

5

 

Interest cost

 

650

 

631

 

160

 

573

 

304

 

42

 

Benefits paid

 

(494

)

(688

)

(138

)

(441

)

(166

)

(41

)

Plan amendment

 

 

4

 

 

 

 

 

Net transfers

 

 

26

 

 

 

 

 

Alteration of hypotheses

 

 

(44

)

(52

)

 

 

 

Actuarial loss (gain)

 

444

 

(210

)

192

 

404

 

(4

)

78

 

Exchange rates changes effects

 

 

561

 

200

 

 

 

 

Present value of obligations on December 31, 2011

 

6,638

 

9,248

 

2,914

 

5,812

 

2,929

 

471

 

Initial liability recognized with new consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

Current service cost

 

 

196

 

66

 

 

52

 

7

 

Interest cost

 

603

 

731

 

185

 

603

 

322

 

50

 

Benefits paid

 

(463

)

(851

)

(149

)

(463

)

(178

)

(49

)

Plan amendment

 

 

(6

)

(68

)

 

1

 

(52

)

Net transfers

 

(826

)

826

 

 

 

 

 

Alteration of hypotheses

 

 

(228

)

(48

)

 

 

 

Actuarial loss

 

1,338

 

1,560

 

310

 

1,338

 

1,002

 

223

 

Exchange rates changes effects

 

 

757

 

286

 

 

 

 

Present value of obligations on December 31, 2012

 

7,290

 

12,233

 

3,496

 

7,290

 

4,128

 

650

 

 

51



Table of Contents

 

GRAPHIC

 

 

 

Consolidated

 

Parent Company

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded

pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Fair value of assets on January 1, 2011

 

9,307

 

7,741

 

22

 

8,493

 

2,482

 

 

Initial asset recognized with new consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual return on assets

 

1,097

 

388

 

 

994

 

279

 

 

Sponsor contributions

 

4

 

964

 

138

 

1

 

242

 

41

 

Benefits paid

 

(494

)

(690

)

(138

)

(441

)

(166

)

(41

)

Actuarial loss (gain)

 

(242

)

13

 

 

(331

)

11

 

 

Early termination of the plan

 

 

(44

)

(18

)

 

 

 

Exchange rates changes effects

 

 

526

 

(1

)

 

 

 

Fair value of assets on December 31, 2011

 

9,672

 

8,898

 

3

 

8,716

 

2,848

 

 

Initial asset recognized with new consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers

 

(956

)

956

 

 

 

 

 

Actual return on assets

 

1,210

 

1,034

 

 

1,210

 

393

 

 

Sponsor contributions

 

1

 

437

 

149

 

1

 

281

 

49

 

Benefits paid

 

(463

)

(851

)

(149

)

(463

)

(178

)

(49

)

Plan amendment

 

 

5

 

 

 

2

 

 

Liquidação antecipada no plano

 

 

(208

)

 

 

 

 

Actuarial loss

 

(449

)

460

 

 

(449

)

467

 

 

Exchange rates changes effects

 

 

727

 

(1

)

 

 

 

Fair value of assets on December 31, 2012

 

9,015

 

11,458

 

2

 

9,015

 

3,813

 

 

 

A special contribution was made to the Vale Canada Limited defined underfunded benefit plans of R$ 588 during the period of 2011. The contribution was made to provide suitable indexes to support the Vale Canada Limited with more appropriate financing requeriments for 2011 to 2013

 

Administrative plan assets by Valia at December 31, 2012 and December 31, 2011 include investments in a portfolio of our own stocks amounting to R$613 and R$636, investments in debentures amounting to R$116 and R$ 117 and investments in the equity of related parties in the amount of R$4 and R$157, respectively. They also included on December 31, 2012 and December 31, 2011, R$7,953 and R$6,637 of securities of the Federal Government. The assets of the pension plans of Vale Canada Limited are invested in securities of the Government of Canada and as at December31, 2012 and 2011, amounted to R$ 987 and R$1,219, respectively. The plan assets linked to fertilizers assets, at December 31, 2012 and 2011 invested in securities of the Brazilian Federal Government amounted to R$390 and R$278, respectively.

 

iii.           Reconciliation of assets and liabilities recognized in the balance sheet

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

1 de janeiro de 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Present value of obligations in the year-end

 

(7,290

)

(12,233

)

(3,496

)

(6,638

)

(9,248

)

(2,914

)

(6,037

)

(8,849

)

(2,561

)

Fair value of assets in the year-end

 

9,015

 

11,458

 

2

 

9,672

 

8,898

 

3

 

9,306

 

7,738

 

22

 

Net value of (gains) and losses not recorded in the balance sheet

 

 

500

 

194

 

 

(75

)

174

 

 

(57

)

57

 

Effect of limit of CPC 33, paragraph 65

 

(1,725

)

 

 

(3,034

)

 

 

(3,269

)

 

 

Total

 

 

(275

)

(3,300

)

 

(425

)

(2,737

)

 

(1,168

)

(2,482

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial asset/liability accrued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

235

 

 

 

 

 

 

 

 

Current liabilities

 

 

(238

)

(182

)

 

(172

)

(144

)

 

(163

)

(150

)

Non-current liabilities

 

 

(272

)

(3,118

)

 

(253

)

(2,593

)

 

(1,005

)

(2,332

)

Total

 

 

(275

)

(3,300

)

 

(425

)

(2,737

)

 

(1,168

)

(2,482

)

 

52



Table of Contents

 

GRAPHIC

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Present value of obligations in the year-end

 

(7,290

)

(4,128

)

(650

)

(5,812

)

(2,929

)

(471

)

Fair value of assets in the year-end

 

9,015

 

3,813

 

 

8,716

 

2,848

 

 

Net value of (gains) and losses not recorded in the balance sheet

 

 

371

 

65

 

 

(74

)

79

 

Effect of limit of CPC 33, paragraph 65

 

(1,725

)

 

 

(2,904

)

 

 

Total

 

 

56

 

(585

)

 

(155

)

(392

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial asset/liability accrued

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

235

 

 

 

 

 

Current Liabilities

 

 

(179

)

(41

)

 

(120

)

(21

)

Non-current liabilities

 

 

 

(544

)

 

(35

)

(371

)

Total

 

 

56

 

(585

)

 

(155

)

(392

)

 

iv.           Recorded costs in the statement of income

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Current service cost

 

39

 

157

 

66

 

2

 

147

 

50

 

Interest on actuarial liabilities

 

771

 

686

 

189

 

650

 

630

 

160

 

Expected return on assets

 

(1,423

)

(825

)

 

(1,097

)

(640

)

(2

)

Amortization and (gains) / losses, net (paragraph65)

 

1,786

 

183

 

153

 

761

 

46

 

(11

)

Transfers

 

(22

)

22

 

 

 

 

 

Effect of limit described in paragraph 65 in CPC 33

 

(1,151

)

 

 

(314

)

 

 

Total costs, net

 

 

223

 

408

 

2

 

183

 

197

 

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Current service cost

 

39

 

13

 

7

 

 

28

 

5

 

Interest on actuarial liabilities

 

771

 

265

 

50

 

573

 

304

 

42

 

Expected return on assets

 

(1,423

)

(319

)

 

(994

)

(277

)

 

Amortization and (gains) / losses, net (paragraph 58a)

 

1,786

 

89

 

185

 

735

 

 

48

 

Transfers

 

(22

)

22

 

 

 

 

 

 

 

 

Effect of limit described in paragraph 65 in CPC 33

 

(1,151

)

 

 

(314

)

 

 

Total costs, net

 

 

70

 

242

 

 

55

 

95

 

 

v.                                      Actuarial and economic assumptions

 

All of these calculations involve actuarial projections for certain parameters, such as: salaries, interest, inflation, the behavior of INSS benefits, mortality, disability, etc.

 

The economic actuarial assumptions adopted were based on the long-term securities and should therefore be considered on that basis. Therefore, in the short term, they may not necessarily be realized.

 

The evaluations adopted the following economic assumptions:

 

 

 

Brazil (p.y.)

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Discount rate to determine the actuarial liability

 

8.90% a.a.

 

9.04% a.a.

 

9.05% a.a.

 

10,78% a.a.

 

10,30% a.a.

 

10,30% a.a.

 

Discount rate to determine the expense / (income)

 

8.90% a.a.

 

9.45% a.a.

 

9.40% a.a.

 

10,78% a.a.

 

10,30% a.a.

 

10,30% a.a.

 

Expected return on assets

 

12.48% a.a.

 

12.55% a.a.

 

N/A

 

14.25% a.a.

 

13.79% a.a.

 

N/A

 

Growth rate of payroll and related charges - up to 47 years

 

8,15% a.a.

 

8,15% a.a.

 

N/A

 

8,15% a.a.

 

N/A

 

N/A

 

Growth rate of payroll and related charges - after 47 years

 

5,00% a.a.

 

5,00% a.a.

 

N/A

 

5,00% a.a.

 

5,00% a.a.

 

N/A

 

Inflation

 

5,00% a.a.

 

5,00% a.a.

 

5,00% a.a.

 

5,00% a.a.

 

5,00% a.a.

 

5,00% a.a.

 

Nominal growth rate of medical costs

 

N/A

 

N/A

 

8,15% a.a.

 

N/A

 

N/A

 

8,15% a.a.

 

 

53



Table of Contents

 

GRAPHIC

 

 

 

Foreign (p.y.)

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Underfunded pension
plans

 

Others underfunded
pension plans

 

Underfunded pension
plans

 

Others underfunded
pension plans

 

Discount rate to determine the actuarial liability

 

4.16% a.a.

 

4.20% a.a.

 

5.43

%

5.43

%

Discount rate for determinate expenses\(income)

 

5,08% a.a.

 

4.20% a.a.

 

5.43

%

5.43

%

Expected return on assets

 

6,21% a.a.

 

6,50% a.a.

 

6.51

%

6.51

%

Growth rate of payroll and related charges - up to 47 years

 

4,04% a.a.

 

3,00% a.a.

 

4.10

%

4.10

%

Growth rate of payroll and related charges - after 47 years

 

4,04% a.a.

 

3,00% a.a.

 

4.10

%

4.10

%

Inflation

 

2,00% a.a.

 

2,00% a.a.

 

2.00

%

2.00

%

Nominal growth rate of medical costs

 

N/A

 

7.01% a.a.

 

N/A

 

N/A

 

 

vi.           Data from participants:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Number of actives participants

 

14

 

81,324

 

11,727

 

202

 

67,951

 

74,729

 

Average age

 

52

 

36

 

40

 

50

 

36

 

36

 

Average service length

 

28

 

7

 

7

 

27

 

7

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of participants with deferred benefit (*)

 

 

6,519

 

 

 

5,815

 

 

Average age

 

 

47

 

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of  de retirees and pensioners

 

16,740

 

19,253

 

31,737

 

18,380

 

18,189

 

32,633

 

Average age

 

67

 

70

 

68

 

66

 

71

 

64

 

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Number of actives participants

 

14

 

63,735

 

 

14

 

54,179

 

65,047

 

Average age

 

52

 

34.5

 

 

51

 

35

 

35

 

Average service length

 

27.7

 

6.1

 

 

27

 

7

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of participants with deferred benefit (*)

 

 

5,107

 

 

 

4,141

 

 

Average age

 

 

47

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of de retirees and pensioners

 

16,740

 

3,267

 

7,144

 

16,901

 

3,167

 

7,516

 

Average age

 

67.4

 

64.8

 

60.7

 

67.0

 

65.0

 

45.0

 

 


(*) Employees dismissed from the Company retaining the right to plan.

 

vii.          Assets of pension plans

 

Brazilian Plans

 

The Investment Policy Statements of the pension plans sponsored for Brazilian employees are based on a long term macroeconomic scenario and expected returns. An Investment Policy Statement was established for each obligation by following results of a strategic asset allocation study.

 

Plan asset allocations comply with local pension funds regulations issued by the Conselho Monetário Nacional (CMN Resolution 3,792/09). We are allowed to invest in the following six different asset classes, defined as Segments by the law, : Fixed Income, Equity, Structured Investments (Alternative Investments and Infra-Structure Projects), International Investments, Real Estate and Loans to Participants in compliance with pre-approved policies.

 

The investment policies aims to achieve adequate diversification, revenue and long-term value, through a combination of the asset classes described above to meet their obligations to each plans at the appropriate level of risk.

 

The pension fund has a risk management process with established policies intended to identify measure and control all , such as: market, liquidity, credit, operational, systemic and legal.

 

54



Table of Contents

 

GRAPHIC

 

Foreign plans

 

The strategy for each of the pension plans sponsored by Vale Canada is based upon a combination of local practices and the specific characteristics of the pension plans in each country, including the structure of the liabilities, the risk versus reward trade-off between different asset classes and the liquidity required to meet benefit payments obligations.

 

viii.         Overfunded pension plans

 

Brazilian Plans

 

The Defined Benefit Plan (the “Old Plan”) has most of its assets allocated to fixed income, mainly in Brazilian government bonds (such as TIPS) and long term inflation linked corporate bonds with the objective of reducing the asset-liability volatility. The limit allocation for these investments indexed to inflation is of 55% assets total. . This Liability Driven Investments (“LDI”) strategy,  together with Loans to Participants segment, aims to hedge the plan’s liabilities against inflation risk and volatility. This plan had an average nominal income of 20% per annum, over the past 12 years. The target allocations for each investment segment or asset class are as follow:

 

 

 

December 31, 2012

 

December 31, 2011

 

Fixed income investments

 

56.00

%

57.00

%

Variable income investments

 

25.00

%

24.00

%

Structures investments

 

6.00

%

6.00

%

Foreing investments

 

1.00

%

1.00

%

Real Estate

 

8.00

%

8.00

%

Operations with participants (loans)

 

4.00

%

4.00

%

 

The “Vale Mais” Plan has obligations with the characteristics of defined benefit plans and defined contribution plans. Most investments are in fixed income. To reduce the volatility of assets and liabilities from the components with defined benefit characteristics, we used Brazilian government bonds indexed to inflation. The target allocation for this strategy is 55% of the total assets of this sub-plan. The following table shows the target allocations for each investment segment or asset class:

 

 

 

December 31, 2012

 

December 31, 2011

 

Fixed income investments

 

55.00

%

56.00

%

Variable income investments

 

24.00

%

24.00

%

Structures investments

 

3.50

%

3.50

%

Foreing investments

 

0.50

%

0.50

%

Real Estate

 

7.00

%

6.00

%

Operations with participants (loans)

 

0.00

%

10.00

%

 

The Defined Contribution Vale Mais component offers four asset class mix options that can be chosen by participants. The options are: 100% Fixed Income ; 80% Fixed Income and 20% Equities and 65% Fixed Income and 35% Equities, or 60% Fixed income and 40% Equities. Loans to participants are included in the fixed income options. Equities management is done through investment funds that target Ibovespa index.

 

Assets by category are as follows:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Assets by category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

Accounts receivable

 

10

 

 

 

10

 

28

 

 

 

28

 

135

 

 

 

135

 

Equity securities — net

 

2,305

 

1

 

 

2,306

 

2,391

 

146

 

 

2,537

 

2,201

 

125

 

 

2,326

 

Debt securities — corporate bonds

 

 

557

 

 

557

 

 

832

 

 

832

 

 

700

 

 

700

 

Debt securities — government bonds

 

4,037

 

 

 

4,037

 

3,442

 

 

 

3,442

 

3,522

 

 

 

3,522

 

Investment funds — Fixed Income

 

3,430

 

 

 

3,430

 

2,879

 

 

 

2,879

 

2,683

 

 

 

2,683

 

Investment funds — equity

 

516

 

 

 

516

 

538

 

 

 

538

 

855

 

 

 

855

 

Investment funds — private equity

 

28

 

 

 

28

 

21

 

 

 

21

 

38

 

 

 

38

 

Investment funds — not listed companies

 

 

 

393

 

393

 

 

 

331

 

331

 

 

 

213

 

213

 

Investment funds — real state

 

 

 

17

 

17

 

 

 

37

 

37

 

 

 

32

 

32

 

Real estate

 

 

 

935

 

935

 

 

 

748

 

748

 

 

 

480

 

480

 

Loans from participants

 

 

 

398

 

398

 

 

 

343

 

343

 

 

 

303

 

303

 

Total

 

10,326

 

558

 

1,743

 

12,627

 

9,299

 

978

 

1,459

 

11,736

 

9,444

 

825

 

1,028

 

11,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds not related to risk plans

 

 

 

 

 

 

 

(3,612

)

 

 

 

 

 

 

(2,064

)

 

 

 

 

 

 

(1,991

)

Fair value of plan assets at year-end

 

 

 

 

 

 

 

9,015

 

 

 

 

 

 

 

9,672

 

 

 

 

 

 

 

9,306

 

 

55



Table of Contents

 

GRAPHIC

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Assets by category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

10

 

 

 

10

 

28

 

 

 

28

 

Equity securities — net

 

2,305

 

1

 

 

2,306

 

2,093

 

146

 

 

2,239

 

Debt securities — corporate bonds

 

 

557

 

 

557

 

 

782

 

 

782

 

Debt securities — government bonds

 

4,037

 

 

 

4,037

 

3,246

 

 

 

3,246

 

Investment funds — Fixed Income

 

3,430

 

 

 

3,430

 

2,636

 

 

 

2,636

 

Investment funds — equity

 

516

 

 

 

516

 

498

 

 

 

498

 

Investment funds — private equity

 

28

 

 

 

28

 

21

 

 

 

21

 

Investment funds — not listed companies

 

 

 

393

 

393

 

 

 

258

 

258

 

Investment funds — real state

 

 

 

17

 

17

 

 

 

32

 

32

 

Real estate

 

 

 

935

 

935

 

 

 

708

 

708

 

Loans from participants

 

 

 

398

 

398

 

 

 

332

 

332

 

Total

 

10,326

 

558

 

1,743

 

12,627

 

8,522

 

928

 

1,330

 

10,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds not related to risk plans

 

 

 

 

 

 

 

(3,612

)

 

 

 

 

 

 

(2,064

)

Fair value of plan assets at year-end

 

 

 

 

 

 

 

9,015

 

 

 

 

 

 

 

8,716

 

 

Measurement of overfunded plan assets at fair value with no observable market variables - level 3

 

 

 

Consolidated

 

 

 

Investments fund of
not listed
companies

 

Fund of real state

 

Real state

 

Loans from
participants

 

Total

 

On January 1, 2011

 

213

 

32

 

480

 

303

 

1,028

 

Actual retorn on plan assets

 

(12

)

1

 

133

 

39

 

161

 

Assets sold during the year

 

(2

)

 

(36

)

(119

)

(157

)

Assets purchased and settled

 

59

 

 

171

 

120

 

350

 

Transfers between levels

 

73

 

4

 

 

 

77

 

On December 31, 2011

 

331

 

37

 

748

 

343

 

1,459

 

Actual retorn on plan assets

 

25

 

(15

)

235

 

50

 

295

 

Assets sold during the year

 

(36

)

 

(61

)

(165

)

(262

)

Assets purchased and settled

 

146

 

 

53

 

181

 

380

 

Transfers between levels

 

(73

)

(5

)

(40

)

(11

)

(129

)

On December 31, 2012

 

393

 

17

 

935

 

398

 

1,743

 

 

 

 

Parent Company

 

 

 

Investments fund of
not listed
companies

 

Fund of real state

 

Real state

 

Loans from
participants

 

Total

 

On January 1, 2011

 

213

 

31

 

438

 

292

 

974

 

Actual retorn on plan assets

 

(12

)

1

 

132

 

40

 

161

 

Assets sold during the year

 

(2

)

 

(33

)

(119

)

(154

)

Assets purchased and settled

 

59

 

 

171

 

119

 

349

 

On December 31, 2011

 

258

 

32

 

708

 

332

 

1,330

 

Actual retorn on plan assets

 

25

 

(15

)

235

 

50

 

295

 

Assets sold during the year

 

(36

)

 

(61

)

(165

)

(262

)

Assets purchased and settled

 

146

 

 

53

 

181

 

380

 

On December 31, 2012

 

393

 

17

 

935

 

398

 

1,743

 

 

The targeted return on private equity assets in 2013 is 11% p.a. for the Old Plan and 11% p.a. for the New Plan. The targeted allocation is 6% for the Old Plan and 3.5% for the New Plan, ranging between 2% and 10% for the Old Plan and ranging between 1% and 10% for the New Plan. These investments have a longer investment horizon and lower liquidity intended to profit from economic growth, especially in the infrastructure sector of the Brazilian economy. Usually the fair values of non-liquid assets are similar to their acquisition cost or book value. Some private equity funds, alternatively, apply the following methodologies: discounted cash flows analysis or analysis based on multiples.

 

The target return on loans to participants in 2013 was 12% p.a. The fair value pricing of these assets includes provisions for unpaid loans, according to the local pension fund regulations.

 

The target return on real estate assets in 2013 is 12% p.a. The fair values of these assets are near to their carrying values. The pension fund hires companies specialized in real estate valuation that do not act in the market as brokers. All valuation techniques follow the local regulations.

 

56



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GRAPHIC

 

ix.           Underfunded pension plans

 

i.              Brazilian Plans

 

The obligation is exclusively allocated to fixed income. A Liability Driven Investments(“LDI”) strategy was also used for this plan. Most of the resources were invested in long term Brazilian government bonds (similar to TIPS) and inflation linked corporate bonds with the objective of minimizing asset-liability volatility and reduce inflation risk. This obligation has had an average nominal return of 17% p.a. in local currency over the last seven years.

 

ii.            Foreign plans

 

For all pension plans except that of PT International Nickel Indonésia Tbk,  a target asset allocation was 60% in equity investments and 40% in fixed income investments, with all securities being traded in the public markets.  Fixed income investments are in domestic bonds for each plan’s market and represent a mixture of government and corporate bonds.  Equity investments are primarily global in nature and involve a mixture of large, mid and small capitalization companies with a modest explicit investment in domestic equities for each plan. The Canadian plans also use a currency hedging strategy (each currency exposure is 50% hedged) due to the large exposure to foreign securities. For PT International Nickel Indonésia Tbk, the target allocation is 20% equity investment and the remainder fixed income.

 

Assets by category are shown below:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Assets by category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

113

 

69

 

 

182

 

36

 

44

 

 

80

 

37

 

50

 

 

87

 

Accounts receivable

 

9

 

 

 

9

 

22

 

 

 

22

 

33

 

 

 

33

 

Equity securities — net

 

3,200

 

39

 

 

3,239

 

2,571

 

113

 

 

2,684

 

2,704

 

8

 

 

2,712

 

Debt securities — corporate bonds

 

 

1,043

 

 

1,043

 

 

594

 

 

594

 

 

292

 

 

292

 

Debt securities — government bonds

 

1,041

 

989

 

 

2,030

 

605

 

1,171

 

 

1,776

 

616

 

693

 

 

1,309

 

Investment funds — Fixed Income

 

3,258

 

871

 

 

4,129

 

2,225

 

1,061

 

 

3,286

 

1,798

 

1,200

 

 

2,998

 

Investment funds — equity

 

1,042

 

842

 

 

1,884

 

610

 

703

 

 

1,313

 

512

 

577

 

 

1,089

 

Investment funds — private equity

 

9

 

 

 

9

 

3

 

4

 

 

7

 

5

 

5

 

 

10

 

Investment funds — not listed companies

 

 

 

88

 

88

 

 

 

31

 

31

 

 

 

25

 

25

 

Investment funds — real state

 

 

 

1

 

1

 

 

 

2

 

2

 

 

 

2

 

2

 

Real estate

 

 

 

282

 

282

 

 

 

153

 

153

 

 

 

62

 

62

 

Loans from participants

 

 

 

422

 

422

 

 

 

301

 

301

 

 

 

252

 

252

 

Total

 

8,672

 

3,853

 

793

 

13,318

 

6,072

 

3,690

 

487

 

10,249

 

5,705

 

2,825

 

341

 

8,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds not related to risk plans

 

 

 

 

 

 

 

(1,860

)

 

 

 

 

 

 

(1,351

)

 

 

 

 

 

 

(1,131

)

Fair value of plan assets at year-end

 

 

 

 

 

 

 

11,458

 

 

 

 

 

 

 

8,898

 

 

 

 

 

 

 

7,740

 

 

 

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Assets by category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

 

 

1

 

4

 

 

 

4

 

Accounts receivable

 

1

 

 

 

1

 

2

 

 

 

2

 

Equity securities — net

 

414

 

 

 

414

 

271

 

110

 

 

381

 

Equity securities — not net

 

 

332

 

 

332

 

 

 

 

 

Debt securities — corporate bonds

 

 

 

 

 

 

212

 

 

212

 

Debt securities — government bonds

 

653

 

 

 

653

 

555

 

 

 

555

 

Investment funds — Fixed Income

 

3,040

 

 

 

3,040

 

2,084

 

 

 

2,084

 

Investment funds — equity

 

485

 

 

 

485

 

471

 

 

 

471

 

Investment funds — private equity

 

5

 

 

 

5

 

3

 

 

 

3

 

Investment funds — not listed companies

 

 

 

88

 

88

 

 

 

31

 

31

 

Investment funds — real state

 

 

 

1

 

1

 

 

 

2

 

2

 

Real estate

 

 

 

231

 

231

 

 

 

153

 

153

 

Loans from participants

 

 

 

422

 

422

 

 

 

301

 

301

 

Total

 

4,599

 

332

 

742

 

5,673

 

3,390

 

322

 

487

 

4,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds not related to risk plans

 

 

 

 

 

 

 

(1,860

)

 

 

 

 

 

 

(1,351

)

Fair value of plan assets at year-end

 

 

 

 

 

 

 

3,813

 

 

 

 

 

 

 

2,848

 

 

57



Table of Contents

 

GRAPHIC

 

Measurement of underfunded plan assets at fair value with non-observable market variables - level 3

 

 

 

Consolidated

 

 

 

Investments fund of
not listed companies

 

Fund of real state

 

Real state

 

Loans from
participants

 

Total

 

On January 1, 2011

 

25

 

2

 

62

 

252

 

341

 

Actual retorn on plan assets

 

(3

)

 

15

 

52

 

64

 

Assets sold during the year

 

 

 

(3

)

(99

)

(102

)

Assets purchased and settled

 

9

 

 

79

 

96

 

184

 

On December 31, 2011

 

31

 

2

 

153

 

301

 

487

 

Actual retorn on plan assets

 

2

 

(1

)

69

 

54

 

124

 

Assets sold during the year

 

(12

)

 

(6

)

(139

)

(157

)

Assets purchased and settled

 

67

 

 

26

 

206

 

299

 

Transfers between levels

 

 

 

40

 

 

40

 

On December 31, 2012

 

88

 

1

 

282

 

422

 

793

 

 

 

 

Parent Company

 

 

 

Investments fund of
not listed companies

 

Fund of real state

 

Real state

 

Loans from
participants

 

Total

 

On January 1, 2011

 

25

 

2

 

62

 

252

 

341

 

Actual retorn on plan assets

 

(3

)

 

15

 

52

 

64

 

Assets sold during the year

 

 

 

(3

)

(99

)

(102

)

Assets purchased and settled

 

9

 

 

79

 

96

 

184

 

On December 31, 2011

 

31

 

2

 

153

 

301

 

487

 

Actual retorn on plan assets

 

2

 

(1

)

62

 

54

 

117

 

Assets sold during the year

 

(12

)

 

(6

)

(139

)

(157

)

Assets purchased and settled

 

67

 

 

22

 

206

 

295

 

On December 31, 2012

 

88

 

1

 

231

 

422

 

742

 

 

x.             Assets of underfunded other benefits

 

i.              Plans abroad

 

Underfunded other benefits by asset category:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Level 2

 

Total

 

Assets by category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

2

 

 

 

2

 

3

 

 

 

3

 

Fair value of plan assets at year-end

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

3

 

 

xi.           Disbursement of future cash flow

 

Vale expects to disburse in 2013 in relation to pension plans and other benefits, R$827 on the consolidated and R$286 on the parent company.

 

xii.      Sensitivity to the nominal growth rate of medical costs

 

 

 

Consolidated

 

 

 

Increase of 1%

 

Decrease of 1%

 

 

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

Present value of obligations

 

735

 

483

 

(573

)

(385

)

Interest and service cost

 

61

 

41

 

(39

)

(32

)

 

 

 

Parent Company

 

 

 

Increase of 1%

 

Decrease of 1%

 

 

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

Present value of obligations

 

71

 

40

 

(60

)

(34

)

Interest and service cost

 

4

 

4

 

(5

)

(4

)

 

58



Table of Contents

 

GRAPHIC

 

xiii.         Estimated future benefit payments

 

The following table presents the expected benefit payments, which reflect future services:

 

 

 

Consolidated

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Total

 

2013

 

463

 

1,004

 

189

 

1,656

 

2014

 

478

 

776

 

196

 

1,450

 

2015

 

494

 

793

 

204

 

1,491

 

2016

 

509

 

808

 

210

 

1,527

 

2017

 

524

 

824

 

216

 

1,564

 

2018 onwards

 

2,820

 

4,220

 

1,055

 

8,095

 

 

 

 

Parent Company

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
underfunded
pension plans

 

Total

 

2013

 

463

 

197

 

48

 

708

 

2014

 

478

 

214

 

51

 

743

 

2015

 

494

 

235

 

55

 

784

 

2016

 

509

 

254

 

59

 

822

 

2017

 

524

 

274

 

63

 

861

 

2018 onwards

 

2,820

 

1,727

 

236

 

4,783

 

 

b)                      Participation in profit sharing program

 

The Company’s Participation in Results Program (“PPR”) measured on the evaluation of individual and collective performance of its employees.

 

The Participation in Results in the Company for each employee is calculated individually according to the achievement of goals previously established using indicators for the performance of the Company, Business Unit, Team and individual. The contribution of each performance unit  to the performance scores of employees is discussed and agreed each year, between  Vale and the unions representing the employees.

 

The Company accrued expenses / costs related to participation in the results as follows:

 

 

 

Consolidated

 

Parent Company

 

 

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

Operational expenses

 

871

 

697

 

575

 

627

 

Cost of good sold

 

954

 

828

 

871

 

715

 

Total

 

1,825

 

1,525

 

1,446

 

1,342

 

 

c)             Long-Term stock option compensation plan

 

In order to promote a stockholder’ cultures, in addition to increasing the ability to retain executives and to strengthen the culture of sustainability performance, Vale has a Long-term Compensation Plan, for some executives of the Company, covering three years cycles.

 

Under the terms of the plan, the participants may allocate a portion of their annual bonus to the plan. Part of the bonus allocated to the plan can be used by executive to purchase preferred stock of Vale, through a prescribed financial institution under market conditions and without any benefit being provided by Vale.

 

The shares purchased by executives have no restrictions and can, be solda t any time. However, the shares need to be held for a period of three years, and the executives need to maintain their employment relationship with Vale during this period. The participant shall be entitled, as long as the shares are not sold and employment relationship is maintained, to receive from Vale a payment in cash equivalent to the value of their stock holdings under this scheme, based on market quotations. The total number of stocks linked to the plan as at December 31, 2012, 2011 was 4,426,046 and 3,012,538, respectively.

 

Additionally, certain executives eligible for long-term incentives have the opportunity to receive, at the end of three year cycle, na amount in cash equivalent to the Market value of a number of shares based on factors measured using the total return to the stockholders as an indicator.

 

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Liabilities are measured at fair value as at the date of each issue of the report, based on Market rates.

 

The compensation costs incurred are recognized according to the defined vesting period of three years. As at December 31, 2012, 2011 we recorded a liability of R$ 178 and R$ 204 respectively, in the statement of Income

 

22 -         Classification of financial instruments

 

The classification of financial assets and liabilities is shown in the following tables:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

 

 

Loans and
receivables (a)

 

At fair value
through profit or
loss (b)

 

Derivatives
designated as
hedge (c)

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

11,918

 

 

 

11,918

 

Short-term investments

 

 

506

 

 

506

 

Derivatives at fair value

 

 

543

 

32

 

575

 

Accounts receivable from customers

 

13,885

 

 

 

13,885

 

Related parties

 

786

 

 

 

786

 

 

 

26,589

 

1,049

 

32

 

27,670

 

Non current

 

 

 

 

 

 

 

 

 

Related parties

 

833

 

 

 

833

 

Loans and financing

 

502

 

 

 

502

 

Derivatives at fair value

 

 

83

 

10

 

93

 

 

 

1,335

 

83

 

10

 

1,428

 

Total of Assets

 

27,924

 

1,132

 

42

 

29,098

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

9,255

 

 

 

9,255

 

Derivatives at fair value

 

 

708

 

2

 

710

 

Current portion of long-term debt

 

7,093

 

 

 

7,093

 

Related parties

 

423

 

 

 

423

 

 

 

16,771

 

708

 

2

 

17,481

 

Non current

 

 

 

 

 

 

 

 

 

Derivatives at fair value

 

 

1,601

 

 

1,601

 

Loans and financing

 

54,763

 

 

 

54,763

 

Related parties

 

146

 

 

 

146

 

Debentures

 

 

3,379

 

 

3,379

 

 

 

54,909

 

4,980

 

 

59,889

 

Total of Liabilities

 

71,680

 

5,688

 

2

 

77,370

 

 


(a) Non derivative financial instruments with determinable cash flow.

(b) Financial instruments acquired with the purpose of trading in the short term.

(c) See note 25(a).

 

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GRAPHIC

 

 

 

Consolidated

 

 

 

December 31, 2011

 

 

 

Loans and
receivables (a)

 

At fair value
through profit or
loss (b)

 

Derivatives
designated as
hedge (c)

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

6,593

 

 

 

6,593

 

Derivatives at fair value

 

 

810

 

302

 

1,112

 

Accounts receivable from customers

 

15,889

 

 

 

15,889

 

Related parties

 

154

 

 

 

154

 

 

 

22,636

 

810

 

302

 

23,748

 

Non current

 

 

 

 

 

 

 

 

 

Related parties

 

904

 

 

 

904

 

Loans and financing

 

399

 

 

 

399

 

Derivatives at fair value

 

 

112

 

 

112

 

 

 

1,303

 

112

 

 

1,415

 

Total of financial assets

 

23,939

 

922

 

302

 

25,163

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

8,851

 

 

 

8,851

 

Derivatives at fair value

 

 

110

 

26

 

136

 

Current portion of long-term debt

 

2,807

 

 

 

2,807

 

Loans and financing

 

40

 

 

 

40

 

Related parties

 

43

 

 

 

43

 

 

 

11,741

 

110

 

26

 

11,877

 

Non current

 

 

 

 

 

 

 

 

 

Derivatives at fair value

 

 

1,239

 

 

1,239

 

Loans and financing

 

40,225

 

 

 

40,225

 

Related parties

 

171

 

 

 

171

 

Debentures

 

 

2,496

 

 

2,496

 

 

 

40,396

 

3,735

 

 

44,131

 

Total of financial liabilities

 

52,137

 

3,845

 

26

 

56,008

 

 


(a) Non derivative financial instruments with determinable cash flow.

(b) Financial instruments acquired with the purpose of trading in the short term.

(c) See note 25(a).

 

 

 

Consolidated

 

 

 

January 1, 2011

 

 

 

Loans and
receivables (a)

 

At fair value
through profit or
loss (b)

 

Derivatives
designated as
hedge (c)

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

12,636

 

 

 

12,636

 

Short-term investments

 

 

2,987

 

 

2,987

 

Derivatives at fair value

 

 

54

 

33

 

87

 

Accounts receivable from customers

 

13,681

 

 

 

13,681

 

Related parties

 

160

 

 

 

160

 

 

 

26,477

 

3,041

 

33

 

29,551

 

Non current

 

 

 

 

 

 

 

 

 

Related parties

 

48

 

 

 

48

 

Loans and financing

 

273

 

 

 

273

 

Derivatives at fair value

 

 

502

 

 

502

 

 

 

321

 

502

 

 

823

 

Total of financial assets

 

26,798

 

3,543

 

33

 

30,374

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

5,928

 

 

 

5,928

 

Derivatives at fair value

 

 

58

 

 

58

 

Current portion of long-term debt

 

4,707

 

 

 

4,707

 

Loans and financing

 

232

 

 

 

232

 

Related parties

 

35

 

 

 

35

 

 

 

10,902

 

58

 

 

10,960

 

Non current

 

 

 

 

 

 

 

 

 

Derivatives at fair value

 

 

13

 

89

 

102

 

Loans and financing

 

35,978

 

 

 

35,978

 

Related parties

 

3

 

 

 

3

 

Debentures

 

 

2,139

 

 

2,139

 

 

 

35,981

 

2,152

 

89

 

38,222

 

Total of financial liabilities

 

46,883

 

2,210

 

89

 

49,182

 

 


(a) Non derivative financial instruments with determinable cash flow.

(b) Financial instruments acquired with the purpose of trading in the short term.

(c) See note 25(a).

 

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GRAPHIC

 

 

 

Parent Company

 

 

 

December 31, 2012

 

 

 

Loans and receivables
(a)

 

At fair value through
profit or loss (b)

 

Total

 

Financial assets

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Cash and cash equivalents

 

688

 

 

688

 

Short-term investments

 

 

43

 

43

 

Derivatives at fair value

 

 

500

 

500

 

Accounts receivable from customers

 

21,839

 

 

21,839

 

Related parties

 

1,347

 

 

1,347

 

 

 

23,874

 

543

 

24,417

 

Non Current

 

 

 

 

 

 

 

Related parties

 

864

 

 

864

 

Loans and financing

 

188

 

 

188

 

Derivatives at fair value

 

 

3

 

3

 

 

 

1,052

 

3

 

1,055

 

Total of Assets

 

24,926

 

546

 

25,472

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Suppliers and contractors

 

4,178

 

 

4,178

 

Derivatives at fair value

 

 

558

 

558

 

Current portion of long-term debt

 

5,328

 

 

5,328

 

Related parties

 

6,434

 

 

6,434

 

 

 

15,940

 

558

 

16,498

 

Non Current

 

 

 

 

 

 

 

Derivatives at fair value

 

 

1,410

 

1,410

 

Loans and financing

 

26,867

 

 

26,867

 

Related parties

 

29,363

 

 

29,363

 

Debentures

 

 

3,379

 

3,379

 

 

 

56,230

 

4,789

 

61,019

 

Total of Liabilities

 

72,170

 

5,347

 

77,517

 

 


(a) Non derivative financial instruments with determinable cash flow.

(b) Financial instruments acquired with the purpose of trading in the short term.

 

 

 

Parent Company

 

 

 

December 31, 2011

 

 

 

Loans and receivables
(a)

 

At fair value through
profit or loss (b)

 

Derivatives designated
as hedge (c)

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

575

 

 

 

575

 

Derivatives at fair value

 

 

573

 

1

 

574

 

Accounts receivable from customers

 

15,809

 

 

 

15,809

 

Related parties

 

2,561

 

 

 

2,561

 

 

 

18,945

 

573

 

1

 

19,519

 

Non current

 

 

 

 

 

 

 

 

 

Related parties

 

446

 

 

 

446

 

Loans and financing

 

158

 

 

 

158

 

Derivatives at fair value

 

 

96

 

 

96

 

 

 

604

 

96

 

 

700

 

Total of financial assets

 

19,549

 

669

 

1

 

20,219

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

3,504

 

 

 

3,504

 

Derivatives at fair value

 

 

91

 

26

 

117

 

Current portion of long-term debt

 

892

 

 

 

892

 

Related parties

 

4,959

 

 

 

4,959

 

 

 

9,355

 

91

 

26

 

9,472

 

Non current

 

 

 

 

 

 

 

 

 

Derivatives at fair value

 

 

953

 

 

953

 

Loans and financing

 

18,596

 

 

 

18,596

 

Related parties

 

28,654

 

 

 

28,654

 

Debentures

 

 

2,496

 

 

2,496

 

 

 

47,250

 

3,449

 

 

50,699

 

Total of financial liabilities

 

56,605

 

3,540

 

26

 

60,171

 

 


(a) Non derivative financial instruments with determinable cash flow.

(b) Financial instruments acquired with the purpose of trading in the short term.

(c) See note 25a.

 

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GRAPHIC

 

23 -         Fair Value Estimative

 

Due to the short-term cycle, it is assumed that the fair value of cash and cash equivalents balances, short-term investments, accounts receivable and accounts payable are close to their book values. For the measurement and determination of fair value, the Company uses various methods including market income or cost approaches,  in order to estimate the value that market participants would use when pricing the asset or liability.  The financial assets and liabilities recorded at fair value are classified and disclosed in accordance with the following levels:

 

Level 1 — Unadjusted quoted prices on an active, liquid and visible market for identical assets or liabilities that are accessible as at the measurement date;

 

Level 2 - Quoted prices (adjusted or unadjusted) for identical or similar assets or liabilities in active markets and

 

Level 3 - Assets and liabilities, for which quoted prices do not exist, or where prices or valuation techniques are supported by little or no market activity, unobservable or illiquid.

 

The tables below present the assets and liabilities of the parent and the consolidated company measured at fair value as at December 31, 2012 and December 31, 2011.

 

 

 

Consolidated

 

 

 

December 31, 2012

 

December 31, 2011

 

1 de janeiro de 2011

 

 

 

Level 1

 

Level 2

 

Total (i)

 

Level 1

 

Level 2

 

Total (i)

 

Level 1

 

Level 2

 

Total (i)

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives at fair value through profit or loss

 

 

543

 

543

 

 

810

 

810

 

22

 

32

 

54

 

Derivatives designated as hedges

 

 

32

 

32

 

 

302

 

302

 

 

33

 

33

 

 

 

 

575

 

575

 

 

1,112

 

1,112

 

22

 

65

 

87

 

Non-Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives at fair value through profit or loss

 

 

83

 

83

 

 

112

 

112

 

 

502

 

502

 

Derivatives designated as hedges

 

 

10

 

10

 

 

 

 

 

 

 

 

 

 

93

 

93

 

 

112

 

112

 

 

502

 

502

 

Total of Assets

 

 

668

 

668

 

 

1,224

 

1,224

 

22

 

567

 

589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives at fair value through profit or loss

 

3

 

705

 

708

 

1

 

109

 

110

 

20

 

38

 

58

 

Derivatives designated as hedges

 

 

2

 

2

 

 

26

 

26

 

 

 

 

 

 

3

 

707

 

710

 

1

 

135

 

136

 

20

 

38

 

58

 

Non-Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives at fair value through profit or loss

 

 

1,601

 

1,601

 

 

1,239

 

1,239

 

 

14

 

14

 

Derivatives designated as hedges

 

 

 

 

 

 

 

 

88

 

88

 

Stockholders’ debentures

 

 

3,379

 

3,379

 

 

2,496

 

2,496

 

 

2,139

 

2,139

 

 

 

 

4,980

 

4,980

 

 

3,735

 

3,735

 

 

2,241

 

2,241

 

Total of Liabilities

 

3

 

5,687

 

5,690

 

1

 

3,870

 

3,871

 

20

 

2,279

 

2,299

 

 


(i) No classification according to the level 3.

 

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GRAPHIC

 

 

 

Parent Company

 

 

 

December 31,
2012

 

December 31,
2011

 

 

 

Level 2 (i)

 

Level 2 (i)

 

Financial Assets

 

 

 

 

 

Current

 

 

 

 

 

Derivatives

 

 

 

 

 

Derivatives at fair value through profit or loss

 

500

 

573

 

Derivatives designated as hedges

 

 

1

 

 

 

500

 

574

 

Non-current

 

 

 

 

 

Derivatives at fair value through profit or loss

 

3

 

96

 

 

 

3

 

96

 

Total of assets

 

503

 

670

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Current

 

 

 

 

 

Derivatives

 

 

 

 

 

Derivatives at fair value through profit or loss

 

558

 

91

 

Derivatives designated as hedges

 

 

26

 

 

 

558

 

117

 

Non-current

 

 

 

 

 

Derivatives

 

 

 

 

 

Derivatives at fair value through profit or loss

 

1,410

 

953

 

Stockholders’ debentures

 

3,379

 

2,496

 

 

 

4,789

 

3,449

 

Total of liabilities

 

5,347

 

3,566

 

 


(i) No classification according to the level 1 and 3.

 

a)            Methods and Techniques of Evaluation

 

i.              Assets and liabilities at fair value through profit or loss

 

Comprise derivatives not designated as hedges and stockholders’ debentures.

 

·              Derivatives designated or not as hedge

 

The financial instruments were evaluated by calculating their present value through the use of instrument yield curves at verification dates. The curves and prices used in the calculation for each group of instruments are detailed in the “market yield curves”.

 

The pricing method used for European options is the Black-Scholes model. In this model, the fair value of the derivative is a function of the volatility in the price of the underlying asset, the exercise price of the option, the interest rate and period to maturity. In the case of options when the income is a function of the average price of the underlying asset over the period  of the option,  we use the  Turnbull & Wakeman model. In this model, besides the factors that influence the option price in the Black-Scholes model,  the formation period of the average price is also considered.

 

In the case of swaps, both the present value of the assets and liability are estimated by discounting the cash flows by the interest rate of the currency in which the swap is denominated. The difference between the present value of the asset and liability of the swap generates its fair value.

 

In the case of swaps tied to the TJLP the calculation of fair value considers the TJLP as a constant, that is, the projections of future cash flows in Brazilian Reais are made on the basis of the last TJLP disclosed.

 

Contracts for the purchase or sale of products, inputs and costs of selling with future settlement are priced using the forward yield curves for each product. Typically, these curves are obtained on the stock exchanges where the products are traded, such as the London Metals Exchange (“LME”), the Commodity Exchange (“COMEX”) or other providers of market prices. When there is no price for the desired maturity, Vale uses an interpolation between the available maturities.

 

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GRAPHIC

 

·              Stockholders’ Debentures

 

Comprises the debentures issued during the privatization process (see Note 29(b)), whose fair values are measured based on the market approach.Reference prices are available on the secondary market.

 

ii.            Assets available-for-sales

 

Represents assets that are not held-to-maturity for strategic reasons, investments that are valued based on quoted prices on active markets where available or internal assessments based on the expected future cash flows of the assets.

 

b)            Fair value measurement compared to book value

 

For the loans allocated to Level 1, the evaluation method used to estimate the fair value of debt is the market approach to the contracts listed on the secondary market. For the loans allocated Level 2, the fair value for both fixed-indexed rate debt and floating rate is determined from the discounted cash flow using the future values of the LIBOR rate and the curves of Vale’s Bonds (income approach).

 

The fair values and carrying amounts of non-current loans (net of interest) are shown in the table below:

 

 

 

Consolidated

 

 

 

December 31, 2012

 

 

 

Balance

 

Fair value (a)

 

Level 1

 

Level 2

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Loans (long term)(i)

 

60,988

 

66,872

 

52,757

 

14,115

 

Perpetual notes (ii)

 

146

 

146

 

 

146

 

 


(i) Net interest of R$ 868

(ii) classified on “Related parties” (Non-current liabilities)

 

(a) No classification according to the level 3.

 

 

 

Consolidated

 

 

 

December 31, 2011

 

 

 

Balance

 

Fair value (a)

 

Level 1

 

Level 2

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Loans (long term)(i)

 

42,410

 

48,325

 

35,884

 

12,441

 

Perpetual notes (ii)

 

149

 

149

 

 

149

 

 


(i) Net interest of R$ 622

(ii) classified on “Related parties” (Non-current liabilities)

 

(a) No classification according to the level 3.

 

 

 

Consolidated

 

 

 

January 1, 2011

 

 

 

Balance

 

Fair value (a)

 

Level 1

 

Level 2

 

Time deposit

 

2,987

 

2,987

 

 

2,987

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Loans (long term)(i)

 

(40,107

)

(42,095

)

(32,874

)

(9,221

)

 


(i) Net interest of R$ 578

 

(a) No classification according to the level 3.

 

 

 

Parent Company (a)

 

 

 

December 31, 2012

 

 

 

Balance

 

Fair value (a)

 

Level 1

 

Level 2

 

Loans (long term) (i)

 

31,795

 

33,183

 

18,817

 

14,366

 

 


(i) net interest of R$ 400

 

(a) There are no level 3 classification.

 

 

 

Parent Company (a)

 

 

 

40908

 

 

 

Balance

 

Fair value (a)

 

Level 1

 

Level 2

 

Loans (long term) (i)

 

19,209

 

19,719

 

12,010

 

7,710

 

 


(i) net interest of R$ 279

 

(a) There are no level 3 classification.

 

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GRAPHIC

 

24.          Stockholders’ Equity

 

a)    Capital

 

The Stockholders’ Equity is represented by common (ON) and preferred non-redeemable shares (PNA) without par value. Preferred shares have the same rights as common shares, with the exception of voting for the election of members of the Board of Directors. The Board of Directors may, regardless of changes to bylaws, issuing new shares (up to the authorized capital), including the capitalization of profits and reserves to the extent authorized.

 

In December 31 2012, the capital was R$ 75 billion corresponding to 5.365.304.100 (3.256.724.482 common and 2.108.579.618 preferred) shares with no par value.

 

 

 

December 31, 2012

 

Stockholders

 

ON

 

PNA

 

Total

 

Valepar S.A.

 

1,716,435,045

 

20,340,000

 

1,736,775,045

 

Brazilian Government (Golden Share)

 

 

12

 

12

 

Foreign investors - ADRs

 

678,752,292

 

740,850,726

 

1,419,603,018

 

FMP - FGTS

 

93,278,145

 

 

93,278,145

 

PIBB - BNDES

 

1,921,106

 

2,859,336

 

4,780,442

 

BNDESPar

 

206,378,881

 

67,342,071

 

273,720,952

 

Foreign institutional investors in the local market

 

251,342,812

 

442,520,400

 

693,863,212

 

Institutional investors

 

181,510,919

 

366,954,770

 

548,465,689

 

Retail investors in the country

 

56,033,800

 

326,854,611

 

382,888,411

 

Treasure stock in the country

 

71,071,482

 

140,857,692

 

211,929,174

 

Total

 

3,256,724,482

 

2,108,579,618

 

5,365,304,100

 

 

b)            Revenue reserves

 

The changes in earnings were as follow:

 

 

 

Investment
reserve

 

Legal reserve

 

Tax incentive
reserve

 

Total of
undistributed
revenue reserves

 

Total amount in January 1, 2011

 

65,685

 

5,700

 

1,102

 

72,487

 

Capitalization of reserves

 

(22,867

)

 

(266

)

(23,133

)

Allocation of income

 

25,864

 

1,891

 

996

 

28,751

 

Total amount in December 31, 2011

 

68,682

 

7,591

 

1,832

 

78,105

 

Allocation of income

 

 

486

 

599

 

1,085

 

Realization of reserves

 

(740

)

 

 

(740

)

Total amount in December 31, 2012

 

67,942

 

8,077

 

2,431

 

78,450

 

 

The investment reserve aims to retain funding  for the maintenance and development of the major activities that comprise the Company’s corporate purpose in an amount not exceeding 50% of net income.

 

The legal reserve is a requirement for all Brazilian Public Company and represents appropriations of 5% of annual net income based on Brazilian law, up to 20% of the capital.

 

The tax incentive reserve resulting from the option to designate a portion of the income tax for investments to projects approved by the Brazilian Government as well as tax incentives (Note 20).

 

c)             Resources linked to the future mandatory conversion in shares

 

In June 2012, the convertible notes series VALE and VALE.P-2012 were converted into ADS and represent an aggregate of 15,839,592 common shares and 40,241,968 preferred class A shares. The Conversion was made using 56,081,560 treasury stocks held by the Company. The difference between the book value of the treasury stocks R$ 2.079 and the total amount received R$ 2.129 was recognized in the stockholder’s equity, with no profit or loss impact.

 

d)    Treasury stocks

 

In November 2011, as part of the buy-back program approved in June 2011, we concluded the acquisitions of 39,536,080 common shares, at an average price of US$ 26.25 per share, and 81,451,900 preferred shares, at an average price of R$44.06 and R$40.90 per share (including shares of each class in the form of ADR), for a total aggregate purchase price of US$3 billion. The repurchased

 

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shares represented 3.1% of the free float of common shares, and 4.24% of the free float of preferred shares, outstanding before the launch of the program. The shares acquired are to be held in treasury for cancellation.

 

As at December 31, 2012, there are 211,929,174 treasury stocks, in the amount of R$7,840 as follows:

 

 

 

 

 

 

 

 

 

Acquisition price (R$)

 

 

 

 

 

Classes (milhares)

 

December 31, 2011

 

Reduction

 

December 31, 2012

 

Average

 

Low(*)

 

High

 

December 31, 2012

 

December 31, 2011

 

Preferred

 

181,100

 

(40,242

)

140,858

 

37.50

 

14.02

 

47.77

 

39.58

 

45.08

 

Common

 

86,911

 

(15,840

)

71,071

 

35.98

 

20.07

 

54.83

 

38.50

 

51.50

 

Total

 

268,011

 

(56,082

)

211,929

 

 

 

 

 

 

 

 

 

 

 

 

e)             Basic and diluted earnings per share

 

The  basic and diluted earnings per shares were calculated as follows:

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Net income from continuing operations attributable to the Company’s stockholders

 

9,734

 

37,814

 

Basic and diluted earnings per share:

 

 

 

 

 

Income available to preferred stockholders

 

3,686

 

14,862

 

Income available to common stockholders

 

6,048

 

22,952

 

Total

 

9,734

 

37,814

 

 

 

 

 

 

 

Weighted average number of shares outstanding (thousands of shares) - preferred shares

 

1,933,491

 

2,031,315

 

Weighted average number of shares outstanding (thousands of shares) - common shares

 

3,172,179

 

3,215,479

 

Total

 

5,105,670

 

5,246,794

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

 

 

 

 

Basic earnings per preferred share

 

1.91

 

7.21

 

Basic earnings per common share

 

1.91

 

7.21

 

 

f)             Remuneration of stockholders

 

 

 

Remuneration attributed to Stockholders

 

 

 

Total amount

 

Amount per
outstanding common
or preferred share

 

Amount paid in 2011 regarding 2010

 

 

 

 

 

First installment, paid in April 2011

 

3,174

 

0.608246495

 

Additional remuneration, paid in August 2011

 

4,855

 

0.933403176

 

Second installment, paid in October 2011

 

3,507

 

0.682507540

 

Additional remuneration, paid in October 2011

 

1,753

 

0.341156463

 

Total

 

13,289

 

 

 

 

 

 

 

 

 

Amount paid in 2012 regarding 2011

 

 

 

 

 

First installment, paid in April 2012

 

5,481

 

1.075276545

 

Second installment, paid in October 2012

 

6,115

 

1.186523412

 

Total

 

11,596

 

 

 

 

The following, proposal for allocation of 2012 stockholders remuneration:

 

Remuneration attributed to Stockholders:

 

 

 

Net income

 

9,734

 

Legal reserve

 

(486

)

Tax incentive reserve

 

(599

)

Ajusted net income

 

8,649

 

 

 

 

 

Dividends:

 

 

 

Mandatory minimum - 25% (R$ 0.474418703 per outstanding share) in form of dividends

 

2,162

 

 

 

 

 

Statutory dividend on preferred shares:

 

 

 

3% of stockholders’ equity R$ 0.969324381 per outstanding share

 

1,907

 

6% of capital R$ 0.898761480 per outstanding share

 

1,769

 

 

 

 

 

Remuneration:

 

 

 

Interest on capital advanced in April 2012

 

3,274

 

Interest on capital advanced in October 2012

 

2,710

 

Dividends advanced on October 2012

 

3,405

 

Remuneration to Stockholders (R$ 1.828805334 per outstanding shares)

 

9,389

 

 

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Table of Contents

 

GRAPHIC

 

25.          Derivatives

 

a)    Effects of Derivatives on the Statement of Financial Position

 

 

 

Consolidated

 

 

 

Assets

 

 

 

December 31, 2012

 

December 31, 2011

 

1 de janeiro de 2011

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

510

 

3

 

767

 

112

 

 

502

 

EURO floating rate vs. US$ fixed rate swap

 

 

 

 

 

2

 

 

Eurobonds Swap

 

 

80

 

 

 

 

 

Pre dollar swap

 

33

 

 

35

 

 

 

 

 

 

543

 

83

 

802

 

112

 

2

 

502

 

Commodities price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price program

 

 

 

1

 

 

24

 

 

Bunker Oil Hedge

 

 

 

7

 

 

28

 

 

 

 

 

 

8

 

 

52

 

 

Derivatives designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic Nickel

 

26

 

 

301

 

 

 

 

Foreign exchange cash flow hedge

 

6

 

10

 

1

 

 

 

 

Aluminum

 

 

 

 

 

33

 

 

 

 

32

 

10

 

302

 

 

33

 

 

Total

 

575

 

93

 

1,112

 

112

 

87

 

502

 

 

 

 

Consolidated

 

 

 

Liabilites

 

 

 

December 31, 2012

 

December 31, 2011

 

1 de janeiro de 2011

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

696

 

1,431

 

91

 

1,101

 

 

 

US$ floating rate vs. US$ fixed rate swap

 

 

 

 

 

7

 

 

Eurobonds Swap

 

9

 

37

 

8

 

61

 

 

14

 

South African randes forward

 

 

 

10

 

 

 

 

Pre dollar swap

 

 

129

 

 

77

 

 

 

 

 

705

 

1,597

 

109

 

1,239

 

7

 

14

 

Commodities price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price program

 

3

 

 

1

 

 

20

 

 

Purchase program

 

 

 

 

 

25

 

 

Maritime Freight Hiring Protection Program

 

 

 

 

 

3

 

 

Coal

 

 

 

 

 

3

 

 

 

 

3

 

 

1

 

 

51

 

 

Embedded derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas

 

 

4

 

 

 

 

 

 

 

 

4

 

 

 

 

 

Derivatives designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil Hedge

 

2

 

 

 

 

 

 

Strategic Nickel

 

 

 

 

 

 

88

 

Foreign exchange cash flow hedge

 

 

 

26

 

 

 

 

 

 

 2

 

 

26

 

 

 

88

 

Total

 

710

 

1,601

 

136

 

1,239

 

58

 

102

 

 

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Table of Contents

 

GRAPHIC

 

 

 

Parent Company

 

 

 

Assets

 

Liabilites

 

 

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2011

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

467

 

3

 

538

 

96

 

558

 

1,281

 

91

 

876

 

Pre dollar swap

 

33

 

 

35

 

 

 

129

 

 

77

 

 

 

500

 

3

 

573

 

96

 

558

 

1,410

 

91

 

953

 

Derivatives designated as hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange cash flow hedge

 

 

 

1

 

 

 

 

26

 

 

 

 

 —

 

 

1

 

 

 

 

26

 

 

Total

 

500

 

3

 

574

 

96

 

558

 

1,410

 

117

 

953

 

 

b)            Effects of derivatives in the statement of income

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Derivatives not designated as hedge

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(655

)

(273

)

NDF swap

 

 

(2

)

Eurobonds Swap

 

100

 

(58

)

US$ fixed rate vs. CDI swap

 

 

128

 

Randes Forward

 

 

(14

)

Treasury future

 

15

 

(22

)

Pre dollar swap

 

(17

)

(41

)

 

 

(557

)

(282

)

Commodities price risk

 

 

 

 

 

Nickel

 

 

 

 

 

Fixed price program

 

(4

)

69

 

Strategic program

 

 

25

 

Purchased scrap protection program

 

 

1

 

Bunker Oil Hedge

 

 

60

 

 

 

 (4

)

155

 

Embedded derivatives

 

 

 

 

 

Gas

 

(5

)

 

Energy - Aluminum options

 

 

(12

)

 

 

(5

)

(12

)

Derivatives designated as hedge

 

 

 

 

 

Bunker Oil Hedge

 

4

 

 

Strategic Nickel

 

337

 

93

 

Foreign exchange cash flow hedge

 

(55

)

66

 

 

 

 286

 

159

 

Total

 

(280

)

20

 

 

 

 

 

 

 

Financial income

 

992

 

1,722

 

Financial (expenses)

 

(1,272

)

(1,702

)

Total

 

(280

)

20

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Derivatives not designated as hedge

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(660

)

(220

)

US$ fixed rate vs. CDI swap

 

 

128

 

Pre dollar swap

 

(17

)

(45

)

 

 

(677

)

(137

)

Derivatives designated as hedge

 

 

 

 

 

Foreign exchange cash flow hedge

 

(58

)

65

 

 

 

 (58

)

65

 

Total

 

(735

)

(72

)

 

 

 

 

 

 

Financial income

 

274

 

1,051

 

Financial (expenses)

 

(1,009

)

(1,123

)

Total

 

(735

)

(72

)

 

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GRAPHIC

 

c)             Effects of derivatives as Cash Flow hedge

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Derivatives not designated as hedges

 

 

 

 

 

Exchange risk and interest rates

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(628

)

(563

)

US$ floating rate vs. US$ fixed rate swap

 

 

7

 

Euro floating rate vs. US$ fixed rate swap

 

 

(1

)

AUD Forward

 

 

(4

)

EuroBonds Swap

 

7

 

2

 

US$ fixed rate vs. CDI swap

 

 

(128

)

South African randes forward

 

 

13

 

Treasury future

 

(6

)

11

 

Pre dollar swap

 

(36

)

(1

)

 

 

(663

)

(664

)

Risk of product prices

 

 

 

 

 

Nickel

 

 

 

 

 

Fixed price program

 

1

 

(69

)

Purchased scrap protection program

 

 

(1

)

Maritime Freight Hiring Protection Program

 

 

3

 

Bunker Oil Hedge

 

(9

)

(80

)

Coal

 

 

3

 

 

 

(8

)

(144

)

Derivatives designated as hedges

 

 

 

 

 

Bunker Oil Hedge

 

(3

)

 

Strategic Nickel

 

(337

)

(93

)

Foreign exchange cash flow hedge

 

55

 

(88

)

Aluminum

 

 

12

 

 

 

(285

)

(169

)

Total

 

(956

)

(977

)

 

 

 

 

 

 

Gains (losses) unrealized derivative

 

(1,236

)

(957

)

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Derivatives not designated as hedges

 

 

 

 

 

Exchange risk and interest rates

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(375

)

(395

)

Euro floating rate vs. US$ fixed rate swap

 

 

(1

)

US$ fixed rate vs. CDI swap

 

 

(128

)

Pre dollar swap

 

(36

)

 

 

 

(411

)

(524

)

Derivatives designated as hedges

 

 

 

 

 

Foreign exchange cash flow hedge

 

57

 

(65

)

 

 

57

 

(65

)

Total

 

(354

)

(589

)

 

 

 

 

 

 

Gains (losses) unrealized derivative

 

(1,089

)

(661

)

 

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Table of Contents

 

GRAPHIC

 

d)            Effects of derivatives designated as hedge

 

i.              Cash Flow Hedge

 

The effects of cash flow hedge impact the stockholders’ equity and are presented in the following tables:

 

 

 

Year ended

 

 

 

Parent Company

 

noncontrolling

 

Consolidated

 

 

 

Currency

 

Nickel

 

Others

 

Total

 

stockholders

 

Total

 

Fair value measurements

 

(46

)

437

 

6

 

397

 

1

 

398

 

Reclassification to results due to realization

 

(65

)

(93

)

 

(158

)

 

(158

)

Net change in December 31, 2011

 

(111

)

344

 

6

 

239

 

1

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements

 

(7

)

45

 

1

 

39

 

 

39

 

Reclassification to results due to realization

 

58

 

(336

)

(3

)

(281

)

 

(281

)

Net change in December 31, 2012

 

51

 

(291

)

(2

)

(242

)

 

(242

)

 

Additional information about derivatives financial instruments

 

Value at Risk computation methodology

 

The Value at Risk of the positions was measured using a delta-Normal parametric approach, which considers that the future distribution of the risk factors - and its correlations - tends to present the same statistic properties verified in the historical data. The value at risk of Vale’s derivatives current positions was estimated considering one business day time horizon and a 95% confidence level.

 

Contracts subjected to margin calls

 

Vale has contracts subject to margin calls only for part of nickel trades executed by its wholly-owned subsidiary Vale Canada Ltd. The total cash amount as of December 31, 2012 is not relevant.

 

Initial Cost of Contracts

 

The financial derivatives negotiated by Vale and its controlled companies described in this document didn’t have initial costs (initial cash flow) associated.

 

The following tables show as of December 31, 2012, the derivatives positions for Vale and controlled companies with the following information: notional amount, fair value, value at risk, gains or losses in the period and the fair value for the remaining years of the operations per each group of instruments.

 

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Interest Rates and Foreign Exchange Derivative Positions

 

Protection program for the Real denominated debt indexed to CDI

 

·                  CDI vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays fixed rates in U.S. Dollars and receives payments linked to CDI.

 

·                  CDI vs. USD floating rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays floating rates in U.S. Dollars (Libor — London Interbank Offered Rate) and receives payments linked to CDI.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ Million

 

 

 

Notional ($ million)

 

 

 

Average

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Fair value by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Index

 

rate

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

2014

 

2015

 

2016-2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI vs. fixed rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

R$

8,184

 

R$

5,542

 

CDI

 

106.33

%

8,399

 

5,696

 

2,043

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

4,425

 

US$

3,144

 

US$+

 

3.64

%

(9,468

)

(6,075

)

(1,807

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

(1,069

)

(379

)

236

 

120

 

(528

)

71

 

(235

)

(377

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI vs. floating rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

R$

428

 

R$

428

 

CDI

 

103.50

%

443

 

453

 

45

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

250

 

US$

250

 

Libor +

 

0.99

%

(525

)

(486

)

(8

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

(82

)

(33

)

37

 

7

 

22

 

23

 

(127

)

 

 

 

Type of contracts: OTC Contracts

Protected Item: Debts linked to BRL

 

The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s payables.

 

Protection program for the real denominated debt indexed to TJLP

 

·                  TJLP vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows of the loans with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) from TJLP(1) to U.S. Dollars. In those swaps, Vale pays fixed rates in U.S. Dollars and receives payments linked to TJLP.

 

·                  TJLP vs. USD floating rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows of the loans with BNDES from TJLP to U.S. Dollars. In those swaps, Vale pays floating rates in U.S. Dollars and receives payments linked to TJLP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ Million

 

 

 

Notional ($ million)

 

 

 

Average

 

Fair value

 

Realized Gain/Loss

 

VaR

 

Fair value by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Index

 

rate

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

2014

 

2015

 

2016-2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap TJLP vs. fixed rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

R$

3,268

 

R$

3,107

 

TJLP +

 

1.38

%

4,585

 

2,927

 

451

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

1,694

 

US$

1,611

 

US$+

 

2.34

%

(4,960

)

(2,945

)

(297

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

(375

)

(18

)

154

 

68

 

279

 

5

 

(70

)

(589

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap TJLP vs. floating rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

R$

626

 

R$

774

 

TJLP +

 

0.90

%

576

 

695

 

212

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

356

 

US$

365

 

Libor +

 

-1.15

%

(662

)

(578

)

(12

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

(86

)

117

 

200

 

9

 

41

 

(52

)

8

 

(83

)

 

Type of contracts: OTC Contracts

Protected Item: Debts linked to BRL

 

The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s payables.

 


(1)  Due to TJLP derivatives market liquidity constraints, some swap trades were done through CDI equivalency.

 

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Protection program for the Real denominated fixed rate debt

 

·                  BRL fixed rate vs. USD fixed rate swap: In order to hedge the cash flow volatility, Vale entered into a swap transaction to convert the cash flows from loans rate with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) in Brazilian Reais linked to fixed rate to U.S. Dollars linked to fixed. In those swaps, Vale pays fixed rates in U.S. Dollars and receives fixed rates in Reais.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ Million

 

 

 

Notional ($ million)

 

 

 

Average

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Fair value by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Index

 

rate

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

2014

 

2015

 

2016 - 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

R$

795

 

R$

615

 

Fixed

 

4.64

%

733

 

517

 

50

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

442

 

US$

355

 

US$+

 

-1.03

%

(829

)

(560

)

(14

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

(96

)

(43

)

36

 

11

 

33

 

14

 

(30

)

(113

)

 

Type of contracts: OTC Contracts

Protected Item: Debts linked to BRL

 

The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s payables.

 

Foreign Exchange cash flow hedge

 

Brazilian Real fixed rate vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to mitigate the foreign exchange exposure that arises from the currency mismatch between the revenues denominated in U.S. Dollars and the disbursements and investments denominated in Brazilian Reais. Vale had no open positions on December 31, 2012 for this program.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional ($ million)

 

 

 

Average

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Index

 

rate

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

 

 

R$

820

 

Fixed

 

 

 

797

 

870

 

 

 

 

 

Payable

 

 

 

US$

450

 

US$+

 

 

 

(822

)

(928

)

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

(58

)

 

 

 

Type of contracts: OTC Contracts

Hedged Item: part of Vale’s revenues in USD

 

The P&L shown in the table above is offset by the hedged items’ P&L due to USD/BRL exchange rate.

 

Protection program for Euro denominated debt

 

·                  EUR fixed rate vs. USD fixed rate swap: In order to hedge the cash flow volatility, Vale entered into a swap transaction to convert the cash flows from debts in Euros linked to fixed rate to U.S. Dollars linked to fixed rate. This trade was used to convert the cash flows of part of debts in Euros, each one with a notional amount of € 750 million, issued in 2010 and 2012 by Vale. Vale receives fixed rates in Euros and pays fixed rates in U.S. Dollars.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ Million

 

 

 

Notional ($ million)

 

 

 

Average

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Fair value by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Index

 

rate

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

2014

 

2015

 

2016 - 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

1,000

 

500

 

EUR

 

4.063

%

3,108

 

1,350

 

52

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

1,288

 

US$

675

 

US$

 

4.511

%

(3,073

)

(1,418

)

(59

)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

35

 

(68

)

(7

)

33

 

(9

)

(41

)

(4

)

89

 

 

Type of contracts: OTC Contracts

Protected Item: Vale’s Debt linked to EUR

 

The P&L shown in the table above is offset by the hedged items’ P&L due to EUR/USD exchange rate.

 

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Foreign exchange hedging program for disbursements in Canadian dollars

 

·                  Canadian Dollar Forward — In order to reduce the cash flow volatility, Vale entered into forward transactions to mitigate the foreign exchange exposure that arises from the currency mismatch between the revenues denominated in U.S. Dollars and the disbursements denominated in Canadian Dollars.

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

Notional ($ million)

 

 

 

rate

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Fair value by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(CAD/USD)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

2014

 

2015

 

2016 - 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward

 

CAD 1,362

 

 

B

 

1.013

 

15

 

 

 

23

 

6

 

8

 

1

 

0

 

 

Type of contracts: OTC Contracts

Hedged Item: part of disbursements in Canadian Dollars

 

The P&L shown in the table above is offset by the hedged items’ P&L due to CAD/USD exchange rate.

 

Protection program for interest rate

 

·                  Treasury Future — Vale entered into a treasury 10 year forward transaction (buyer) on the last quarter of 2011 with the objective of partial protection into debt cost indexed to this rate. This program ended in January 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional ($ million)

 

 

 

rate

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

% p.a.

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

US$

900

 

B

 

 

 

(10

)

6

 

 

 

 

 

Type of contracts: OTC Contracts

 

Protected Item: part of debt emission costs

 

The P&L shown in the table above was partially offset by emission cost reduction due to treasury variations.

 

Commodity Derivative Positions

 

The Company’s cash flow is also exposed to several market risks associated to global commodities price volatilities. To offset these volatilities, Vale contracted the following derivatives transactions:

 

Nickel Sales Hedging Program

 

In order to reduce the cash flow volatility, hedging transactions were implemented. These transactions fixed the prices of part of the sales in the period. Vale had no open positions on December 31, 2012 for this program.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional ($ million)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

% p.a.

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward

 

 

 

 

19,998

 

S

 

 

 

234

 

296

 

 

 

 

Type of contracts: OTC Contracts

Protected Item: part of Vale’s revenues linked to Nickel price.

 

The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.

 

Nickel Fixed Price Program

 

In order to maintain the exposure to Nickel price fluctuations, we entered into derivatives to convert to floating prices all contracts with clients that required a fixed price. These trades aim to guarantee that the prices of these operations would be the same of the average prices negotiated in LME in the date the product is delivered to the client. It normally involves buying Nickel forwards (Over-the-Counter) or futures (exchange negotiated). Those operations are usually reverted before the maturity in order to match

 

74



Table of Contents

 

GRAPHIC

 

the settlement dates of the commercial contracts in which the prices are fixed. Whenever the ‘Nickel Sales Hedging Program’ is executed, the ‘Nickel Fixed Price Program’ is interrupted. Vale had no open positions on December 31, 2012 for this program.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional (ton)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/ton)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel Futures

 

 

 

 

162

 

B

 

 

 

(0.7

)

(0.9

)

 

 

 

Type of contracts: LME Contracts

Protected Item: part of Vale’s revenues linked to fixed price sales of Nickel.

 

The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.

 

Nickel Purchase Protection Program

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional (ton)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/ton)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel Futures

 

210

 

228

 

S

 

17,045

 

0

 

0

 

0.36

 

0.2

 

0

 

 

Type of contracts: LME Contracts

Protected Item: part of Vale’s revenues linked to Nickel price.

 

The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.

 

Copper Scrap Purchase Protection Program

 

This program was implemented in order to reduce the cash flow volatility due to the quotation period mismatch between the pricing period of copper scrap purchase and the pricing period of final products sale to the clients, as the copper scrap combined with other raw materials or inputs to produce copper for the final clients. This program usually is implemented by the sale of forwards or futures at LME or Over-the-Counter operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

Notional (lbs)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/lbs)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward

 

937,517

 

892,869

 

S

 

3.66

 

0.01

 

0.2

 

(0.2

)

0.1

 

0.01

 

 

Type of contracts: OTC Contracts

Protected Item: of Vale’s revenues linked to Copper price.

 

The P&L shown in the table above is offset by the protected items’ P&L due to Copper price

 

Bunker Oil Purchase Protection Program

 

In order to reduce the impact of bunker oil price fluctuation on Vale’s freight hiring/supply and consequently reducing the company’s cash flow volatility, bunker oil derivatives were implemented. These transactions are usually executed through forward purchases. Vale had no open positions on December 31, 2012 for this program.

 

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GRAPHIC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ million

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Fair value

 

 

 

Notional (ton)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

by year

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/ton)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward

 

 

 

B

 

 

 

 

2

 

 

 

 

Type of contracts: OTC Contracts

Protected Item: part of Vale’s costs linked to Bunker Oil price.

 

The P&L shown in the table above is offset by the protected items’ P&L due to Bunker Oil price.

 

Embedded Derivative Positions

 

The Company’s cash flow is also exposed to several market risks associated to contracts that contain embedded derivatives or derivative-like features. From Vale’s perspective, it may include, but is not limited to, commercial contracts, procurement contracts, rental contracts, bonds, insurance policies and loans. The following embedded derivatives were observed in December 31, 2012:

 

Raw material and intermediate products purchase

 

Nickel concentrate and raw materials purchase agreements, in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

R$ million

 

 

 

Notional (ton)

 

 

 

Strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/ton)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel Forwards

 

2,475

 

1,951

 

$

 

16,968

 

2.0

 

(0.7

)

2

 

 

 

Copper Forwards

 

7,272

 

6,653

 

 

 

7,899

 

0.9

 

0.9

 

(4

)

 

 

Total

 

 

 

 

 

 

 

 

 

2.9

 

0.2

 

(2

)

3

 

 

Gas purchase for Pelletizing Company in Oman

 

Our subsidiary Vale Oman Pelletizing Company LLC has a natural gas purchase agreement in which there´s a clause that defines that a premium can be charged if pellet prices trades above a pre-defined level. This clause is considered as an embedded derivative.

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

R$ million

 

 

 

Notional (volume)

 

 

 

strike

 

Fair value

 

Realized Gain/Loss

 

Value at Risk

 

Flow

 

December 31, 2012

 

December 31, 2011

 

Buy/ Sell

 

(US$/ton)

 

December 31, 2012

 

December 31, 2011

 

December 31, 2012

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call Options

 

746,667

 

 

$

 

179.36

 

(4.7

)

 

 

4

 

 

a)             Market Curves

 

To build the curves used on the pricing of the derivatives, public data from BM&F, Central Bank of Brazil, London Metals Exchange (LME) and proprietary data from Thomson Reuters and Bloomberg were used. The derivatives prices were calculated based using  December 31, 2012 market data..

 

76



Table of Contents

 

GRAPHIC

 

1. Commodities

 

Nickel

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

17,085.00

 

JUN13

 

17,126.28

 

DEC13

 

17,233.69

 

JAN13

 

17,020.72

 

JUL13

 

17,147.96

 

DEC14

 

17,453.45

 

FEB13

 

17,042.55

 

AUG13

 

17,168.28

 

DEC15

 

17,591.56

 

MAR13

 

17,066.98

 

SEP13

 

17,186.00

 

DEC16

 

17,691.41

 

APR13

 

17,088.71

 

OCT13

 

17,201.28

 

 

 

 

 

MAY13

 

17,107.77

 

NOV13

 

17,215.43

 

 

 

 

 

 

Copper

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

SPOT

 

3.65

 

JUN13

 

3.61

 

DEC13

 

3.62

 

JAN13

 

3.59

 

JUL13

 

3.61

 

DEC14

 

3.62

 

FEB13

 

3.60

 

AUG13

 

3.61

 

DEC15

 

3.63

 

MAR13

 

3.60

 

SEP13

 

3.61

 

DEC16

 

3.64

 

APR13

 

3.60

 

OCT13

 

3.61

 

 

 

 

 

MAY13

 

3.60

 

NOV13

 

3.61

 

 

 

 

 

 

Bunker Oil

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

605.00

 

JUN13

 

611.11

 

DEC13

 

606.75

 

JAN13

 

605.11

 

JUL13

 

611.25

 

DEC14

 

595.50

 

FEB13

 

605.25

 

AUG13

 

611.23

 

DEC15

 

591.17

 

MAR13

 

607.65

 

SEP13

 

610.50

 

DEC16

 

590.36

 

APR13

 

609.10

 

OCT13

 

609.50

 

 

 

 

 

MAY13

 

610.35

 

NOV13

 

608.20

 

 

 

 

 

 

77



Table of Contents

 

GRAPHIC

 

2. Rates

 

US$-Brazil Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

02/01/13

 

0.95

 

04/01/15

 

1.64

 

10/02/17

 

2.43

 

03/01/13

 

1.02

 

07/01/15

 

1.69

 

01/02/18

 

2.50

 

04/01/13

 

1.07

 

10/01/15

 

1.78

 

04/02/18

 

2.57

 

07/01/13

 

1.14

 

01/04/16

 

1.83

 

07/02/18

 

2.61

 

10/01/13

 

1.21

 

04/01/16

 

1.92

 

10/01/18

 

2.68

 

01/02/14

 

1.28

 

07/01/16

 

2.00

 

01/02/19

 

2.78

 

04/01/14

 

1.35

 

10/03/16

 

2.06

 

04/01/19

 

2.82

 

07/01/14

 

1.39

 

01/02/17

 

2.16

 

07/01/19

 

2.90

 

10/01/14

 

1.48

 

04/03/17

 

2.26

 

10/01/19

 

2.98

 

01/02/15

 

1.53

 

07/03/17

 

2.33

 

01/02/20

 

3.05

 

 

US$ Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

US$1M

 

0.21

 

US$6M

 

0.32

 

US$11M

 

0.32

 

US$2M

 

0.25

 

US$7M

 

0.32

 

US$12M

 

0.32

 

US$3M

 

0.30

 

US$8M

 

0.32

 

US$2Y

 

0.40

 

US$4M

 

0.31

 

US$9M

 

0.32

 

US$3Y

 

0.50

 

US$5M

 

0.31

 

US$10M

 

0.32

 

US$4Y

 

0.67

 

 

TJLP

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

02/01/13

 

5.50

 

04/01/15

 

5.50

 

10/02/17

 

5.50

 

03/01/13

 

5.50

 

07/01/15

 

5.50

 

01/02/18

 

5.50

 

04/01/13

 

5.50

 

10/01/15

 

5.50

 

04/02/18

 

5.50

 

07/01/13

 

5.50

 

01/04/16

 

5.50

 

07/02/18

 

5.50

 

10/01/13

 

5.50

 

04/01/16

 

5.50

 

10/01/18

 

5.50

 

01/02/14

 

5.50

 

07/01/16

 

5.50

 

01/02/19

 

5.50

 

04/01/14

 

5.50

 

10/03/16

 

5.50

 

04/01/19

 

5.50

 

07/01/14

 

5.50

 

01/02/17

 

5.50

 

07/01/19

 

5.50

 

10/01/14

 

5.50

 

04/03/17

 

5.50

 

10/01/19

 

5.50

 

01/02/15

 

5.50

 

07/03/17

 

5.50

 

01/02/20

 

5.50

 

 

BRL Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

02/01/13

 

6.98

 

04/01/15

 

7.86

 

10/02/17

 

8.56

 

03/01/13

 

7.00

 

07/01/15

 

7.98

 

01/02/18

 

8.64

 

04/01/13

 

7.06

 

10/01/15

 

8.08

 

04/02/18

 

8.68

 

07/01/13

 

7.09

 

01/04/16

 

8.19

 

07/02/18

 

8.72

 

10/01/13

 

7.08

 

04/01/16

 

8.30

 

10/01/18

 

8.76

 

01/02/14

 

7.14

 

07/01/16

 

8.36

 

01/02/19

 

8.79

 

04/01/14

 

7.20

 

10/03/16

 

8.43

 

04/01/19

 

8.85

 

07/01/14

 

7.34

 

01/02/17

 

8.44

 

07/01/19

 

8.90

 

10/01/14

 

7.54

 

04/03/17

 

8.46

 

10/01/19

 

8.95

 

01/02/15

 

7.71

 

07/03/17

 

8.53

 

01/02/20

 

9.00

 

 

EUR Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

EUR1M

 

0.05

 

EUR6M

 

0.26

 

EUR11M

 

0.32

 

EUR2M

 

0.10

 

EUR7M

 

0.28

 

EUR12M

 

0.32

 

EUR3M

 

0.13

 

EUR8M

 

0.29

 

EUR2Y

 

0.38

 

EUR4M

 

0.19

 

EUR9M

 

0.30

 

EUR3Y

 

0.47

 

EUR5M

 

0.23

 

EUR10M

 

0.31

 

EUR4Y

 

0.61

 

 

CAD Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

CAD1M

 

1.05

 

CAD6M

 

1.30

 

CAD11M

 

1.34

 

CAD2M

 

1.15

 

CAD7M

 

1.31

 

CAD12M

 

1.34

 

CAD3M

 

1.23

 

CAD8M

 

1.32

 

CAD2Y

 

1.42

 

CAD4M

 

1.27

 

CAD9M

 

1.33

 

CAD3Y

 

1.53

 

CAD5M

 

1.29

 

CAD10M

 

1.33

 

CAD4Y

 

1.64

 

 

Currencies - Ending rates

 

CAD/US$

 

1.0053

 

US$/BRL

 

2.0435

 

EUR/US$

 

1.3197

 

 

78



Table of Contents

 

GRAPHIC

 

Sensitivity Analysis on Derivatives from Parent Company

 

We present below the sensitivity analysis for all derivatives outstanding positions as of September 30, 2012 given predefined scenarios for market risk factors behavior. The scenarios were defined as follows:

 

·                  Fair Value: the fair value of the instruments as at December 31 , 2012;

·                  Scenario I: unfavorable change of 25% - Potential losses considering a shock of 25% in the market risk factors used for MtM calculation that negatively impacts the fair value of Vale’s derivatives positions;

·                  Scenario II: favorable change of 25% - Potential profits considering a shock of 25% in the market curves used for MtM calculation that positively impacts the fair value of Vale’s derivatives positions;

·                  Scenario III: unfavorable change of 50% - Potential losses considering a shock of 50% in the market curves used for MtM calculation that negatively impacts the fair value of Vale’s derivatives positions;

·                  Scenario IV: favorable change of 50% - Potential profits considering a shock of 50% in the market curves used for MtM calculation that positively impacts the fair value of Vale’s derivatives positions;

 

Sensitivity analysis - Foreign Exchange and Interest Rate Derivative Positions

 

Amounts in R$ million

 

Program

 

Instrument

 

Risk

 

Fair Value

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

 

Protection program for the Real

 

CDI vs. USD fixed rate swap

 

USD/BRL fluctuation

 

 

 

(2,367

)

2,367

 

(4,734

)

4,734

 

denominated debt indexed to CDI

 

 

 

USD interest rate inside Brazil variation

 

(1,069

)

(77

)

75

 

(157

)

148

 

 

 

 

 

Brazilian interest rate fluctuation

 

 

 

(18

)

16

 

(37

)

31

 

 

 

 

 

USD Libor variation

 

 

 

(1

)

1

 

(2

)

2

 

 

 

CDI vs. USD floating rate swap

 

USD/BRL fluctuation

 

 

 

(131

)

131

 

(263

)

263

 

 

 

 

 

Brazilian interest rate fluctuation

 

(82

)

(0.5

)

0.5

 

(1

)

1

 

 

 

 

 

USD Libor variation

 

 

 

(0.03

)

0.02

 

(0.05

)

0.05

 

 

 

Protected Items - Real denominated debt

 

USD/BRL fluctuation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Protection program for the Real

 

TJLP vs. USD fixed rate swap

 

USD/BRL fluctuation

 

 

 

(1,240

)

1,240

 

(2,480

)

2,480

 

denominated debt indexed to TJLP

 

 

 

USD interest rate inside Brazil variation

 

 

 

(90

)

86

 

(186

)

168

 

 

 

 

 

Brazilian interest rate fluctuation

 

(375

)

(259

)

287

 

(495

)

605

 

 

 

 

 

TJLP interest rate fluctuation

 

 

 

(193

)

191

 

(387

)

388

 

 

 

 

 

USD Libor variation

 

 

 

0

 

0

 

0

 

0

 

 

 

TJLP vs. USD floating rate swap

 

USD/BRL fluctuation

 

 

 

(166

)

166

 

(331

)

331

 

 

 

 

 

USD interest rate inside Brazil variation

 

 

 

(14

)

13

 

(28

)

25

 

 

 

 

 

Brazilian interest rate fluctuation

 

(86

)

(33

)

37

 

(63

)

80

 

 

 

 

 

TJLP interest rate fluctuation

 

 

 

(25

)

25

 

(51

)

51

 

 

 

 

 

USD Libor variation

 

 

 

(6

)

6

 

(12

)

12

 

 

 

Protected Items - Real denominated debt

 

USD/BRL fluctuation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Protection program for the Real

 

BRL fixed rate vs. USD

 

USD/BRL fluctuation

 

 

 

(207

)

207

 

(414

)

414

 

denominated fixed rate debt

 

 

 

USD interest rate inside Brazil variation

 

(96

)

(11

)

11

 

(23

)

21

 

 

 

 

 

Brazilian interest rate fluctuation

 

 

 

(35

)

38

 

(67

)

79

 

 

 

Protected Items - Real denominated debt

 

USD/BRL fluctuation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Protection Program for the Euro

 

EUR fixed rate vs. USD fixed rate swap

 

USD/BRL fluctuation

 

 

 

(9

)

9

 

(17

)

17

 

denominated debt

 

 

 

EUR/USD fluctuation

 

35

 

(777

)

777

 

(1,554

)

1,554

 

 

 

 

 

EUR Libor variation

 

 

 

(49

)

53

 

(96

)

110

 

 

 

 

 

USD Libor variation

 

 

 

(57

)

53

 

(120

)

102

 

 

 

Protected Items - Euro denominated debt

 

EUR/USD fluctuation

 

n.a.

 

777

 

(777

)

1,554

 

(1,554

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange hedging program for

 

CAD Forward

 

USD/BRL fluctuation

 

 

 

(4

)

4

 

(8

)

8

 

disbursements in Canadian dollars

 

 

 

CAD/USD fluctuation

 

15

 

(683

)

683

 

(1,366

)

1,366

 

(CAD)

 

 

 

CAD Libor variation

 

 

 

(12

)

12

 

(24

)

25

 

 

 

 

 

USD Libor variation

 

 

 

(3

)

3

 

(7

)

7

 

 

 

Protected Items - Disbursement in Canadian dollars

 

CAD/USD fluctuation

 

n.a.

 

683

 

(683

)

1,366

 

(1,366

)

 

Sensitivity analysis - Commodity Derivative Positions

 

Amounts in R$ million

 

Program

 

Instrument

 

Risk

 

Fair Value

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

 

Nickel purchase protection program

 

Sale of nickel future/forward contracts

 

Nickel price fluctuation

 

 

 

(2

)

2

 

(4

)

4

 

 

 

 

 

Libor USD fluctuation

 

0

 

0

 

0

 

0

 

0

 

 

 

 

 

USD/BRL fluctuation

 

 

 

0

 

0

 

0

 

0

 

 

 

Protected Item: Part of Vale’s revenues linked to Nickel price

 

Nickel price fluctuation

 

n.a.

 

2

 

(2

)

4

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper Scrap Purchase Protection Program

 

Sale of copper future/forward contracts

 

Copper price fluctuation

 

 

 

(1.7

)

1.7

 

(3.5

)

3.5

 

 

 

 

Libor USD fluctuation

 

0.01

 

0

 

0

 

0

 

0

 

 

 

 

 

BRL/USD fluctuation

 

 

 

0

 

0

 

0

 

0

 

 

 

Protected Item: Part of Vale’s revenues linked to Copper price

 

Copper price fluctuation

 

n.a.

 

1.7

 

(1.7

)

3.5

 

(3.5

)

 

Sensitivity analysis - Embedded Derivative Positions

 

Amounts in R$ million

 

Program

 

Instrument

 

Risk

 

Fair Value

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

 

Embedded derivatives - Raw material purchase (Nickel)

 

Embedded derivatives - Raw material purchase

 

Nickel price fluctuation

 

 

 

(22

)

22

 

(43

)

43

 

 

 

 

 

BRL/USD fluctuation

 

2.0

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives - Raw material purchase (Copper)

 

Embedded derivatives - Raw material purchase

 

Copper price fluctuation

 

 

 

(29

)

29

 

(59

)

59

 

 

 

 

 

BRL/USD fluctuation

 

0.9

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives - Gas purchase for Pelletizing Company in Oman

 

Embedded derivatives - Gas purchase

 

Pellet price fluctuation

 

 

 

(7

)

3

 

(17

)

5

 

 

 

 

 

BRL/USD fluctuation

 

(4.7

)

(1

)

1

 

(2

)

2

 

 

79



Table of Contents

 

GRAPHIC

 

Sensitivity Analysis on Debt and Cash Investments

 

The Company’s funding and cash investments linked to currencies different from Brazilian Reais are subjected to volatility of foreign exchange currencies.

 

Amounts in R$ million

 

Program

 

Instrument

 

Risk

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

 

Funding

 

Debt denominated in BRL

 

No fluctuation

 

 

 

 

 

Funding

 

Debt denominated in USD

 

USD/BRL fluctuation

 

(9,828

)

9,828

 

(19,656

)

19,656

 

Cash Investments

 

Cash denominated in BRL

 

No fluctuation

 

 

 

 

 

Cash Investments

 

Cash denominated in USD

 

USD/BRL fluctuation

 

(2,507

)

2,507

 

(5,013

)

5,013

 

Cash Investments

 

Cash denominated in EUR

 

EUR/BRL fluctuation

 

(35

)

35

 

(70

)

70

 

Cash Investments

 

Cash denominated in CAD

 

CAD/BRL fluctuation

 

(36

)

36

 

(72

)

72

 

Cash Investments

 

Cash denominated in GBP

 

GBP/BRL fluctuation

 

(6

)

6

 

(12

)

12

 

Cash Investments

 

Cash denominated in AUD

 

AUD/BRL fluctuation

 

(54

)

54

 

(108

)

108

 

 

Financial counterparties ratings

 

Derivatives transactions are executed with financial institutions that we consider to have a very good credit quality. The exposure limits to financial institutions are proposed annually for the Executive Risk Committee and approved by the Executive Board. The financial institutions credit risk tracking is performed making use of a credit risk valuation methodology which considers, among other information, published ratings provided by international rating agencies. In the table below, we present the ratings in foreign currency published by Moody’s and S&P agencies for the financial institutions that we had outstanding trades as of December 31, 2012.

 

Vale’s Counterparty

 

Moody’s*

 

S&P*

 

 

 

 

 

 

 

Banco Santander

 

Baa2

 

A-

 

Itau Unibanco*

 

Baa1

 

BBB

 

HSBC

 

Aa3

 

A+

 

JP Morgan Chase & Co

 

A2

 

A

 

Banco Bradesco*

 

Baa2

 

BBB

 

Banco do Brasil*

 

Baa2

 

BBB

 

Banco Votorantim*

 

Baa2

 

BBB-

 

Credit Agricole

 

A2

 

A

 

Standard Bank

 

A3

 

BBB+

 

Deutsche Bank

 

A2

 

A+

 

BNP Paribas

 

A2

 

A+

 

Citigroup

 

Baa2

 

A-

 

Banco Safra*

 

Baa2

 

BBB-

 

ANZ Australia and New Zealand Banking

 

Aa2

 

AA-

 

Banco Amazônia SA

 

A1

 

A+

 

Societe Generale

 

A2

 

A

 

Bank of Nova Scotia

 

Aa1

 

A+

 

Natixis

 

A2

 

A

 

Royal Bank of Canada

 

Aa3

 

AA-

 

China Construction Bank

 

A1

 

A

 

Goldman Sachs

 

A3

 

A-

 

Bank of China

 

A1

 

A

 

Barclays

 

A3

 

A

 

BBVA Banco Bilbao Vizcaya Argentaria

 

Baa3

 

BBB-

 

 


* For brazilian Banks we used local long term deposit rating

 

80



Table of Contents

 

GRAPHIC

 

26 -         Information by Business Segment and Consolidated Revenues by Geographic Area

 

The information presented to the Executive Board on the  performance of each segment  are derived from the accounting records adjusted for reallocations between segments..

 

a)            Results by segment

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

 

 

Bulk Materials

 

Basic Metals

 

Fertilizers

 

Logistic

 

Others

 

Total

 

Results

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

68,901

 

13,933

 

7,008

 

2,710

 

959

 

93,511

 

Cost and expenses

 

(34,921

)

(12,785

)

(5,760

)

(2,634

)

(2,009

)

(58,109

)

Impairment of assets

 

(2,139

)

(5,769

)

 

 

(303

)

(8,211

)

Loss on sale of assets

 

(768

)

 

(268

)

 

 

(1,036

)

Depreciation, depletion and amortization

 

(3,623

)

(3,316

)

(911

)

(466

)

(81

)

(8,397

)

 

 

27,450

 

(7,937

)

69

 

(390

)

(1,434

)

17,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial results

 

(8,463

)

248

 

(95

)

(120

)

25

 

(8,405

)

Equity results from associates

 

1,484

 

(45

)

 

218

 

(416

)

1,241

 

Income tax and social contribution

 

(519

)

159

 

2,481

 

(28

)

548

 

2,641

 

Impairment on investments

 

 

(2,026

)

 

 

(1,976

)

(4,002

)

Net income of the exercise

 

19,952

 

(9,601

)

2,455

 

(320

)

(3,253

)

9,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to non controlling interests

 

(132

)

(399

)

109

 

 

(79

)

(501

)

Income attributable to the company’s stockholders

 

20,084

 

(9,202

)

2,346

 

(320

)

(3,174

)

9,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales classified by geographic area:

 

 

 

 

 

 

 

 

 

 

 

 

 

America, except United States

 

1,396

 

1,939

 

120

 

65

 

29

 

3,549

 

United States of America

 

202

 

2,209

 

101

 

 

81

 

2,593

 

Europe

 

11,537

 

4,316

 

285

 

 

43

 

16,181

 

Middle East/Africa/Oceania

 

3,046

 

180

 

14

 

 

 

3,240

 

Japan

 

8,180

 

1,416

 

 

 

13

 

9,609

 

China

 

32,925

 

1,759

 

 

 

 

34,684

 

Asia, except Japan and China

 

5,763

 

1,965

 

182

 

 

4

 

7,914

 

Brazil

 

5,852

 

149

 

6,306

 

2,645

 

789

 

15,741

 

Net revenue

 

68,901

 

13,933

 

7,008

 

2,710

 

959

 

93,511

 

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2011

 

 

 

Bulk Materials

 

Basic Metals

 

Fertilizers

 

Logistic

 

Others

 

Total

 

Results

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

77,226

 

16,070

 

5,551

 

2,367

 

805

 

102,019

 

Cost and expenses

 

(27,129

)

(11,323

)

(4,416

)

(2,160

)

(2,428

)

(47,456

)

Realized gain on assets available for sale

 

 

2,492

 

 

 

 

2,492

 

Depreciation, depletion and amortization

 

(2,814

)

(2,640

)

(769

)

(388

)

(27

)

(6,638

)

 

 

47,283

 

4,599

 

366

 

(181

)

(1,650

)

50,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial results

 

(6,110

)

10

 

(99

)

(54

)

(99

)

(6,352

)

Equity results from associates

 

1,795

 

163

 

 

206

 

(307

)

1,857

 

Income tax and social contribution

 

(6,693

)

(1,633

)

(176

)

(12

)

 

(8,514

)

Net income of the exercise

 

36,275

 

3,139

 

91

 

(41

)

(2,056

)

37,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to non controlling interests

 

(181

)

(152

)

49

 

 

(122

)

(406

)

Income attributable to the company’s stockholders

 

36,456

 

3,291

 

42

 

(41

)

(1,934

)

37,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales classified by geographic area:

 

 

 

 

 

 

 

 

 

 

 

 

 

America, except United States

 

1,973

 

2,322

 

72

 

 

37

 

4,404

 

United States of America

 

169

 

2,624

 

1

 

 

4

 

2,798

 

Europe

 

14,657

 

4,128

 

255

 

 

102

 

19,142

 

Middle East/Africa/Oceania

 

2,969

 

251

 

1

 

 

2

 

3,223

 

Japan

 

10,069

 

2,081

 

 

 

14

 

12,164

 

China

 

33,666

 

2,066

 

 

 

164

 

35,896

 

Asia, except Japan and China

 

6,132

 

2,309

 

63

 

 

 

8,504

 

Brazil

 

7,591

 

289

 

5,159

 

2,367

 

482

 

15,888

 

Net revenue

 

77,226

 

16,070

 

5,551

 

2,367

 

805

 

102,019

 

 

81



Table of Contents

 

GRAPHIC

 

 

 

December 31, 2012

 

 

 

Net revenues

 

Cost and expenses

 

Research and
Development

 

Pre Operating and
Idle Capacity

 

Operating profit

 

Depreciation,
depletion and
amortization

 

Impairment on
assets

 

Operating income

 

Property, plant
and equipment
and intangible

 

Additions to
property, plant
and equipment
and intangible

 

Investments

 

Bulk Material

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

52,959

 

(24,745

)

(1,219

)

 

26,995

 

(2,715

)

 

24,280

 

71,797

 

15,595

 

189

 

Pellets

 

12,778

 

(4,683

)

 

(634

)

7,461

 

(438

)

 

7,023

 

4,125

 

777

 

2,262

 

Ferroalloys and manganese

 

1,055

 

(627

)

 

 

428

 

(83

)

 

345

 

618

 

359

 

 

Coal

 

2,109

 

(2,729

)

(229

)

(55

)

(904

)

(387

)

(2,139

)

(3,430

)

7,389

 

2,194

 

575

 

 

 

68,901

 

(32,784

)

(1,448

)

(689

)

33,980

 

(3,623

)

(2,139

)

28,218

 

83,929

 

18,925

 

3,026

 

Base Metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products (a)

 

11,657

 

(7,931

)

(587

)

(2,033

)

1,106

 

(3,052

)

(5,769

)

(7,715

)

62,273

 

5,662

 

63

 

Copper (b)

 

2,276

 

(1,808

)

(187

)

(239

)

42

 

(264

)

 

(222

)

9,270

 

1,661

 

516

 

Aluminum products

 

 

 

 

 

 

 

 

 

 

 

4,850

 

 

 

13,933

 

(9,739

)

(774

)

(2,272

)

1,148

 

(3,316

)

(5,769

)

(7,937

)

71,543

 

7,323

 

5,429

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

569

 

(334

)

(145

)

 

90

 

(44

)

 

46

 

4,514

 

2,703

 

 

Phosphates

 

4,926

 

(3,809

)

(72

)

(184

)

861

 

(655

)

 

206

 

16,776

 

594

 

 

Nitrogen

 

1,366

 

(1,216

)

 

 

150

 

(212

)

 

(62

)

 

81

 

 

Others fertilizers products

 

147

 

 

 

 

147

 

 

 

147

 

676

 

24

 

 

 

 

7,008

 

(5,359

)

(217

)

(184

)

1,248

 

(911

)

 

337

 

21,966

 

3,402

 

 

Logistics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Railroads

 

1,828

 

(1,976

)

(25

)

 

(173

)

(363

)

 

(536

)

4,843

 

923

 

1,197

 

Ports

 

882

 

(626

)

 

 

256

 

(103

)

 

153

 

1,231

 

191

 

192

 

Ships

 

 

(7

)

 

 

(7

)

 

 

(7

)

4,809

 

432

 

 

 

 

2,710

 

(2,609

)

(25

)

 

76

 

(466

)

 

(390

)

10,883

 

1,546

 

1,389

 

Others

 

959

 

(1,561

)

(448

)

 

(1,050

)

(81

)

(303

)

(1,434

)

3,956

 

797

 

3,200

 

Loss on sale of assets

 

 

(1,036

)

 

 

(1,036

)

 

 

(1,036

)

 

 

 

 

 

93,511

 

(53,088

)

(2,912

)

(3,145

)

34,366

 

(8,397

)

(8,211

)

17,758

 

192,277

 

31,993

 

13,044

 

 

82



Table of Contents

 

GRAPHIC

 

 

 

December 31, 2011

 

 

 

Net revenues

 

Cost and expenses

 

Research and
Development

 

Pre Operating and
Idle Capacity

 

Operating profit

 

Depreciation,
depletion and
amortization

 

Impairment on
assets

 

Operating income

 

Property, plant
and equipment
and intangible

 

Additions to
property, plant
and equipment
and intangible

 

Investments

 

Bulk Material

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

61,035

 

(17,420

)

(841

)

 

42,774

 

(2,079

)

 

40,695

 

57,762

 

12,314

 

200

 

Pellets

 

13,270

 

(5,355

)

 

(185

)

7,730

 

(338

)

 

7,392

 

5,308

 

1,021

 

1,913

 

Ferroalloys and manganese

 

1,126

 

(986

)

 

 

140

 

(114

)

 

26

 

631

 

290

 

 

Coal

 

1,795

 

(1,914

)

(252

)

(176

)

(547

)

(283

)

 

(830

)

7,624

 

1,868

 

448

 

 

 

77,226

 

(25,675

)

(1,093

)

(361

)

50,097

 

(2,814

)

 

47,283

 

71,325

 

15,493

 

2,561

 

Base Metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products (a)

 

13,596

 

(7,234

)

(428

)

(1,701

)

4,233

 

(2,457

)

 

1,776

 

58,782

 

4,316

 

 

Copper (b)

 

1,842

 

(1,159

)

(270

)

(21

)

392

 

(183

)

 

209

 

 

2,007

 

437

 

Aluminum products

 

632

 

(510

)

 

 

122

 

 

 

122

 

7,806

 

16

 

6,278

 

 

 

16,070

 

(8,903

)

(698

)

(1,722

)

4,747

 

(2,640

)

 

2,107

 

66,588

 

6,339

 

6,715

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

457

 

(392

)

(91

)

(45

)

(71

)

(74

)

 

(145

)

4,082

 

871

 

 

Phosphates

 

3,898

 

(2,700

)

(89

)

(125

)

984

 

(523

)

 

461

 

12,281

 

330

 

 

Nitrogen

 

1,136

 

(974

)

 

 

162

 

(172

)

 

(10

)

1,711

 

294

 

 

Others fertilizers products

 

60

 

 

 

 

60

 

 

 

60

 

695

 

 

 

 

 

5,551

 

(4,066

)

(180

)

(170

)

1,135

 

(769

)

 

366

 

18,769

 

1,495

 

 

Logistics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Railroads

 

1,682

 

(1,399

)

(204

)

 

79

 

(304

)

 

(225

)

4,202

 

349

 

1,028

 

Ports

 

685

 

(557

)

 

 

128

 

(84

)

 

44

 

1,768

 

568

 

212

 

Ships

 

 

 

 

 

 

 

 

 

4,642

 

504

 

 

 

 

2,367

 

(1,956

)

(204

)

 

207

 

(388

)

 

(181

)

10,612

 

1,421

 

1,240

 

Others

 

805

 

(1,781

)

(647

)

 

(1,623

)

(27

)

 

(1,650

)

4,350

 

1,563

 

4,468

 

Loss on sale of assets

 

 

2,492

 

 

 

2,492

 

 

 

2,492

 

 

 

 

 

 

102,019

 

(39,889

)

(2,822

)

(2,253

)

57,055

 

(6,638

)

 

50,417

 

171,644

 

26,311

 

14,984

 

 

83



Table of Contents

 

GRAPHIC

 

27 -                          Cost of Goods Sold and Services Rendered, and Sales and Administrative Expenses by Nature, Other Operational Expenses (Income), net

 

The costs of goods sold and services rendered

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Personnel

 

6,937

 

5,269

 

Material

 

8,341

 

6,276

 

Fuel oil and gas

 

4,050

 

3,644

 

Outsourcing services

 

9,325

 

7,107

 

Energy

 

1,689

 

1,540

 

Acquisition of products

 

2,718

 

3,887

 

Depreciation and depletion

 

7,413

 

5,980

 

Freight

 

5,660

 

3,772

 

Others

 

5,864

 

4,976

 

Total

 

51,997

 

42,451

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Personnel

 

3,270

 

2,513

 

Material

 

3,730

 

3,181

 

Fuel oil and gas

 

2,382

 

1,964

 

Outsourcing services

 

5,954

 

4,257

 

Energy

 

1,207

 

845

 

Acquisition of products

 

1,384

 

2,547

 

Depreciation and depletion

 

2,129

 

1,704

 

Others

 

4,189

 

3,947

 

Total

 

24,245

 

20,958

 

 

Selling and administrative expenses

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Personnel

 

1,580

 

1,242

 

Services (consulting, infrastructure and others)

 

959

 

908

 

Advertising and publicity

 

201

 

131

 

Depreciation

 

466

 

353

 

Travel expenses

 

126

 

106

 

Taxes and rents

 

55

 

84

 

Incentive

 

14

 

163

 

Others

 

417

 

413

 

Sales

 

563

 

585

 

Total

 

4,381

 

3,985

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Personnel

 

966

 

777

 

Services (consulting, infrastructure and others)

 

509

 

517

 

Advertising and publicity

 

154

 

140

 

Depreciation

 

350

 

260

 

Travel expenses

 

65

 

59

 

Taxes and rents

 

32

 

23

 

Incentive

 

14

 

135

 

Others

 

210

 

271

 

Sales

 

39

 

(6

)

Total

 

2,339

 

2,176

 

 

84



Table of Contents

 

GRAPHIC

 

Others operational expenses (incomes), net, including research and development

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Provision for loss with taxes credits (ICMS)

 

471

 

73

 

Provision for variable remuneration

 

871

 

697

 

Vale do Rio Doce Foundation - FVRD

 

73

 

204

 

Provision for disposal of materials/inventories

 

253

 

258

 

Pre operational, plant stoppages and idle capacity

 

3,145

 

2,253

 

Damage cost

 

127

 

 

Research and development

 

2,912

 

2,822

 

Others

 

2,276

 

1,351

 

Total

 

10,128

 

7,658

 

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Others operational expenses (incomes), net, including research and development

 

 

 

 

 

Provision for loss with taxes credits (ICMS)

 

468

 

5

 

Provision for variable remuneration

 

575

 

627

 

Vale do Rio Doce Foundation - FVRD

 

73

 

178

 

Provision for disposal of materials/inventories

 

221

 

35

 

Pre operational, plant stoppages and idle capacity

 

875

 

183

 

Research and development

 

1,619

 

1,460

 

Others

 

811

 

676

 

Total

 

4,642

 

3,164

 

 

85



Table of Contents

 

GRAPHIC

 

28 -                          Financial result

 

The financial results, by nature, are as follows:

 

 

 

Consolidated

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Financial expenses

 

 

 

 

 

Interest

 

(2,435

)

(2,329

)

Labor, tax and civil contingencies

 

(150

)

(69

)

Derivatives

 

(1,272

)

(1,702

)

Monetary and exchange rate variation (a)

 

(5,005

)

(5,017

)

Stockholders’ debentures

 

(907

)

(380

)

Financial taxes

 

(31

)

(22

)

Others

 

(1,224

)

(1,327

)

 

 

(11,024

)

(10,846

)

Financial income

 

 

 

 

 

Related parties

 

 

3

 

Short-term investments

 

244

 

987

 

Derivatives

 

992

 

1,722

 

Monetary and exchange rate variation (b)

 

859

 

1,550

 

Others

 

524

 

232

 

 

 

2,619

 

4,494

 

Financial results, net

 

(8,405

)

(6,352

)

 

 

 

 

 

 

Summary of Monetary and exchange rate

 

 

 

 

 

Cash and cash equivalents

 

58

 

(2

)

Loans and financing

 

(3,291

)

(985

)

Related parties

 

23

 

 

Others

 

(936

)

(2,480

)

Net (a + b)

 

(4,146

)

(3,467

)

 

 

 

Parent Company

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Financial expenses

 

 

 

 

 

Interest

 

(2,436

)

(2,227

)

Labor, tax and civil contingencies

 

(133

)

(53

)

Derivatives

 

(1,009

)

(1,123

)

Monetary and exchange rate variation (a)

 

(4,903

)

(4,201

)

Stockholders’ debentures

 

(907

)

(380

)

Financial taxes

 

(28

)

(9

)

Others

 

(668

)

(559

)

 

 

(10,084

)

(8,552

)

Financial income

 

 

 

 

 

Related parties

 

 

14

 

Short-term investments

 

182

 

724

 

Derivatives

 

274

 

1,051

 

Monetary and exchange rate variation (b)

 

767

 

1,133

 

Others

 

343

 

36

 

 

 

1,566

 

2,958

 

Financial results, net

 

(8,518

)

(5,594

)

 

 

 

 

 

 

Summary of Monetary and exchange rate

 

 

 

 

 

Loans and financing

 

(1,104

)

(791

)

Related parties

 

(2,508

)

72

 

Others

 

(524

)

(2,349

)

Net (a + b)

 

(4,136

)

(3,068

)

 

86



Table of Contents

 

GRAPHIC

 

29.                              Commitments

 

a)             Nickel project – New Caledonia

 

In regards to the construction and installation of our nickel plant in New Caledonia, we have provided guarantees in respect of our financing arrangements which are outlined below.

 

In connection with the Girardin Act tax - advantaged lease financing arrangement sponsored by the French government, we provided guarantees to BNP Paribas for the benefit of the tax investors regarding certain payments due from VNC, associated with the Girardin Act lease financing.  Consistent with our commitments, the assets are substantially complete as of December 31, 2012. We also committed that assets associated with the Girardin Act lease financing would operate for a five year period from then on and meet specified production criteria which remain consistent with our current plans, accordingly. We believe the likelihood of the guarantee being called upon is remote.

 

In October 2012, we entered into an agreement with Sumic, a stockholder in VNC, whereby Sumic agreed to a dilution in their interest in VNC from 21% to 14.5%. Sumic originally had a put option to sell to us the shares they own of VNC if the defined cost of the initial nickel project, as measured by funding provided to VNC, in natural currencies and converted to U.S. dollars at specified rates of exchange, exceeded US$4.6 billion (R$9.4 billion) and an agreement could not be reached on how to proceed with the project. On May 27, 2010 the threshold was reached and the put option discussion and decision period was extended to July 31, 2012. As a result of the October 2012 agreement, the trigger on the put option has been changed from a cost threshold to a production threshold. The possibility to exercise the put option has been deferred to the first quarter of 2015.

 

In addition, in the course of our operations we have provided letters of credit and guarantees in the amount of US$820 (R$1.7billion) that are associated with items such as environment reclamation, asset retirement obligation commitments, insurance, electricity commitments, post-retirement benefits, community service commitments and import and export duties.

 

In the course of our operations, we are subject to routine claims and litigation incidental to our business and various environmental proceedings. With respect to the environmental proceedings currently pending or threatened against us, they include (1) claims for personal injuries, (2) enforcement actions and (3) alleged violations of, including exceeding regulatory limits relating to discharges under, certain environmental or similar laws and regulations applicable to our operations.  We believe that the ultimate resolution of such proceedings, claims, and litigation will not significantly impair our operations or have material adverse effect on our financial position or results of operations.

 

b)             Participative Debentures

 

At the time of its privatization in 1997, Vale issued debentures to then-existing stockholders, including the Brazilian Government. The debentures terms were set to ensure that our pre-privatization stockholders would participate in potential future benefits that might be obtained from exploiting our mineral resources.

 

A total of 388,559,056 debentures were issued, with a par value of R$ 0.01 (one cent), whose value will be inflation-indexed per the General Market Price Index (IGP-M), as set out in the Issue Deed. In December 31, 2012, 2011 the total amount of these debentures was R$ 3.378.845 e R$ 2.495.995, respectively.

 

The debenture holders have the right to receive premiums, paid semiannually, equivalent to a percentage of net revenues from specific mine resources as set forth in the indenture. In April 2012 and October 2012 company paid a semester remuneration amounting R$ 11 and R$ 9, respectively.

 

c)              Operating lease

 

·                                          Pelletize Operations

 

Vale entered into operating lease agreemnets with joint venture partners Nibrasco, Itabrasco, Kobrasco and Hispanobras, under which Vale leased your pellet plants. The renewable lease terms are from 3 to 10 years.

 

In July 2012 Vale signed a operating lease agreement with Hispanobrás (Vale´s joint venture). The renewable lease agreement has a duration of 3 years.

 

87



Table of Contents

 

GRAPHIC

 

The table below shows the minimum future operating lease payments as at 31 December 2012

 

2013

 

151

 

2014

 

158

 

2015

 

156

 

2016

 

151

 

2017 thereafter

 

105

 

Total minimum payments required

 

721

 

 

The total amount of operational leasing expenses on pelletizing operations on 31 December 2012 and 2011 were R$419, and R$737, respectively.

 

·                                          Railroad operations

 

The Parent Company conducts some of its railway operations through a leases. The lease has a term of 30 years, renewable for another 30 years and Expires in August 2026. In most cases, the Company´s management expects that in the normal course of business these contracts will be renewed.

 

2013

 

174

 

2014

 

174

 

2015

 

174

 

2016

 

174

 

2017 thereafter

 

1,728

 

Total minimum payments required

 

2,424

 

 

The total amount of operational leasing expenses on railroad operations on 31 December 2012 and 2011were R$174 and, R$163, respectively.

 

d)             Concession Contracts and Sub-concession

 

i.                      Rail companies

 

The Company and certain group companies entered into concession agreements with the Brazilian Federal Government, through the Ministry of transport, for the development of the public rail transportation of cargo and the leasing of assets for the provision of such services. The accounting record grants and sub-concessions are presented in Note 14.

 

Railroad

 

End of the concession period

 

Vitória-Minas and Carajás (a)

 

June 2027

 

Carajás (a)

 

June 2027

 

Centro-Leste

 

August 2026

 

Ferrovia Norte Sul S.A.

 

December 2037

 

 


(a)    Concessions are not onerous.

 

The grant will be terminated with the completion of one of the following events: the termination of the contract term, expropriation, forfeiture, cancellation, annulment or dissolution and bankruptcy of the concessionaire.

 

The concessions, sub-concessions and leasing of the subsidiaries companies are recorded in the form of an operating lease, and presented the following:

 

 

 

FNS

 

FCA

 

Total number of plots

 

3

 

112

 

Periodicity of payments

 

 

(a)

Quarterly

 

Update index

 

IGP-DI FGV

 

IGP-DI FGV

 

Plots paid

 

 

(b)

54

 

Plots updated value

 

 

 

 

 

Concession

 

 

2

 

Leasing

 

 

31

 

 


(a)  In accordance with the delivery of each stretch of the railway

(b)  Two plots have been paid. The third plot had just 80% paid; the 20% they left is to cover existing railroad disputes.

 

88



Table of Contents

 

GRAPHIC

 

ii       Port

 

The Company has the following specialized port terminals:

 

Terminals

 

Location

 

Expiration of the concession
term

 

Terminal of Tubarão, Praia Mole e Granéis Líquidos

 

Vitória – ES

 

2020

 

Terminal of Produtos Diversos

 

Vitória – ES

 

2020

 

Terminal of Vila Velha

 

Vila Velha – ES

 

2023

 

Ferry Terminal of Ponta da Madeira – Pier I and III

 

São Luiz – Maranhão

 

2018

 

Ferry Terminal of Ponta da Madeira – Pier II

 

São Luiz – Maranhão

 

2010

(a)

Inácio Barbosa Ferry Terminal

 

Aracajú – SE

 

2012

 

Terminal Operation Ore – Port of Itaguaí

 

Itaguaí – RJ

 

2021

 

Ferry Terminal of Ilha de Guaíba – TIG

 

Mangaratiba – RJ

 

2018

 

 


(a) The extension of the duration for 36 months until the date that of a new price bidding

 

e) Guarantee issued to affiliates

 

The Associate Norte Energia acquired in 2012 a credit line from BNDES, Caixa Economica Federal and Banco BTG Pactual in order to finance his investments in energy in the totaling up to R$22.5 billion (US$11.01 billion). About this facility, Vale, like other stockholders, is committed to providing a corporate guarantee on the amount withdrawn, limited to his participation of 9% in the entity.

 

Until December 31, 2012, Vale guarantee on the value drawn the amount of R$282 (US$126).

 

On January 2, 2013 (Subsequent Events) Norte Energia withdrawn of another installment of your loan, increasing the amount guaranteed by Vale for R$188 (US$92) to R$470 (US$218).

 

30 -                          Related parties

 

Transactions with related parties are made by the Company  on a third party arms length basis based usual market terms and conditions .

 

In the normal course of operations, Vale contracts rights and obligations with related parties (subsidiaries, associated companies, jointly controlled entities and Stockholders), derived from the operations of sale and purchase of products and services, leasing of assets, sales of raw material, rail transport services, through prices agreed between the parties.

 

The balances of these related party transactions and their effect on the financial statements may be identified as follows:

 

 

 

Consolidated

 

 

 

Assets

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Customers

 

Related parties

 

Customers

 

Related parties

 

Customers

 

Related parties

 

Baovale Mineração S.A.

 

10

 

18

 

10

 

3

 

2

 

3

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

 

 

 

 

1

 

1

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

3

 

 

331

 

 

439

 

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

1

 

 

1

 

 

1

 

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

4

 

 

1

 

 

 

 

Mitsui Co.

 

44

 

 

 

 

 

 

MRS Logistica S.A.

 

17

 

68

 

15

 

76

 

 

24

 

Norsk Hydro ASA

 

 

827

 

 

868

 

 

 

Samarco Mineração S.A.

 

68

 

369

 

75

 

13

 

88

 

13

 

Others

 

126

 

335

 

104

 

98

 

194

 

167

 

Total

 

273

 

1,617

 

537

 

1,058

 

725

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

273

 

786

 

537

 

154

 

725

 

160

 

Non-current

 

 

833

 

 

904

 

 

48

 

Total

 

273

 

1,619

 

537

 

1,058

 

725

 

208

 

 

89



Table of Contents

 

GRAPHIC

 

 

 

Consolidated

 

 

 

Liabilities

 

 

 

December 31, 2012

 

December 31, 2011

 

January 1, 2011

 

 

 

Suppliers

 

Related
parties

 

Suppliers

 

Related
parties

 

Suppliers

 

Related
parties

 

Baovale Mineração S.A.

 

57

 

 

37

 

 

51

 

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

 

67

 

9

 

 

9

 

2

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

21

 

 

303

 

 

500

 

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

 

 

 

 

16

 

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

1

 

356

 

2

 

21

 

18

 

19

 

Minas da Serra Geral

 

16

 

 

16

 

 

16

 

 

MRS Logistica S.A.

 

81

 

 

27

 

 

14

 

 

Norsk Hydro ASA

 

 

146

 

 

149

 

 

 

Mitsui & CO, LTD

 

93

 

 

69

 

 

101

 

 

Others

 

23

 

 

48

 

44

 

159

 

17

 

Total

 

292

 

569

 

511

 

214

 

884

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

292

 

423

 

511

 

43

 

884

 

35

 

Non-current

 

 

146

 

 

171

 

 

3

 

Total

 

292

 

569

 

511

 

214

 

884

 

38

 

 

 

 

Parent Company

 

 

 

Assets

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Customers

 

Related parties

 

Customers

 

Related parties

 

Baovale Mineração S.A.

 

10

 

18

 

10

 

3

 

Biopalma da Amazônia

 

 

692

 

 

349

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

3

 

 

329

 

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

1

 

 

 

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

4

 

 

1

 

 

Companhia Portuária Baía de Sepetiba - CPBS

 

1

 

 

3

 

 

Ferrovia Centro - Atlântica S.A.

 

5

 

23

 

6

 

36

 

Minerações Brasileiras Reunidas S.A. - MBR

 

5

 

186

 

18

 

555

 

Mineracao Corumbaense Reunida S.A.

 

148

 

 

139

 

80

 

MRS Logistica S.A.

 

14

 

28

 

15

 

29

 

Salobo Metais S.A.

 

20

 

 

20

 

5

 

Samarco Mineração S.A.

 

68

 

369

 

75

 

13

 

Vale International S.A.

 

20,749

 

486

 

14,271

 

1,705

 

Vale Manganês S.A.

 

12

 

 

44

 

 

Vale Mina do Azul

 

87

 

 

 

47

 

Vale Operações Ferroviarias

 

111

 

 

135

 

11

 

Vale Potassio Nordeste

 

49

 

 

45

 

 

Others

 

155

 

409

 

138

 

174

 

Total

 

21,442

 

2,211

 

15,249

 

3,007

 

 

 

 

 

 

 

 

 

 

 

Current

 

21,442

 

1,347

 

15,249

 

2,561

 

Non-current

 

 

864

 

 

446

 

Total

 

21,442

 

2,211

 

15,249

 

3,007

 

 

 

 

Parent Company

 

 

 

Liabilities

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

Suppliers

 

Related parties

 

Suppliers

 

Related parties

 

Baovale Mineração S.A.

 

57

 

 

37

 

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

 

 

9

 

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

21

 

 

303

 

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

1

 

21

 

2

 

21

 

Companhia Portuária Baía de Sepetiba - CPBS

 

256

 

 

58

 

 

Ferrovia Centro - Atlântica S.A.

 

11

 

 

19

 

 

Minerações Brasileiras Reunidas S.A. - MBR

 

244

 

 

44

 

 

MRS Logistica S.A.

 

92

 

 

37

 

 

Salobo Metais S.A.

 

2

 

 

 

 

Mitsui & CO, LTD

 

93

 

 

69

 

 

Vale International S.A.

 

1

 

35,764

 

8

 

33,582

 

Vale Mina do Azul

 

 

 

152

 

 

Vale Operações Ferroviarias

 

22

 

 

 

 

Vale Potassio Nordeste

 

41

 

 

37

 

 

Others

 

130

 

12

 

99

 

10

 

Total

 

971

 

35,797

 

874

 

33,613

 

 

 

 

 

 

 

 

 

 

 

Current

 

971

 

6,434

 

874

 

4,959

 

Non-current

 

 

29,363

 

 

28,654

 

Total

 

971

 

35,797

 

874

 

33,613

 

 

90



Table of Contents

 

GRAPHIC

 


 

 

Consolidated

 

 

 

Income

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Baovale Mineração S.A.

 

 

3

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

472

 

1,193

 

Log-in S.A.

 

 

10

 

Mitsui & Co Ltd

 

 

 

MRS Logistica S.A.

 

27

 

26

 

Samarco Mineração S.A.

 

725

 

806

 

Others

 

280

 

390

 

Total

 

1,504

 

2,428

 

 

 

 

Consolidated

 

 

 

Cost / Expense

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Baovale Mineração S.A.

 

42

 

40

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

193

 

166

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

504

 

1,397

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

63

 

249

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

157

 

251

 

Log-in S.A.

 

9

 

 

Mineração Rio do Norte S.A.

 

 

29

 

Mitsui & Co Ttd

 

54

 

245

 

MRS Logistica S.A.

 

1,368

 

1,262

 

Others

 

80

 

28

 

Total

 

2,470

 

3,667

 

 

 

 

Consolidated

 

 

 

Financial

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

27

 

(4

)

Others

 

(15

)

(84

)

Total

 

12

 

(88

)

 

 

 

Parent Company

 

 

 

Income

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

ALBRAS - Alumínio Brasileiro S.A.

 

 

31

 

ALUNORTE - Alumina do Norte do Brasil S.A.

 

 

1

 

Baovale Mineração S.A.

 

 

3

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

455

 

1,163

 

Ferrovia Centro - Atlântica S.A.

 

97

 

195

 

Ferrovia Norte Sul S.A.

 

 

12

 

Vale Canada Limited

 

4

 

17

 

Minerações Brasileiras Reunidas S.A. - MBR

 

10

 

1

 

MRS Logistica S.A.

 

22

 

21

 

Samarco Mineração S.A.

 

723

 

788

 

Vale Energia S.A.

 

 

13

 

Vale International S.A.

 

50,517

 

57,026

 

Vale Manganês S.A.

 

10

 

68

 

Vale Operações Ferroviárias

 

319

 

246

 

Vale Operações Portuárias

 

32

 

 

Vale Mina do Azul

 

45

 

21

 

Others

 

341

 

36

 

Total

 

52,575

 

59,642

 

 

91



Table of Contents

 

GRAPHIC

 

 

 

Parent Company

 

 

 

Cost/Expense

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

ALUNORTE - Alumina do Norte do Brasil S.A.

 

 

28

 

Baovale Mineração S.A.

 

42

 

40

 

Companhia Coreano-Brasileira de Pelotização - KOBRASCO

 

150

 

166

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

504

 

1,397

 

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO

 

63

 

249

 

Companhia Nipo-Brasileira de Pelotização - NIBRASCO

 

157

 

251

 

Companhia Portuária Baia de Sepetiba - CPBS

 

402

 

296

 

Ferrovia Centro - Atlântica S.A.

 

92

 

 

Mitsui & Co Ltd

 

54

 

245

 

MRS Logistica S.A.

 

1,353

 

1,254

 

Vale Energia S.A.

 

408

 

162

 

Vale Mina do Azul S.A.

 

21

 

119

 

Vale Colombia Holdings

 

12

 

 

Minerações Brasileiras Reunidas S.A. - MBR

 

735

 

576

 

Others

 

24

 

293

 

Total

 

4,017

 

5,076

 

 

 

 

Parent Company

 

 

 

Financial

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

ALUNORTE - Alumina do Norte do Brasil S.A.

 

 

5

 

Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS

 

27

 

(4

)

Ferrovia Centro - Atlântica S.A.

 

(4

)

1

 

Vale Canada Limited

 

3

 

31

 

Vale International S.A.

 

(1,177

)

(988

)

Sociedad Contractual Minera Tres Valles

 

3

 

4

 

Mineração Corumbaense Reunida S.A.

 

 

(7

)

Minerações Brasileiras Reunidas S.A. - MBR

 

5

 

 

Biopalma da Amazonia S.A.

 

92

 

47

 

Vale Overseas

 

 

25

 

Others

 

1

 

13

 

Total

 

(1,050

)

(873

)

 

Additionally, we have loans payable to Banco Nacional de Desenvolvimento Social and BNDES Participações S.A amounting to R$ R$ 8.073nd R$ 1.685 respectively, accruing interest at market rates, which fall due through 2029. The operations generated interest expenses of R$ 86and R$ 29. We also maintain cash equivalent balances with Banco Bradesco S.A. in the amount of R$ 68 in December 31, 2012. The effect of these operations in results of the exercise was R$ 1.

 

Remuneration of key management personnel:

 

 

 

Year ended

 

 

 

December 31, 2012

 

December 31, 2011

 

Short–term benefits:

 

68

 

108

 

Wages or pro–labor

 

21

 

19

 

Direct and indirect benefits

 

21

 

40

 

Bonus

 

26

 

49

 

 

 

 

 

 

 

Long–term benefits:

 

 

 

 

 

Based on stock

 

21

 

29

 

 

 

 

 

 

 

Termination of position

 

16

 

65

 

 

 

105

 

202

 

 

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GRAPHIC

 

31 -                          Subsequent Event

 

Sales of Gold by-product

 

At February 5, 2013, Vale informed that it has entered into an agreement with Silver Wheaton Corp. (“SLW”), to sell 25% of the payable gold by-product stream from the Salobo copper mine for the life of the mine and 70% of the payable gold by-product stream from its Sudbury nickel mines — Coleman, Copper Cliff, Creighton, Garson, Stobie, Totten and Victor — for 20 years.

 

Vale will receive an initial cash payment of US$1.9 billion (R$3,8 billons) plus ten million warrants of SLW with a strike price of US$ 65 and a 10-year term, valued at US$100 million (R$199). US$ 1.33 billion (R$2,64 billons) will be paid for 25% of the gold by-product stream from Salobo while US$ 570 million (R$1.133) plus ten million SLW warrants will be paid for 70% of the Sudbury gold by-product stream.

 

In addition, Vale will also receive future cash payments for each ounce (oz) of gold delivered to SLW under the agreement, equal to the lesser of US$400 per oz (plus a 1% annual inflation adjustment from 2016 in the case of Salobo) and the prevailing market price. Vale may also receive an additional cash payment contingent on its decision to expand the capacity to process Salobo copper ores to more than 28 Mtpy before 2031. The additional amount would range from US$67 million (R$133) to US$400 million (R$795) depending on timing and size of the expansion.

 

There is no firm commitment from Vale to quantities of gold delivered — SLW is entitled not to specific volumes but to a percentage of the gold by-product stream from Salobo and Sudbury. Company will be subject to gold price risk for the SLW´s deliveries only if the price of gold drops below the US$ 400/oz trailing payment.

 

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GRAPHIC

 

32 -                 Board of Directors, Fiscal Council, Advisory committees and Executive Officers

 

Board of Directors

 

Governance and Sustainability Committee

 

 

Gilmar Dalilo Cezar Wanderley

Dan Antônio Marinho Conrado

 

Renato da Cruz Gomes

Chairman

 

Ricardo Simonsen

 

 

 

Mário da Silveira Teixeira Júnior

 

Fiscal Council

Vice-President

 

 

 

 

Marcelo Amaral Moraes

Fuminobu Kawashima

 

Chairman

José Mauro Mettrau Carneiro da Cunha

 

 

Luciano Galvão Coutinho

 

Aníbal Moreira dos Santos

Marcel Juviniano Barros

 

Antonio Henrique Pinheiro Silveira

Nelson Henrique Barbosa Filho

 

Arnaldo José Vollet

Oscar Augusto de Camargo Filho

 

 

Paulo Soares de Souza

 

Alternate

Renato da Cruz Gomes

 

Cícero da Silva

Robson Rocha

 

Oswaldo Mário Pêgo de Amorim Azevedo

 

 

Paulo Fontoura Valle

Alternate

 

 

 

 

 

Deli Soares Pereira

 

Executive Officers

Eduardo de Oliveira Rodrigues Filho

 

 

Eustáquio Wagner Guimarães Gomes

 

Murilo Pinto de Oliveira Ferreira

Hajime Tonoki

 

President & CEO

Luiz Carlos de Freitas

 

 

Luiz Maurício Leuzinger

 

Vânia Lucia Chaves Somavilla

Marco Geovanne Tobias da Silva

 

Executive Director, HR, Health & Safety, Sustainability and Energy

Paulo Sergio Moreira da Fonseca

 

 

Raimundo Nonato Alves Amorim

 

Luciano Siani Pires

Sandro Kohler Marcondes

 

Chief Financial Officer

 

 

 

Advisory Committees of the Board of Directors

 

Roger Allan Downey

 

 

Executive Director, Fertilizers and Coal

Controlling Committee

 

 

Luiz Carlos de Freitas

 

José Carlos Martins

Paulo Ricardo Ultra Soares

 

Executive Director, Ferrous and Strategy

Paulo Roberto Ferreira de Medeiros

 

 

 

 

Galib Abrahão Chaim

Executive Development Committee

 

Executive Director, Capital Projects Implementation

José Ricardo Sasseron

 

 

Luiz Maurício Leuzinger

 

Humberto Ramos de Freitas

Oscar Augusto de Camargo Filho

 

Executive Director, Logistics and Mineral Research

 

 

 

Strategic Committee

 

Gerd Peter Poppinga

Murilo Pinto de Oliveira Ferreira

 

Executive Director, Base Metals and IT

Dan Antônio Marinho Conrado

 

 

Luciano Galvão Coutinho

 

Marcelo Botelho Rodrigues

Mário da Silveira Teixeira Júnior

 

Global Controller Director

Oscar Augusto de Camargo Filho

 

 

 

 

Marcus Vinicius Dias Severini

Finance Committee

 

Chief Officer of Accounting and Control Department

Luciano Siani Pires

 

 

Eduardo de Oliveira Rodrigues Filho

 

Vera Lucia de Almeida Pereira Elias

Luciana Freitas Rodrigues

 

Chief Accountant

Luiz Maurício Leuzinger

 

CRC-RJ - 043059/O-8

 

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Vale S.A.

 

(Registrant)

 

 

 

 

By:

/s/ Roberto Castello Branco

Date: February 28, 2013

 

Roberto Castello Branco

 

 

Director of Investor Relations

 

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