Vale to invest US$ 12.9 billion in 2010

Rio de Janeiro, October 19, 2009 – Vale S.A. (Vale) announces that its Board of Directors has approved the investment budget for 2010, involving capital expenditures of US$ 12.9 billion(1) dedicated to sustaining existing operations and to fostering growth through research and development (R&D) and project execution.

The capex budget for 2010 represents an increase of 29.3% over the US$ 10 billion invested in the last twelve-month period ended at June 30, 2009 (2). The investment plan continues to reflect the focus on organic growth as the priority of our growth strategy: 76.6% of the budget is allocated to finance R&D and greenfield and brownfield project execution against an average of 71.1% over the last five years. Given the existing assets and those which will come on stream in the near future we expect to maintain production growing at a brisk pace. Our output index, which encompasses the operational performance of all minerals and metals produced by Vale, is estimated to increase at an annual average rate of 12.6% in 2010-2014, a higher rate of expansion than the already high 11.2% per annum for 2003-2008.

Although iron ore and nickel will continue to be our main businesses, we plan to boost the production capacity of copper, coal and fertilizers, creating a more diversified portfolio of world-class assets. Given the current project pipeline, we expect to reach the following production flows in 2014: 450 million metric tons of iron ore, 380,000 metric tons of nickel, 650,000 metric tons of copper, 30 million metric tons of coal, 3.1 million metric tons of potash and 6.6 million metric tons of phosphate rock (3).

To enhance the competitiveness of our operations, we will continue to invest a sizeable amount of funds in our railroads, maritime terminals, shipping and power generation.

Our long-term view

Based on a long-term view of the market fundamentals for minerals and metals and rigorous discipline in capital allocation, Vale has invested US$ 59.5 billion(4) over the last five years, creating significant shareholder value. As we strongly believe that the global recession did not affect the fundamentals, we will continue to pursue growth and value creation through investment in a fairly large number of organic growth options.

One of the most striking features of the last global economic cycle was the rapid pace of emerging economies growth, at 6.1% per annum, much faster than developed economies, where GDP increased by a yearly rate of only 2.4%.

Faster economic expansion and more intensive utilization led emerging economies to be the main drivers of the consumption of minerals and metals. For example, in this decade emerging economies were responsible for almost all of the world’s consumption growth of iron ore, carbon steel, aluminum, copper and nickel.

The share of emerging economies in global consumption of base metals increased to 59% in 2008 from 32% in 1993. China, the largest and fastest growing emerging economy, increased its market share in the seaborne trade of iron ore to 53.8% last year from only 9.7% fifteen years ago.

Rapidly growing emerging economies tend to make large investments in housing, infrastructure and industrialization, which are intensive consumers of minerals and metals. Real income growth from low levels leads to significant changes in consumption patterns, resulting in a much larger demand for consumer durables, metal intensive goods.

At the same time, increasing per capita income in emerging economies produces diet changes towards a larger intake of protein, thus stimulating the demand for fertilizers, key ingredients for grain crops. In a long-term perspective, emerging economies tend to grow faster than developed mature economies to make their per capita incomes converge over time to the levels reached by the wealthiest economies. Convergence is primarily determined by the higher rates of return on physical and human capital, the faster increase of labor force and the stronger productivity growth in emerging economies.

As a matter of fact, convergence has been taking place in the post-World War II period, being more pronounced in the 60´s and 70´s and more recently, from the late 90´s until now. Emerging economies withstood the global financial shock much better than expected. As the global economy is starting a synchronized recovery, they are further ahead on the road to recovery. The rebound is primarily driven by China, India, Indonesia, other Asian emerging economies and Brazil.

Unless there is a major deterioration in the quality of macroeconomic policies, we expect convergence to remain for the foreseeable future, with emerging economies continuing to play a key role in the demand for minerals and metals.

In addition to factors directly linked to economic growth, the initiatives to change the energy matrix to reduce world reliance on sources of climate-changing greenhouse gases also tend to cause a positive impact on the long-term demand for minerals and metals.

The move towards an increasing production of biofuels creates another source of demand growth for potash, given its importance for the production of sugar cane, corn and palm.

Solar, wind and nuclear power, which are free of CO2 emissions, are likely to increase their shares in the global energy matrix and the building of a meaningful capacity will contribute to boost the demand for metals.

The automobile industry seems to be in the initial stage of a new era, in which electric cars are expected to become its dominant product. Sales of hybrid electric vehicles (HEV) have been booming and Vale is the leading supplier of nickel for their batteries. This is still a very small market for nickel but it has great potential to expand over time.

On the supply side, geological factors make the availability of new world-class assets increasingly scarce and institutional factors pose barriers to mining investment, turning capacity expansion less responsive to price incentives.

The prospects for minerals and metals demand depend increasingly on growth in emerging economies, given their large shares in global consumption. This is particularly important to the extent that they tend, as we have seen, to grow faster than developed economies. Moreover, the demand for minerals and metals in emerging economies is more elastic to real income increase. At the same time, new technologies focused on the rise of non-climate changing sources of energy are likely to add further pressure on the demand for minerals and metals.

Geological and institutional constraints tend to contribute to a slow market adjustment and to generate the need to invest in higher-cost and lower-quality sources of supply.

Vale is best positioned to benefit from the strong long-term fundamentals of minerals and metals, given its world-class, long-life and low cost assets, wealth growth options in various segments of the metals and mining industry supplied by an exciting project pipeline and a global multi-commodity mineral exploration program, a long and successful track record in project development, discipline in capital allocation and financial strength.

The implementation over the near future of our investment plans, anchored on our values and extensive competitive advantages, is expected to create significant shareholder value across business cycles and multiple opportunities for economic and social mobility for the communities where we develop our operations.

The 2010 investment budget

The program for 2010 involves investments of US$ 12.894 billion, of which US$ 9.876 billion will finance organic growth, corresponding to 76.6% of total spending, with US$ 8.647 billion allocated to project execution and US$ 1.228 billion to R&D.

Budgeted expenditures with R&D allow for US$ 621 million to finance our global mineral exploration program, US$ 488 million for conceptual, pre-feasibility and feasibility studies to develop mineral deposits already identified, and US$ 119 million to be invested in new processes, technological innovation and adaptation.

Investments to sustain existing operations are budgeted at US$ 3.019 billion, which represents 4.8% of our asset base in June 2009.

The largest financial disbursements in 2010 are dedicated to the following projects: Carajás Serra Sul - mine S11D (US$ 1.126 billion), Salobo (US$ 600 million), Moatize (US$ 595 million), Onça Puma (US$ 510 million), Oman (US$ 484 million), Carajás Additional 30 Mtpy (US$ 480 million), Long-Harbour (US$ 441 million), and Rio Colorado (US$ 304 million).

Several projects are scheduled to be concluded in 2010: Carajás Additional 10Mtpy (iron ore), Oman (pellet plant and iron ore distribution center), Onça Puma (nickel), Bayóvar (phosphate), Tres Valles (copper), Estreito (power generation) and CSA (steel). In 2009, we concluded the Vargem Grande pelletizing plant and we are already in the initial stage of ramping up Goro, the nickel project in New Caledonia.

On the other hand, various projects will start to be developed in 2010: Conceição Itabiritos (iron ore), Vargem Grande Itabiritos (iron ore), Long-Harbour (nickel), Konkola North (copper), Rio Colorado (potash), Teluk Rubiah (distribution center in Malaysia), ALPA (steel) and Biofuels (energy). In 2010, US$ 4.075 billion will be invested in non-ferrous minerals, representing 31.6% of the total capex for 2010, while ferrous minerals will demand US$ 3.863 billion, 30.0% of total capex. Expenditures in infrastructure are comprised of US$ 834 million for power generation and natural gas exploration and US$ 2.654 billion for logistics, in which the bulk will be dedicated to supporting the iron ore business capacity. We plan to invest US$ 892 million in the coal business in 2010 and US$ 343 million in steel projects.

A large part of the capex budget, US$ 8.165 billion, representing 63.3%, will be invested in Brazil and US$ 1.153 billion in Canada. The program for 2010 also involves investments in Argentina, Australia, Chile, China, Indonesia, Malaysia, Mozambique, Oman, and Peru, among others.

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1. The capex budget includes financial disbursements in consolidated format according to generally accepted US accounting principles (US GAAP). The main subsidiaries consolidated according to US GAAP are: Vale Inco, MBR, Cadam, PPSA, Alunorte, Albras, Valesul, Vale Manganês S.A., Vale Manganèse France, Vale Manganese Norway AS, Urucum Mineração S.A., Ferrovia Centro-Atlântica (FCA), Vale Australia, Vale International, and CVRD Overseas.
2 The US$ 10 billion figure does not include expenditures of US$ 1.5 billion to acquire copper, coal, potash and iron ore assets.
3 Unexpected changes in demand and involuntary delays in project development can cause signification deviations from the production targets.
4 This includes US$ 23.7 billion spent on acquisitions.

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