DBRS Assigns BBB (high) Rating with Stable Trend to Vale New Note Issue

DBRS has today assigned a rating of BBB (high), with a Stable trend, to the Guaranteed Mandatory Convertible Notes issued by Vale Capital II, a wholly owned subsidiary of Vale S.A. (Vale or the Company). Two series have been issued: (1) $292.4 million guaranteed convertible notes, mandatorily convertible to American Depositary Shares (ADS), each representing one common share of Vale, maturing June 15, 2012, and bearing interest at 6.75%, payable quarterly (the Series VALE-2012 Notes), and (2) $649.2 million guaranteed convertible notes, mandatorily convertible to ADS, each representing one preferred Class A share of Vale, maturing June 15, 2012, and bearing interest of 6.75%, payable quarterly (the Series VALE.P-2012 Notes. Vale intends to use the proceeds of the notes for general corporate purposes. Vale has irrevocably and unconditionally guaranteed the performance and full and punctual payment of all of Vale Capital II’s obligations under the indenture and the notes, whether for delivery of ADS or payment of interest or any other amounts that may become due and payable with respect to the notes. Vale has a strong business profile and solid financial metrics, which will allow the Company to withstand the current downturn in commodity prices while still financing a number of growth projects, albeit on an extended development schedule.

On the maturity dates (whether at stated maturity or upon acceleration following an event of default), the Series VALE-2012 Notes will automatically convert into common ADS, each representing one common share of Vale, and the Series VALE.P-2012 Notes will automatically convert into preferred ADS, each representing one preferred Class A share of Vale. The Guaranteed Mandatory Convertible Notes are not redeemable or convertible into ADS by the issuer prior to maturity, except under certain limited circumstances.

Vale is one of the largest diversified mining companies in the world and is the world’s largest producer of iron ore and the second largest producer of nickel. Vale’s large reserve base and low production costs underpin a strong business profile. In addition, the Company has strong credit metrics for its rating, with gross debt representing approximately 29% of its capital structure at March 31, 2009, and trailing 12-month EBITDA interest coverage of 10.9 times. Vale has solid liquidity, which includes $12 billion in cash and short-term notes on its balance sheet. Vale has the stated ambition to become the largest mining company in the world and, as such, the Company has an aggressive organic growth program and has been active in acquisitions. Vale’s acquisition of Inco Limited in 2006 reflects this growth plan and its plan to diversify in terms of products produced and location of operations. To date, the diversification into nickel has only been partially successful to the extent that nickel markets have been weak and Vale’s core iron ore operations continue to dominate the Company. In addition, the Company faces significant financial and technological risk in its nickel operations as it is in the process of building two new mines, including Goro, which has the type of lateritic ore reserves that have proven to be challenging to other companies to mine and process successfully. In the near term, Vale is weathering the economic downturn and collapse of commodity prices well by reducing production where required, reducing capital expenditures, deferring some growth plans, focusing on efficiencies and cost reduction and introducing innovations into its production and product delivery processes. Over the long term, Vale should benefit from economic recovery and a growing demand for minerals as growth in lesser developed countries continues.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.