DBRS Comments on Vale’s Increased Stake in Steelmaking

DBRS notes that Vale S.A. (Vale or the Company) announced on July 22, 2009, that it has signed a memorandum of understanding with ThyssenKrupp Steel AG (ThyssenKrupp) to increase Vale’s 10% stake in CSA Siderúrgica do Atlântico Ltda. (CSA) to a 26.87% stake, through a capital infusion of EUR965 million (approximately $1.4 billion). Vale indicates the increased investment in CSA is subject to the approval of the board of directors of both Vale and ThyssenKrupp, as well as other conditions. DBRS views the increased CSA investment as a low-risk natural extension of Vale’s core iron ore business in Brazil as the Company is teaming up with ThyssenKrupp, an experienced steelmaker. From a financial perspective, the transaction can be funded by Vale from cash and short-term investments on hand. Accordingly, DBRS considers the proposed transaction will not materially alter Vale’s business or financial profile, hence is not expected to impact the Company’s ratings.

DBRS does note that the approximate one-third drop in international iron ore prices for the 2009-2010 contract year and reduced demand for iron ore in European and North American markets will negatively impact Vale’s near-term earnings and cash flow following a record performance in 2008. Although Vale has already announced a reduction in its 2009 capital budget from $14.2 billion to $9.0 billion, the Company will have to be prudent in its spending and funding profile in order to maintain its solid credit metrics.

CSA is constructing a new five-million metric ton per year integrated steel slab mill near Rio de Janeiro, Brazil, which is expected to begin production in 2010. Vale expects to be the sole supplier of iron ore to CSA.

Vale is a very large, diversified mining company, with many other operations worldwide. In addition, the Company has strong credit metrics for its rating and significant liquidity, with approximately $12 billion in cash on hand at March 31, 2009.

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.