Major Projects Challenges and Opportunities

Presentation to NOIA Conference June 19, 2012

Major Projects Challenges and Opportunities

• Global mining company, headquartered in Rio de Janeiro, Brazil and present in 5 continents.

• Focused on excellence, innovation, diversity and sustainability in all its activities.

• Steelmaking, Logistics, Fertilizers and Energy: supporting business which enable our continuous growth

• Socio-environmental responsibility is of strategic importance. In 2011 investments in corporate social responsibility reached about US$ 1.49B, of which about US $1B was for environmental protection.

• Approximately 130,000 employees around the world

• Historic results in 2011: Operating revenues of US$60.4 billion

Vale

A Global Leader

Vale operates in more than 30 countries around the world

Location B

Diversified Portfolio: sourcing, processing and commercialization

Coal Copper Steel Energy

Global leader in iron ore and pellets production Logistics Fertilizers

2nd biggest nickel producer

February 2012 December 31, 1997

US$ 139 billion US$ 7.4 billion

Fast growth and significant shareholder value creation consolidated our position as the world’s second largest mining company Market capitalization

Focus on organic growth. Massive investment in the development of world-class assets supported by the expansion of our infrastructure.

Enhancement of competitiveness in the Asian market. Development of an asset base in Africa.

Confidence in long-term global fundamentals underlies the continuity of our strategy to deliver strong and steady growth and value

Investments 2008-2010 US$ billion

19.4

12.7

10.3

Continuing to build up our growth platform guided by a long-term view of minerals and metals fundamentals

Brownfield

Greenfield

2012 2011 2013 2015

Conceição Itabiritos Carajás 40 Mtpy

Teluk Rubiah

Salobo

Tubarão VIII

Estreito

Karebbe Long-Harbour

Serra Sul (S11D) Rio Colorado Moatize

Totten

Simandou I

Biofuels

Konkola North

Vargem Grande Itabiritos

Salobo II

ALPA

CSP

CSU

Iron ore & pellets Nickel Coal Copper Fertilizers Logistics Energy Steel

2014

Serra Leste

Bayovar II

CLN 150 Mtpy Cauê Itabiritos

Moatize II

Conceição Itabiritos II

CLN S11D

Ellensfield

Apolo

Nacala

Cristalino

Salitre

Simandou II

From 2011 to 2015, 33 major projects will be delivered, contributing to significant shareholder value creation

•The mine & concentrator has been established at Voisey’s Bay, Labrador

•The hydromet demonstration plant was built at Argentia and the processing plant is being built at Long Harbour

•These sites required extensive infrastructure - port facilities, power supply, water supply & roads, accommodations and an airport at Voisey’s Bay

Voisey’s Bay Project – Development Configuration

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• New processing technology developed by Vale in Canada

• Significant Capital Investment ~ US$ 3.6 billion

• Construction Phase Employment > 10 million person-hours

• ~ 500 permanent jobs supporting operations

Project Status Project released from Environmental Assessment in July 2008

Initial Construction began April 2009

Overall Project: 66% complete

• Engineering: essentially complete

• Construction: ~ 50%

Employment: • >10 million person-hours of employment generated since initial work began

in April 2009

– 78% of person-hours in Newfoundland & Labrador – 3600 at construction site – Skilled trades availability is a major concern

Procurement • Substaintaly complete

Safety Performance

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Long Harbour Project

Project hours worked Person hours worked (Site)

11,040,202 8,250,193

Hours without Lost Time 193,803

Frequencies Comparisons

Lost Time .07

Medical Aid .53

First Aid 9.09

Provincial Frequency 2010

Long Harbour Lost Time (LT) 1.8

Provincial Construction Lost Time (LT) 2.6

Project operates under a ‘Zero Harm’ target Significant efforts are undertaken such as planning, training and mentoring to maximize maintain highest standards of safety

A multi-phased US$200 million R&D program was conducted to extend the application of hydromet technology to process Voisey’s Bay nickel concentrate

Full Scale Plant

2003-2004 2005-2008 2006-2013

Studies, design, engineering, and construction

Mini-pilot Plant Demonstration Plant Laboratory

Bench Scale 1/10,000 1/100 1/1

Research and Development

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Long Harbour Project- Port Facility

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Long Harbour Project- Processing Plant

Main Processing Plant Superimposed Over Downtown St. John’s

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Long Harbour Site – pre 2009

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Long Harbour Site – May 2010

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Construction Site

Main Plant Site May 2011

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Construction Site

Main Plant Site May 2012

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Port Site May 2011

Construction Site

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Port Site May 2012

Construction Site

Challenges and Opportunities

Global Forces Impacting Mining & Project Investments

• Ever changing commodity markets • Global economic pressures • Mature operations are mining deeper and processing lower grades • New developments occurring in remote areas • Societal pressures to reduce environmental footprint • Product substitution

• Competition for human resources • Exponential cost growth

Challenges

• Project planning not aligned with execution realities • Human resources shortages • Contractor and supplier base shrinking • Competitive bidding becoming less effective • Productivity underestimated

• As a result projects invariably take longer to execute and cost more than

planned.

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Challenges

• Human resource shortages • Market is very tight (and getting worse) globally • Team formation is always underestimated

• Project pipeline clogged

• Competition for scarce resources • Costs for labour, professionals and contractors are escalating

• Shrinking contractor and supplier base

• Consolidation amongst contractors and suppliers of engineered equipment

• Robust project pipeline globally is making competitive bidding less effective • Contractors becoming risk averse and are demanding high premiums

if forced to submit lump sum bids

Challenges

• Declining engineering and construction productivity • Increased complexity combined with loss of expertise • Global demographic trends leading to limit supply of labour

• Volatile market making it difficult to plan ahead

• Market demands are growing • Economic outlook is questionable – diverse views

• Project planning suffering from poor scope and execution definition

• Best practices often create a false sense of confidence • Results in pressure for cost reductions

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Other Notable Challenges • Remoteness

• Projects are occurring in more remote areas which require self-sufficiency • Additional work and poor expertise; air-strips, roads, communications

• Problems increase with project size and complexity

• Communication channels increase exponentially • Reliance on processes rather than direct personal input

• SH&E expectations

• We must hold ourselves to the highest standards of all when it comes to employee safety, social responsibility and environmental protection

• Additional medical concerns due to aging workforce • Remote operating areas require significant training resources • Overlapping jurisdictions leading to delays or competing regulatory

requirements

How can we address the challenges?

• Processes are robust enough to plan long term but we need to have a more stable and sequenced project pipeline

• Build in house capability rather than relying on contractors

• Build more flexibility into labour agreements that will allow increased use of travel permits and temporary foreign workers

• Work closely with government and labour to ensure more transparency on craft demand/supply

• Examine ways to increase modularization which will allow proponents to source globally

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Thank You