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Report from Administration 1

REPORT FROM

ADMINISTRATION 2019

Ground Zero Project for environmental recovery in Brumadinho (MG) – section of the Paraopeba river


A Letter from our Chairman of the Board of Directors

Dear Fellow Shareholders,

The tragedy that happened in Brumadinho was a time of great grief and profound impact. The

Board of Directors acted immediately, suspending the policies for the executives’ remuneration

and the shareholders’ remuneration, as well as creating three extraordinary independent

advisory committees, to support the investigation of the causes of the Dam I rupture, to evaluate

the safety measures and to support the process of immediate response and repair to the

damage caused. Furthermore, the company’s management hired a panel of technical experts

to investigate the causes of the breach.

The Board of Directors continues to work closely with the executives, shareholders, authorities

and society, with open dialogue and transparency, towards integral reparation of Brumadinho

and the construction of a safety-oriented culture at Vale.

Business risk oversight

Vale’s risk profile has been reviewed and key policies have been improved to promote the

expected behavioral models and conservative risk approach. Our participation in the company’s

routines was intensified – we held 46 board meetings in 2019, nearly three times the number

in 2018.

The Board of Directors encourages the pursuit of excellence in Vale's operations and

businesses, as a way of ensuring the company's safety and sustainability. We promote the

acceleration of investments in alternative processes to the use of tailings dams, such as dry

processing, which is estimated to reach 70% of the iron ore production volume in 2023.

We are moving forward with the implementation of behavioral models for a culture in which

safety and risk management at Vale are at the center of decision making. The Board of

Directors supports senior leadership in transforming Vale into one of the safest and most

reliable mining companies in the world.

Ethics and transparency

The Board of Directors is fully committed to the investigations on the Dam I rupture. Report on

the technical causes of the rupture, issued by the expert panel, was promptly shared with the

authorities, mining industry and society. The executive summary of the final report issued by

the Extraordinary Independent Consulting Committee for Investigation was disclosed to the

market today and will be shared in its entirety with the authorities.

Compliance disruptions do not and will not be tolerated. In this sense, the Statutory Audit

Committee is being created to oversight the compliance with the Code of Conduct and to

monitor the integrity of the internal control mechanisms.

ESG approach

Our new pact with society goes beyond repairing Brumadinho. Vale’s board of Directors drives

the company towards becoming an enabler of development in areas where it operates,


promoting a safer and more sustainable industry, besides contributing actively to a low-carbon

mining industry.

In this regard, Vale’s practices related to the Environment, Social and Governance areas (ESG)

are also evolving. In order to promote excellence in those three areas, a roadmap to address

the company’s relevant ESG gaps has been drawn up and is disclosed in the new internet

portal dedicated to detailing the company’s ESG practices.

We have also improved incentives to the leadership, to ensure the achievement of such

ambitious goals. In the current short-term compensation, a stake of at least 30% is directly

related to safety, risk management and sustainability. In the long-term compensation, 20% of

targets are based on ESG indicators, starting in the 2020 cycle, which makes Vale one of the

industry's pioneers in adopting ESG factors in long-term goals.

Another important change in the remuneration plan for statutory executive officers was the

inclusion of the malus clause in their respective contracts, allowing the reduction of variable

remuneration by decision of the Board of Directors in case of occurrence of facts or events of

exceptional severity.

2020, a transitional period

With the current Shareholder Agreement expiring in November, Vale is going through a

transitional period. The Board of Directors is conducting the transition in an orderly and

balanced way, while leading and supporting Vale to overcome several challenges ahead.

The current composition of the Board of Directors reflects the changes going forward. In 2019,

six members were elected or appointed for their first mandate, and minority shareholders have

increased representation, now with three independent members. Vale’s Board is currently

comprised of five members with mining or industry-related experience, five with expertise in

sustainability and ten with a solid background in governance.

On behalf of Vale’s Board of Directors, I would like to thank you for your support during the

most challenging period of Vale’s history. As we change and advance with Vale’s strategy,

governance, safety, reparation and cultural transformation, we are taking important steps

towards building a better Vale.

We will never forget Brumadinho!

José Maurício Pereira Coelho

Chairman of the Board of Directors


A message from Vale’s CEO

Dear Vale Shareholders,

Vale remains firm in its purposes: to integrally repair Brumadinho and to ensure the safety of

our people and our assets. People, Safety and Reparation will continue to be our priorities. We

have made significant progress, by outlining an integral reparation program, improving

governance and operational procedures and implementing the de-characterization plan for our

upstream tailings dams under accelerated conditions.

With open dialogue and transparency, we have already entered into relevant agreements with

authorities and those people affected to restore the livelihood of the families, and to

compensate for damages in a broad sense and with the due urgency. Additional negotiations

are ongoing, and we expect to reach a definitive understanding soon.

We have also advanced with environmental recovery actions, such as the Ground Zero project,

which is recovering the Paraopeba river and the Ferro Carvão stream, and the completion of

two water treatment plants. Beyond that, our reparation program includes actions aiming at the

recovery of the local socio-economic capacity, considering the views and demands from

communities, local organizations and governments.

In Safety, our approach has become even more conservative. We are rigorously executing the

necessary improvements to turn Vale into one of the safest and most reliable companies in the

world. The Safety and Operational Excellence Office was created in 2019 with scope and

targets independent from operations, to fortify our risk management framework. The area has

outlined a roadmap to improve the safety culture, standards and processes at Vale. We want

to ensure that risk and safety assessment are at the center of every decision made at our

company.

The first upstream dam was de-characterized in December 2019, as planned, while the second

dam will be completed in 2020. As we make progress with the assessment of ageing

geotechnical structures, more precise information is being added to improve our asset

management, which has driven our decision of complementing the de-characterization plan.

We are leading the efforts to reduce mining dependency on tailings dams. In the next three

years, we will expand our dry processing capacity and our wet operations with the filtration and

dry stacking system, while investing in new dry-concentration technologies.

We have set ambitious goals in the Environmental, Social and Governance (ESG) areas, to

ensure that Vale is helping society to move forward. We are building a positive legacy in health,

education and income generation with our communities, while protecting forests. We will lead

the transition to carbon neutral mining, thus inducing our value chain.


Finally, we are working to ensure value creation for our shareholders and society, by stabilizing

our production under safe conditions. Our 2019 performance was evidence of Vale’s resilience

and response capacity. Our discipline in capital allocation remains intact.

We are de-risking Vale. We are confident we are paving the way for new approaches to make

our business better, safer and more stable.

Eduardo Bartolomeo President & Chief Executive Officer


Report from the administration 2019

We will never forget Brumadinho

One year later after the Dam I rupture, Vale restates its respect for the victims and their families,

and thanks the authorities engaged with the search and rescue measures, as well as all of

those who dedicated time and efforts to provide support and comfort amidst such tragedy. To

date, 395 people were located, 259 deceased victims and 11 missing persons.

Since the first hours, Vale has taken care of victims and families impacted, providing assistance

to restore the livelihoods of the people affected, and means to help them cope with the losses.

Vale has also provided support to local governments and public entities, given the extent of the

impacts of the dam rupture and of the halting of Vale’s operations in the region.

Repairing the damage caused in a fair and agile way is fundamental for the families, and Vale

has prioritized initiatives and resources for that end. Based on open dialogue with authorities

and people affected, Vale has drawn up the Integral Reparation Program, structured in social,

environmental and infrastructure pillars, to ensure that actions and resources will effectively

compensate individuals and communities, recover the environment and enable the sustainable

development of Brumadinho and surroundings.

Vale moves forward on its path to make its business better, based on People, Safety and

Reparation and continues firm in its ambition to become one of the safest and most reliable

companies in the world.

Immediate support to victims and families

Vale has provided humanitarian assistance to victims and families from the very first moments.

Support to people affected has been offered in a broad basis, with large teams dedicated to

listening to the people affected, recording their emergency demands, ensuring the immediate

assistance and delivering them updates in the fastest way possible. To the extent possible, a

variety of actions were taken to offer people affected aid and relief.

For emergency healthcare and psychological support, Vale has mobilized 10 hospitals and

health unities, as well as 7 assistance centers, making available doctors, psychologists and

social workers to all of those in need. More than 14,000 medical and psychological

consultations and 185,000 pharmacy items have been provided.

Vale made donations to assist the families of people deceased or missing with financial

expenses in such a critical moment, regardless any future compensation. In this sense,

donations were also made to those who lived or had business activities in the Self-Rescue

Zone.

Basic items, such as water, food and shelter, were made available to all the communities in

need. Over 580 million liters of water have been supplied to the population, artesian wells have

been drilled and a new water pipeline was built to serve the municipality of Pará de Minas, for

instance. For people who had to be evacuated from neighborhoods close to the impacted area,

Vale has provided full support with relocation, housing and the overall well-being.


To support the rescue of fauna and mitigate environmental impacts, over 700 professionals,

including veterinarians, biologists, technicians and field staff were involved, as well as a hospital

and an animal shelter have been made provided. Over 9,800 animals have been rescued so

far, and more than 500 of them remain under Vale’s care.

Vale has also made financial contributions over R$ 400 million to the municipality of

Brumadinho, as well as to 10 municipalities impacted by halted mining operations and the

Government of the State of Minas Gerais.

Donations were destined to public entities engaged with the search and rescue efforts,

especially the State Fire Department, the State Civil Defense, and the State Military Police.

State-of-the-art equipment was bought for the Institute of Forensics of Belo Horizonte. Vale

thanks the tireless efforts of the firefighters and the local authorities to search for victims and to

provide comfort and support to the affected families.

Emergency infrastructure works have been carried out to ensure the fast reestablishment of

logistics, such as the installation of the Alberto Flores bridge, which grants safe access to the

central area of Brumadinho.

Reparation progress

Based on the dialogue kept with communities impacted and authorities, Vale has developed a

comprehensive program to repair damage caused. Economic compensation has evolved with

agility, as per three relevant framework agreements entered into with authorities1:

• Labour indemnification to 244 of the 250 employees that lost their lives in the disaster,

comprehending 611 agreements, 1,570 beneficiaries and R$1.4 billion paid out2;

• Individual or colective indemnification reaching 4,451 beneficiaries and more than R$

679 million paid;

• Emergency aid payment to approximately 106,000 people that reside in Brumadinho and

along the Paraopeba river has been extended until October 2020. Over R$ 1.2 billion has

already been paid;

• Other 27 agreements signed to cover specific fronts, such as: (i) support for municipalities

in providing public services and infrastructure; (ii) environmental recovery; (iii) water

supply, including new water withdrawal and treatment systems with COPASA; (iv)

emergency payments to families relocated in Barão de Cocais and for the Pataxós

indigenous community; and (v) external audits and asset integrity studies, providing

technical support for the authorities, with measures to review and reinforce structures

and halting of operations.

1 Figures as of February 20th, 2020.

2 The amount includes R$ 400 million paid in indemnifications for collective moral damages.


The three pillars of The Integral Reparation Program also encompass relevant forms of non-

economic compensation.

On the environmental front, a plan was developed to remove and treat tailings, recover fauna

and flora and ensure the water catchment and supply to the Belo Horizonte metropolitan region.

Two Water Treatment Stations (ETAF) are already operating to clean and return treated water

to the Ferro-Carvão stream and the Paraopeba river. The Ground Zero project will fully recover

the original conditions of the Ferro-Carvão stream by 2023.

On the socio-economic front, non-economic compensation measures aim to ensure respect for

human rights and are negotiated and defined following the perspectives and demands of the

people affected and authorities.

Vale’s initiatives are being designed to provide structured assistance for long-term results in

education, healthcare and well-being, employment and income generation, ultimately enabling

sustainable development in the region.

Some initiatives already in place welcome residents of Córrego do Feijão to share experiences

and feelings, to rebuild self-esteem and strengthen the sense of belonging to that community

and location. Activities are also developed to enhance local vocations, such as cultural tourism,

productive backyards, community gardens and handicrafts.

Vale knows there is still a lot to be done to integrally repair Brumadinho and reinforces its

commitment to doing it. For further information on the updated balance of actions Vale has

taken so far, see the following website: vale.com/repairoverview.

Safety

Vale has implemented significant improvements in governance, processes and people towards

achieving its goal to become one of the safest mining companies in the world.

Vale’s Board of Directors has approved a new Risk Management Policy, establishing, among

other measures, four Executive Risk Committees to deal with Operational Risks, Strategic,

Financial and Cyber Risks, Compliance Risks and Geotechnical Risks. With this structure, risks

will be monitored in a more effective way, enhancing the information flow at all organizational

levels.

Additionally, the new Safety and Operational Excellence Office, which reports directly to the

CEO and has the authority to halt operations on safety grounds, has outlined its work plan for

the next two years, with actions covering the four areas around which it is organized: (i) Tailings

Management, to assure Vale’s dams are safe and comply with international standards, (ii) Asset

Integrity, to assure that assets are well maintained and safe to operate, (iii) Operational

Excellence, to enhance the Vale Production System (VPS) across the company, guaranteeing

the continuity of the improvements that are being implemented, and (iv) Health & Safety and

Operational Risk, to enhance the safety culture and also map all risks throughout the company.


In December 2019, the independent Expert Panel retained to provide an assessment of the

technical causes of the Dam I rupture reported on its conclusions, which were promptly taken

to the authorities and made public knowledge. Results of this sort are also an important input

to improve the tailings management practices at Vale. Also, in February 2020, the Board of

Directors received the report from the Extraordinary Independent Consulting Committee for

Investigation, with recommendations at the technical and governance levels, which will be

analyzed in detail by Vale.

One of the key milestones to reduce the risk level at the company is the decharacterization of

the upstream structures, a process that will continue over the next few years. The first dam to

have work completed, was 8B on December 2019, and the conclusion of the second one,

Fernandinho dam, is scheduled for 2020. Vale has also completed the construction of the

containment structure for Sul Superior Dam in the city of Barão de Cocais, while the

containment structures for B3/B4 and Forquilhas dams will be concluded in 1H20, increasing

the safety conditions in the areas downstream from the dams and allowing the

decharacterization works at these sites to start thereafter.

As of September 2019, due to the technical revaluation of the construction method of the Doutor

and Campo Grande dam, the Brazilian National Mining Agency (ANM) reclassified their

construction method from center line to upstream, and therefore Vale included them in the

decharacterization plan. Additionally, smaller dikes that were raised through the upstream

method and drained stack structures will also be decharacterized.

For the future, Vale plans to reduce significantly its use of dams and will invest US$ 1.8 billion

in alternatives that will allow the substitution of the wet processing to more sustainable

processes. Dry processing will reach 70% of Ferrous Minerals production volume in the next

three years.

Reducing uncertainties

Following the Brumadinho dam rupture, Vale’s iron ore production capacity was significantly

impacted by the stoppage of operations with interdictions on Brucutu, Vargem Grande, Alegria,

Timbopeba and Fábrica operations. Over the year, Vale has made progress as regards the

resumption of the stopped production capacity:

• Brucutu mine: In June 2019, following the decision of the legal authorities, Brucutu mine

restarted adding back 30 Mtpy of production capacity. However, in December 2019, Vale

took the decision to suspend temporarily the disposal of tailings at the Laranjeiras dam,

while assessing the dam’s geotechnical characteristics. Until at least the end of March

2020, the Brucutu plant will operate at around 40% of its capacity, with the impact of the

temporary suspension estimated at 1.5 Mt per month, approximately.


• Vargem Grande Complex: In July 2019, the ANM authorized the partial resumption of

the dry processing operations at the site. The partial resumption enabled 5 Mt of

production in 2019, which represents 12 Mtpy of production capacity.

• Alegria mine: In November 2019, Vale received the necessary authorization from the

ANM to resume the operations of the Alegria Mine, which had been halted since March

2019. The authorization allowed 3 Mt of production in 2019, which represents 8 Mtpy of

production capacity.

Vale plans to resume approximately 40 Mtpy of halted capacity, by 2021, since it has already

reached several milestones and there are other initiatives in progress. Below are more details

on the timeline for resumption:

• Vale expects to receive the necessary authorization from the Minas Gerais State Public

Prosecutor’s Office (“MPMG”) to restart the Timbopeba site in 1Q20 using dry

processing, after the appraisal of the external audit by the MPMG. Wet processing

activities are expected to be resumed in 4Q20 following the completion of a pipeline to

dispose tailings at Timbopeba pit. Alternatives are being evaluated to anticipate the

use of wet processing.

• The Fábrica operation is expected to be resumed in 2Q20. First, it is necessary to run

vibration trigger tests to certify the absence of impacts on the site’s structures, which

relies on approval by MPMG’s external audit and the ANM. Vale expects to operate

using wet processing with tailings disposal at Forquilha V, starting in 3Q20.

• The Vargem Grande pellet plant is expected to be resumed in 3Q20. The pellet feed

for pellet production will be sourced from the iron ore beneficiation plant, which will

require tailings disposal at the Maravilhas I dam and Cianita waste dump until the start-

up of the Maravilhas III dam, which is expected for 4Q20. Running trigger tests at the

pellet plant relies on approval by MPMG’s external audit, while the beneficiation plant

restart and its economic mining plan depend on approval by the ANM.

The resumption plan considers that all of these operations will be able to operate in wet process

in 2020, an important step towards improving Vale’s average production quality.


Vale’s Environmental, Social and Governance Framework

2019 initiatives

Vale is constantly working to transform natural resources into prosperity and sustainable

development. This goal is achieved when the business, and in particular mining activities,

generate value for shareholders and other stakeholders.

Throughout 2019, Vale continued with its sustainability initiatives to mitigate and offset the

impacts of its activities. It also developed environmental and value creation actions for

communities. During the year, earmarked R$ 2.4 billion3 for social and environmental initiatives.

Environmental

Vale wants to lead the transition towards a low carbon mining industry. In 2019, Vale has

defined internally its carbon price at US$ 50/t and a new and ambitious target was announced,

which is specified as follows, in the 2030 Commitments. Throughout its climate change

management process, Vale expects to develop a portfolio of low carbon projects made possible

by the internal price of carbon, in addition to a better understanding of regulatory risks and their

impacts. Vale is also committed to evaluate its risks and opportunities related to a low carbon

economy, which is required by TCFD (Task-Force on Climate Financial Related Disclosure).

Water is one of the main inputs for mineral production and crucial for some environmental

controls. In 2019, Vale achieved a 3.1% reduction in fresh water withdrawal, paving the way to

meet the target in the 2030 Commitments. Since 2018, Vale has set a goal to reduce (base

year 2017) the new withdrawal water for use in the company's production processes, fixed at

10% by 2030, in an intensive manner and in line with the UN SDGs (Sustainable Development

Goals). Over the year, the focus was in improving the accuracy of data through waterflow

meters acquisition, and identification of reduction opportunities in the processes. In addition,

Vale is working on the development of a policy for water resources, in line with world best

practices, and with International Council on Mining and Metals (ICMM) standards.

Vale operates within conservation units in regions of high biodiversity value, always respecting

the legal determinations in each category of conservation unit. In Pará, Brazil, for example,

there are operations in the Carajás National Forest (mines in Serra Norte and S11D) and the

Tapirapé Aquiri National Forest (Salobo). These are conservation units for sustainable use, a

category that allows anthropic activities in joint development with biodiversity conservation. In

Minas Gerais, in Brazil, most of the operational units of the Iron Quadrangle are within the

3 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.


Southern Environmental Protection Area (APA Sul), also in the category of sustainable use

conservation units. In the pursuit of biodiversity conservation, Vale establishes partnerships

with third-party conservation units, formalized or not, in which it invests in infrastructure,

ecosystem protection (firebreaks, fences, fire prevention and fighting, and hunting), research

and innovation. In addition to these areas, there is also the Vale Natural Reserve (RNV). It is

one of the main protected areas maintained by Vale, and it covers approximately 23,000

hectares and is located in northern Espírito Santo, Brazil.

In total, Vale already protects and helps to protect an area approximately 6 times larger than

the area occupied by operations, that is, approximately 8.5 thousand km² of natural areas. In

terms of biodiversity, the long-term purpose is to achieve No Net Loss4.

In 2019, Vale dedicated R$ 2.0 billion5 to environmental initiatives, 61% of which were

mandatory and 39% voluntary. The main categories were related to waste and air emissions.

Stands out the improvements in the atmospheric emissions reduction system at the Tubarão

unit, in Brazil, where Vale made adjustments to wind fences, improvements to drainage and

sprinkling systems and access paving. In Moatize coal site, Vale installed equipment for

sprinkling with polymers, Rom Pad cannons, revitalization of the storage yard and acquisition

of water tank trucks. In the waste category, it is worth mentioning the initiative for drying tailings

disposal in a landfill in New Caledonia.

Social

Vale is committed to the UN Guiding Principles on Business and Human Rights. In 2019, Vale

carried out the Human Rights risk self-assessment in 100% of its sites (except those that had

operations suspended) and prepared action plans. Seven due diligence assessments were also

carried out in 2019 and others are planned for 2020 and the coming years, in addition to the

self-assessment of Human Rights risks. Moreover, in 2019, Vale´s Human Rights Policy

underwent its second revision, which included a public consultation.

To improve performance, in 2019, the grievance channels in Brazil were consolidated, which

include demands and complaints from the communities registered by the community relations

area in the Stakeholders, Demands and Issues (SDI) System, as well as reporting channels

such as the Alô Ferrovia (grievance channel for railways) and 0800 Reparation telephone lines.

For 2020, the consolidation of these channels, such as Ombudsman, Contact Us and social

media, is planned. In addition, the SDI was implemented last year in Oman and Peru,

expanding the model for registering and handling demands, complaints and claims, which

currently operates in Brazil, Mozambique and Malawi.

4 When losses are equal to gains. There are impacts, but measures are taken to prevent and minimize them in order

to implement rehabilitation/ restoration and offset. 5 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.


Eradicating gender inequalities is a huge challenge, but Vale believes that an approach of

inclusion is key to eliminating the barriers that hinder the hiring and retention of women and

resulting performance improvement due to gender diversity. In 2019, a bold goal was set out:

to double the female workforce in Vale by 2030, to 26% from 13%, also to increase female

presence in leadership roles to 20% from 12%. Improving its transparency, Vale has also

disclosed the median salary per gender and seniority level.

In 2019, R$ 442 million6 were dedicated to social initiatives, 62% of which were voluntary and

38% mandatory. In the voluntary sphere, the largest investment was in the areas of culture (R$

115 million6), indigenous peoples (R$ 47 million6) and generation of labour and income

generation (R$ 32 million6). In the initiatives focused on culture, stand out music programs such

as Vale Música, Orquestra Ouro Preto, and the maintenance of various cultural instruments

and museums in Brazil. For Indigenous Peoples, investments were made in Brazil and in New

Caledonia, to the quality of life and promoting the development of these communities. In the

field of Labour and Income Generation, standing out the AGIR Program of Fundação Vale,

which includes project with the Women Network of Maranhão, in Brazil, and the Rural

Development Program in Indonesia. In addition, there were R$ 67 million6 in investments in the

fields of education, health, support to entities, urban infrastructure and mobility, among others.

For the mandatory sphere, we highlight the expenses in Brazil with Indigenous Peoples arising

from lawsuits and environmental conditions (R$ 79 million6) and with urban infrastructure and

mobility in the northern region (R$ 24 million6). In Mozambique, R$ 28 million6 were invested in

involuntary resettlement and studies and monitoring initiatives. In Canada, the mandatory

expenses were R$ 12 million6 in taxes for economic diversification.

Main voluntary investments

The Vale Foundation ended 2019 having benefited approximately 770 thousand people through

its social projects in 68 Brazilian municipalities. Aiming at the territorial development of locations

where Vale is present, the support given to 689 social entrepreneurs and around 1,200 people

via rural development projects stands out, in addition to the contribution to the training of 941

educators and 1,672 health professionals.

The Vale Fund acts as an instrument to promote business with a social and environmental

impact in Brazil, in three main areas: creating and developing financial instruments;

accelerating the impact from socio-environmental innovation businesses; and strengthening

this ecosystem. For 2019, it is worth highlighting projects aimed at the conservation of the

Amazon forest.

6 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.


Social innovation

Within the scope of the Sustainability Department, Vale also invests in R&D, through lines of

research and training of human resources at the Vale Technological Institute - Sustainability

(ITV-DS) and through partnerships with universities, research institutes and government

agencies, in Science, Technology & Innovation.

In ITV-DS, 5 lines of research are developed: natural resources and climate, biodiversity and

environmental genomics, environmental technology, territorial development and bioinformatics

and computing.

In the field of Science, Technology & Innovation, the research portfolio includes projects on

recovery of degraded areas, biodiversity, remediation of contaminated areas, atmospheric

emissions, climate change and relationship with communities, representing a multi-annual

investment of about R$ 29 million.

Renova Foundation

The Renova Foundation is responsible for the reparation of the impacts caused by the rupture

of Samarco’s Fundão dam, in Mariana (MG), joint venture between Vale and BHP. Since the

Foundation's creation in November 2015, approximately R$ 7.8 billion have been invested by

Vale, BHP and Samarco, in the 42 programs agreed in the Term of Transaction and Conduct

Adjustment (TTAC), of which R$ 7.3 billion are for reparation initiatives and R$ 0.5 billion for

compensation of the affected parties. Of this total, approximately R$ 2.1 billion (R$ 780 million

in 2019) were paid in indemnities, which represents more than 320,000 people covered.

Governance

At a Board of Directors level, 2019 was highlighted by the addition of a 3rd independent board

member in April 2019 election. Additionally, as a result of the Dam I rupture, three Extraordinary

Independent Consulting Committees were established, composed by independent members

with reputations and experience relevant to the subject matter of the Committees on which they

sit, namely:

• Extraordinary Independent Consulting Committee for Support and Recovery;

• Extraordinary Independent Consulting Committee for Investigation;

• Extraordinary Independent Consulting Committee for Dam Safety.

In terms of compensation, several initiatives were implemented, such as: (i) 60% of the

Executive Directors performance goals of 2019 were based on Health and Safety, Sustainability

and actions to repair the damage caused by the Dam I rupture; (ii) inclusion of a malus clause,

i.e. upon facts or events of exceptional severity, the Board of Directors may resolve to reduce

the variable compensation set forth in the bylaws; (iii) implementation of minimum share

ownership by the Executive Board, equivalent to at least thirty-six (36) honorary fees for the


CEO and twenty-four (24) honorary fees for the Executive Directors; and (iv) inclusion of 20%

of long-term compensation targets based on ESG metrics.

New pact with society

The mining sector is essential to deliver resources that fuel economic development and societal

well-being. Nonetheless, given society’s evolving demands, the industry faces the challenge of

reconsider the way it creates and shares value with its stakeholders. In this context and in light

of the events in Brumadinho, 2019 was a time to rethink the sustainability approach.

Vale wants to strengthen the search for Social License to Operate and its relationship with

society, through a new ambition that takes into consideration our company’s relevance in the

mining industry.

Vale aims to become development enabler in the area it operates in, promoting safer and more

sustainable industry, as well as actively contribute to a low carbon mining. Vale is building a

new pact with society.

Vale is working on this direction and established more ambitious targets and commitments to

reflect profound transformation in its resources and technology allocation, at the same time as

in the development of new internal capabilities.

2030 Commitments review for more ambitious goals

Vale’s sustainability goals, announced in December 2018 were set in line with the Sustainable

Development Goals of the United Nations 2030 Agenda. The environmental goals prioritize

reduction of greenhouse gas emissions, recovery of degraded areas and water resources. The

social goals prioritize local income generation, basic health and education in Brazil.

Enhanced 2030 Commitments Climate change: reduce greenhouse gas emissions aligned with the Paris Agreement,

and become carbon neutral by 2050

Vale positions itself today on the irreversible path towards a low carbon economy and is

committed to contributing to the global journey to limit global warming to below 2°C as

defined in the Paris Agreement. Vale is targeting carbon neutrality in scope 1 and 2 by 2050

and wants to induce the value chain, since Vale has the high-grade iron-ore pellets and

products that customers need to reach their goals in terms of emissions reductions.

Energy: 100% self-generation of clean energy globally

Vale’s electricity consumption is mostly from clean sources – around 80% of the worldwide

electricity consumption comes from renewable sources, but only part of this energy is self-

produced (close to 60%). Vale’s target is to self-produce 100% from clean sources in Brazil

by 2025, and globally by 2030.


Water: reduced new water collection by 10%

Vale develops programs and implements actions that go beyond compliance with legal

requirements to optimize water use and consumption. Vale’s water reuse represents 83% of

total production demand. Vale wants to reduce by 10% per ton produces the new water

captured and used in processes.

Forest: recover and protect 500,000 ha of degraded land beyond Vale’s boundaries

Vale’s ambition is to act as a global catalyst for protection and reforestation. Currently, Vale

already helps to protect 1,018,405 hectares as a result of compensation measures, voluntary

initiatives and partnerships. On the top of this, Vale has established a commitment to protect

and reforest an additional 500,000 hectares by 2030, strengthening the 2018 target.

Socioeconomic Contribution: health care, education and income generation

Vale is engaged in contributing to the development of the territories where it operates, by

supporting education, promoting health and strengthening local business.

ESG gaps: eliminate main ESG gaps in relation to best practices

Vale has mapped out the relevant gaps that it has for these three factors, based on

information provided by some of the most prominent ESG rating agencies in the market.

Vale has discussed and addressed each item, and a roadmap has been drawn and disclosed

in Vale’s ESG Portal.

Transparency

Vale presents its Sustainability Report annually as an initiative for transparency and disclosure

of information on the main topics related to its business. The sustainability report is produced

in accordance with the GRI methodology, the most widely disseminated internationally.

Additionally, in order to have a single source for ESG data, Vale launched the ESG Portal in

December 2019, a channel that shows this action plan and more transparency in Vale’s

sustainability approach and initiatives. Find out more about Vale’s ESG approach at

www.vale.com/esg

Integrity

Ethics and integrity are principles that guide Vale’s daily activities, guided by its Code of

Conduct whose principles and guidelines should drive the professional conduct of all Vale’s

employees as well as our subsidiaries and both directly and indirectly controlled companies.

Vale has held, annually since 2015, the Movement for Integrity aimed at all leaders, employees

and third parties, where it has debated ethical values and how to report incorrect behavior at

all hierarchical levels of the company.

Vale has zero tolerance towards corruption and the Global Anti-Corruption Program is one of

the instruments for preventing and fighting corruption by public officials. Every year, Vale carries

out initiatives such as in-person and online training, which is mandatory for all employees with

computer access.

http://www.vale.com/esg


Our People

Vale employs approximately 71 thousand own employees and 78 thousand outsourced

professionals. We aim at developing competencies and encouraging talent by conducting

educational activities and offering compensation consistent with the complexity of the job, the

performance of our employees and the market. We promote an environment suitable to

dialogue, and value straightforward communication. The work of each one of Vale's employees

is essential to the success and growth of the company. Caring for people is a commitment that

is part of Vale's values, and internally such caring translates into initiatives to zero accidents,

support to the development of employees, and to be the company of choice to work in, with an

environment ideal for safe professional growth. Respecting diversity and promoting inclusion

are ethical imperatives, indispensable for a sustainable company.

Per business units

Number of own employees 2019 2018

Ferrous minerals 42,077 43,504

Coal 2,927 2,350

Base metals 13,738 14,349

Fertilizer nutrients - 12

Energy 3,809 4,058

Corporate activities 8,598 5,997

Total 71,149 70,270

Per geographic location

Number of own employees 2019 2018

Brazil 55,439 55,230

South America (ex-Brazil) 202 193

North America 6,082 6,032

Europe 308 298

Asia 4,455 4,475

Oceania 1,384 1,378

Africa 3,279 2,664

Total 71,149 70,270

Per business units

Number of outsourced employees 2019 2018

Ferrous minerals 27,749 26,714

Coal 5,900 4,212

Base metals 10,828 8,850

Energy 496 633

Corporate activities 33,170 14,235

Total 78,143 54,644

Per geographical location

Number of outsourced employees 2019 2018

Brazil 57,388 40,371

South America (ex-Brazil) 89 80

North America 3,892 2,918

Europe 106 96

Asia 6,855 4,408

Oceania 1,082 1,203

Africa 8,731 5,568

Total 78,143 54,644


As a global company, Vale knows that attracting the best professionals, retaining talents,

encouraging and engaging professionals in strategic positions, especially executive officers, is

a critical challenge for the Company's success at all times.

Turnover rate is calculated based on own employees data from Vale and its subsidiaries in the

following countries: Brazil, Canada, Indonesia, New Caledonia, Australia, United States of

America, China, Mozambique, Peru, Colombia, Chile, Argentina, Austria, Dubai, India, Japan,

Korea, Malaysia, Oman, Paraguay, Philippines, Singapore, Switzerland, United Kingdom and

Uruguay.

2019 2018

Turnover rate 6.44% 6.57%


Innovation

Vale seeks to incorporate innovation through research & development (R&D) into its processes

and operations, to ensure growth and competitiveness in the domestic and international

markets. Today, this is done through artificial intelligence, advanced computational analysis

and collaborative work.

The company also invests in research & development of innovative projects. These initiatives

are changing the mining landscape, connecting people and bringing greater operational

efficiency.

Vale in Industry 4.0

In 2018, Vale began implementing a digital transformation program to accelerate the Industry

4.0 adoption, becoming a catalyst for building a safer and reliable company as well as bringing

agility and an innovation mindset through the democratization of new tools, methods, and

behaviors. The result of simpler and more efficient process will lead to operational excellence.

Vale is using Internet of Things, Advanced Analytics, Machine Learning, Artificial Intelligence

and mobile applications, among other technologies.

Geotechnical: drones have started to perform advanced surveillance to monitor the conditions

of Vale’s dams, providing an integrated view for the new Geotechnical Monitoring Centers.

Autonomous: as a result of R&D initiatives, autonomous trucks used to transport iron ore from

the mining front to the processing plant started to be part of Vale’s daily operations. Compared

with the conventional transport model, safety is increased by removing people out of harm’s

way, while operational excellence is reinforced through a stable and predictable process,

increasing productivity. At Brucutu mine, the entire fleet of 13 trucks operates with the new

technology, making it the first to operate autonomously in Brazil. At the Carajás mine, in Pará,

the autonomous operation test for haul trucks has already started, with completion planned for

2020. Autonomous drills are also operating throughout several of Vale’s operations in Brazil,

while autonomous scoops are being implemented at underground mines in Sudbury, bringing

similar benefits to nickel operations.

New technologies to reduce reliance on tailings dam

Vale continues to study different solutions and technologies for ore processing and to reduce

its reliance on tailings dams.

Dry stacking: Vale plans to invest almost US$ 1.8 billion for implementation of dry tailings

stacking technology in Minas Gerais between 2020 and 2024. The technique allows filtering

and reusing water from the tailings so that tailings can be stacked, thus reducing the use of


dams. The first sites to use these techniques will be the operations of Vargem Grande, in Nova

Lima; Pico, Cauê and Conceição, in Itabira; and a Brucutu mine in São Gonçalo do Rio Abaixo.

Dry magnetic concentration: the Brazilian technology, known by the English acronym FDMS

(Fines Dry Magnetic Separation), is the only one in the world and was developed by New Steel,

a company acquired by Vale at the end of 2018. This technology eliminates the use of water in

the process of concentrating the low-grade iron ore, which allows the tailings to be disposed in

piles as waste rock, like the process used in dry stacking. In 2Q20, a pilot plant will start

operating at the Centro Tecnológico de Ferrosos (CTF), in Nova Lima (MG). The unit will be

able to concentrate 30 tons of dry ore per hour, using magnetic separation technology, based

on rare earth magnets. The pilot project at CTF is the second carried out by Vale. Between

2015 and 2017, a similar plant operated successfully at the Fábrica mine.

Technology for a greener industry

Vale is committed to provide solutions to its clients, in particular in relation to CO2 challenges.

Vale has developed a new technology, known as Tecnored, to produce pig iron, which employs

a variety of raw materials such as biomass, reducing the CO2 emitted.

In order to validate this technology, Vale built an industrial plant of 75 ktpy in São Paulo that

confirmed the economic viability in 2018 – running 24x7 over 6 months. Vale is currently at the

engineering phase of a 500 ktpy plant.


Selected financial information

Income statement R$ million 2019 2018

Net operating revenue 148,640 134,483

Cost of goods sold and services rendered (83,836) (81,201)

Gross profit 64,804 53,282

Gross margin (%) 43.6% 39.6%

Selling and administrative expenses (1,924) (1,917)

Research and evaluation expenses (1,765) (1,376)

Pre-operating and operational stoppage (4,559) (984)

Other operational expenses, net (2,052) (1,613)

Brumadinho event (28,818) -

Impairment and disposal of non-current assets (20,762) (3,523)

Operating income 4,924 43,869

Financial income 2,092 1,549

Financial expenses (14,973) (8,394)

Other financial items, net (565) (11,213)

Equity results and other results in associates and joint ventures (2,684) (693)

Income (loss) before income taxes (11,206) 25,118

Current tax (5,985) (2,806)

Deferred tax 8,494 3,772

Total Tax 2,509 966

Net income (loss) from continuing operations (8,697) 26,084

Net income (loss) attributable to noncontrolling interests (2,025) 117

Net income (loss) from continuing operations attributable to Vale’s stockholders

(6,672) 25,967

Discontinued operations

Loss from discontinued operations - (310)

Income (loss) from discontinued operations attributable to Vale’s stockholders - (310)

Net income (loss) (8,697) 25,774


Net income (loss) attributable to Vale’s stockholders (6,672) 25,657

Balance sheet – consolidated R$ million 2019 2018

Assets

Current 68,698 59,256

Non-current 67,705 51,631

Investments 11,278 12,495

Intangibles 34,257 30,850

Property plant and equipment 187,733 187,481

Total 369,671 341,713

Liabilities

Current 55,806 35,285

Non-current liabilities 156,716 132,745

Stockholders’ equity 157,149 173,683

Equity attributable to Vale’s stockholders 161,480 170,403

Equity attributable to non-controlling interests (4,331) 3,280

Total 369,671 341,713


Cash flow

R$ million 2019 2018

Cash flow from operations 61.163 56.682

Interest on loans and borrowings paid (4.760) (4.023)

Derivatives received (paid), net (1.287) (250)

Interest on participative stockholders' debentures paid (715) (400)

Income taxes (including settlement program) (7.119) (4.089)

Net cash provided by operating activities from continuing operations 47.282 47.920

Cash flow from investing activities:

Capital expenditures (14.774) (13.899)

Additions to investments (287) (79)

Acquisition of subsidiary, net of cash (3.513) -

Proceeds from disposal of assets and investments 546 4.959

Dividends received from associates and joint ventures 1.423 922

Judicial deposits and restricted cash (6.169) -

Short-term investment (LFTs) (3.408) (180)

Other investments activities, net (358) 7.353

Net cash used in investing activities from continuing operations (26.540) (924)

Cash flow from financing activities:

Loans and borrowings from third-parties (9.988) (23.565)

Payments of leasing (891) -

Dividends and interest on capital paid to stockholders - (12.415)

Dividends and interest on capital paid to noncontrolling interest (695) (635)

Share buyback program - (3.858)

Transactions with noncontrolling stockholders (3.310) (56)

Net cash used in financing activities from continuing operations (14.884) (40.529)

Net cash used in discontinued operations - (157)

Increase in cash and cash equivalents 5.858 6.310

Cash and cash equivalents in the beginning of the year 22.413 14.318

Effect of exchange rate changes on cash and cash equivalents 1.356 2.170

Effects of disposals of subsidiaries and merger, net of cash and cash equivalents - (385)

Cash and cash equivalents at end of the year 29.627 22.413

Non-cash transactions:

Additions to property, plant and equipment - capitalized loans and borrowing costs 551 704

Cash flow from operating activities:

Income (loss) before income taxes from continuing operations (11.206) 25.118

Adjusted for:

Provisions related to Brumadinho 25.447 -

Equity results and other results in associates and joint ventures 2.684 693

Impairment and disposal of non-current assets 20.762 3.523

Depreciation, amortization and depletion 14.751 12.240

Financial results, net 13.446 18.058

Changes in assets and liabilities:

Accounts receivable (41) (1.012)

Inventories 669 (2.994)

Suppliers and contractors 2.836 (1.414)

Provision - Payroll, related charges and other remunerations (318) 349

Proceeds from streaming transactions - 2.603

Payments related to Brumadinho (3.982) -

Other assets and liabilities, net (3.885) (482)

Cash flow from operations 61.163 56.682


Operational and economic-financial performance

Selected financial indicators R$ million 2019 2018

Net operating revenues 148,640 134,483

Adjusted EBIT 27,556 48,825

Adjusted EBIT margin (%) 18.5% 36.3%

Adjusted EBITDA 42,307 61,065


(6,672) 25,967

Reconciliation of EBITDA

R$ million 2019 2018


(6,672) 25,967


Net income (loss) from continuing operations (8,697) 26,084

Depreciation, depletion and amortization 14,751 12,240

Income taxes (2,509) (966)

Net financial result 13,446 18,058

EBITDA 16,991 55,416

Items for Adjusted EBITDA reconciliation

Equity results and other results in associates and joint ventures 2,684 693

Impairment and disposal of non-current assets 20,762 3,523

Dividends received and interest from associates and joint ventures 1,870 1,433

Adjusted EBITDA from continuing operations 42,307 61,065

Segment information ― 2019 Expenses

R$ million Net

Revenues Cost¹

SG&A and others¹

R&D¹ Pre operating

& stoppage¹

Dividends and interests

on associates

and JVs

Adjusted EBITDA

Ferrous Minerals 118,767 (47,505) (1,393) (569) (3,249) 1,193 67,244

Iron ore fines 92,504 (34,843) (1,281) (491) (2,963) 120 53,046

Pellets 23,446 (10,515) (81) (65) (282) 1,036 13,539

Others ferrous 1,705 (1,278) 1 (4) - 37 461

Mn & Alloys 1,112 (869) (32) (9) (4) - 198

Base Metals 24,351 (14,874) (319) (347) (192) - 8,619

Nickel² 16,845 (11,305) (297) (174) (111) - 4,958

Copper³ 7,506 (3,569) (22) (173) (81) - 3,661

Coal 4,005 (6,462) 3 (121) - 447 (2,128)

Others 1,517 (1,541) (2,045) (728) (43) 230 (2,610)

Brumadinho impact - - (28,818) - - - (28,818)

Total 148,640 (70,382) (32,572) (1,765) (3,484) 1,870 42,307

¹ Excluding depreciation, depletion and amortization

² Including copper and by-products from our nickel operations

³ Including by-products from our copper operations


Comments on the economic and business

environment

IRON ORE

Iron ore 62% Fe reference price averaged US$ 93.4/dmt in 2019, 34% higher than in 2018

driven by disruptions on supply side, attributable mainly to the Brumadinho tragedy in Brazil

and the impact of cyclone Veronica in Australia and a record steel production in China.

MB65% index averaged US$ 104.5/dmt in 2019, 15% higher than in 2018, following the overall

iron ore price trend. Going forward, Vale is positive about high Fe grade ores use and

premiums, in response to China’s reforms and Ministry of Industry and Information Technology

(MIIT) recent policy of not approving more steel capacity swaps and ordering local governments

to inspect steel projects meant to swap older capacity in compliance with environmental, energy

consumption and other policies.

In China, crude steel production was record, achieving 996.3 Mt in 2019, with a strong

performance in the 4Q19, driven by continued momentum in the real estate sector, a recovery

in manufacturing and softer winter restrictions.

Ex-China, according to the World Steel Association (WSA), crude steel production decreased

to 873.6 Mt in 2019, 1.6% lower than in 2018, as the steel-using sectors suffered the side-

effects of trade tensions between the US and China.

Europe has been hit the hardest, as the export-oriented sectors such as automotive and

machinery were impacted by lack of investments and lower trade flows. Steel production in the

region totaled 159.4 Mt in 2019, 5% lower than 2018.

In North America, the US was the only country to increase steel production, achieving 87.9 Mt

in 2019, 1.5% higher than 2018, due particularly to higher steel production from electric arc

furnaces.

In developing countries, India’s steel production increased below expectations to 111.2 Mt,

1.8% higher than in 2018. The modest growth was attributed to slow manufacturing and

domestic consumption. On the other hand, Southeast Asia has kept the steel production

momentum observed in the past years and steel production was 11% higher than in 2018,

based on preliminary figures from WSA.

Vale remains overall positive on steel demand in China, this time driven by a rebound in

infrastructure investments. Nevertheless, we see growing risks emerging from the coronavirus,

which have led to travel restrictions and a longer Chinese New Year holiday, impacting first

mainly services, consumer goods manufacturing and overall sentiment. Iron ore price may be

impacted in the short-term by the overall sentiment and uncertainties, but it should recover,

reacting to restocking activity and stimulus policies. Ex-China, iron ore seaborne demand will

be driven by growth of steel production in emerging economies, such as Southeast Asia, and

a slow recovery in developed markets such as Europe, Japan and Korea.


COAL

Seaborne coking coal prices averaged US$ 177.0/t in 2019, 15% lower than in 2018. Poor

performance of seaborne coking coal during the year was mainly driven by factors in 2H19 such

as (i) weak macro data in India, due to lower housing and infrastructure spending over an

extended monsoon period and weak auto sales and consumer spending; (ii) shutdown of

several blast furnaces in Europe due to weak steel margins due to high carbon prices, steel

raw material prices and weak auto sales because of trade concerns; (iii) decrease in coke prices

and domestic coking coal prices in China; (iv) lower crude steel production in Japan with

completion of Olympic Games demand and weak auto sales; (v) steady supply from Australia

with no disruptions as those observed in 2018.

Seaborne coking coal market should remain bearish on prices, mainly due to lower than

expected growth in Indian steel demand and emerging uncertainties due to coronavirus in

China. Support can be seen from growing demand for coking coal with commissioning of new

blast furnaces in Southeast Asia.

In the thermal coal market, Richards Bay FOB price averaged US$ 71.5/t in 2019, 27% lower

than in 2018. Weaker prices in the year were mainly driven by (i) lower LNG prices due to rise

in gas supply by 12% amid warm winters; (ii) higher carbon prices in Europe squeezing the

margins for coal fired power generation; (iii) rising alternate power generation sources such as

renewables in Europe, hydro in China, nuclear in Japan and Korea; (iv) weaker seasonal

demand in India due to monsoon period; (v) higher stock levels in China and steady domestic

coal supply; (vi) rise in Indonesian thermal coal production by 10%.

Thermal coal market sentiment remains negative due to the same drivers observed in 2019

and added uncertainties around the coronavirus, impacting industrial demand and power

generation in China. However, prices should be supported by steady demand from the Indian

DRI (direct reduction iron) sector due to their technical dependence on this type of coal.

NICKEL

LME nickel prices averaged 2019 at US$ 13,936/t, 6% stronger compared to US$ 13,122/t in

2018.

Total exchange inventories (LME and SHFE) had a net decline, closing at 190.5 kt by the end

of 2019, down 28.4 kt since 2018. LME inventories at the end of 2019 stood at 153.3 kt, a

decline of 53.1 kt since the end of 2018. SHFE inventories increased 24.7 kt to 37.1 kt by the

end of 2019.

Global stainless-steel production increased 3.3% in 2019 relative to 2018 with strong growth

led by Indonesia, India and China. This mismatch of stainless steel production and stainless

steel consumption is resulting in surplus and is evidenced by the record high reported stainless

steel inventories, particularly in China. Sales of electric vehicles worldwide grew 12% in 11M19

relative to 11M18 amid a continued decline in overall automotive sales. Demand for nickel in

other applications is mixed, with aerospace supporting increased growth in super alloy

applications and the poor results for the automotive market negatively impacting plating

applications. Nickel supply increased approximately 8% in 2019 relative to 2018, with Class II

production growing 15% whereas Class I production increased 1% during this period.


The Indonesian export ore ban, which was fast tracked and has taken effect in the beginning

of 2020, two years earlier than previously indicated, contributed significantly to recent price

gains. Chinese NPI (nickel pig iron) production, which relies heavily on Indonesian ore imports,

will be negatively impacted in the long-term. However, in the near-term, alternative sources of

ore could soften the impact, such as, current Chinese ore stockpiles (visible and invisible), the

additional Indonesian quotas for the current year (which are permitted for export) and the

potential export increases from the Philippines, New Caledonia and Guatemala. Further to the

supply developments, an important consideration for all commodities is the impact of the

overarching macroeconomic factors such as the coronavirus outbreak, the ongoing trade

dispute between China and the US and a slowing global economy, which influences sentiment,

demand and, therefore, prices. The physical market reflects a slowing growth environment. Due

to these factors, our near-term view on nickel is subdued.

The long-term outlook for nickel is positive. Nickel in electric vehicle batteries will become an

increasingly important source of demand growth, particularly as battery chemistry favors higher

nickel content due to lower cost and higher energy density, against the backdrop of robust

demand growth in other nickel applications. Additionally, there is indication of price support

from recent announcements of increasing HPAL costs in Indonesia. HPAL projects are more

complex than originally envisioned and this has the potential to increase the financial burden

on nickel producers to meet the growing battery demand. While the Indonesian export ore ban

will limit Chinese NPI in the longer term, the ban has incentivized domestic nickel RKEF and

HPAL developments within the country. As a result, several projects and expansions have been

announced, and in some cases, construction at current developments is ahead of schedule.

COPPER

LME copper price averaged US$ 6,000/t in 2019, a decrease of 8% from 2018 (US$ 6,523/t).

Copper inventories on the LME increased by 13 kt in 2019 vs. 2018. In 2019, COMEX

decreased by 73 kt, while SHFE increased by 5 kt in comparison with 2018. Overall, copper

exchange inventory reduced by 55 kt.

Global demand remained relatively flat in 2019 compared to 2018. Global refined copper

production increased slightly by 0.3% in 2019 vs. 2018 while the recent China scrap ban

supported primary use.

The near-term outlook for copper is relatively positive. Market is expected to remain essentially

balanced with some upside risk for deficits in 2020, with macroeconomic factors, such as the

ongoing trade dispute between China and the US, though negotiations are currently making

progress, continuing to influence price and subdue refined copper demand as it has over this

past year. In consequence of the coronavirus, additional Chinese stimuli is expected to support

short-term growth.

The long-term outlook for copper is positive. Copper demand is expected to grow, partially

driven by electric vehicles and renewable energy, as well as infrastructure investments, while

future supply growth is challenged given declining ore grades and the need for greenfield

investment, creating a positive market outlook.


Comments on operational and economic-

financial performance

Net operating revenue in 2019 totaled R$ 148.6 billion, an increase of R$ 14.2 billion when

compared to 2018, due to higher realized prices mainly in iron ore fines and pellets (R$ 23.6

billion) which were partially offset by lower sales volumes (R$ 19.6 billion).

Costs and expenses7 totaled R$ 108.2 billion in 2019, R$ 33.4 billion higher than in 2018, mainly

due to the provisions and incurred expenses related to the Dam I rupture (R$ 28.8 billion) and

higher costs and expenses (R$ 11.3 billion), which were partially offset by lower sales volumes

(R$ 10,0 billion).

Adjusted EBITDA totaled R$ 42.3 billion in 2019, a decrease of R$ 18.8 billion when compared

to the R$ 61.1 billion recorded in 2018, mainly due to the provisions and incurred expenses

related to the Dam I rupture, lower volumes and higher stoppage expenses, which were partially

offset by higher sales prices.

Ferrous Minerals

Adjusted EBITDA in the Ferrous Minerals segment was R$ 67.2 billion in 2019, R$ 13.0 billion

higher than in 2018, mainly due to higher realized prices (R$ 24.1 billion) and the positive impact

of the exchange rate variations (R$ 5.8 billion), which were partially offset by lower sales

volumes (R$ 8.4 billion) and higher costs and expenses8 (R$ 8.9 billion).

Costs and expenses9 for Ferrous Minerals totaled R$ 52.7 billion, R$ 3.4 billion higher than in

2018, mainly due to third party ore purchases (R$ 1.1 billion) and maintenances costs (R$ 1.5

billion).

Sales volumes of iron ore fines and pellets reached 312.510 Mt in 2019, in line with the annual

guidance of 307-312 Mt. Vale’s iron ore fines production totaled 302.0 Mt, 21.5% lower than in

2018, while pellets production in 2019 was 41.8 Mt, 24.4% lower than in 2018. The operational

disruption which followed the Dam I rupture and the stronger rains than usual weather-related

seasonality in 1H19 had major impacts on sales volumes, which were partly offset by (i) the

S11D ramp-up, (ii) inventory drawdowns, and (iii) the gradual resumption of operations.

7 Excluding depreciation, depletion and amortization.

8 Excluding exchange rate variations and volumes.

9 Excluding depreciation, depletion and amortization.

10 Including run-of-mine and chips.


The average realized price of iron ore fines, encompassing CFR and FOB sales11, was US$

87.1/t in 2019, 31.6% above the US$ 66.2/t in 2018. The average price of pellets increased

from US$ 117.5/t in 2018 to US$ 137.7/t in 2019.

Base Metals

Adjusted EBITDA of Base Metals was R$ 8.6 billion in 2019, 8% lower than the R$ 9.3 billion

registered in 2018, mainly due to higher costs and expenses (R$ 1.8 billion) and lower sales

volumes (R$ 478 million), which were partially offset by the positive impact of exchange rate

variations (R$ 1.3 billion) and higher prices (R$ 320 million).

Nickel operations are progressing towards higher reliability with production at the refineries

going back to regular operating rates after the scheduled and unscheduled maintenance

activities at the Copper Cliff Nickel Refinery, in Sudbury, and at the Clydach, Matsusaka and

Long Harbour refineries. Likewise, production at Onça Puma mine and plant was resumed after

a judicial authorization granted in September.

The performance of copper operations was supported by Salobo’s solid performance during

the year, reaching close to zero unit cash costs after by-products in 2H19, notwithstanding the

impact of unscheduled maintenance in Sossego.

Coal

Adjusted EBITDA was a negative R$ 2.1 billion in 2019, R$ 2.7 billion lower than in 2018, mainly

due to higher costs and expenses (R$ 1.4 billion), lower sales volumes (R$ 596 million) and

lower sales prices (R$ 746 million).

Coal sales volumes totaled 8.8 Mt in 2019, reflecting the impacts of lower productivity at the

processing plants throughout the year. As a response, Vale reviewed its business plan in 2019

and has been implementing two initiatives, which are expected to produce sustainable results

– a new mining plan and a new operational strategy for the processing plants.

11 CFR (Cost and Freight) sales include maritime freight in the price and FOB (Free on Board) sales consider the

product delivered at the loading port and therefore do not include sea freight.


Net income (loss)

Vale posted a loss of R$ 6.7 billion in 2019, compared to a net income of R$ 25.7 billion in

2018, the second loss in the last 20 years. The R$ 32.4 billion decrease was mostly driven by:

(i) provisions and reparation expenses related to the Dam I rupture, including

decharacterization of dams (R$ 10.3 billion) and provisions and incurred expenses (R$ 18.5

billion); (ii) provisions related to the Renova Foundation (R$ 2.0 billion) and to the

decharacterization of Germano dam (R$ 1.0 billion); (iii) recognition of non-cash impairment in

Base Metals and Coal business (R$ 17.3 billion), which were partially offset by lower foreign

exchange losses (R$ 9.2 billion).

Financial results

Net financial results accounted for a loss of R$ 13.4 billion, R$ 4.6 billion lower than in 2018.

The decrease was mainly due to lower foreign exchange losses (R$ 9.2 billion) in the year, due

to the adoption of net investment hedge, therefore reducing the exposure to foreign exchange

volatility, which were partially offset by higher mark-to-marked expense adjustments in the

shareholder debentures (R$ 3.8 billion).

Financial Results R$ million

2019 2018

Financial expenses (14,973) (8,394)

Gross interest (3,894) (4,301)

Capitalization of interest 551 704

Shareholder debentures (5,687) (1,871)

Others (5,338) (2,213)

Financial expenses (REFIS) (605) (713)

Financial income 2,092 1,549

Derivatives 926 (1,006)

Currency and interest rate swaps 154 (1,054)

Others (bunker oil, commodities, etc) 772 48

Foreign Exchange 144 (8,237)

Monetary variation (1,635) (1,970)

Financial result, net (13,446) (18,058)

Impairments and onerous contracts

Asset impairments from continuing operations, disposal of non-current assets and onerous

contracts, all with no cash effect, totaled R$ 20.8 billion in 2019, mainly due to charges in the

Nickel and Coal businesses.

In the Base metals Nickel business, the New Caledonian operation experienced challenging

issues throughout 2019, mainly in relation to production and processing. Thus, Vale has revised

its business plan, reducing the expected production levels for the remaining life of the operation.

The new business strategy led to an impairment charge of R$ 10.3 billion in 2019.

In the Coal business, a revaluation of the expectations related to the yield of metallurgical and

thermal coal in the operations in Mozambique, the review of the mining plan, which drove a


reduction in the proven and probable reserves, and the lowering the long-term price assumption

led to an impairment charge of R$ 6.9 billion in 2019.

Vale also recognized R$ 2.0 billion of asset write-off, mainly related to the Córrego do Feijão

mine and other upstream dams in Brazil.

Impairment and onerous contracts of assets R$ million 2019

Base Metals – Nickel – VNC 10,319

Coal – Moatize mine 6,949

Other assets impairments and write-off 2,507

Onerous contracts 987

Total 20,762

Investments in associates, joint ventures and controlled companies

Vale has investments in associates, joint ventures and controlled companies for important

business areas, such as iron ore, pelletizing, nickel, coal, copper, energy and other businesses.

The amount of investments recorded at Vale’s financial statement for the main companies on

the portfolio are listed at the table below. The investments for these companies are accounted

under the equity method, and may differ from the stand-alone financial information reported on

their financial statements, as they are prepared considering Vale’s accounting policies.

Investments Equity results in the Income

Statement

R$ million 2019 2018 2019 2018

Associates and joint ventures

Pelletizing plants 1,505 1,614 777 1,132

Aliança Geração de Energia 1,894 1,882 122 81

Aliança Norte Energia 646 628 17 54

California Steel Industries (CSI) 975 958 88 289

Companhia Siderúrgica do Pecém (CSP) - - (282) (867)

Mineração do Rio Norte (MRN) 393 360 58 6

MRS Logística (MRS) 1,999 1,922 196 264

Nacala Logistic Corridor - - (99) 20

VLI 3,273 3,319 1 119

Others 593 1,812 (7) 47

Controlled

Vale International 71,797 65,927 4.901 4.054

Vale Canada 11,236 20,260 (11.515) (569)

Salobo Metais 11,213 10,716 2.186 2.384

Minerações Brasileiras Reunidas (MBR) 8,302 5,760 1.112 752

Vale Malaysia 5,476 5,210 174 226

Others 25,292 19,142 (3,528) (2,652)

Total 144,594 139,510 (5,799) 5,340


Investments

Investments in 2019 remained in line with 2018, totaling US$ 3.704 billion, consisting of US$

544 million in project execution and US$ 3.160 billion in maintenance of operations.

US$ million 2019 2018

Projects 544 888

Maintenance of existing operations 3,160 2,896

Total 3,704 3,784

Investment made by business area1 US$ million 2019 2018

Ferrous Minerals 2,070 2,392

Coal 240 156

Base Metals 1,376 1,223

Others 18 13

Total 3,704 3,784

¹ Excludes R&D.

Project execution

Investments in project execution totaled US$ 544 million in 2019, 38.7% lower than in 2018.

Two main multi-year projects are under development: the Northern System Logistics 240 Mtpy

project and the Salobo III project.

The first project aims to expand the Northern System’s logistics capacity and had its first

installation license granted in December 2019. The second project is a brownfield expansion of

the copper throughput capacity at the Salobo site and had its installation license granted in

November 2018.

Projects Capacity (tons per

year)

Estimated start-up

Executed capex (US$ million)

Estimated capex

(US$ million) Physical

progress (%) 2019 Total Total

Ferrous Minerals Project

Northern System Logistics 240 Mtpy

240 (10)¹ Mt 2H22 69 69 770 14%

Base Metals Project

Salobo III (30-40) kt 1H22 133 136 1,128 40%

¹ Net additional capacity.

Investments in the maintenance of operations

In 2019, investments in the maintenance of operations increased 9.1% compared to 2018, with

the continuity of the Gelado project, in Brazil, and Voisey's Bay underground mine extension

(“VBME”), in Canada.


The Gelado project aims to recover approximately 10 Mtpy of pellet feed with 64.3% Fe content,

2.0% silica and 1.65% alumina in the Carajás Complex in order to feed the São Luís pellet

plant.

The VBME project is expected to extend the mine life of Voisey’s Bay, with annual underground

mine production of around 45 kt of nickel in concentrate, on average, about 20 kt of copper and

about 2.6 kt of cobalt. VBME will replace Voisey’s Bay existing mine production.

Replacement projects progress indicator

Projects Capacity

(ktpy) Estimated start-up

Executed capex (US$ million)

Estimated capex (US$ million)

Physical progress

(%) 2019 Total Total

Voisey’s Bay Mine Extension

45 1H21 249 471 1,694 41

Gelado 9.6 2H21 70 75 428 48

Investments in dam management

Vale has been continuously investing in the maintenance and safety of its dams, with standards

being updated and in constant alignment with the most rigorous international practices.

In 2019, investments in dam management reached US$ 102 million, an increase of 67%

compared to 2018. Investments in dam management encompass: dam maintenance,

monitoring, safety and operational improvements, audits and risk analysis, revisions of the

Emergency Action Plan for Mining Dams (PAEBM), and warning systems, video monitoring and

instrumentation.

Investments in new dams totaled US$ 53 million in 2019 and reflect ongoing construction

projects and Vale's operational requirements. Vale applies the conventional construction

method to any new dam, in line with the 2016 decision to render inactive and de-characterize

all upstream dams, following the rupture of Samarco's Fundão dam, in Mariana (MG).

Vale aims to develop safe and sustainable alternatives to tailings dams. The company will

increase dry processing up to 70% of its iron ore production volume by 2023, while investing

approximately US$ 1.8 billion between 2020-2024 to increase wet processing with the filtration

and dry stacking system to up to 16% of its iron ore production volume. Additionally, Vale will

invest in innovative technologies for dry magnetic concentration of iron ore fines. In such

context, investments in new dams and dam raising will be gradually decreased.


Dam management 102 61


Investments in Health and Safety

Investments in Health & Safety (H&S) reached US$ 279 million in 2019, an increase of 20%

compared to 2018, mainly due to the review of safety standards and procedures being carried

out by the Safety and Operational Excellence Office.

Actions being taken are structural rehabilitation and operational adequacy, fire prevention and

firefighting systems, as well as other actions aimed at mitigating risks and increasing health &

safety levels.


Investments in H&S 279 233


Debt indicators

Gross debt totaled US$ 13.056 billion as of December 31st, 2019, decreasing by US$ 2.410

billion from December 31st, 2018, mainly as a result of net debt repayments of US$ 2.270 billion

related to the early repurchase of bonds during the year.

Net debt totaled US$ 4.880 billion as of December 31st, 2019, a substantial decrease of US$

4.770 billion when compared to US$ 9.650 billion as of December 31st, 2018. The reduction in

net debt is mainly due to strong cash generated during the year.

Net debt has reached the lowest level since 2008. Nevertheless, in a broader view, considering

leases and Refis obligations, the expanded net debt is US$ 10.578 billion as of December 31st,

2019. Furthermore, taking into consideration other relevant commitments, such as the

Brumadinho provisions and Samarco and Renova obligations, the expanded net debt would be

US$ 17.750 billion, as of December 31st, 2019.

In December 2019, Vale completed the syndication of a US$ 3.0 billion revolving credit facility,

which will be available for five years. The new line, together with the existing US$ 2.0 billion

facility that expires in 2022, preserves the total available amount of US$ 5.0 billion in revolving

credit facilities.

Average debt maturity decreased to 8.5 years on December 31st, 2019 when compared to 8.9

years on December 31st, 2018. Likewise, average cost of debt, after currency and interest rate

swaps, decreased to 4.87% per annum on December 31st, 2019 when compared to 5.07% per

annum on December 31st, 2018, mainly due to the repurchase of higher yield and longer-term

bonds during the year.


Interest coverage, measured by the ratio of the LTM12 adjusted EBITDA to LTM gross interest,

decreased to 10.7x on December 31st, 2019 against 14.0x on December 31st, 2018. Gross

debt/enterprise value (EV) decreased to 17.5% on December 31st, 2019 from 19.7% on

December 31st, 2018, due to the substantial reduction in debt levels throughout the year.

Debt indicators US$ million 2019 2018

Gross debt ¹ 13,056 15,466

Net debt ¹ 4,880 9,650

Leases (IFRS 16) 1,791 -

Gross debt / LTM EBITDA adjusted (x) 1.2 0.9

LTM EBITDA adjusted/gross interest expenses (x) 10.7 14.0

Gross debt / EV 17.5% 19.7%

1 Does not include leases (IFRS 16, equivalent to Brazillian regulation CPC 06 (R2)).

Liability management

The main liability management transactions related to the repurchase of the bonds in 2019

were:

i. The full redemption of US$ 281 million of the outstanding notes due 2021 and US$ 908

million of the outstanding notes due 2022, and;

ii. Cash repurchases of US$ 264 million of the outstanding notes due 2039, US$193

million of the outstanding notes due 2036, US$ 294 million of the outstanding notes

due 2026, US$ 66 million of the outstanding notes due 2034, US$ 161 million of the

outstanding notes due 2022 and US$ 103 million of the outstanding notes due 2032.

12 Last twelve months.


Shareholder structure and capital markets

As of December 31, 2019, the share capital of Vale S.A. was comprised of 5,284,474,782

common shares, 3,169,587,497 of which composed the free float.

Shareholders Agreement

The shareholders Litel Participações S.A., Bradespar S.A., Mitsui & Co., Ltd. and BNDES

Participações S.A., on August 14th, 2017, entered into the Shareholder Agreement of Vale. The

Agreement is of a transitional nature, since it shall be in force until November 09th, 2020, with

no provision for renewal, and aims to provide the Company with stability and to adjust its

corporate governance structure during the period of transition to become a corporation.

Free float

The shares issued by Vale are listed in B3 (ticker: VALE 3), in NYSE (ticker: VALE, Level II

ADR’s) and in Latibex (ticker XVALO). In December 2019, Vale delisted its ADSs from

Euronext, aiming to simplify its structure.


In B3, Vale’s shares appreciation increased 8% in 2019, compared to 2018. On December 31st,

2019, Vale’s stock closing price was R$ 53.3 per share, compared to R$ 49.7 per share on

December 31st, 2018. Vale’s market cap (outstanding shares x share price) was approximately

R$ 282 billion at the end of 2019. The shares’ average daily trading volume was R$ 983 million

in 2019, an increase of 16% over the volume traded in 2018.

The shares issued by Vale comprise the main indices in B3, such as IBOV, IBRA, IBXL, IBXX,

IGCT, IGCX, IGNM, IMAT, ITAG and MLCX.

Market information 2019 2018

Closing price (R$/share) 53.3 49.7

Volume average - VALE3 (R$ billion) 983 847

Price average - VALE3 (R$/share) 47.9 47.8

Market cap - VALE3 (R$ billion) 282 270

Book value (R$/share) 29.7 32.9

VALE3 variation 7.8% 31.8%

Ibovespa variation 32.5% 15.0%

Shareholder rights

Since December 2017, Vale's shares are part of the Novo Mercado, the highest level of

corporate governance in B3. After the Novo Mercado migration, Vale has converted its shares

to a capital structure made up exclusively of common shares with voting rights, and new rights

have been granted to the company's shareholders. In the event of sale of control, all

shareholders have the right to sell their shares at the same price (tag along of 100%) attributed

to the shares held by the controlling shareholder. The Company continues with the evolution

process of its governance model, in order to adapt it to the new requirements of the Novo

Mercado regulation, and also to prepare Vale for a new scenario after the end of its

shareholders' agreement.


Shareholder remuneration

As a result of the Dam I rupture in Brumadinho (MG), Vale’s Board of Directors, decided to

suspend the Shareholder Remuneration Policy, as well as any other resolution on the

repurchase of shares of its own issuance.

In 2019, Vale posted a loss of R$ 6.7 billion and, therefore, there is no obligation to distribute

minimum remuneration, according to Brazilian law.

Nevertheless, on December 19th, 2019, the Board of Directors, approved interest on capital,

considering the 2019 calendar year and based on balance sheet revenue reserves as of

September 30th, 2019, in the gross amount of R$ 7,253,260,000.00, equivalent to R$

1.414364369 per outstanding common share and per special-class preferred share issued by

Vale, based on total capital excluding shares in treasury (5,128,282,469).

The approved interest on capital does not modify the Board of Directors’ decision of suspending

the Shareholder Remuneration Policy. The allocation of the interest on capital will be decided

in due course, which will not occur while the Shareholder Remuneration Policy is suspended.

Prior to the suspension, the Shareholder Remuneration Policy that was previously in effect was

as follows:

1. The shareholder remuneration will be composed by two semi-annual installments,

the first in September of the current year and the second in March of the subsequent year. The

Board of Directors may declare interest on capital in December of each year, for payment in

March of the subsequent year. These amounts will be reduced from the March instalment.

2. The minimum amount of the remuneration will be 30% of the Adjusted EBITDA less

Sustaining Investments calculated based on the first half of the year results for the September

installment, and on the second half of the year results for the March installment.

3. The Board of Directors may approve additional remuneration through the distribution

of extraordinary dividends.


2020 business perspectives

Ferrous Minerals

Vale’s iron ore fines production guidance in 2020 is 340-355 Mt. Production volumes will

depend mostly on the granting of external authorizations to resume halted production, while the

achievement of the higher end of production range continues to be possible depending on

several upsides being explored.

Due to the lower availability of pellet feed and to the suspension of tailings disposal at

Laranjeiras dam, the annual guidance for pellets production was revised to 44 Mt, while the iron

ore fines production guidance for 1Q20 was revised to 63-68 Mt.

The abovementioned estimates do not factor in any second-order effects of the Coronavirus

epidemic, which at the time of this writing seems to be accommodated through price changes

only.

Vale reinforces its strategy of margin over volume, prioritizing blended products in its portfolio,

therefore inventories will be replenished in 2020 to ensure supply as appropriate, which may

imply lower sales in comparison to production volumes.

Base Metals

The refining activities in VNC responsible for processing the feed into nickel oxide will cease

from April 2020 onwards, as part of the process to improve short-term cash flow. With this

flowsheet simplification, VNC's nickel product mix will be solely comprised of nickel hydroxide

cake. Considering that, Vale’s nickel production guidance is 200-210 kt in 2020.

Coal

Vale reviewed its business plan in 2019 and has been implementing two initiatives, which are

expected to produce sustainable results – a new mining plan and a new operational strategy

for the processing plants, both previously disclosed. As a result of that, coal production

guidance is expected to range between 8 Mt and 10 Mt in 2020.


Policy regarding independent auditors

Vale has specific internal procedures for the pre-approval of services contracted with its

external auditors, in order to avoid conflict of interest or the loss of objectivity of its external

independent auditors.

In line with best corporate governance practices, all services provided by our independent

auditors are supported by a letter of independence issued by the auditors and pre-approved by

the Fiscal Council.

According to CVM Instruction 381/2003, the services contracted with external auditors of the

company, PricewaterhouseCoppers Auditores Independentes (“PwC”), for a five years term

until December 2023, for the financial year of 2019 for Vale and its subsidiaries were as follows:

Fees in R$ thousand Vale and subsidiaries %¹

Financial Audit 23,078 87.8

Auditing - Sarbanes Oxley Act 2,304 8.8

Audit Related Services² 901 3.4

Total External Audit Services 26,283 100.00

1 Percentage relating to total fees of external audit services. 2 Those services are mostly contracted for periods of less than one year.

REPORT FROM ADMINISTRATION 2019 - Vale.com · Report from Administration 3 promoting a safer and...

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