6-K 1 a15-13108_16k.htm 6-K

Table of Contents

 

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the

Securities Exchange Act of 1934

 

For the month of

May 2015

 

Vale S.A.

 

Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil

(Address of principal executive office)

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

 

 

(Check One) Form 20-F x  Form 40-F o

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))

 

 

(Check One) Yes o  No x

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))

 

 

(Check One) Yes o  No x

 

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

 

 

(Check One) Yes o  No x

 

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82-   .)

 

 

 



Table of Contents

 

Table of Contents:

 

Press Release

3

Signature Page

501

 

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1.1.                            Statement and Identification of the Responsible Individual

 

Name of the individual responsible for the content of the Reference Form

 

Murilo Pinto de Oliveira Ferreira

Position of responsible individual

 

Executive Director

 

Name of the individual responsible for the content of the Reference Form

 

Luciano Siani Pires

Position of responsible individual

 

Director of Investor Relations

 

The above-mentioned directors stated that:

 

a. They have reviewed the Reference Form;

 

b. All the information contained in the Reference Form complies with Instruction CVM No. 480, in particular with Articles 14 through 19;

 

c. All the information contained therein is an accurate, precise and complete representation of the economic and financial situation of the issuer and of the risks inherent to its activities and the securities issued by it.

 

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2.1/2.2 Identification and remuneration of Auditors:

 

Does it have auditor?

 

YES

CVM (Securities Commission) Code

 

287-9

Type of Auditor

 

Domestic

Name/Corporate name

 

PricewaterhouseCoopers Auditores Independentes

CPF/CNPJ

 

61.562.112/0002-01

Service start date:

 

07/24/2009

End of service provision:

 

04/29/2014

Description of the service contracted

 

Provision of professional services related to (i) auditing the individual and consolidated financial statements for fiscal years ending on December 31, 2009, 2010, 2011, 2012 and 2013 and reviewing the quarterly information — ITR for such fiscal years and the quarter ending on March 31, 2014, both for domestic and international purposes, as applicable, (ii) issuing comfort letters for the issuance of debts and equities at the Brazilian and international market, (iii) the certification of internal controls in order to comply with “Section 404” of the Sarbanes-Oxley Act of 2002, and (iv)  provision of other services related to the audit and (v) provision of other services, unrelated to the external audit.

Total amount of the remuneration of independent auditors itemized per service

 

In the fiscal year ended December 31, 2014, no payments were made.

Justification for replacement

 

Change of Independent Auditors according to article 31 in CVM Instruction 308/99

Reason submitted by the auditor in case of disagreement of the issuer justification

 

Auditor replacement was expressly approved by the auditor, with no disagreements

 

Name of the supervisor
responsible

 

Period of provision of service

 

CPF

 

Address

João César de Oliveira Lima Junior

 

 

 

Marcos Donizete Panassol

 

06/01/2012 to 04/29/2014

 

 

 

 

07/24/2009 to 05/31/2012

 

744.808.477-15

 

 

 

 

 

063.702.238-67

 

Avenida José da Silva de Azevedo Neto nº 200 — Bloco 3 - Torre Evolution IV — rooms 101, 103 to 108 and 201 to 208, Barra da Tijuca, City and State do Rio de Janeiro-RJ, CEP 22075-556.

e-mail: joao.c.lima@br.pwc.com

Phone: (21) 3232-6112

 

Avenida José da Silva de Azevedo Neto, no. 200, bloco 3, Torre Evolution IV, salas 101, 103 a 108 e 201 a 208, Barra da Tijuca, Rio de Janeiro, RJ, CEP 22075-556

Email: marcos.panassol@br.pwc.com

Telephone: (21) 3232-6112

 

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Does it have auditor?

 

YES

CVM (Securities Commission) Code

 

418-9

Type of Auditor

 

Domestic

Name/Corporate name

 

KPMG Auditores Independentes

CPF/CNPJ

 

57.755.217/0001-29

Service start date:

 

4/30/2014

End of service provision:

 

 

Description of the service contracted

 

Provision of professional services related to the auditing of financial statements both for domestic and international purposes, and certification of internal controls in order to comply with “Section 404” of Sarbanes-Oxley Act of 2002, for the fiscal year ending on December 31, 2014 and Review of Quarterly Financial Information (ITR) ending June 30 and September 30, 2014. Additionally, the scope of work also covers the provision of other services related to the auditing, namely: the issuance of previously agreed upon procedure reports, according to NBC TSC4400.

Total amount of the remuneration of independent auditors itemized per service

 

Services acquired from external auditors of the Company for the fiscal year ended December 31, 2014, for the Company and its affiliates were the following:

 

Reais (thousand):

Financial audit:                                                                                                                                                                                                                       11,678

Sarbanes-Oxley Act Audit:                                                                                                                                                         1,103

Audit-related services(*):                                                                                                                                                                   681

Total independent audit expenses:                                                                                                         13,462

Other (*)                                                                                                                                                                                                                                                                                                          102

Total of services                                                                                                                                                                         13,564

 


(*) These services are retained mostly for periods shorter than one year and refer mainly to the issuance of previously agreed upon procedure reports, according to NBC TSC4400.

Justification for replacement

 

Not applicable

Reason submitted by the auditor in case of disagreement of the issuer justification

 

Not applicable

 

Name of the supervisor
responsible

 

Period of
provision of
service

 

CPF

 

Address

Manuel Fernandes Rodrigues de Sousa

 

Starting 4/30/2014

 

783.840.017-15

 

Av. Almirante Barroso, 52 — 4º andar 20031-000, Rio de Janeiro, RJ

e-mail: mfernandes@kpmg.com.br Telephone: (21) 3515-9336

 

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2.3                               Other relevant information

 

At the meeting of November 28, 2013, the Board of Directors of Vale approved hiring the company KPMG Auditores Independentes to provide auditing services for the Company’s financial statements for 3 (three) years starting in fiscal year 2014. Services started with the review of the 2014-second quarter information (ITRs).

 

The Company has specific internal procedures for pre-approval of engagements for their external auditors in order to avoid conflict of interest or loss of objectivity by its independent auditors.

 

The Company’s policies regarding independent auditors and other services unrelated to external auditing are grounded in principles that safeguard their independence. In line with best corporate governance practices, all services provided by the independent auditors are pre-approved by the Supervisory Board, and the independent auditor provide us with an independence letter.

 

Additionally, the Company clarifies that there are no relevant transfers of services or resources between the auditors and related parties with the Company as defined in CVM deliberation no. 642/10 that approved CPC Technical Pronunciation 05(R1).

 

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3.1                               Consolidated Financial Information

 

(Reais)

 

Fiscal Year (12/31/2014)

 

Fiscal Year (12/31/2013)

 

Fiscal year (12/31/2012)

 

Shareholders’ equity

 

149,601,623,000.00

 

152,122,066,000.00

 

152,909,437,000.00

 

Total Assets

 

309,415,532,000.00

 

291,880,311,000.00

 

266,921,654,000.00

 

Realized Net

 

88,274,564,000.00

 

 

 

 

 

Revenue/Temporary

 

 

 

101,489,747,000.00

 

91,269,482,000.00

 

Revenue/Insurance Premium

 

 

 

 

 

 

 

Gross Profit

 

29,188,660,000.00

 

48,979,108,000.00

 

41,537,098,000.00

 

Net Profit

 

954,384,000.00

 

115,091,000.00

 

9,891,696,000.00

 

Number of Shares, excluding treasury

 

5,153,374,926

 

5,135,374,926

 

5,153,374,926

 

Asset Value of Share (in R$/unit)

 

29.02983485

 

29.622387

 

29.670000

 

Earnings per Share

 

0.19000

 

0.02000

 

1.940000

 

 

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3.2                               Non-Accounting measurements

 

a. value of non-accounting measurements

 

The Company uses EBITDA as a non-accounting measurement. In 2014, 2013, and 2012, respectively, the EBITDA of the Company was established in the amount of R$ 27,680 million; R$ 42,386 million, and R$ 23,164 million, respectively.

 

b. reconciliations between amounts reported and the values of audited financial statements

 

 

 

Year ending on December 31

 

In R$ million

 

2014

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Operating profit - EBIT

 

17,572

 

33,433

 

15,035

 

Depreciation / Amortization of goodwill

 

10,108

 

8,953

 

8,129

 

EBITDA (LAJIDA)

 

27,680

 

42,386

 

23,164

 

Corporate income

 

(1,141

)

(999

)

(1,241

)

Dividends received

 

1,302

 

1,836

 

932

 

Loss in the calculation of the sale of non-current assets

 

441

 

0.508

 

1,036

 

Result from the sale of interest in joint venture and affiliates

 

68

 

(98

)

 

Loss non-current asset impairment

 

2,713

 

5,390

 

8,211

 

Decrease in impairment

 

71

 

 

4,002

 

CFEM Provisions

 

 

 

1.100

 

Net gain (loss) from discontinued operations

 

 

4

 

133

 

EBITDA (LAJIDA) - adjusted

 

31,134

 

49,027

 

37,337

 

Depreciation / Amortization of goodwill

 

(10,108

)

(8,953

)

(8,129

)

Dividends received

 

(1,302

)

(1,836

)

(932

)

Reduction in recoverable value of investments

 

(71

)

 

(4,002

)

Corporate results

 

1,141

 

999

 

1,241

 

Loss in the calculation of the sale of non-current assets

 

(441

)

(508

)

(1,036

)

Result from the sale of interest in joint venture and affiliates

 

(68

)

98

 

 

Reduction of non-current asset impairment

 

(2,713

)

(5,390

)

(8,211

)

CFEM Provisions

 

 

 

 

 

(1,100

)

Net financial income

 

(14,753

)

(18,442

)

(8,239

)

Income tax and social contribution

 

(2,600

)

(15,249

)

2,595

 

Net gain (loss) from discontinued operations

 

 

(4

)

(133

)

Net income/year

 

219

 

(258

)

9,391

 

Loss (profit) to non-controlling shareholders

 

735

 

373

 

501

 

Profit to controlling shareholders

 

954

 

115

 

9,982

 

 

c. why the Company believes that this measurement is more appropriate for a correct understanding of its financial situation and results of operations

 

EBITDA (LAJIDA) is a measure of the company’s cash generation, aiming to assist the assessment by the Administration of the performance of operations. The analysis of operating results through EBITDA (LAJIDA) has the benefit of canceling the effect of non-operating gains or losses generated by financial transactions or the effect of taxes.

 

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We calculate the EBIDTA (LAJIDA) according to the terms set forth in CMV Instruction no. 527, from October 4, 2012 (“CVM Instruction 527”), as follows: the term’s net results, plus the taxes over the profit, of the net financial expenses, of financial revenues, and of depreciation, amortization, and exhaustion.

We also calculate the adjusted EBITDA (LAJIDA) according to the net EBITDA (LAJIDA) from the corporate interest, from reduction in the recoverable asset of values, from non-recurrent items, and from depreciations, amortizations and exhaustions, plus dividends from joint ventures and sister companies. We understand that the adjusted EBITDA (LAJIDA) has a more precise measure of cash generation in the Company, since it excludes non-recurring and non-cash effects.

 

The consolidated cash generation measured by EBITDA (LAJIDA) and Adjusted EBITDA (LAJIDA) is not a measure recognized by BR GAAP or IFRS and does not represent cash flow for the periods presented and therefore should not be considered as an alternative to net income (loss), as an isolated indicator of operating performance or as an alternative to cash flow or as a source of liquidity. The EBITDA (LAJIDA) definition used by Vale may not be comparable with EBITDA (LAJIDA) disclosed by other companies, should they not adopt the standard meaning for EBITDA (LAJIDA) determined by CVM Instruction 527.

 

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3.3                               Events subsequent to the latest financial statements

 

The Company does not provide guidance in the form of quantitative predictions about its future financial performance. The Company seeks to disseminate as much information about its vision of the various markets where it operates, guidelines, and implementation strategies in order to provide investors in the capital markets a basis for the formation of expectations about its performance in the medium and long term.

 

The Company Consolidated Financial Statements for the year ended December 31, 2014 were issued on February 25, 2015.

 

No subsequent events following the Consolidated Financial Statements of the Company, under the terms in the rules in IAS 24, approved by CVMº 593/09:

 

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3.4                               Policy for allocation of results

 

 

 

Fiscal Year Ended December 31

 

 

2014

 

2013

 

2012

a. Rules on retention of profits

 

According to Article 43 of the Bylaws, there should be a consideration in the proposal for distribution of profits of the formation of (i) fiscal benefit reserve, to be constituted in the form of current legislation, and (ii) investment reserve for the purpose of ensuring the maintenance and development of activities that constitute the main object of the Company, in an amount not exceeding 50% (fifty percent) of net income distributable up to the maximum capital of the Company.

 

 

 

Values on retention of profits

 

Of the total of R$ 954,384,414.00, the distribution was (i) R$ 47,719,220.70 to legal reserve and (ii) R$ 161,770,077.08 (17%) to fiscal benefit reserves.

 

Of the total of 115,090,671.19, added with accrued gains from the adoption of new accounting principles issued by the Comissão de Valores Mobiliários (CVM) and the Comitê de Pronunciamentos Contábeis (CPC), in the amount of R$ 14,627,000.00, the distribution was (i) R$486,684,794.17 to legal reserves and (ii) R$24,161,826.66 (21%) to fiscal incentive reserves. (1)

 

Of the total of R$ R$9,733,695,883.37, the distribution was (i) R$486,684,794.17 to legal reserves and (ii) R$599,031,296.74 (6.2%) to fiscal incentive reserves (1) (1) Values above were approved by the General Shareholders’ Meeting held on April 17, 2013. However, we clarify that, due to adjustments to the IFRS, the net profit was adjusted to R$ 9,891,696 thousand.

 

 

 

 

 

 

 

b. Arrangements for distribution of dividends

 

According to Article 44 of the bylaws, at least 25% (twenty five percent) of annual net profits, adjusted according to the law, will be provided for the payment of dividends.

 

Pursuant to Art. 5, §5 of the bylaws, the holders of preferred shares of Class A and special class, shall have their right to participate in the dividend to be distributed and calculated as per Chapter VII of the Bylaws, according to the following criterion:

 

(a) Priority in the reception of dividends corresponding to (i) 3% (three per cent) at least of the net asset value of the share, calculated based on the financial statements analyzed that served as reference for the payment of dividends or (ii) 6% (six per cent) calculated on the part of the capital to which that class of share belongs, whichever is the greatest of these.

 

(b) Right to participate in the distributed incomes, under equal conditions with common shares, after them, guaranteeing a dividend equal to the priority minimum set up pursuant to “a” above.

 

 

 

c. Frequency of dividend distribution

 

In accordance with the industry practices adopted by the Company, payments are made semiannually in the months of April and October.

 

 

 

d. Eventual restrictions to dividend distribution imposed by legislation or special regulation applicable to the Company, as well as contracts, judicial, administrative, or arbitral decisions

 

none

 

none

 

none

 

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3.5          Distributions of dividends and retention of net income.

 

(Reais)

 

Fiscal Year Ended December 31, 2014

 

Fiscal Year Ended December 31, 2013

 

Fiscal Year Ended December 31, 2012

 

Adjusted net income for dividend payments

 

744,895,116.22

 

99,069,960.97

 

8,647,979,792.46

 

Percentage of dividend over the adjusted net profit

 

100.0000000

 

100.000000

 

100.000000

 

Rate of return in relation to equity

 

0.63795

 

0.10000

 

6.000000

 

Dividend distributed

 

9,738,750,000.00

 

9,319,275,000.00

 

8,647,979,792.46

 

Net income retained

 

161,770,077.08

 

24,161,826.66

 

599,031,296.74

 

Date of approval of the retention

 

04/17/2015

 

04/17/2014

 

04/17/2013

 

 

01/01/2014 to 12/31/2014

 

Share Type

 

Share Class

 

Distributed Dividend

 

Amount (Unit)

 

Dividend Payment

 

Common

 

 

 

Interest on Capital

 

2,863,596,635.71

 

04/30/2014

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,768,793,364.29

 

04/30/2014

 

Common

 

 

 

Mandatory Dividend

 

1,083,253,396.32

 

10/31/2014

 

Preferred

 

Preferred Class A

 

Mandatory Dividend

 

669,106,603.68

 

10/31/2014

 

Common

 

 

 

Interest on Capital

 

2,073,336,466.96

 

10/31/2014

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,280,663,533.04

 

10/31/2014

 

 

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01/01/2013 to 12/31/2013

 

Share Type

 

Share Class

 

Distributed Dividend

 

Amount (Unit)

 

Dividend Payment

 

Common

 

 

 

Interest on Capital

 

2,263,206,859.28

 

04/30/2013

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,397,943,140.72

 

04/30/2013

 

Common

 

 

 

Mandatory Dividend

 

489,342,023.63

 

04/30/2013

 

Preferred

 

Preferred Class A

 

Mandatory Dividend

 

302,257,976.37

 

04/30/2013

 

Common

 

 

 

Interest on Capital

 

2,624,124,419.28

 

10/31/2013

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,620,875,580.72

 

10/31/2013

 

Common

 

 

 

Mandatory Dividend

 

384,207,050.57

 

10/31/2013

 

Preferred

 

Preferred Class A

 

Mandatory Dividend

 

237,317,949.43

 

10/31/2013

 

 

01/01/2012 to 12/31/2012

 

Share Type

 

Share Class

 

Distributed Dividend

 

Amount (Unit)

 

Dividend Payment

 

Common

 

 

 

Interest on Capital

 

2,035,913,849.00

 

04/30/2012

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,237,985,533.00

 

04/30/2012

 

Common

 

 

 

Interest on Capital

 

1,675,236,084.00

 

10/31/2012

 

Preferred

 

Preferred Class A

 

Interest on Capital

 

1,034,763,916.00

 

10/31/2012

 

Common

 

 

 

Mandatory Dividend

 

1,646,850,049.47

 

10/31/2012

 

Preferred

 

Preferred Class A

 

Mandatory Dividend

 

1,017,230,360.99

 

10/31/2012

 

 

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3.6          Statement of Dividends on account of retained earnings or reserves

 

 

 

Fiscal Year Ended December 31

 

Dividends distributed to (in R$ thousands): 

 

2014

 

2013

 

2012

 

Retained Earnings

 

 

 

 

Constituted Reserves

 

8,993,855

 

9,220,205

 

740,520

 

 

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3.7       Debt

 

Fiscal year

 

Total amount of the debt
(of any nature)

 

Type of index

 

Debt Index

 

Description and reason for the use of another
index of indebtedness

12/31/2014

 

R$

159,813,909,000.00

 

Debt ratio

 

1.1

 

 

 

 

 

 

 

 

 

 

 

12/31/2014

 

R$

76,517,311,000.00

 

Other indexes

 

2.5

 

Gross adjusted debt/EBITDA. Gross debt is the sum of “Loans and short-term debt,” “Portion of the stock of long-term loans” and “Loans and long-term financing.” The adjusted EBITDA (EBITDA) is calculated as described in section 3.2.b of this reference form, excluding non-recurrent items. For more information on how to reconcile the EBIDTA and the adjusted EBIDTA, see item 10.1 (a).

 

The debt ratio Gross Debt / Adjusted EBITDA shows the approximate time necessary for a company to pay all its debt with its cash flow.

 

The Company adopts the debt ratio gross debt / Adjusted EBITDA and interest coverage ratio Adjusted EBITDA / Interest expenses. These indexes are widely used by the market (rating agencies and financial institutions) and serve as a benchmark to assess the financial situation of the Company.

 

 

 

 

 

 

 

 

 

12/31/2014

 

 

Other indices

 

7.6

 

Adjusted EBITDA / Interest expenses — The adjusted EBIDTA is calculated as described in item 3.2.b of this Reference form, excluding non-recurrent items. For more information on how to reconcile the EBIDTA and the adjusted EBIDTA, see item 10.1 (a). Interest expenses include the sum of all appropriated or adjusted interests, paid or not, at certain times, that result from benefits debt.

 

The interest coverage index (Adjusted EBITDA / Interest Expenses) is used to determine a company’s

 

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cash flow capacity to comply with its debt payments

 

The Company adopts the Gross debt/ adjusted EBIDTA debt rate and the adjusted EBIDTA/interest expenses interest coverage rate. These indices are widely used by the market (rating agencies and financial institutions) and they are a baseline to which to compare Vale’s financial status.

 

3.8                               Obligations according to the nature and maturity date:

 

Last accounting information (12/31/2014)

 

Type of debt

 

Less than 1 year (R$)

 

Between 1 and 3 years
(R$)

 

Between 3 and 5 years
(R$)

 

Over 5 years (R$)

 

Total (R$)

 

Collateral

 

409,140,423.72

 

761,031,815.81

 

761,031,815.81

 

1,554,442,709.59

 

3, 485,646,764.93

 

Floating Guarantee

 

 

 

 

 

 

Unsecured obligations

 

28,104,616,576.28

 

26,285,112,754.42

 

19,003,900,800.19

 

82,934,632,104.18

 

156,328,262,235.07

 

Total

 

28,513,757,000.00

 

27,046,144,570.23

 

19,764,932,616.00

 

84,489,074,813.77

 

159,813,909,000.00

 

 

Note: Information in this item refers to the Company’s consolidated financial results shown in items 3.7 and 3.8 does not represent the Company’s level of indebtedness, but represents the total of the obligations based on the addition of the outstanding and non-outstanding liabilities. The collateral debt amount is guaranteed with read assets. The remaining debt does not have any collateral. Debts that lack collaterals or floating guarantees, whether or not they have personal guarantees, have been classified as unsecured obligations. Debts guaranteed with third party assets, as they do not encumber Company assets, were deemed as non-guaranteed debts and are classified as such.

 

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3.9                             Other information that the Company deems relevant

 

Part of the financial contracts entered by the Company, as well as the securities representing the circulating debt issued by the Company (for more information on such securities, see item 18.5 of this Reference Form) have clauses specifying advances maturity of pending amounts for the event of cross acceleration from other financial contract signed with the same party and/or other financial contracts.

 

It is important to note that dividends paid by the Company according to the terms in item 3.5 above are anticipated from dividends and interest on capital imputed to dividends approved by the Shareholders’ Meetings approving the accounts of fiscal years ending on December 31, 2012, 2013 and 2014.

 

4.1 - Description of risk factors

 

(a) Risks relating to the Company

 

The Company may not be able to adjust the volume of production in time or cost-effectively in response to changes in demand.

 

In periods of high demand, Vale’s capacity to rapidly increase production is limited, which may make it impossible to meet the demand for its products. Moreover, the Company may be unable to complete expansions and new Greenfield projects in time to take advantage of the increasing demand for iron ore, nickel and other products. When demand exceeds its production capacity, the Company may meet its customers’ excess demand by purchasing iron ore, iron ore pellets or nickel from its joint ventures or third parties and resell them, which would increase its costs and reduce its operating margins. If it is unable to meet its customers’ excess demand this way, Vale could lose customers. In addition, operating close to full capacity may expose the Company to higher costs, including demurrage fees due to capacity restraints in its logistics systems.

 

In contrast, operating at significant idle capacity in periods of weak demand may expose Vale to higher unit production costs since a significant portion of its cost structure is fixed in the short-term due to the intensive need of capital by mining operations. In addition, efforts to reduce costs during periods of weak demand may be limited by previous rules and labor or governmental agreements.

 

The Company’s projects are subject to risks that may result in increased costs or delay in their implementation.

The Company is investing to maintain and increase its production and logistics capacity, as well as to expand the portfolio of minerals produced. Vale regularly analyses the economic viability of its projects. As a result of this analysis, the Company may decide to postpone, stay, or interrupt the execution of some of them. Its projects are subject to various risks that may adversely affect its growth and profitability prospects, including:

 

a)             It may have to deal with delays or costs higher than expected in order to obtain the necessary equipment or services and to implement new technologies to build and operate a project.

b)             Its efforts to develop projects according to the schedule may be hampered by the lack of infrastructure, including reliable telecommunication services and power supply.

c)              Suppliers and other corporate contractors may not comply with their contractual obligations to the Company.

d)             The Company may experience unexpected weather conditions or other force majeure events.

e)              The Company may fail to obtain, experience delays or have higher than expected costs in obtaining the necessary permits and licenses for building a project.

f)                Changes in market conditions or legislation may make the project less profitable than expected at the time its operation begins.

g)             There may be accidents or incidents during project implementation.

h)             It may be difficult to find appropriate skilled professionals.

 

Operational problems may materially and negatively affect the Company’s business and financial performance.

 

An inefficient project management and operational incidents may lead to the suspension or reduction of the Company’s operations, causing an overall decrease of productivity. Operational incidents may result in important failures in essential plant and machinery. There are no guarantees that project management will be efficient or that other operational problems will not occur. Any damage to the Company’s projects or delays in its operations caused by inefficient project management or operational incidents may materially and negatively affect its business and operating results.

 

The Company’s business is subject to various operational risks that can adversely affect the results of its operations, such as:

 

·                  Unexpected weather conditions or other force majeure events may occur.

·                  Adverse mining conditions may delay or hinder its ability to produce the expected amount of minerals and to meet the specifications required by customers, which may lead to price reductions.

·                  There may be accidents or incidents during the business operations, involving its mines, and related infrastructure, plants, railways, ports and vessels.

 

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·                  Delays or disruptions in the transportation of its products, including railways, ports and vessels.

·                  Some of its projects are located in regions where tropical diseases, AIDS and other communicable diseases represent a major public health issue and pose risks to the health and safety of its employees.

·                  Labor disputes may disrupt its operations from time to time.

·                  Changes in the market or legislation may affect the economic perspectives of an operation making it incompatible with the Company’s business strategy.

·                  Interruptions or unavailability of information technology systems or essential services, which may result from accidents or irregular acts.

 

Deterioration of cash flow, credit rating and the Company ability to make capital increase may adversely affect investments planned by the Company

 

An eventual continuous drop on product prices and volatility of global economy may adversely affect cash flow, credit rating and the Company ability to guarantee funding in capital markets at attractive rates. Additionally, a crisis in Brazilian economy may cause reduction in the sovereign credit rating of Brazil and, consequently, a decrease in the Company credit rating.

 

This eventual deterioration of cash flow, credit rating and the Company ability to access capital markets may adversely affect the Company ability to fund capital investments, pay dividends and comply with financial clauses in some long-term debts assumed by the Company.

 

The Company’s business may be negatively affected if its counterparties fail to meet their obligations.

Customers, suppliers, corporate contractors and other counterparties may not perform the contracts and obligations assumed before the Company, which may have an adverse impact on the Company’s operations and financial results. The ability of its suppliers and customers to meet their obligations may be adversely affected in times of financial stress or economic recession. Suppliers are also subject to capacity constraints in times of high demand, which may affect their ability to meet their obligations to Vale.

 

The Company currently operates and has projects related to significant parts of its pelletizing, bauxite, nickel, coal, copper, fertilizers and steel businesses through joint ventures with other companies. Important parts of its investments in power and its oil and gas projects are operated through consortia. Its forecasts and plans for these joint ventures and consortia assume that its partners will observe their obligations to make capital contributions, purchase products, management, and, in some cases, provide skilled and competent personnel. If any of its partners fails to observe its commitments, the affected joint venture or consortium may not be able to operate in accordance with its business plans, or the Company may have to increase the level of its investment to implement these plans.

 

Additionally, some of the Company assets can be controlled and managed by partners in joint ventures that may not comply fully with Company procedures, including health, safety, environment, and common rules. Failure, by any of the Company partners, to adopt any rules, controls or procedures equivalent to Company rules, controls and procedures may increase costs, reduce production or cause environmental, health or security incidents or accidents, which could adversely affect Company results and reputation.

 

The Company’s business is subject to environmental, health and safety incidents or accidents.

 

The Company has operations involving the use, handling, storage, elimination and disposal of hazardous materials into the environment and the use of natural resources. Besides, the mining sector is generally subject to significant risks and hazards, including the imminent risk of fire or explosion, toxic gas leak, leak of pollutants or other hazardous materials, incidents involving rockslides in underground mining operations, incidents involving mobile equipment or machinery, etc. These situations may be caused by accidents or violation of operational standards, resulting in a significant incident, including damage or destruction of mineral assets or production facilities, injury or death of employees, damages to the environment, production delays, financial losses and possible legal liabilities. The Company has rules on health and safety, environment and risk management systems and processes in place to minimize the risk of such incidents or accidents. Despite Vale’s rules, policies and controls, the operations remain subject to incidents or accidents that may adversely affect Vale’s business or reputation.

 

Natural disasters can cause serious damages to the Company’s operations and projects in countries where it operates and/or may have a negative impact on its sales to countries adversely affected by such disasters.

 

Natural disasters such as windstorms, droughts, floods, earthquakes and tsunamis can adversely affect the Company’s operations and projects in countries where it operates, as well as possibly generating a reduction in sales to countries negatively affected which include shortage in power supply and destruction of industrial infrastructure facilities. Furthermore, although the physical impacts of climate change on its businesses still are highly uncertain, the Company may experience changes in rainfall patterns, water shortages, rising sea levels, increased intensity of storms and floods as a result of climate change, which can adversely affect its operations. In the past few years, at specific occasions, the Company has found that force majeure events have happened due to severe climate changes on its mining and logistics activities. The current draught in the Southeast of Brazil could cause lack of water in the area with the largest population in the country, and this could have adverse effects on Brazilian economy and its activities in the country.

 

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The Company may not have an adequate insurance coverage for certain business risks.

 

The Company’s businesses are generally subject to numerous risks and uncertainties that could result in damage or destruction of properties, facilities and equipment. Vale’s insurance against risks that are typical in such business may not provide adequate coverage. Risk insurance (including liability for environmental pollution or certain hazards or interruptions of certain business activities) may not be available at a reasonable cost or at all. Even when it is available, the Company can self-insure by determining that this will have better cost-benefit. As a result, accidents and other negative events involving its mining, production or logistics facilities may have an adverse effect on its operations.

 

The Company reserve estimates may materially differ from the mineral quantities that it may be able to actually recover; its estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.

 

Company reported reserves correspond to estimated quantities the Company determines to be economically mined and processed under present and anticipated conditions to extract their mineral content. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond Company control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is based on the quality of available data and engineering and geological interpretation and judgment. Thus, no assurance can be given that the amount of ore indicated in those reports will be effectively recovered or that it will be recovered at the rates anticipated by the Company. Reserve estimates and estimates of mine life may require revisions based on actual production experience and other factors. For example, fluctuations in the market prices of minerals and metals reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in current regulations or other factors may render proven and probable reserves uneconomical to exploit and may ultimately result in a restatement of reserves. This reformulation can affect the rates of depreciation and amortization and cause a negative impact on the Company’s financial performance.

 

The Company may not be able to replenish its reserves, which could adversely affect its mining prospects.

 

The Company is engaged in mineral exploration, which is highly uncertain in nature, involves several risks and is many times non-productive. Its exploration programs, which involve significant capital expenditures, may fail to result in the expansion or replenishment of reserves depleted by current production. If the Company fails to develop new reserves, it will not be able to sustain its current level of production beyond the remaining lives of its existing mines.

 

The feasibility of a new mining project may change over time

 

Once mineral deposits are discovered, it can take a number of years from the initial phases of exploration until production is possible, during which the economic feasibility of production may change. Substantial time and expenditures are required to:

 

·                  Determine mineral reserves through drilling;

 

·                  Determine appropriate mining and metallurgical processes for optimizing the recovery of metal contained in ore;

 

·                  Obtain environmental and other required licenses;

 

·                  Construct the necessary mining and processing facilities and infrastructure required for the development of new projects (greenfield); and

 

·                  Obtain the ore and/or extract the minerals from the ore.

 

If a project proves not to be economically feasible by the time the Company is able to explore it, the Company may sustain significant losses, and eventually be compelled to reduce such assets. In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in delays cost overruns that may render the project not economically feasible.

 

The Company faces rising extraction costs or investment requirements over time as mineral reserves deplete.

 

Mineral reserves are gradually reduced in the ordinary course of a mining operation, whether open or underground. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, open mines become underground mines, and underground operations become deeper. Additionally, for some types of reserves, the mining level is reduced and hardness increases in greater depths. As a result, over time, the Company usually experiences increase in extraction costs per unit in each mine, or there may be a need for additional investments, including adjustment or construction of processing plants and expansion or construction of disposal barriers. Many of its mines have been operated for extended periods of time and it is likely that the Company needs to increase extraction costs per unit in these operations in particular.

 

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Labor disputes may disrupt the Company’s operations from time to time.

 

The Company has a substantial number of employees and some subcontractors’ employees are represented by unions and are subject to collective bargaining agreements or other labor agreements that are subject to periodic negotiation.

 

Additionally, the Company is subject to periodical and regular investigations by the Ministry of Labor and Employment and the Labor Prosecution Office aiming compliance with labor rules, including those related to labor health and security. These investigations may cause fines and processes that could adversely and materially affect the businesses, the results and financial conditions of the Company.

 

Strikes and other labor disruptions in any of the Company’s activities could adversely affect the operation of its facilities, the completion period and the cost of main projects. For more information on labor relations, see item 14 of this Reference Form. Moreover, we may be adversely affected by work stoppages involving third parties that may provide goods or services to the Company.

 

The Company may face shortages of equipment, services and skilled personnel.

 

The mining sector has faced global shortage of mining and construction equipment, spare parts, contractors and other skilled personnel during periods of high demand for minerals and metals and intensive development of mining projects. The Company may experience longer periods for the supply of mining equipment and face problems with the quality of outsourced engineering, construction and maintenance services. The Company competes with other mining companies and other extraction companies in relation to the hiring of highly skilled managers and staff with relevant technical and mining expertise, and may not be able to attract and retain such people. Shortages at peak periods can cause a negative impact on its operations, resulting in higher costs with investments, production disruptions, higher inventory costs, project delays and possible reduction in production and revenue.

 

Higher costs of energy or energy shortages may adversely affect the Company’s business.

 

Energy costs are a significant component of the Company’s production cost, representing 8.9% of the total cost of goods sold in 2014. To meet its energy demand, the Company depends on the following resources: Oil byproducts, which accounted for 40.8% of all energy needs in 2014, electricity (27.0%), natural gas (19.1%) and other sources of energy (0.9%), using amounts converted to TeraJoule (“TJ”).

 

Expenses with fuel accounted for 6.5% of its cost with goods sold in 2014. Increases in oil and gas prices negatively affect profit margins regarding its logistics services, mining business, and iron ore pelletizing, fertilizers and nickel.

 

Expenses with electricity accounted for 2.4% of its total cost of goods sold in 2014. If the Company cannot ensure safe access to electricity at affordable prices, it may be forced to reduce production or may experience higher production costs, both of which can adversely affect its operating results. The Company faces the risk of energy shortages in countries where it has operations and projects, especially in Brazil, due to excessive demand, lack of infrastructure or adverse weather conditions such as floods or droughts.

 

Future shortages and government efforts to respond to or prevent electricity shortages may have a negative impact on the cost or supply of electricity to the Company’s operations.

 

Exchange rate volatility of currencies in which the Company conducts its operations relative to U.S. dollars could adversely affect its financial condition and operating results.

 

A substantial portion of the Company’s revenues and debt is expressed in U.S. dollars, and exchange rate fluctuations can result in (i) losses regarding its net debt expressed in U.S. dollars and its accounts receivable and (ii) losses in fair value regarding its currency derivatives used to stabilize its cash flow in U.S. dollars. In 2014, the Company had exchange losses in the amount of US$ 2.1 billion, while in 2013 and 2012, the Company faced exchange losses of US$ 2.8 billion and US$ 1.9 billion, respectively. Moreover, the exchange rate volatility of the Brazilian real, Canadian dollar, Australian dollar, and Indonesian rupiah and other currencies against the U.S. dollar affects the Company’s results, since most of its goods are sold in US dollar, and most of the cost of goods sold is expressed in currencies other than the U.S. dollar, primarily in real (54% in 2014) and Canadian dollars (13% in 2014), while Company income is expressed primarily in U.S. dollars. The Company expects that currency fluctuations will continue to affect its revenues, expenses and cash flow.

 

The significant volatility in currency exchange rates may also result in the interruption of foreign exchange markets and may limit the Company’s ability to transfer or exchange certain currencies into US dollars and other currencies for the purpose of making timely payments of interest and principal on its debts. Central banks and governments of countries where the Company operates may impose restrictive foreign exchange policies in the future and levy taxes on foreign exchange transactions.

 

Failures on Company information technology systems or difficulties in the integration of new corporate resources planning software may affect regular businesses of the Company.

 

The Company counts on information technology systems (“IT) for the operation of many of its business processes. Failures to such IT systems may, whether caused by accident or ill-intended acts, may cause disclosure or robbery of sensitive information, resource deviation and interruption to commercial operations.

 

The Company is involved in several lawsuits that may adversely affect its business, if rulings are not favorable to the Company.

 

The Company is involved in several lawsuits in which plaintiffs claim substantial amounts of money. The outcome of these lawsuits is uncertain and may result in obligations that may materially and negatively affect its business and the value of its shares, ADSs and HDSs. For more information, see item 4.3 of this Reference Form.

 

Company’s governance processes and compliance with its obligations may fail to avoid regulatory fines and damages to its reputation.

 

The Company operates in a global environment and its activities extend across multiple jurisdictions and complex regulatory structures with an increase in its legal obligations around the world. Its governance process and compliance with obligations, which include the identification and mitigation of risks through internal controls focused in the information published in their own financial reports, may not

 

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be able to avoid future violations of the law and accounting and governance standards. The Company may be subject to violations of its Code of Ethics and Conduct, anticorruption policies, business conduct protocols and fraudulent and dishonest behavior by its employees, contractors and other agents. Failure by the Company to comply with applicable laws and other rules can result in fines, loss of operating licenses and damages to its reputation.

 

Investors may find it difficult to comply with any judgment rendered outside Brazil against the Company or any of its affiliates.

 

Company investors can be located in jurisdictions outside Brazil and may file claims against the Company or management members with courts within their jurisdictions. The company is a Brazilian company and most of its officers and members of the Board of Directors are Brazilian residents. Most of Company’s assets and the assets of its officers and members of the Board of Directors will be probably located in jurisdictions other than the jurisdictions of its investors. The investors, in their jurisdictions, may not be able to serve notices against the Company or its manager’s resident outside their jurisdictions. Additionally, a foreign decision may be enforced in Brazilian courts, without a new analysis on merits provided that it is previously confirmed by the Brazilian Superior Court of Justice, which confirmation will be granted as long as such judgment: (a) meets all the formal requirements to be enforced pursuant to the legislation in force in the country where it was rendered; (b) has been rendered by a competent court after due process against the company or after sufficient evidence of contempt of court by the company, pursuant to the legislation in force; (c) is not subject to appeal; (d) has been authenticated by the Brazilian consulate in the country where it was rendered and is accompanied by a sworn translation into Portuguese; and (e) is not contrary to the sovereignty of Brazil, its public policy or morality. Therefore, investors may not obtain favorable decisions outside their jurisdictions in judicial processes filed against the Company or its managers passed by courts in their jurisdictions with decisions on the basis of the legislation in force in those jurisdictions.

 

(b) Risks relating to Company’s controlling shareholder or parent group and (c) Risks related to Company shareholders.

 

The Company’s controlling shareholder exerts significant influence over Vale and the Brazilian government holds certain veto rights.

On March 31, 2015, Valepar S.A. (“Valepar”) held 53.9% of the common shares and 33.7% of the Company’s total capital. Because of its stock ownership, Valepar may elect the majority of members of the Board of Directors and can control the outcome of some actions requiring shareholder approval. For a description of the Company’s ownership structure and of Valepar shareholders’ agreement, see item 15 of this Reference Form.

 

The Brazilian government owns 12 special class preferred shares (golden shares) of Vale, granting limited veto power over certain matters regarding the Company, such as changes of corporate name, location of main office and corporate purpose related to mining exploration. For a detailed description on the veto power of golden shares, see item 18.1 in the Reference Form.

 

(d) Risks relating to Company’s controlled and subsidiary companies.

 

The integration between the Company and acquired companies may be more difficult than anticipated.

 

The Company may not able to successfully integrate its acquired businesses. The Company has partially increased its business through acquisitions and part of its future growth may depend on acquisitions. The integration of acquired businesses may take longer than expected and the costs related to the integration of those businesses may be higher than expected. Completed acquisitions may not result in increased revenues, cost economy or operational benefits as initially expected at the time of conception. Acquisitions may lead to substantial costs as a result, for example, impairment amortization, unexpected contingencies arising out of acquired enterprises, impossibility of maintaining a key team, inconsistent standards, checks, procedures and policies between the Company and the acquired business, which may adversely affect its financial condition and the results of operations. Additionally, management focus may be deviated from ordinary responsibilities to integration-related issues.

 

(e) Risks relating to Company suppliers

 

Several Company activities depend on the provision of products and services supplied by third parties. In view of that, Vale maps several risks of supply interruption related to its suppliers. At the limit, these interruptions may cause serious consequences to Company operations and projects.

 

Furthermore, for information about risks relating to Company suppliers, please see Risk Factors under “The Company face shortages of equipment, services and skilled personnel”. The higher energy cost or lack of energy could adversely affect Company business”, above.

 

(f) Risks relating to Company customers

 

Company business could be adversely affected by demand and price reduction for products manufactured by its customers, including steel (for iron ore and coal operations), stainless steel (for nickel operations), copper wire (for copper operations) and agricultural commodities (for fertilizer operations).

 

The demand for iron ore, coal and nickel depends on global demand for steel. Iron ore and pellets, which together accounted for 65.4% of Company net operating revenues in 2014 are used in the production of carbon steel. Nickel, which accounted for 11.9% of Company net operating revenues in 2014 are mainly used to produce stainless and alloy steels. Demand for steel depends heavily on global economic conditions as well as on a series of regional and sectorial factors. The prices of the different types of steel and the performance of the global steel industry are highly cyclical and volatile and these business cycles in the steel industry affect the demand for and the prices of its products. Besides, the vertical integration of the steel and stainless steel industry and the use of scrap could reduce the global transoceanic trade of iron ore and primary nickel. The demand for copper is affected by the demand for copper wire and a sustained decline in the demand

 

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in the construction industry could have an adverse impact on Company copper businesses. The demand for fertilizer is affected by agricultural commodities’ prices in the international and domestic markets, and a sustained decline in the price of one or more agricultural commodities may cause an adverse impact on the Company’s fertilizer business.

 

(g) Risks relating to the fields of economy in which the Company operates

 

The mining sector is highly exposed to the cyclicality of global economic activities and requires significant capital investments.

 

The mining sector is primarily a supplier of industrial raw material. Industrial production tends to be the most cyclical and volatile component of global economic activities, affecting the demand for minerals and metals. At the same time, investment in mining requires a substantial amount of resources, in order to replenish and maintain the reserves, expand the production capacity, build infrastructure and preserve the environment. The sensitivity to the industrial production, along with the need for significant long-term capital investments, are important sources of risks to the financial performance and growth prospects of Vale and the mining industry in general.

 

Economic developments in China may cause a negative impact on the Company’s revenue, cash flow and profitability.

 

China has been the main driver of global demand for minerals and metals in recent years. In 2014, Chinese demand represented 69% of global transoceanic demand for iron ore, 52% of global demand for nickel, and 44% of the global demand for copper. The percentage of the Company’s net operating revenues attributable to sales to consumers in China was 33.7% in 2014. Therefore, any contraction in China’s economic growth may result in reduction on the demand for products, leading to lower revenues, cash flow and profitability. Poor performance of the Chinese real estate sector, the highest consumer of carbon steel in China, would also cause a negative impact on the Company’s results.

 

Prices charged by the Company, including prices of iron ore, nickel, copper, coal, and fertilizers are subject to volatility.

 

The iron ore prices are defined based on a variety of pricing options, which generally use spot price indices as a basis for determining prices to customers. Nickel and copper prices are based on prices reported for these metals in the commodity exchange markets, such as the London Metal Exchange (“LME”) and the New York Mercantile Exchange (“NYMEX”). Company products’ prices and revenues for these products are therefore volatile and can adversely affect its cash flow. World prices for these metals are subject to significant fluctuations and are affected by many factors, including effective and expected global macroeconomic and political conditions, levels of supply and demand, availability and cost of substitutes, inventory levels, and investments from commodities funds, and actions of participants in commodities markets. A continuous reduction in the market prices of products sold by the Company may cause suspension of some projects and operations and reduction of assets, which may adversely affect the Company financial position and results.

 

The Company is especially exposed to changes in iron ore prices. The average price of iron ore dropped by 28.1%, from $135.00 per dry metric ton (“TMS”) in 2013 to $97.00 per TMS in 2014, according to the average of Platts IODEX (62% Fe CFR China). In February 2015, the average price of iron ore according to Platts IODEX was by then $ 65.4 per TMS. Additional to the decrease in iron ore demand, an excess in supply has adversely affected Vale prices since 2014. The expected conclusion of some iron ore projects in the coming years may result in additional pressure over prices.

 

The nickel industry had a strong supply growth in the past few years. Nickel refining in China, using mainly imported nickel and related raw material, has had an estimated growth of 536,000 metric tons from 2006 to 2014. In 2014, the estimated Chinese production of pig iron nickel represented 23% of the world’s nickel output.

 

In January 2014, the Indonesian government approved a law that limits the sale and exportation of unprocessed nickel. Considering that Indonesia, in recent years, has supplied most of the high quality nickel to China, the Company believes that this exporting restriction will contribute to a drop in local production of refined nickel in China in the coming years, causing an increase in refined nickel importing operations and international nickel prices. Should this measure be reverted or should it have an impact other than Company expectations, nickel prices may not reflect Company expectations.

 

(h) Risks relating to the regulation of the sectors in which the Company operates

 

Regulatory, political, economic and social conditions in the countries in which the Company has operations or projects could adversely affect its business and the market prices of its securities.

 

Vale’s financial performance may be negatively affected by regulatory, political, economic and social conditions in the countries where the Company has significant operation. In many of these locations, Vale is open to risks, such as potential renegotiations, annulments or changes imposed by existing contracts and licenses, property expropriation or nationalization, currency exchange, changes in legislation, local regulations and policies, political instability, bribery, extortion, corruption, civil war, acts of war, guerrilla activities, piracy in international transportation routes, and terrorism. The Company also faces the risk of having to submit to foreign jurisdiction or arbitration or to be forced to execute a court order against a sovereign nation within its own territory.

 

Company operations rely on authorizations and concessions from governmental regulatory agencies in the countries where the company operates. For further details about the authorizations and concessions that its operations rely on, please refer to item 7 in this Reference Form. The Company is subject to laws and regulations in many jurisdictions that can experience changes at any time, and changes of laws and regulations may require modifications in its technologies and operations and result in unexpected capital expenditures.

 

Actual or potential political or social changes and changes in economic policy may undermine investors’ confidence which could hamper investments and therefore reduce still negatively affect economic and other conditions under which the Company operates, so as to adversely affect its business.

 

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Disagreements with local communities where the Company operates may have a negative impact on its business and reputation.

 

Legal disputes with communities where the Company operates may appear. Although the Company (i) contributes to local communities through taxes, royalties, employment and business opportunities and social programs, and (ii) maintains a team dedicated to minimize the Company’s social impacts, community expectations are complex and involve multiple stakeholders with different interests and constant evolvement. In some cases, Vale’s operations and mineral reserves are located on lands or near lands owned or used by indigenous or aboriginal tribes, or other groups. Some of these indigenous populations may have rights to review or participate in the management of natural resources, and the Company discusses and negotiates with them in order to minimize the impacts of operations or to have access to their lands.

 

Some Company mining operations and other operations are located in territories where property may be subject to disputes or uncertainties, or in areas destined to be used for agriculture, or for purposes of agrarian reform, which may cause disputes with land owners, communities and local government. The Company checks and negotiates with these groups in order to reach a common agreement regarding land access and how to minimize the impact from its operations.

 

Disagreements or disputes with local groups, including indigenous or aboriginal tribes, may cause delays or interruptions in operations, adversely affect the Company’s reputation or hinder its ability to work in mineral reserves and conduct operations. Protesters have acted in the past to disrupt Company operations and projects and may continue to do so in future. Although we are engaged in active discussions with all stakeholders and we defend ourselves vigorously against illegal acts, future attempts by protestors to cause harm to its operations could have a material adverse effect on its business.

 

The Company may experience adverse effects of changes in government policies or trends as nationalization of funds, including the imposition of new taxes or royalties on mining activities.

 

Mining is subject to government regulation in the form of specific taxes, fees and other contributions, as royalties on mining activities, which can have a significant impact on Company operations. In the countries where the Company operates, governments may impose existing taxes, fees or different contributions, or increase the existing rates for taxes, fees and different contributions, including royalties, reduce fiscal exemptions and benefits, solicit, or yet, compel renegotiation of fiscal stabilization agreements or, also, modify the basis on which they are calculated, in a manner unfavorable to the Company. Governments that have undertaken to create a stable tax and regulatory environment may shorten the duration of these commitments.

 

It is also possible that the Company must comply with internal benefit requirements in some countries, such as local processing rules, import taxes, or restrictions, or fees on transformed ore. Imposition or increase of such taxes or fees may significantly increase the risk profile and operational cost in these locations. The Company and the mining industry are subject to an increased nationalization trend related to mineral resources in certain countries where it operates, which may cause reductions in operations, tax increases or even expropriation and nationalization.

 

Concessions, authorizations, licenses and permits are subject to expiration, restriction or renewal and to various other risks and uncertainties.

 

Vale’s operations depend on the granting of authorization and concessions by regulatory organizations from the government of countries where Vale works. The Company is subject to the laws and regulations of several jurisdictions, which can change at a moment’s notice. Such changes may require changes in Vale’s technologies and operations, resulting in unexpected capital expenses.

 

Some of Vale’s mining concessions are subject to fixed expiration dates and can only be renewed for a limited number of times, and for limited periods. In addition to mining concessions, Company may obtain various authorizations, licenses and permits from government and regulatory agencies regarding the planning, maintenance, operation, and closure of the Company’s mines, as well as its logistics infrastructure, which may be subject to fixed due dates or to periodic reviews or renewals. Although the Company expects renewals to be granted when and as requested, there is no guarantee that such renewals will be granted as usual, as well as there is no guarantee that new conditions will not be imposed in this regard. Fees due by mining concessions may substantially increase over time in comparison with the original issuance of each operating license. If that is the case, the Company’s business objectives can be affected by the costs of maintenance or renewal of its mining concessions. Thus, it is necessary to continually assess the mineral potential of each mining concession, especially at the time of renewal, in order to determine if maintenance costs of mining concessions are justified by the results of future operations, and thus be able to let some concessions expire. There are no guarantees that such concessions will be granted under terms favorable to the Company, as well as there are no guarantees as to estimate future mining activities or operation goals.

 

In many jurisdictions where the Company has exploration projects, it may be required to return to the Government a certain portion of the area covered by the operating license as a condition for renewing license or obtaining a mining concession. This retrocession obligation may lead to a substantial loss of part of the mineral deposit originally identified in its feasibility studies. For more information on mining concessions and similar rights, see “Regulatory Issues”.

 

The Company may have its businesses affected by environmental, health and safety regulations, including regulations relating to climate change.

 

Almost all the aspects of Company’s operations, products, services and projects all over the world are subject to environmental, health and safety regulations, which may expose the Company to increased liability and costs. These regulations require that the Company obtains environmental licenses, permits and authorizations for its operations and conducts environmental and social impact assessments in order to obtain approval for its projects, and permit to start construction. Besides, all significant changes required in existing operations must also undergo the same procedure. Difficulties to obtain operating licenses may cause delays in the deployment of projects or cost increases. Environmental, health, and safety regulations also impose rules and control standards on activities relating to research, mining, pelletizing, railway and maritime transportation services, ports, decommissioning, refining, distribution and marketing of products. These regulations

 

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may give rise to significant costs and liabilities. Besides, community associations and other stakeholders may request an increase in sustainable and socially responsible measures and development, and the efforts may lead to the creation or review of governmental rules and policies, which could entail significant cost increases and reduce Company profitability. Litigation relating to these or other matters may adversely affect the Company financial condition or cause harm to its reputation.

 

It is worth noting that according to the National Environmental Council (“CONAMA”) Resolution no. 237/97, the maximum validity for environmental licenses is five (5) years for prior license, six (6) years for installation licenses, and 10 (tem) years for operation licenses.

 

Lack of licenses or authorizations from competent environmental authorities to build, deploy, alter, improve and activities operation and/or enterprises potentially polluting and users of natural resources subject the violator to criminal and administrative penalties. The value of the fine will depend on the evaluation of any eventual associated environmental damage. Additional to fines, violator may be subject to sanctions as suspension of activities, deactivation, and demolition, and others, which are also applicable should the Project constructor fail to comply with terms set forth in the environmental licensing.

 

Environmental, health, and safety regulations in many of the countries where Vale operates have become stricter in recent years and more regulations or a more aggressive enforcement of regulations already in force are likely to adversely affect the Company by imposing restrictions on its activities and products, by establishing new requirements relating to the emission and the renewal of environmental licenses, increasing costs or forcing the Company to get engaged in area expensive regeneration ventures. For example, changes in the Brazilian legislation to protect underground hollows have forced the Company to conduct large technical studies to participate in complex discussions with competent administration entities, discussions that are still ongoing. Therefore, Vale cannot yet assess the regulatory impact on its operations, though it is possible that in some operations and iron ore mining projects it may be forced to limit or alter mining activities, incurring on additional costs to conserver underground hollow or to make up for the impact inflicted on them, the consequences of which may be relevant to output volumes, cost or reserves in the Company’s iron ore business.

 

Concerns over the climate change and efforts to comply with international regulations could lead governments to impose limits on carbon emission, to impose taxes on gas the emission of greenhouse effect gases, and establish commercial emission conditions applicable to Company operations, which could adversely affect its operating costs or its investment requirements.  In many countries where Vale operates, for instance, there is legislation limiting the emission of greenhouse gases in the mining industry. National and international regulatory initiatives that affect Vale’s transportation activities could increase the company costs or force Vale to make new investments.

 

(n) Risks relating to Company’s ADSs and HDSs (American Depositary Shares and Hong Kong Depositary Shares)

 

If holders of ADRs or HDSs exchange the ADSs or HDSs, respectively, for underlying shares, they risk losing the ability to remit abroad funds corresponding to the sale in foreign currency.

 

The custodian of shares underlying the Company’s ADSs and HDSs keeps records with the Central Bank of Brazil, entitling him to remit U.S. Dollars abroad by way of payment of dividends and other distributions relating to the shares underlying ADSs and HDSs or to the disposal of the underlying shares. In the event holders of ADRs or HDRs exchange ADSs or HDSs for underlying shares, they shall be entitled to use the custodian’s records of US dollars for only five days from the date of exchange. Upon said term, holders of ADRs or HDRs can no longer hold and remit foreign currency abroad through the sale of underlying shares or distributions regarding such shares, unless they obtain their own registration, pursuant to the terms of applicable legislation, which confers on registered foreign investors the right to buy and sell securities at BMF&BOVESPA. If holders of ADRs or HDRs try to obtain a registration, they may incur expenses or suffer delays in the registration process, which may delay the receipt of dividends and other distributions with respect to the underlying shares or capital return in a timely manner.

 

The Company is unable to assure holders of ADR or HDR that their custodian registration or any registration will not be affected by future legislation modifications or additional restrictions applicable to holders of ADR or HDR, the disposal of underlying shares or the repatriation of resources obtained through disposal will not be taxed in the future.

 

Holders of ADR and HDR may not be able to exercise their pre-emptive rights relating to shares underlying their ADSs and HDSs.

 

ADR and HDR may not be able to exercise their preemptive rights or other rights relating to the underlying shares. The ability of HDR and ADR holders to exercise their preemptive rights is not guaranteed, especially if the law applicable in holders’ jurisdiction (for example, the Securities Act in the United States or the Companies Ordinance in Hong Kong) demands that a registration declaration be effective or that an exemption from registration be available relating to those rights, as is the case in the United States, or for any document enabling preemptive rights to be registered as a prospectus, as is the case in Hong Kong. The Company is not bound to make a registration statement in the United States, or make any other record with respect to preemptive rights in any other jurisdiction, or to take measures that may be necessary to grant exemptions from available registration and it cannot ensure to holders that it shall make any registration statement or take such measures.

 

ADR and HDR holders may encounter difficulties to exercise their voting rights.

 

Holders of ADR or HDR do not have the same rights as shareholders. They only hold contract rights established in their favor under their respective deposit contracts. ADR and HDR holders are not entitled to take part in shareholders meetings and may vote by means of instructions delivered to the depositary. In fact, the ability of an ADR and HDR holder to instruct the depositary on how to vote will depend on the term and procedures to provide instruction directly or through a custodian and the holder liquidation system. With respect to ADSs, if no instruction is received, the depositary may, subject to certain limitations, appoint an attorney designated by the Company.

 

Legal protections for holders of Company securities differ from one jurisdiction to another and may be inconsistent, unknown or less effective than investors’ expectations.

 

Vale is a global company whose securities are listed on many markets and which investors are located in many different countries. Investors’ legal protection systems vary across the world, sometimes in relation to important aspects, and investors must be aware that, as far as the Company’s securities are concerned, the protections and remedies available to them may be different from those they are used to in their markets. The company is subject to securities laws applicable in several countries, which provisions and monitoring and enforcement practices are different. The only Corporations Act applicable to the Company is the Brazilian equity companies’ law, with specific and substantial legal rules and procedures. The Company is also subject to corporate governance standards in various jurisdictions in which its

 

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securities are listed, but, as a foreign private issuer, the Company is not obliged to follow many of the corporate governance rules which apply to domestic issuers in the United States with securities listed on the New York Stock Exchange and is not subject to U.S. proxy voting rules. Likewise, the Company has been granted waivers and exemptions regarding certain requirements provided for in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (HKEx Listing Rules), in the regulations on Takeovers and Mergers and Share Repurchases and in the Securities and Futures Ordinance of Hong Kong, which are generally applicable to issuers listed in Hong Kong.

 

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4.2                               Comments on expectations for changes in exposure to risk factors

 

The Company constantly analyzes the risks that the company is exposed to and which may adversely affect its business, financial situation and results of its operations. For that end, the Company counts on a risk management policy, under which it permanently monitors changes in the macro-economic and sectorial scenario which might impact its activities, by tracking the main performance indicators. The Company’s policy is one of continuous focus on financial discipline and conservative cash management. At present, the Company does not identify any scenario, which would lead to a reduction or increase in the risks mentioned in item 4.1 of this Reference Form.

 

Please find below the measures taken by the Company to reduce its exposure to some of the risk factors presented in Item 4.1 of this Reference Form:

 

The Company may not be able to adjust the volume of production in time or cost effectively in response to changes in demand.

 

The Company seeks to continually develop technology solutions for excellence in operational performance.

 

Concessions, authorizations, licenses and permits are subject to expiration, restriction or renewal and to various other risks and uncertainties.

 

To deal with this challenge, the Company seeks to be a sustainable operator, always trying to be a catalyst for local development. Specifically on the environmental aspects, the Company has actions to improve efficiency in the licensing processes, such as a greater integration between environment and project development teams, the development of a Guide to Best Practices for Environmental Licensing and Environment, the appointment of teams of highly qualified specialists, a greater interaction with environmental agencies and the creation of an Executive Committee to streamline internal decisions.

 

Company’s projects are subject to risks that may result in increased costs or delays that may jeopardize their successful implementation.

 

As a measure to mitigate projects’ risks, Vale invests in training its employees working in the planning and execution of projects, and has taken actions to streamline the environmental licensing that has been the main reason for delays, such as creating a Guide to Best Practices of Environmental Licensing and Environment. Besides, the Company has implemented the dissemination of information and prevention campaigns to improve standards of health and safety of employees.

 

Vale aims to control and manage environmental liabilities at its units. Contaminated areas are considered to be those where there is proven pollution caused by the deposition, accumulation, storage and infiltration of substances or residues, implying adverse impacts on assets to be protected. If there is any suspected contamination, Vale aims to carry on successive environmental studies aiming to limit the extension of environmental degradation and potential risks to health and environment. Discovery of contamination requires measures to be taken by government agents, agents of the entity causing the environmental damage and owners. Corrective measures should be applied aiming to establish quality levels compatible to a specific future use. Thus, upon detecting the need to remove contamination identified in the area, Vale aims to prepare the Remediation Plan, according to applicable rules. After the remediation, results found are monitored for a period of time to be defined by the environmental entity. Monitoring results will indicate the remediation efficiency.

 

Eventual use restrictions arising out of previously existing contamination and that is found after remediation of deactivated areas should be made public, by changing the registry before the appropriate registrar.

 

Operational problems may materially and negatively affect the company’s business and financial performance.

 

Along with the project development process, the Company has adopted an integrated risk assessment, which anticipates potential problems and allows mitigation plans. The methodological rigor promotes a higher accuracy of estimates, transparency and predictability in project development, as well as it ensures compliance with environmental regulations and health and safety requirements, and minimizes impacts on communities.

 

Deterioration of cash flow, credit rating and the Company ability to increase capital could adversely affect investments planned by the Company.

 

For purposes of maintaining the company ability to make investments expected for future years, Vale has granted greater emphasis in the reduction of costs, capital discipline, management of liabilities, management of working capital and divestments.

 

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The company’s business may be negatively affected if its counterparties fail to meet their obligations.

 

The Company always seeks high-level partners and keeps a fair and close relationship over time. Additionally, Vale tries to assess the quality of its counterparts’ credits to define their exposure based on this evaluation.

Natural disasters can cause serious damages to the company’s operations and projects in countries where it operates and/or may have a negative impact on its sales to countries adversely affected by such disasters.

 

The Company has adopted measures that include business continuity plans that provide immediate responses to protect people, assets and the company’s image, alternative solutions to guarantee business continuity and fast recovery for return to normal production flow and monitoring and weather forecast systems. Moreover, the geographical diversification of its assets and sales to different countries and regions collaborate to reduce this risk.

 

The company may not have an adequate insurance coverage for certain business risks.

 

For cases where there is a limitation on purchased coverage, the Company uses its captive insurers to absorb some of the risks. In addition, it seeks to maintain a long-term relationship with the insurance and reinsurance market, and in all insurance lines, it works with the diversification of counterparties.

 

It is important to emphasize that the Company only mitigates part of the risks through insurance policies, applying the operational risk management methodology to prioritize the risks and, for the most relevant ones, developing controls and action plans to mitigate the risks.

 

The company faces an increase in extraction costs as mineral reserves are reduced.

 

As for the risks listed above, Vale seeks to have an extensive and high quality asset base in the business in which it operates, without relying solely on certain mines, thereby, diversifying risks. The Company invests heavily in mineral exploration since, with more samples, the estimation risk is reduced.

 

It continuously resupplies its reserve base through new projects to avoid depletion of mines. Moreover, it has a presence in several minerals and geographic locations, which also helps to diversify risks.

 

Labor disputes may disrupt the Company’s operations from time to time.

 

The Company believes that staff is one of its competitive advantages, and seeks to treat all employees in the fairest possible way. The Company promotes a work environment conducive to dialogue, in which all employees are encouraged to share with their colleagues and superiors their concerns of any nature.

 

The company may face shortages of equipment, services and skilled personnel.

 

The Company works to increasingly integrate strategic planning, anticipating the demand for equipment and skilled workforce, as well as investing in strategic contracts with suppliers and initiatives to train specialized technicians, engineers and employees engaged in project implementation.

 

Higher costs of energy or energy shortages may adversely affect the company’s business.

 

In order to mitigate the risk of power outages and/or costs, the Company manages a power generation portfolio, comprised by self-production hydroelectric plants and long-term supply agreements, based on current and projected energy needs of its mining operations.

 

The volatility of the exchange rate of currencies in which the company conducts its operations relative to US dollars could adversely affect its financial condition and operating results.

 

The Company’s cash flow exchange exposure is assessed in conjunction with other market risk exposures - prices of products and supplies and interest rates - and mitigated when deemed necessary to support the growth plan, strategic planning and the Company’s business continuity. Various forms of mitigation may be used: financial transactions through the use of derivatives in order to hedge, committed lines of credit guaranteeing liquidity, or any strategic decisions aimed at reducing the risk of cash flow. For more details, see item 5.2 of this Reference Form.

 

Integration between the Company and acquired companies, that are an important part of the Company’s strategies, may be more difficult than anticipated.

 

In order to mitigate the risk of integration, Vale works with a broad management focus on acquisitions and leverages the previously acquired knowledge.

 

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The company is involved in several lawsuits that may adversely affect its business, if rulings are not favorable to the Company.

 

Mitigation measures include the use of defenses presented by the Company based on legal opinions, consolidated legal doctrine, as well as in the predominant case law in the Higher Courts. The internal guidance and consultancy work is based on these same guidelines, sticking to the facts presented.

 

The Company’s governance and compliance processes may not be able to avoid regulatory penalties and damages to its reputation.

 

The Company has internal controls and mechanisms to detect control failures and obtain information on cases of breach of conduct, especially through the Whistleblower Channel.

 

The adverse economic developments in China may cause a negative impact on the Company’s revenue, cash flow and profitability.

 

The Company mitigates this risk, which is reflected in prices, when deemed necessary to support its growth plan, strategic planning and business continuity.

 

The Company may be negatively affected by changes in government policies or trends as resource nationalism, including the application of new taxes or royalties on mining activities.

 

As safety measures, the Company systematically monitors the changes previously mentioned to react quickly, when applicable participates in discussions with the government through representative bodies of the mining sector and always seeks to operate in the most sustainable possible manner.

 

Environmental, health and safety regulations, including regulations relating to climate change, may affect the Company’s businesses.

 

The Company operates responsibly in all locations where it is present, respecting the communities and the environment. In order to be globally known as an example of excellence in the management of health and safety, the Company has been continually improving its systems.

 

4.3 - Publicly known and relevant in-court, administrative or arbitration proceedings

 

On December 31, 2014, the Company was not party in non-secret arbitrations.

 

(i) Labor

 

On December 31, 2014, the Company was defendant in 21,781 labor lawsuits, in a total of R$10.5 billion, for which there is R$1.9 billion provision due to risks involved. Labor lawsuits filed against the Company relate to matters as overtime, time in itinere, health hazard and dangerous conditions premium, salary equity, and outsourcing, among others.

 

The tables below present an individual description of labor suits relating to the business of the Company and/or its subsidiaries.

 

1) Claim no. 01266-2006-012

 

Jurisdiction

 

6th Panel Supreme Labor Court

Instance

 

3rd Instance

Date of filing

 

11/27/2006

Parties in the suit

 

Public Prosecutor for Labor matters (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

R$ 820,176.64

Main facts

 

The Public Prosecutor for Labor matters of Minas Gerais filed, on November 27, 2006, a public civil action seeking to prevent the outsourcing of operation of machines and equipment used for mining, such as wheel loaders, bulldozers and drills, monitoring and reading of instruments in the tailings dams and waste dumps, and preparation and execution of fire-plan (detonation).

On August 20, 2009, the ruling was issued (partially favorable) ordering Vale to refrain from outsourcing the services mentioned above, performing such activities, therefore, with its own employees. The court stated that such services were the main activities of the Company and thus could not be

 

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outsourced.

On October 15, 2009, Vale filed an appeal against this decision. The Prosecution Office has also appealed.

On February 22, 20/10, the Superior Regional Labor Court of the Third Region (TRT3) rejected Vale’s appeal and partially accepted the appeal filed by the public prosecution office, granting the legal protection sought, forcing Vale to immediately comply with the decision.

On May 18, 2010, Vale filed an appeal to the Supreme Labor Court (TST), claiming the violation of article 129, III, of the Federal Constitution, and article 83 of the Complementary Law No. 75/93, as well as of divergent case law based on the lack of collective interests authorizing the filing of the public civil action by the Prosecution Office, which could result in the lack of competence of such office to file such a claim and, consequently, dismissal of the action without appreciation on merits (article 267, I and VI and article 295, V, of the Code of Civil Procedure). Vale has also claimed the violation of Article 5, items XXII, LIV and LV, of the Federal Constitution and of Article 899 of the Consolidation of Labor Laws (CLT), because of the inapplicability of the mortgage ordered by the Regional Labor Court without an enforcement procedure. Finally, Vale claimed the violation of items II and XIII, of Article 5, and sole paragraph of article 170, both of the Federal Constitution, in view of the violation of the right to freely work, provided that the legal requirements are met, considering that activities performed by service providers are specialized and can be legitimately agreed.

On May 21, 2010, in the files of the action filed by Vale, the TST accepted the preliminary order to suspend anticipated effects determining immediate compliance with the decision.

On July 9, 2010, Vale’s appeal to the TST was dismissed by the TRT on the grounds that the lower court ruling did not violate any federal law or any predominant case law, against which decision Vale filed an interlocutory appeal on July 19, 2010 to the TST, which is still pending judgment, where it seeks acceptance of the appeal and assessment by the TST. On March 18, 2015, the interlocutory appeal filed by Vale was granted and the appeal was presented to be judged on April 8, 2015, reclassifying it as a Bill of Review.

Considering that despite the above decision the Prosecution Office understands there is a fine for alleged non-compliance with judicial decision by Vale, Vale is calculating amounts claimed by the Prosecution Office, namely, R$ 7,128,226.81, for purposes of checking their inclusion in the probability of loss.

Chances of loss

 

Probable

Analysis of impact in the case of losing the suit/ Lawsuit’s relevance to the Company

 

In case of maintenance of the unfavorable decision, Vale is obliged, in Minas Gerais, to refrain from outsource services previously mentioned, having to perform such activities through its own employees; and to provide for the termination of contracts of outsourcing which may have as their purpose such services.

Amount provisioned (if any)

 

R$ 226,753.88

Notes

 

There is only one labor claim filed by the employee who is on the list attached to the files of the Public Civil Action at stake who claims to be an employee of Vale. Initially, this was procedure no. 2102-2011-054, at the Court of Congonhas, however, due to decision regarding court competence, the claim was remitted to the Labor Court of Ouro Preto, where it is now procedure no. 1562-2012-069. The claim was judged to be inapplicable regarding recognition of employment relationship. An appeal was filed by the plaintiff, through whom the plaintiff was successful regarding the compensation for hours in itinere, and the inapplicability of the employment relationship claim was sustained. The decision judging the appeal was not subject to appeals, reason why it became final and ended this procedure on February 24, 2014.

 

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2) Claim no. 0000676-11.2012.5.24.0041

 

Court

 

Labor Court of Corumbá — Mato Grosso do Sul

Instance

 

1st Instance

Date of filing

 

10/24/2012

Parties in the suit

 

Public Prosecutor for Labor matters (plaintiff) and Mineração Corumbaense Reunida - MCR (defendant)

Amounts, goods or rights involved

 

R$ 127,191.57

Main facts

 

The Labor Prosecution Office of Mato Grosso do Sul filed a public civil action claiming that MCR should be compelled to comply with labor safety rules set forth in Labor Regulatory Rules.

On December 12, 2012, MCR filed its defense, claiming that it has Always complied with Regulatory Rules and that the accident reported in the action has not occurred due to non-compliance by the employee with the safety rules and procedures required by the Company.

Upon the initial hearing, the court determined an examination to find whether or not there is non-compliance with Regulatory Rules.

The examination report is under conclusion.

Judicial decision was issued condemning MCR to register the Special Service in Engineering and Safety — SESMT and Occupational Medicine, according to the Regulatory Rules. Non-compliance with the obligation to do shall cause incurrence of R$ 60,000.00 (sixty thousand reais) fine per event, for the benefit of the Worker Support Fund (“FAT”) or any other social fund for the collectivity, to be indicated during the enforcement phase. Other claims were judged inappropriate.

Chances of loss

 

Probable

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Non-compliance with the obligation to do shall cause incurrence of R$ 60,000.00 (sixty thousand reais) fine per event, for the benefit of the Worker Support Fund (“FAT”) or any other social fund for the collectivity, to be indicated during the enforcement phase. Classification of loss from “possible” to “probable” considers the judicial decision determining that MCR should register the Special Service in Safety Engineering and Occupational Medicine - SESMT, according to the Regulatory Rules.

Amount provisioned (if any)

 

Not applicable, considering that the object of the claim is an obligation imposed to MCR.

 

3) Claim n. 00329.2006.92020003

 

Jurisdiction

 

Labor Court of Maruim — Sergipe

Instance

 

3rd Instance (Supreme Labor Court)

Date of filing

 

01/23/2001

Parties in the suit

 

Vale S.A. (defendant) and Union for workers extracting iron, basic and precious metals-Sindimina (plaintiff)

Amounts, goods or rights involved

 

Guarantee of the operational activities at the potassium chlorate mine in Sergipe.

Main facts

 

Lawsuit brought by SINDIMINA union in the State of Sergipe on January 23, 2011, aiming to improve the suitability of the working conditions of employees in the underground potash mine in Sergipe to bring them up to regulatory standard NR 15, especially as regards the temperature of the mine and noise level. Vale filed the defense on February 14, 2001, claiming the lack of competence of the Union to file the action and the lack of infringement against regulating rule NR-15, which would be proved in the Discovery phase.

On February 20, 2006, the ruling was issued determining the adoption of measures, within 30 days, to improve the cooling of the mine, otherwise the activities would be interrupted until the implementation of such measures, and a daily fine of R$ 100,000 would be applied. On September 25, 2006,

 

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Vale filed an appeal to the Regional Labor Court (TRT), which was partially granted, on August 07, 2007, to exclude the interruption of mine activities and the payment of a daily fine of R$ 100 thousand from the conviction.

On November 29, 2007, Vale filed an Appeal before the Supreme Labor Court (TST) claiming compliance with the legal standards applicable to the activity.

On December 19, 2012, the TST rejected Vale’s appeal, and on February 6, 2012, Vale filed another appeal — known as motion for clarification. In March 2012, the motion was dismissed by the TST, and Vale filed another appeal, to the Individual Bargaining Session — 1 (SDI-1, internal division of TST) and also an “Extraordinary Appeal” to the Federal Supreme Court STF). Both of these appeals are still pending. The parties have been negotiating to reach a possible settlement, motivating suspension of the suit.

Chances of loss

 

Probable

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Any unfavorable decision may risk imposing an obligation to do so, fines and, in the worst case scenario, total or partial closure of the activities of the underground mine for exploitation of Potassium Chlorate/Sergipe, or a monetary penalty for illegal operation. The Company is taking precautionary measures to ward off the effects of any unfavorable decision, through improvements in working conditions.

Amount provisioned (if any)

 

No amount has been allocated since Plaintiff’s claim refers to an obligation to do something (that is, to adapt working conditions to the relevant laws and regulations), with no impact on past and current results. It should be noted that, notwithstanding the outcome of the claim, Vale is already making improvements in the mine conditions. Moreover, the decision provides for the payment of a daily fine if the company continues to develop the mine activities without taking into account the obligation to adapt working conditions to the relevant laws and regulations as provided for in the court ruling.

 

Therefore, the Company will only be subject to a fine (i) when the decision becomes final (res judicata) and (ii) if an expert evidence demonstrates that the measures adopted by the company were not sufficient to adjust the working environment to the court ruling.

 

(ii) Taxes

 

The tables below present a description of individual tax cases considered relevant to the business of the company and/or its subsidiaries.

 

As result of some tax exceptions engaging companies at Vale group, the Company creates a provision totaling, on December 31, 2014, the amount of R$ 1,088 billion, of which (i) R$296 million are related to controlled companies abroad, (ii) R$356 million are related to Brazilian controlled companies, (iii) R$ 302 million relate to provisions related to CFEM-related procedures (described in item 4.6(ii)in this Reference Form), and (iv) R$134 million related to other tax procedures of the Company.

 

With regard to the processes listed below which challenge the taxation of IRPJ and CSLL on profits from Company’s affiliates abroad, it is important to notice that (i) regarding the period from 2009 onwards, tax authorities may issue new tax assessments to ensure the right to collect from the remaining balance of values of said taxes, should they understand that the calculation done by the Company is not correct; (ii) regarding the portion of IRPJ and CSLL questioned in Writ of Mandamus no. 2003.51.01.002937-0 (item 1 in this section), the Company adhered to the Special Installment Program established by Law 12.865, dated October 9, 2013 (“Special Installment Program “); and (iii) regarding the other portion of IRPJ and CSLL discussed in Writ of Mandamus no. 2003.51.01.002937-0 (item 1 in this section), related to the period between 2002 (containing generating facts occurring in the period between 1996 and 2002), part of the debts related to year 2005 (related to tax credits that appear in Active Debt Certificates no. 70.2.12.000303-20 and 70.6.12.000814-20, arising out of Administrative Procedure no. 18471.001.243/2007-69, and supported in Tax Collection an no. 0015197-06.2012.4.02.5101), and year 2013 and following, were not object of adherence to the installment program.

 

Debts related to the years between 1996 and 2002 were not included in the tax recovery program due to the retroactive nature of the tax law, principle violated by the sole paragraph of article 74 in MP 2158/01, which, created only in 2001, intended, under legal fiction, require taxation of past events (1996 to 2001) in 2002. regarding the portion of the tax credit for year 2005, there is no adherence, as the portion corresponding to the requirement of taxes arising out of accrued compensated tax losses in prior years (1996 to 2002). Regarding the years 2013 and following, there is no adherence considering that the installment program allows for the payment of debts which generating facts occurred solely by December 31, 2012. These years, therefore, are outside of the scope of the program.

 

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Additionally, considering the decision favorable to the Company in May 2012, attributing suspensive effects to the extraordinary appeal and, consequently dismissing the applicability of amounts being questioned, duly approved by the Plenary in April 2013, there is no need to post any bond while such favorable decision is still in force. In this sense, the company has used all the surety bonds and cancelled a pledge related to the third act of infringement (2007). In the case of Tax Collection 0011476-46.2012.4.02.5101 (Motion for Tax Collection 2012.5101.013553-4), waiting for the decision regarding the use of the seized amounts (the only collateral that remained in effect) to pay for the debt with discounts provided under Law 12.865/2013, the order was issued by Caixa Econômica Federal to convert R$ 41,299,643.64 (Nov/2014) into income. Waiting response for the order, waiting for the National Treasury to follow administrative procedures required for the payment of the debt

 

The special appeal addressed to the Superior Court of Justice (STJ), filed in the Writ of Mandamus no. 2003.51.01.002937-0 was judged in the session held on November 26, 2013, when Reporting Justice an Napoleão Maia, recognized (admitted) in part the appeal, and in this portion, he granted it, while Justice Sérgio Kukina partially granted the appeal, and, in that portion, denied it. This judgment was resumed on March 25, 2014, when Minister Ari Pargendler presented his vote, accompanying the reporting judge Napoleão Nunes Maia Filho, considering inapplicable the taxation of profit from foreign companies controlled by Vale, since international treaties against double taxation should prevail. The judgment session ended on April 24, 2014, when the First Panel of the STJ decided, by majority of votes, in favor of Vale. The decision was published on May 20, 2014.

 

This decision determined: (i) the incompatibility of the taxation regime on profits from affiliates domiciled abroad introduced by article 74 of the Preliminary Order no. 2.158-35/01 with certain international treaties against double taxation; (ii) the illegal nature of the taxation with positive results on asset equivalence set forth in article 7th, Normative Instruction no. 213/2002; and (iii) that profits gained by Vale in the Bermudas are subject to the terms in article 74, caput in MP 2.158-35/2001. The National Treasury filed an Extraordinary Appeal before the Federal Supreme Court, which is pending judgment.

 

Debts listed in said Writ of Mandamus and in discussion on the records of the following processes were included in the Special Installment Program: (i) Tax Collection 0023959-11.2012.4.02.5101 (IRPJ and CSLL debts related to years 2003 to 2006); (ii) Tax Collection 2011.51.01.518168-2 and Motion for Tax Collection 2011.51.01.509917-5 (IRPJ and CSLL debts related to year 2007); (iii) Tax Collection 0023958-26.2012.4.02.5101 (IRPJ and CSLL debts related to year 2007); (iv) Tax Collection 0011487-75.2012.4.02.5101 (CSLL debts related to year 2008); (v) Tax Collection 0011476-46.2012.4.02.5101 and Motion for Tax Collection 0013553-28.2012.4.02.5101 (IRPJ debts related to year 2008); and (vi) Tax Collection 0023974-77.2012.4.02.5101 (CSLL debts related to year 2008).

 

As determined in the legislation applicable to the Special Installment Program, on November 29, a 2013, the Company made the initial payments of values due as IRPJ and CSLL on the profit of affiliates located abroad, due to adherence to the installment program. At the time, the Company also formally adhered to the terms of the Special Installment Program, upon delivering the respective attachments set forth by Joint Order PGFN/RFB no. 9/2013. Monthly payment of the installments has been duly made, ever since.

 

Adherence to the Special Installment Program implied payment to the Federal Revenue Secretariat of R$5,940 billion by the end of November 2013. Additionally, under the terms in REFIS in Law no. 12.865/13, Vale paid US$ 6.0 billion in 2013, including the advanced payment and the initial payment and Vale agreed upon paying the remaining US$ 16.3 billion in monthly payments. On December 31, 2014, the balance US$ 16.8 billion is due in 166 monthly payments, subject to interest at the SELIC rate.

 

The total liability for the years 2003 to 2012, including filed and unfiled periods for the Company and its affiliates, was estimated at R$ 45.0 billion - R$ 17,084 billion as principal, R$ 9,831 billion as fine, R$ 11,983 billion as interest and interest on fines, and R$ 6,094 billion as fees.

 

Among options offered by the legislation, the Company opted for the payment in cash of the principal related to years 2003, 2004 and 2006 and dividing, into installments, the principal, fines, and interest related to 2005, and 2007 to 2012. According to the legislation, in case of cash payment, only the principal of the tax is due while in the installment payment, 80% of fines are exempted, as well as 50% of interest and 100% of fees.

 

The option chosen by the Company presents estimated face value of R$ 22,214 billion, where R$ 16,222 billion as principal, R$ 1,565 billion as fine, and R$ 4,427 billion as interest and interest on fines. Reduction of the principal is due to the discount of R$798 million due to accrued losses in Brazil. The current value of this option after tax benefits is R$ 14,425 billion, and it appears to be a better option compared to total payment in cash as it reduces the pressure on liquidity and minimize the present value of payments.

 

Participation on REFIS had impact of US$ 6.7 billion (R$ 15.3  billion) on the net profit in 2013. In 2014, financial expenses with impact on the net profit related to interest comprising the payments made under REFIS were US$ 451 million (R$ 1.0 billion). Future cash flows will be affected by monthly installments.

 

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On this matter, it is important to note that on December 18, 2013, to comply with requirements in Law an 12.865/13, the Company submitted the petition to the records of said proceedings before the Superior Court of Justice (STJ), requiring partial dismissal of the decision and waiver of arguments under which the respective actions are grounded, according to partial waiver/dismissal parameters in the Writ of Mandamus no. 2003.51.01.002937-0.

 

Administrative procedures nos. 18471.000141/2008-15; 12897.000868/2009-98; 10569.000135/2011-64; 12897.000.023/2010-36; 10569.000199/2010-84, terminated. This matter is still discussed in the judicial sphere, being object of Tax Collections. These collections, in turn, were subject to dismissal, for purposes of adherence to the Special Payment in Installments, according to requirements set forth in Law 12.865/13, and the respective progress is presented in items 3.2, 4.2, and 5.2.

 

1) Writ of Mandamus 2003.51.01.002937-0

 

Jurisdiction

 

Superior Court of Justice and the Federal Supreme Court

Instance

 

3rd instance

Date of Filing

 

02/03/2003

Parties in the suit

 

Vale (Plaintiff/Appellant) and National Tax Authority (Defendant/Appellee)

Amounts, goods or rights involved

 

Not applicable

Main facts

 

In February 2003, Vale filed a Writ of Mandamus to ensure the right not to be subject to income tax and social contribution as far the profits of its subsidiaries and affiliates abroad were concerned, according to the sole paragraph of article 74 of the Provisional Executive Order 2.158-34/2001, and later amendments.

Arguments of the Company:(i) section 74 of the Provisional Measure overlooks the treaties against double taxation signed by Brazil; (ii) the National Tax Code forbids the aforementioned taxation as set forth by the Provisional Measure; (iii) even if section 74 of the Provisional Measure were valid, exchange variation should be excluded from the assessment of due taxes; and (iv) the rule IN 213/2002 is illegal and (v) violation of the principle of prior taxation related to generating facts occurring before December 2001.

In February 2003, an injunction request was granted to suspend the collection of the tax credit resulting from the challenged legislation, so that the rules of Law No. 9.532/97 would continue to apply. In August 2005, a rejection ruling was issued, causing revocation of the injunction previously obtained by Vale. Vale filed an appeal, which was received on September 29, 2005, which reestablished the suspension to enforce the tax credit obtained by the Company in the injunction.

On March 29, 2011, the Federal Regional Court of the 2nd Region (TRF 2nd Region) dismissed the appeal, rejecting the arguments of Vale.

After reviewing the ruling, published on May 30, 2011, Vale has changed the prognosis from “remote” to “possible”, as reflected in its financial statements for June 30, 2011, filed on July 28, 2011. On June 3, 2011, Vale filed an appeal (motion for clarification) against the decision by the 2nd Region TRF, pointing out omissions regarding the exchange rate variation and on the unconstitutionality of the sole paragraph of article 74 of Provisional Executive Order, in addition to a contradiction relative to the application of treaties to avoid double taxation. The contradiction claimed by Vale is based on the fact that such challenged decision states, at the same time, that (a) Article 7 of the treaties against double taxation prohibits Brazil from taxing profits of affiliates and subsidiaries abroad, (b) that treaties prevail against internal laws

 

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and (c) that, however, such provision does not prevent the application of article 74 of the Provisional Executive Order 2158-35/01.

On November 28, 2011, the ruling which judged the motion (motion for clarification) partially in favor of Vale was published determining exclusion of exchange rate variation on the amount of foreign investment, but rejecting the other requests and the suspension of the tax credit granted by the appeal. On December 13, 2011, Vale filed a Special Appeal at the Superior Court of Justice (STJ) and an Extraordinary Appeal at the Supreme Court of Justice (STF).

The Special and Extraordinary Appeals were admitted on May 7, 2012, the same day that Vale filed for a Preliminary Order before the Superior Court of Justice (STJ) and the Federal Supreme Court (STF) requesting attribution of suspensive effects to the Extraordinary Appeal. The Preliminary Orders aimed to suspend the application of tax credits. At the STJ, although the preliminary order was granted initially, the decision judging the preliminary order rejected Vale’s claim, cancelling the preliminary order. At the STF, the preliminary order was granted on May 9, 2012 and confirmed by the panel at the STF on April 10, 2013, reason why it remains in force.

On October 22, 2013, the Special Appeal by Vale (STJ) was included in the judgment agenda, but was later removed by the Federal Prosecution Office that, subsequently, issued an opinion unfavorable to Vale’s claim.

On November 26, 2013, the First Panel of the STJ resumed the judgment of the appeal, when the Reporting Justice and Napoleão Maia partially granted the appeal and, in this portion, granted the appeal, while Justice Sergio Kukina also granted in part the appeal and, in this portion, he denied it. This judgment was resumed on March 25, 2014, when Minister Ari Pargendler presented his vote, accompanying the reporting judge Napoleão Nunes Maia Filho, considering inapplicable the taxation of profit from foreign companies controlled by Vale, since international treaties against double taxation should prevail. The judgment session ended on April 24, 2014, when the First Panel of the STJ decided, by majority of votes, in favor of Vale, and the decision was published on May 20, 2014. In short, the decision determined (i) the incompatibility of the taxation regime on profits from affiliates domiciled abroad introduced by article 74 of the Preliminary Order no. 2.158-35/01 with certain international treaties against double taxation; (ii) the illegal nature of the taxation with positive results on asset equivalence set forth in article 7th, Normative Instruction no. 213/2002; and (iii) that profits gained by Vale in the Bermudas are subject to the terms in article 74, caput in MP 2.158-35/2001. The National Treasury filed an Extraordinary Appeal before the Federal Supreme Court, which is pending judgment.

Chances of loss

 

Possible (regarding the remaining discussion which debt will not be subject to adherence to the tax recovery program).

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

In the event of a final unfavorable decision, regarding all arguments raised by the Company, the Brazilian Tax Authority may collect income taxes and social contributions on profits of subsidiaries and/or affiliates abroad, taking into account the principle of the due process of law in the specific administrative and in-court collection procedures. This impact refers to the period which is not object of dismissal/waiver, for adherence to the Special Installment Plan, corresponding to the amount of R$ 1,515,851,530.61, as IRPJ, and R$ 415,414,688.29, as CSLL (December/2013), totaling R$ 

 

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1,931,266,218.90. Amounts related to debts in 1996 and 2002, the 2005 portion and 2013 are not included.

Amount provisioned (if any)

 

Not applicable.

Notes

 

1 — On September 20, 2012, Vale received a summoning by the Federal Revenue of Brazil recognizing extinction of values related to Exchange rate variation, in the approximate value of R$1.6 billion. Such extinction is due to the partially favorable decision issued in the judgment of an appeal (motion for stay) by the Company in this Writ of Mandamus 2003.51.01.002937-0, as described above in the item “Main Facts”.

 

2 — The judgment of this direct claim of unconstitutionality (ADI) filed by the Confederação Nacional da Indústria (CNI) questioning constitutionality of article 74 in the Provisional Order 2.158-35/01 returned on April 3, 2013. On April 10, 2013, the result of such ADI was issued, and it was defined that article 74 is not applicable to affiliates located in countries without favored taxation (non-fiscal heavens), but is applicable to companies located in countries with favorable taxation (fiscal heavens). There was a decision for the retroactive nature of the sole paragraph of article 74 in the MP, implying the impossibility to apply this legislation to generating facts prior to 2002. On the same date, Extraordinary Appeals filed by Cooperativa Agropecuária Mourãoense - COAMO and EMBRACO were judged. The preliminary order of Vale was maintained under unanimous voting, as seen in an item 1.1.

 

3 - On December 18, 2013, in compliance with the terms in Law and 12.865/13, the Company filed a petition to the Superior Court of Justice requesting partial dismissal of the discussion and, also, waiving arguments under which the claim is grounded. On February 19, 2014, in the files of the Special Appeal, a partial waiver to the rights grounding the action was filed under terms required by Vale. The partial waiver produces effects in every tax contingency related to this issue, listed below

 

1.1) Development of Writ of Mandamus 2003.51.01.002937-0: Injunction no. 3.141

 

Court

 

Federal Supreme Court

Instance

 

3rd Instance

Date of filing

 

05/07/2012

Parties to the claim

 

Vale (plaintiff) and Federal Government (defendant)

Values, assets or rights involved

 

Not applicable

Main factors

 

On May 7, 2012, Vale filed for an Injunction to attempt to attribute suspensive effects to the Extraordinary Appeal filed in the Writ of Mandamus (item 1) aiming suspension of the applicability of amounts for IRPJ and CSLL being discussed.

On May 9, 2012, Justice Marco Aurélio Mello, from the Federal Supreme Court granted the injunction in this sense. On May 25, 2012, the Union filed an appeal. On May 28, 2012, the Union filed an appeal (interlocutory appeal) against the decision granting the appeal. On June 8, 2012, Vale filed its response to this appeal. On April 10, 2013, there was a decision rejecting, unanimously, the Union Appeal (interlocutory appeal) and maintaining the injunction favorable to Vale. This decision was published on September 30, 2013 and no appeal was filed. Therefore, unless the judges

 

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reconsider their decision, the suspensive effect will have effects until judgment of the extraordinary appeal. On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On February 14, 2014, a decision was issued determining the filing of a copy of the partial waiver request and the approving decision issued under the main Writ of mandamus (item 1 above). On February 24, 2014, Vale provided requested documents and the files moved to be appreciated by the reporting judge.

Probability of loss

 

Possible (regarding the remaining discussion, which debt will not be subject to adherence to the tax recovery program).

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

In the event of any unfavorable outcome, there is a chance to require guarantee for amounts under discussion. This impact relates to the period that is not subject to dismissal/waiver for adherence to the Special Installment Program.

Allocated amount (if any)

 

None.

 

2) Tax Assessment Notice no. 18471.001243/2007-69

 

Court

 

Tax Appeals Administrative Council

Instance

 

2nd administrative instance

Date of filing

 

12/10/2007

Parties to the claim

 

National Tax Authority (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

Total debt— R$ 1,931,266,218.90 (December 2014)

Main factors

 

On November 12, 2007, Vale was made aware of the Tax Assessment Notice which object is the collection of supposed income tax and social contribution debts levied on the accounting gain regarding the ownership equity of foreign subsidiaries in the 1996 to 2002 base years.

On December 10, 2007, Vale filed the defense (Impugnation), arguing that such requirements were not valid and that no penalty could be applied because the injunction issued in favor of Vale in the writ of mandamus no. 2003.51.01.002937-0 (item 1 above) was still in force. The Internal Revenue Trial Service (DRJ, for its acronym in Portuguese) partially granted the impugnation.

On August 18, 2008, Vale filed an appeal. The National Tax Authority also filed an Appeal regarding the partial reduction of the social contribution collection.

At the judgment of these appeals, held on May 19, 2010, some of Vale’s arguments were not assessed by the Administrative Council of Tax Appeals - CARF, because, according to this entity, the matter was deemed to be subject to assessment by the Judicial Branch. Additionally, (i) Vale’s argument regarding the running of the statute of limitations as far the collections of taxes referring to generating facts occurring in 1996 and 1997 were concerned, was rejected, (ii) the application of a fine against Vale was canceled, and (iii) the appeal from the National Tax Authority was dismissed.

On September 26, 2011, Vale filed a new appeal (motion for clarification) stating the existence of omissions in the decision by CARF, and the appeal was rejected.

On October 3, 2011, the National Tax Authority filed an appeal (special appeal) before the Superior Chamber of Tax Appeals against the CARF decision, in the portion that cancelled the penalty. Vale responded to the appeal filed by the National Tax Authority, as well as to the Superior Chamber against the CARF decision, regarding dismissal of the claim on the statute of limitations.

On January 24, 2012, the Special Major Taxpayer Office (DEMAC, for its acronym in Portuguese), ex officio, interpreting the decision of

 

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the Federal Regional Court of the 2nd Region in the writ of mandamus no. 2003.51.01.002937-0 (item 1 above) in the sense that there is an overlapping between the discussions in this administrative proceeding and in that writ of mandamus, rejected all administrative appeals and ordered the immediate collection of part of the credits that are currently object of Tax Assessment no. 0015197-06.2012.4.02.5101 (item 2.2). Therefore, the appeals filed by Vale and the National Tax Authority against the CARF decision have not been assessed by the Superior Chamber of Tax Appeals. Vale filed a writ of mandamus (no. 0001899-44.2012.4.02.5101 — item 2.1 below) to attempt to reverse the order of DEMAC and ensure the regular development of the administrative process. Alongside, the Company filed a request for reconsideration at DEMAC, which was denied and, ever since, the files are with the judge, waiting to proceed.

Probability of loss

 

Remote

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

In the event of any unfavorable outcome, the taxes on the accounting gain regarding the ownership equity of foreign subsidiaries discussed under this tax assessment notice may be levied. Any financial impact, however, shall only occur in case of a final unfavorable decision in the in-court collection claim.

Allocated amount (if any)

 

None.

 

2.1) Writ of mandamus. 0001899-44.2012.4.02.5101 related to the Tax Assessment Notice no. 18471.001243/2007-69

 

Court

 

28th Federal Court of Rio de Janeiro

Instance

 

1st Instance

Date of filing

 

02/06/2012

Parties to the claim

 

Vale (plaintiff) and DEMAC (defendant)

Values, assets or rights involved

 

Not applicable

Main factors

 

On February 6, 2012, Vale filed a Writ of Mandamus to suspend the order of DEMAC and ensure the development of the administrative proceeding no. 18471.001243/2007-69 (item 2 above). The injunction request was denied, and Vale filed an appeal (interlocutory appeal) against this decision and a request for reconsideration. Both were rejected. The files remain with the judge, waiting to proceed.

Probability of loss

 

Possible.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable

Allocated amount (if any)

 

None

 

2.2) Tax Collection no. 0015197-06.2012.4.02.5101 regarding the Tax Assessment Notice no. 18471.001243/2007-69

 

Court

 

5th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

03/13/2012

 

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Parties to the claim

 

Federal Taxpayer Authority (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 1,931,266,218.90 (December/2014), value already included in the amount of the main administrative process described in item 2 above, added with legal fees.

Main factors

 

On March 12, 2012, the National Tax Authority filed a claim to collect income taxes and social contributions presumably due, in view of the decision from DEMAC mentioned in item 2 above. On April 25, 2012, the National Tax Authority filed a petition requesting seizure of dividends to be distributed by Vale on April 30, 2012.

On April 26, 2012, Vale filed a petition challenging the request from the National Tax Authority and offering, alternatively, a bank guarantee to secure the debt. On the same day, the court accepted the offering of the guarantee, presented by Vale on April 27, 2012.

On May 8, 2012, the National Tax Authority presented a request to block monies through the BACENJUD system - through which the judge directly accesses all bank accounts in the country - that, upon objection by Vale, was rejected due to the preliminary order granted by Minister Marco Aurélio de Mello, suspending application of tax credits, object of this enforcement (item 1.1. above). Vale then requested acknowledgement of the lack of need to guarantee the execution — since application of credits is suspended — and dismissal of the previously granted surety bond, granted by the Court. Faced with such decision, on May 14, 2012, Vale paid the bail. Due to the aforementioned injunction granted in the provisional remedy cited in item 1.1, the lawsuit has been stayed, as the national Tax Authority cannot collect non-applicable credits. On July 17, 2014, Vale filed a motion requesting extinction of the tax collection due to the STF decision in ADI 2.588, which determined the unconstitutional nature of the sole paragraph in article 74 in Provisional Order 2.158-35/01. Waiting for the court to comment on the motion.

Probability of loss

 

Remote

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

In the event of any unfavorable outcome related to the injunction object of item 1.1 above, Vale may have to present a new guarantee of the amounts in question under this collection.

Allocated amount (if any)

 

None

 

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3.1) Development of Administrative Claim no. 18471.000141/2008-15: writ of mandamus. 0004826-69.2012.4.01.3400

 

Court

 

14th Federal Court of the Federal District

Instance

 

1st Instance

Date of filing

 

01/25/2012

Parties to the claim

 

Vale (plaintiff) and President of the 2nd Chamber of the Tax Appeals Administrative Council (defendant)

Values, assets or rights involved

 

Not applicable

Main factors

 

On January 25, 2012, Vale filed a writ of mandamus against the decision of the President of the 2nd Chamber of CARF, issued in Administrative Claim no. 18471.000141/2008-15. On January 27, 2012, an injunction order was issued to suspend the effects of the decision mentioned above and to determine the regular processing of administrative claims no. 18471.000141/2008-15 and 12897.00868/2009-98. The National Tax Authority filed a claim to suspend the injunction request (no. 0009426-51.2012.4.01.0000) and, on March 12, 2012, a decision was issued suspending the validity of the injunction obtained by the Company, in the writ of mandamus issued in Administrative Claim no. 18471.000141/2008-15. Vale then filed an appeal (interlocutory appeal) which was rejected. After, in April 2012, a petition was filed notifying about the preliminary order granted by Minister Teori Zavascki, suspending collection of allegedly due values. The decision on the writ of mandamus is still pending. On November 25, 2013, a decision in favor of Vale was published.

On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On February 13, 2014, the judge issued an order determining that he was not entitled to appreciate the waiver request as he understood that, after publication of the decision, the judge ends with his jurisdictional activity and should be limited to correcting possible material and calculation errors. On May 2, 2014, the Prosecution Office filed an Appeal and, later, Vale reiterated its request to dismiss the claim due to adherence to the Special Payment in Installments under Law 12.865/2013.

Probability of loss

 

Not applicable due to adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable due to adherence to REFIS.

Allocated amount (if any)

 

None

 

3.2) Development of Administrative Claim no. 18471.000141/2008-15: Tax Assessment Notice no. 0023959-11.2012.4.02.5101

 

Court

 

7th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

3/13/2012

Parties to the claim

 

National Tax Authority (Plaintiff) and Vale (Defendant)

Values, assets or rights involved

 

R$ 14,216,689,702.56 (in November 2013, date adhering to REFIS), without reduction factors provided for in the tax recovery program. Amount included in Administrative Claim no. 18471.0000141/2008-15.

Main factors

 

On May 8, 2012, before publication of the unfavorable decision by

 

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the STJ, in the injunction related to the item above and, thus, when the suspensive effect of the preliminary order granted was still in effect, the National Tax Authority, even with the suspended application of credits, filed a tax enforcement act to collect IRPJ and CSLL allegedly due, which, in their understanding, would be possible considering the decision by the President of the 2nd Chamber of CARF, mentioned in item 3.1 above.

On May 11, 2012, Vale filed a petition informing the granting of the injunction by the STF suspending the applicability of credits (item 1.1 above) and, on the same date, a decision was pronounced suspending this tax collection. On December 18, 2013. Vale presented a petition claiming the loss of object of the collection due to adherence to REFIS. On February 24, 2014, an order was issued determining (a) the National Treasury should comment regarding the notified payment, and (b) the presentation by Vale of a legible power of attorney, which has been complied with by the Company. The National Treasury requested an extension of the term for 90 days on November 26, 2014, and it was again invited to comment on the payment informed by Vale. On December 16, certificates were issued attesting that the National Treasury failed to comment, and suspending the claim. The decision on such request has not been published yet.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None

 

4.1) Development of Administrative Claim no. 12897.000868/2009-98, dated 01/11/10: Writ of mandamus 2011.51.01.005614-9

 

Court

 

32nd Federal Court of Rio de Janeiro

Instance

 

Awaiting admissibility judgment to file at 2nd instance

Date of filing

 

04/29/2011

Parties to the claim

 

Vale (Plaintiff) and National Tax Authority (Defendant)

Values, assets or rights involved

 

Not applicable

Main factors

 

On March 15, 2011, Vale received a letter collecting income taxes and social contributions which, according to the National Tax Authority, would not be the object of the appeal filed by the Company in Administrative Claim no. 12897.000868/2009-98

On March 23, 2011, Vale filed a petition requesting the cancellation of the collection on the grounds that the claimed values were indeed covered by the appeal.

On April 15, 2011, Vale received a notice from the National Tax Authority announcing the maintenance of the collection.

On April 29, 2011, Vale filed a writ of mandamus to suspend the collection. The preliminary order requested in this writ of mandamus was rejected.

On May 25, 2011, the Company filed an appeal (interlocutory appeal) against the decision that rejected the request for injunction to suspend the collection. On July 15, 2011, the request to suspend the effects of the previous decision in this appeal was rejected as well. On January 15, 2013, the ruling denying the writ of mandamus

 

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was issued. On January 30, 2013, Vale filed an appeal against the decision. On March 14, 2013, the judge received the appeal and attributed suspensive effect. On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. The files were remitted to be appreciated by the judge.

 

Despite of the unfavorable decision issued in this writ of mandamus, application of tax credits discussed herein is suspended due to the STF decision (item 1.1 above).

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None.

 

4.2) Development of Administrative Claim no. 12897.000868/2009-98 dated 01/11/10: Tax Collection no. 2011.51.01.518168-2

 

Court

 

11th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

07/08/2011

Parties to the claim

 

Federal Taxpayer Authority (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 33,903,846.09 (November 2013, date adhering to REFIS) included in the amount of the main administrative process described in Administrative Claim no. 12897.000868/2009-98, added with legal fees.

Main factors

 

On July 8, 2011, the National Tax Authority filed a claim to collect income taxes and social contributions presumably due, in view of the collection letter mentioned in item 4.1. above.

On August 29, 2011, Vale submitted a surety bond guarantee regarding the tax collection, which was expressly approved by the National Tax Authority.

On September 28, 2011, Vale filed a defense (motion to stay under No. 2011.51.01.509917-5), requiring the suspension of the collection until the final judgment of the main writ of mandamus (item 1 above) and the cancellation of the Company’s Debt Certificate due to a material error, in view of an inconsistency of the amounts indicated therein.

On September 13, 2012, the National Tax Authority presented its response to Vale’s motion for collection.

 

Applicability of tax credits discussed herein is suspended due to the preliminary order by the STF (item 1.1 above), enabling cancellation, on July 4, 2013 of the surety bond presented as guarantee. On December 18, 2013, Vale filed a petition claiming loss of objecting of this collection due to adherence to REFIS. On August 20, 2014, suspension of the execution was determined until the end of the monthly payments.

 

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Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None.

 

4.3) Development of Administrative Claim no. 12897.000868/2009-98 dated 01/11/10: Motion to Stay Collection no. 2011.51.01.509917-5

 

Court

 

11th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

09/28/2011

Parties to the claim

 

Vale (plaintiff) and National Tax Authority (Defendant)

Values, assets or rights involved

 

Value already mentioned in item 4.2 above.

Main factors

 

On September 28, 2011, Vale filed a defense (motion to stay) requiring the suspension of the collection until the final judgment of the main writ of mandamus (item 1 above) and the cancellation of the Company’s Debt Certificate, that grounds this tax collection, due to a material error, in view of an inconsistency of the amounts indicated therein. On September 13, 2012, the National Tax Authority filed response to the motion for stay. Vale commented on the response by the National Tax Authority (response) and filed an appeal (motion for stay), requesting that the court commented about the suspension request for the collection based on the STF decision (item 1.1 above). The appeal was granted and the process was suspended. On December 18, 2013, Vale filed a petition claiming loss of objecting of this collection due to adherence to REFIS. On September 2, 2014, the National Treasury commented in favor of extinction of the tax collection due to the payments made. On March 26, 2015, the decision was issued judging the claim as extinct, with merit resolution and condemning Vale to pay attorneys’ fees at R$ 1,500.00. Award published on April 9, 2015, replacing the decision previously condemning Vale to the payment of attorneys’ fees.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None.

 

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4.4) Development of the Administrative Claim no. 12897.000868/2009-98: Tax Assessment 0023958-26.2012.4.02.5101

 

Court

 

7th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

05/8/2012

Parties to the claim

 

National Tax Authority (Plaintiff) and Vale (Defendant)

Values, assets or rights involved

 

R$ 17,623,009,684.76 (November 2013, date adhering to REFIS) included in the main administrative procedure described in Administrative Claim no. 12897.000868/2009-98, added with legal fees.

Main factors

 

On May 8, 2012, before publication of the unfavorable decision by the STJ, in the injunction related to item 1 and, thus, when the suspensive effect of the preliminary order granted was still in effect, the National Tax Authority, even with the suspended application of credits, filed a tax enforcement act to collect IRPJ and CSLL allegedly due, which, considering the administrative decision mentioned in Administrative Claim no. 12897.000868/2009-98.

Applicability of tax credits discussed herein is suspended due to a preliminary order by the STF (item 1.1 above). Vale filed a petition claiming suspension of the collection based on this decision. The claim was granted and the process is suspended. On December 18, 2013, Vale filed a petition claiming loss of objecting of this collection due to adherence to REFIS. On February 20, 2014, an order was issued determining (a) the National Treasury should comment regarding the notified payment, and (b) the presentation by Vale of a legible power of attorney, which has been complied with by the Company. The National Treasury failed to comment under the legal term, and on March 26, 2014, a decision was issued determining suspension of the process. On April 7, 2014, the National Treasury requested suspension of the claim for ninety days due to Vale’s adherence to the payment in installments, with legal benefits, using fiscal loss and the negative calculation base of CSLL. Waiting court decision regarding the request filed by the National Treasury.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None.

 

5.1) Development of Administrative Claim no. 12897.000023/2010-36, dated 02/12/10: Writ of mandamus 2010.51.01.017597-3

 

Court

 

Federal Regional Court of the 2nd Region

Instance

 

2nd Instance

Date of filing

 

09/28/2010

Parties to the claim

 

Vale (Plaintiff) and National Tax Authority (Defendant)

Values, assets or rights involved

 

Not applicable

Main factors

 

On August 19, 2010, Vale received a letter requesting the payment of income taxes and social contributions which, according to the National Tax Authority, would not be the object of the appeal previously filed by the Company in Administrative Claim no. 12897.000023/2010-36

On August 23, 2010, Vale filed a petition requesting the cancellation of the collection on the grounds that the claimed values were indeed covered by the appeal, which judgment is still pending, in

 

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Administrative Claim no. 12897.000023/2010-36.

Given the acceptance of the arguments submitted by Vale, related to calculation errors, the National Tax Authority reduced the amount charged and issued a new collection letter, received by Vale on September 6, 2010.

Due to the partial maintenance of the collection, on September 28, 2010, Vale filed a writ of mandamus. The injunction request was granted to suspend the collection of debts required by the National Tax Authority.

Against this decision, the National Tax Authority filed an appeal (interlocutory appeal), which was denied.

On December 16, 2011, an unfavorable judgment was rendered, as the Court deemed that such values would not be the object of the administrative appeal filed by the Company, in Administrative Claim no. 12897.000023/2010-36.

Against this decision, Vale filed an appeal on January 9, 2012, After the reply by the appellee (National Tax Authority), the files were remitted to the TRF 2nd Region, to judge the appeal. On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On March 7, 2014, a decision was issued approving the waiver. On March 28, 2014, files were remitted to the National Tax Authority.

On April 25, 2014, the term ended for the parties to comment on the decision that approved the dismissal of the claim. Files were remitted to the 21st Federal Court of the Judicial Section of Rio de Janeiro on May 6, 2014 and were filed on May 30, 2014.

Probability of loss

 

Process ended

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Process ended

Allocated amount (if any)

 

None.

 

5.2) Development of Administrative Claim no. 12897.000023/2010-36 dated 02/12/10: Tax Collection no. 0011487-75.2012.4.02.5101

 

Court

 

1st Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

01/26/2012

Parties to the claim

 

Federal Taxpayer Authority (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 21,731,827.64 (November 2013, date adhering to REFIS) included in the amount of Administrative Claim no. 12897.000023/2010-36, added with legal fees.

Main factors

 

On January 26, 2012, the National Tax Authority filed a claim to collect income taxes and social contributions presumably due, in view of the collection letter mentioned in item 5.1.

On February 2, 2012, Vale posted a bond to secure the tax collection claim and on February 6, 2012, the Court issued a decision considering such bond. Applicability of tax credits discussed herein is suspended due to a preliminary order by the STF (item 1.1 above). On May 7, 2013, the decision was issued suspending the process based on the STF decision and dismissing the need of guarantee of collected values, also authorizing cancellation of the surety bond presented by Vale. On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On January 28, 2014, the files were remitted to the National Tax Authority. On

 

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June 24, 2014, the National Treasury requested suspension of the claim for sixty days to evaluate the payment made. On September 3, 2014, the decision was issued determining suspension of the collection until the end of the monthly payments, and the National Treasury represented to be aware on September 25, 2014.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS.

Allocated amount (if any)

 

None.

 

5.3) Development of Administrative Claim no. 12897.000023/2010-36 dated 02/12/10: Tax Collection no. 0011476-46.2012.4.02.5101

 

Court

 

4th Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

01/26/2012

Parties to the claim

 

Federal Taxpayer Authority (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 60,325,116.23 (November 2013, date adhering to REFIS), as IRPJ, value already included in the amount of Administrative Claim no. 12897.000023/2010-36, added with legal fees.

Main factors

 

On January 26, 2012, the National Tax Authority filed a claim to collect income tax presumably due, in view of the collection letter mentioned in item 5.1, requesting the blockage of Vale credits in procedure no. 20035101.024181-3, underway at the 12th Federal Court of Rio de Janeiro. On February 2, 2012, Vale entered the records, filing a surety bond to guarantee collection.

On May 8, 2012, before publication of the unfavorable decision by the STJ, in the injunction related to item 1 and, thus, when the suspensive effect of the preliminary order granted was still in effect, the judge, upon request by the National Tax Authority, blocked on line R$ 55,654,046.21 in cash, through the BACENJUD system - through which the judge directly accesses all bank accounts in the country. Vale filed an appeal (interlocutory appeal) against this decision. The applicability of tax credits under discussion is suspended according to a preliminary order by the STF (item 1.1 above), reason why on May 14, 2012, a court order suspended the lawsuit.

On May 14, 2014, Vale filed a petition claiming the release of the value blocked online. On May 15, 2013, the Surety Bond was returned to the Company and, subsequently, an order was issued determining that the National Tax Authority should comment regarding the claim to release the blocked value. On June 18, 2013, the National Tax Authority commented contrary to the claim to cancel the online blocking. On July 9, 2013, a decision was issued cancelling the online blocking of Vale credits in procedure no. 2003.5101.024181-3, however, the order maintained the online blocking. On December 18, 2013, Vale filed a petition claiming loss of objecting of this collection due to adherence to REFIS.

On June 16, 2014, the National Treasury requested that Caixa Econômica Federal was notified to convert into income the deposit that guarantees the enforcement, in the amount of R$ 62,698,188.94, with payment discounts provided for by Law 12.865/13, as well as requesting later review of the files to take required administrative procedures to settle the debt. The National

 

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Treasury was granted the review of the files to indicate the amount to be converted into final payment, with applicable deductions. On October 31, 2014, the National Treasury requested conversion into income of the amount of R$ 41,299,643.64 and on November 5, 2014 the order was issued by Caixa Econômica Federal to be complied with. On January 29, 2015, the National Treasury filed a brief requesting suspension of the claim for five days in order to allow the sector responsible for determining payment and cancellation could conclude the necessary procedures. On March 6, 2015, the National Treasury filed a motion informing that payments were imputed and remaining balances were cancelled, requesting the claim to be extinct. On March 19, 2015 Vale requested to withdraw the remaining judicial balance that, according to an order by Caixa Econômica, was R$14,198,955.67 on November 25, 2014. On the same date, the award was published determining extinction of the process and authorizing withdrawal of the remaining balance of the judicial deposit.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Based on legal determination, due to adherence to the tax recovery program (REFIS), the value deposited judicially, resulting from money attachment, will be converted into income in favor of the Federal Government, becoming final payment, upon application of reduction factors determined by Law 12.865/13. Possible remaining balance may be raised by Vale

Allocated amount (if any)

 

None.

 

5.4) Development of Administrative Claim no. 12897.000023/2010-36 dated 02/12/10: Motion to Stay Collection no. 0013553-28.2012.4.02.5101

 

Court

 

1st Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

03/08/2012

Parties to the claim

 

National Tax Authority (Defendant) and Vale (Plaintiff)

Values, assets or rights involved

 

Value already mentioned in item 5.4 above.

Main factors

 

On March 8, 2012, Vale filed a defense (motion to stay) against the tax collection in item 5.3 above.

The applicability of tax credits being discussed is suspended by a decision by the STF (item 1.1 above), reason why on May 10, 2012 a decision suspended the suit. On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On June 16, 2014, the National Treasury requested issuance of an order to Caixa Econômica Federal to convert R$ 62,698,188.94 into income, with payment discounts provided for by Law 12.865/13, as well as requesting later review of the files to take required administrative procedures to settle the debt. On November 5, 2014, the decision was published, extinguishing the claim, considering the dismissal due to adherence to Payment in Installments. The National Treasury represented to be aware on January 7, 2015, and there were no changes since then. The decision is res judicata and the files were archived.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS

 

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Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Based on legal determination, due to adherence to the tax recovery program, the value deposited judicially, resulting from money attachment, will be converted into income in favor of the Federal Government, becoming final payment, upon application of reduction factors determined by Law 12.865/13. On February 12, 2015, the res judicata certificate was issued and on February 19, the files were written off. The remaining balance will be withdraw in the files of the respective tax collection.

Allocated amount (if any)

 

None.

 

5.5) Development of Administrative Claim no. 12897.000023/2010-36: Tax Assessment Notice no. 0023974-77.2012.4.02.5101

 

Court

 

1st Tax Collection Court of Rio de Janeiro

Instance

 

1st federal instance

Date of filing

 

05/08/2012

Parties to the claim

 

National Tax Authority (Plaintiff) and Vale (Defendant)

Values, assets or rights involved

 

R$ 4,609,749,384.28 (November 2013, date adhering to REFIS), value included in the main administrative procedure described in Administrative Claim no. 12897.000023/2010-36, added with legal fees.

Main factors

 

On May 8, 2012, before publication of the unfavorable decision by the STJ, in the injunction related to item 1 and, thus, when the suspensive effect of the preliminary order granted was still in effect, the National Tax Authority filed a tax assessment notice to collect the amounts of IRPJ and CSLL supposedly due, considering the administrative decision in Administrative Claim no. 12897.000023/2010-36.

The Tax Authority filed a request to block and seize monies through the BACENJUD system, which was denied. Vale informed in the files that the applicability of tax credits is suspended by a preliminary order by the STF (item 1.1 above), which caused the judge to determine suspension of the collection.

On May 11, 2012, Vale filed a petition informing about the attribution of suspensive effect to the extraordinary appeal filed in the writ of mandamus no. 0002937-09.2003.4.02.5101 due to preliminary order request filed in the (items 1 and 1.1 above) and requesting suspension of the enforcement, which was granted on the decision on May 17, 2012. On May 22, 2012, Vale filed an appeal (motion for clarification), which was accepted to clarify that the enforcement will remain suspended until notice of the final judgment of the extraordinary appeal filed by Vale (item 1 above). On December 18, 2013, Vale filed the waiver petition for purposes of adhering to REFIS. On July 22, 2014, the National Treasury requested suspension of the claim for sixty days to accompany the regularity of the payment. On September 3, 2014, the decision was issued determining the suspension of the claim until the end of the payment, and the National Treasury represented being aware on September 25, 2014.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS

Allocated amount (if any)

 

None.

 

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5.6) Development of Administrative Claim no. 12897.000023/2010-36: Writ of mandamus no. 35681-31.2012.4.01.3400

 

Court

 

1st Tax Collection Court of the Federal District

Instance

 

1st federal instance

Date of filing

 

07/13/2012

Parties to the claim

 

Vale (Defendant) and National Tax Authority (Plaintiff)

Values, assets or rights involved

 

Not applicable

Main factors

 

On July 13, 2012, Vale filed a writ of mandamus to annul the measure taken by the President of the 3rd Chamber of the 1st CARF Section, which ordered the early dismissal of administrative process no. 12897.000.023/2019-36.

On July 19, 2012, a decision denied the injunction that had not been requested by the Company. Vale filed a petition for reconsideration, in an attempt to correct the decision that, by mistake, rejected an alleged request of preliminary order which was not even made. However, the request was denied.

In view of this decision on August 22, 2012, Vale filed an appeal, which was not granted. On July 8, 2013, the decision was published determining the claim was inapplicable and extinguishing the suit. Vale filed an appeal (motion for stay) and, after submission of an opinion by the Federal Prosecution Office, the files were remitted to the judge’s office. On July 8, 2013, an unfavorable decision was issued, and on July 25, 2013, Vale filed an appeal. Files were received by the Federal Regional Court on October 18, 2013 and we are waiting the judgment on the petition notifying adherence to REFIS.

After redistribution of the claim to Justice Ângela Catão, the National Treasury filed a petition on December 17, 2014 agreeing with the dismissal requested by Vale. On February 26, 2015, the decision approving the dismissal was published. On March 27, 2015, the term for appeal terminated and files were returned to the origin.

Probability of loss

 

Not applicable, as the debt has terminated upon adherence to REFIS

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable, as the debt has terminated upon adherence to REFIS

Allocated amount (if any)

 

None.

 

6) Administrative Proceeding no. 16682.721173/2013-04

 

Court

 

Office of Large Taxpayers— DEMAC / RJ

Instance

 

1st Administrative Instance

Date of filing

 

11/14/2013

Parties to the claim

 

Federal Revenue (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 253,276,214.59 (December/2014).

Main factors

 

On November 14, 2013, the Office for Large Taxpayers — body of the Federal Tax Authority — filed an Act of Infringement to collect a fine due to alleged omissions and errors in data presented in magnetic files, related to operations carried out in calendar years 2008, 2009, and 2010. Magnetic files were presented to prove the relation between entrance and exit tax documents supporting the PIS and COFINS credit operation requested in the refund claim On December 13, 2013, Vale submitted its defense (impugnation),

 

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based on the following arguments: (i) the fine was applied in a wrong way; (ii) this is an alleged continuous infringement, which would cause reduction to the fine; (iii) infringement against the principles of proportionality and reasonability; (iv) contradiction between the checking term and the fiscal statement generating the act of infringement and decisions regarding claimed PIS and COFINS credits, (v) impossibility to apply a fine due to insufficient description of goods; and (vi) mistakes made by the supervision, while calculating gross income. On December 16, 2013, the files were forwarded to the Judgment Unit of the Federal Revenue Office of Brazil, in Ribeirão Preto — SP. On June 13, 2014, the objection was judged and granted partially, to reduce the fine percentage over the value of the operations from 1 to 0.2%. Vale filed an Appeal and a Voluntary Appeal and both appeals are pending judgment by CARF.

Probability of loss

 

Possible.

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable.

Allocated amount (if any)

 

Not applicable.

Notes

 

Resulting from MPF (Fiscal Procedure Order) no. 0718500.2012.0059

 

7) Administrative Proceeding no. 16682.721227/2013-23

 

Court

 

Office of Large Taxpayers— DEMAC / RJ

Instance

 

1st Administrative Instance

Date of filing

 

11/14/2013

Parties to the claim

 

Federal Revenue (plaintiff) and Vale (defendant)

Values, assets or rights involved

 

R$ 670,451,315.10 (December/2014)

Main factors

 

On November 14, 2013, the Office for Large Taxpayers — body of the Federal Tax Authority — filed an Act of Infringement to collect a 50% fine over a declined claim related to PIS and COFINS credit refund linked to exporting operations in the period between the first quarter 2008 and the fourth quarter 2010. On December 13, 2013, Vale submitted its defense (impugnation), based on the following arguments: (i) lack of final credit creation, (ii) controversial case law regarding the concept of input for purposes of PIS and COFINS credit and difficulties faced by the Company regarding its right to credit and compensations applied; (iii) lack of proportionality in the fine; (iv) fine applied separately, as a means to threaten the taxpayer. On December 16, 2013, the files were forwarded to the Judgment Unit of the Federal Revenue Office of Brazil, in Ribeirão Preto — SP. On March 21, 2014, the files were forwarded to the Guiding and Tax Assessment Division of the Office for Large Taxpayers of the Federal Revenue of Brazil in Rio de Janeiro - DEMAC/RJ, where they wait to be appreciated.

On July 3, 2014, Vale was notified about the decision that judged the objection inapplicable and on August 1, 2014, Vale filed an appeal. This appeal was fully granted to cancel the collection, in a

 

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decision notified to the company on January 23, 2015. Retroactive effects of MP 656/14, current at the time, was applied as the MP revoked the fine of 50% over the amount of the credit object of the request of refund that was not granted. The legal term that no longer defines as infringement the factual hypothesis described in the claim determines cancellation of the punishment applied before.

Probability of loss

 

Process ended upon decision fully favorable to the Company

Analysis of impact in case of loss/Reasons for the importance of the claim to the Company

 

Not applicable.

Allocated amount (if any)

 

Not applicable.

Notes

 

Derived from MPF (Fiscal Procedure Order) nº 0718500.2012.00599

 

(iii) Civil

 

The tables below present a description of individual civil nature processes considered relevant to the business of the company and/or its subsidiaries.

 

1) Claim no. 0063023-34.2008.8.19.0001

 

Jurisdiction

 

41st Civil Court of the Court of Justice of Rio de Janeiro

Instance

 

1st Instance

Date of filing

 

03/17/2008

Parties in the suit

 

Vale (plaintiff) and Movimento dos Sem Terra — MST (defendant)

Amounts, goods or rights involved

 

Protection of the company’s assets and guarantee of its operations

Main facts

 

Vale filed a suit with a request for anticipated relief obliging the defendant to cease attacks, violent acts or incitements which cause the operational stoppage of the company by the MST. The claim for anticipated relief was granted, establishing that the MST must refrain from such acts. The MST failed to comply with the decision, reason why Vale requested an increase in the established fine in the event of noncompliance, which was granted by the court.

Recently, both parties engaged into an effort to come to a possible settlement for this case.

Chances of loss

 

Remote

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

The lawsuit was initiated in order to ensure the protection of the assets of the company and its operational activities. A possible unfavorable decision can increase the exposure of the company to MST attacks.

Amount provisioned (if any)

 

None.

 

2) Claim no. 0015963-69.2006.4025101

 

Jurisdiction

 

7th Specialized Panel of the Federal Circuit Court of Appeals of the 2nd Region (Court of Origin: 30th Court of the Federal Court of Rio de Janeiro)

Instance

 

2nd Instance

Date of filing

 

08/18/2006

Parties in the suit

 

Federal Rail Network (Rede Ferroviária Federal S.A.), succeeded by the Federal Union (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

R$ 4,301,976,312.60

Main facts

 

The plaintiff filed a claim against the Company to receive an indemnity claiming that it suffered losses arising out of contractual default on the part

 

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of Vale related to the failure to perform railway transposition in the city of Belo Horizonte. The parties have reached a settlement, through which the construction costs of the new railroad segment will be offset from an eventual conviction of Vale, if any, if the claim is judged in favor of the Federal Government. This agreement was legally approved. On June 25, 2012, a sentence rendered the lawsuit unfounded. The Federal Government filed an appeal that is awaiting judgment.

Chances of loss

 

Remote

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Any unfavorable decision could generate a financial loss for the company, in the light of the amounts involved.

Amount provisioned (if any)

 

None

 

3) Claim no. 0009362-71.1997.4.02.5001

 

Jurisdiction

 

5th Panel of the Federal Circuit Court of Appeals of the 2nd Region

Instance

 

2nd Instance

Date of filing

 

11/10/1997

Parties in the suit

 

Federal Public Prosecutor — Espírito Santo (plaintiff) and Federal Union, Gerdau, Açominas S.A., Companhia Siderúrgica de Tubarão, Usinas Siderúrgicas de Minas Gerais S.A., Vale, Odacir Klein, Luis Andre Rico Vicente, Jorge Eduardo Brada Donato, José Armando Figueiredo Campos, Rinaldo Campos Soares, João Jackson Amaral, Claudio José Anchieta de Carvalho Borges, Ivo Costa Serra and Companhia Docas do Espírito Santo - CODESA (defendants)

Amounts, goods or rights involved

 

Incalculable amount — application for annulment of the concession contract for use of port terminals for the Tubarão Complex.

Main facts

 

This is a Public Civil Action which aims to annul the authorization by which Vale and some of the other defendants operate the Port Terminal at Praia Mole, in the State of Espírito Santo. In November 2007, after 10 years of conducting the proceedings, there was a decision judging the requests to be inapplicable and recognizing the validity of concession contracts that allow exploitation of port terminals located in Praia Mole. On July 3, 2012, the decision was upheld by the Federal Circuit Court of Appeals of the 2nd Region (TRF2) when the appeal filed by the Prosecutor’s office was heard, filed against the decision by the TRF2, on October 23, 2012, special (STJ) and extraordinary (STF) appeals. Appeals filed by the Prosecution Office are to be remitted to higher courts to regulate the process and to judge.

Chances of loss

 

Remote

Analysis of impact in the case of losing the suit/ Reasons why it is relevant to the Company

 

Incalculable amount

Amount provisioned (if any)

 

None

 

4) Claim no. 0024892-89.2011.8.13.0570

 

Court

 

1st Civil Court of the District of Salina / MG

Instance

 

1st Instance

Date of filing

 

09/14/2011

Parties in the suit

 

Minas Gerais State’s Prosecutor (Plaintiff), Vale S.A., Minas Gerais Land Institute - ITER, Manoel da Silva Costa Junior, Evandro Carvalho, Mauro Eurípedes Rocha Mendes, Ricardo de Carvalho Rocha, Luciana Rocha Mendes, Orozino Marques de Carvalho, Adelzuith Marques Santos, Altemar Alves Ferreira, Breno Rodrigues Mendes (Defendants).

Amounts, goods or rights involved

 

Compensation for damages to the State of Minas Gerais in the minimum amount of R$ 200 million, civil fine in an amount of no less than R$ 600 million, plus the

 

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lands acquired by Vale.

Main facts

 

This is a Public Civil Action filed by the State’s Prosecutor (MP) against Vale and other 10 defendants, in which the Prosecutor claimed that “an organized group of people acted with the intention of illegally taking ownership of lands belonging to the State of Minas Gerais”. The MP requested an injunction determining defendants’ unavailability, with the exception of Vale’s, up to R$ 200,000,000.00, in addition to the search and seizure of tangible properties and the lifting of tax and bank secrecy. The petition was granted by the court and upheld by Minas Gerais’ Court of Justice. At the end, the Prosecutor petitioned the “stay of all effects — with consequent annulment — of all agricultural title that had been issued by the ITER involving the lands located in the Municipalities of Salinas, Santa Cruz de Salinas, Padre Carvalho, Fruta de Leite, Rubelita, between January 2007 and August 2011”; that the ITER was convicted “to hire, at their own expense, a specialized company to audit all legitimate titles issued by the State of Minas Gerais, whose amount could correspond to R$ 200,000,000.00”, “ a civil fine in the amount of no less than R$ 600,000,000.00”, “the loss of public roles and positions”, “the stay of political rights”, and “a ban from providing service or benefitting in any way from the government”. Vale filed its defense (objection) on March 15, 2012 and the decision has not been issued yet.

Chances of loss

 

Possible

Analysis of impact in the case of losing the suit/ Reasons why it is relevant to the Company

 

Damages to the Company’s image as its name is associated with land-grabbing in the Northern region of the State of Minas Gerais, and due to the annulment of acquisition and loss of amounts paid by Vale (approximately R$ 35 million)

Amount provisioned (if any)

 

None

 

5) Special Appeal 1.262.401 - BA

 

Court

 

Superior Court of Justice

Instance

 

3rd instance

Date of filing

 

08/26/2005

Parties in the suit

 

Interunion Capitalização S.A. (plaintiff) and Companhia Paulista de Ferro Ligas — CPFL (defendant)

Amounts, goods or rights involved

 

R$ 1,031,771,158.29.

Main facts

 

Interunion filed a collection claim against CPFL (Vale affiliate) to receive R$248,968,222.18, corresponding to 200 debentures object of the agreement that, although named “Forward Purchase and Sale of Debentures”, was indeed a debenture Lease Agreement an . The defense (motion for stay) filed by CPFL was rejected, causing the filing of an appeal to the Court of Justice of Bahia. While judging this appeal, the Court of Justice of Bahia sustained the rejecting decision, causing the filing of a special appeal (STJ) by CPFL. STJ accepted the special appeal by CPFL, determining extinction of the claim, understanding that Interunion failed to appropriately show the calculation performed, which is not dispensable to file a collection claim. Against the STJ decision, Interunion filed a series of appeals (motion for stay, motion of difference, interlocutory appeal and new motion for stay), which were all rejected successively. Interunion, then, filed an extraordinary appeal (addressed to the STF). Upon analysis of admissibility, the STJ understood that the appeal was not applicable, rejecting it, that is, its remittance to the STF to have analysis of the merit, under the terms in the decision published on March 10, 2014. Against this inadmissibility decision, Interunion filed an appeal (interlocutory appeal) that was sent to the STF on April 22, 2014, and where awaits judgment.

Chances of loss

 

Remote

 

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Analysis of impact in the case of losing the suit/ Reasons why it is relevant to the Company

 

Eventual unfavorable decision in the process would cause financial losses to the Company. Classification of the loss was altered from probable to remote because of the favorable decision issued in favor of Companhia Paulista de Ferro Ligas — CPFL, as described in item “Main Facts” above.

Amount provisioned (if any)

 

Not applicable

 

5) 14 Civ. 3042 (RMB) AJP

 

Court

 

US Regional Court for the South District of New York

Instance

 

1st court

Date of filing

 

04/30/2014

Parties in the suit

 

Rio Tinto plc (plaintiff), Vale S.A., Benjamin Steinmetz, BSG Resources Limited, VBG—Vale BSGR Limited, BSG Resources Guinée SARL, Frederic Cilins, Mamadie Touré and Mahmoud Thiam(rés)

Amounts, goods or rights involved

 

Considering that this process is in the discovery phase, it is impossible to determine related amounts.

Main facts

 

On April 30, 2014, Rio Tinto plc (“Rio Tinto”) filed a claim against Vale, BSGR and other defendants before the US Regional Court for the South District of New York, claiming violations against the U.S. Racketeer Influenced and Corrupt Organizations Act — RICO regarding the assignment of mining rights in Simandou to BSGR by the Government of Guinea and the subsequent investment by Vale in VBG. The discovery phase started and, according to the current schedule, it should end in March 2016. Vale continues to defend itself vigorously against the claim, believed to lack merit.

Chances of loss

 

Considering that this process is in the discovery phase, it is impossible to determine the loss classification.

Analysis of impact in the case of losing the suit/ Reasons why it is relevant to the Company

 

Considering that this process is in the discovery phase, it is impossible to determine its impact in case of loss.

Amount provisioned (if any)

 

Considering that this process is in the discovery phase, it is impossible to determine its impact in case of loss and, thus, there was no provisioning of amounts, if applicable.

 

(iv) Environmental

 

The tables below present a description of individual environmental nature processes considered relevant to the business of the company and/or its subsidiaries.

 

1) Claim no. 0317.02.002974-8

 

Jurisdiction

 

2nd Civil Court of Itabira - Minas Gerais

Instance

 

1st Instance

Date of filing

 

09/26/1996

Parties in the suit

 

City of Itabira (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

R$ 4,104,785,052.97

Main facts

 

The municipality of Itabira seeks compensation for expenses that it alleges to have incurred with public services rendered as a consequence of Vale’s mining activities. The case was suspended, pending judgment of a writ filed by Vale to be used in this lawsuit, so that favorable evidence produced in another lawsuit could be used (item 2 below). On January 2012, the writ was judged against Vale. However, this case remains suspended because the court in the first degree has not yet received from the Court of Justice of Minas Gerais information on the writ. After this communication, the lawsuit may resume its normal course. However, the

 

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parties filed a joint petition on March 12, 2013 requesting suspension of the suit to attempt a settlement. On March 27, 2013, the claim was suspended upon agreement between the parties.

Chances of loss

 

Total amount divided into possible loss (15%) and remote loss (85%).

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Any unfavorable decision in the lawsuit would generate great financial losses for the Company, although there is no risk of stoppage of activities.

Amount provisioned (if any)

 

None.

 

2) Claim no. 0317.02.007032-0

 

Jurisdiction

 

1st Civil Court of Itabira - Minas Gerais

Instance

 

1st Instance

Date of filing

 

08/22/1996

Parties in the suit

 

City of Itabira (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

R$ 3,544,842,445.74

Main facts

 

Suit filed in the municipality of Itabira, in the State of Minas Gerais, in which the plaintiff claims that the operations of the iron mines in Itabira caused environmental and social damage and requires the restoration of the site and the implementation of environmental programs in the region. Expert witnesses were used in this case, and the report issued jointly by the Brazilian Institute of the Environment and Renewable Natural Resources (“IBAMA”) and the State Foundation for the Environment (“FEAM”) was favorable to Vale. Nevertheless, the Municipality requested the production of new expert evidence, which was accepted by the judge. For this purpose, a multidisciplinary team from the Federal University of Lavras as appointed. On November 6, 2012, there was a settlement hearing in which the petition to stay the lawsuit was granted until May 6, 2013 in order to form the parties. Considering the end of the suspension, the City was invited to comment on the amount of expert examination fees and, in reply, the city requested the amount to be recalculated.

Chances of loss

 

Total amount divided into possible loss (7%) and remote loss (93%).

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Any unfavorable decision in the lawsuit would generate great financial losses for the Company, although there is no risk of stoppage of activities.

Amount provisioned (if any)

 

None.

 

3) Process no. 26.295.47.2012.4.3700

 

Jurisdiction

 

8th Federal Court of São Luís — Maranhão

Instance

 

1st instance

Date of filing

 

07/22/2012

Parties in the suit

 

Sociedade Maranhense de Direitos Humanos, Conselho Indigenista Missionário (CIMI), Centro de Cultura Negra do Maranhão — CNN (plaintiffs) and IBAMA and VALE (defendants).

Amounts, goods or rights involved

 

R$ 62,010.00

Main facts

 

The public civil action aims the suspension of the licensing process for the Expansion of Carajás Railroad. For that, plaintiffs claim that the environmental licenses granted by IBAMA are based on an environmental study which is insufficient to characterize — globally — impacts caused by the work, as well as fragmenting environmental licenses in order to uncharacterized the company’s obligation for environmental compensation due in view of the enterprise. In the end, after criticisms to the required licensing model, plaintiffs claim the nullity of the process and licensing.

In July 2012, the court granted a preliminary order, determining suspension

 

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of all Works and activities related to the expansion of the Carajás Railroad. Vale and IBAMA filed appeals (interlocutory appeals), aiming to reverse the decision, and filed before the Presidency of the TRF of 1st Region (DF) a claim to suspend the preliminary order, claiming that (i) the risk of serious irreversible economic losses arising out of any eventual maintenance of such preliminary decision, as well (ii) as the fact that the environmental study prepared by Vale fully complied with the terms in CONAMA RES 237, while there are no grounds for the claim regarding the serious risk of social-environmental unbalance. The suspension request was accepted by the Presidency of the TRF of the 1st Region, and the plaintiffs appealed against this decision (interlocutory), but were not successful and the decision favorable to Vale was maintained.

At the first instance, Vale and IBAMA filed their defenses claiming (a) the regular nature of the licensing process, (b) the clear definition, in the study, of all diagnosis regarding the impacts on areas and communities under direct and indirect influence of the work (including traditional communities), and (c) the need to respect the competence and technical skills held by IBAMA to carry out and conclude the environmental study. In recent decision, the federal judge accepted the claim by the Federal Public Defense Office to appear as plaintiff. Vale filed an appeal (interlocutory) against this decision, aligned with the opinion by the Federal Prosecution Office (MPF), in the sense of lack of legitimacy of the Public Defense to be party in the claim. The appealed decision was sustained, and there was reestablishment of the successive term for the Prosecution Office, IBAMA and VALE to present their comments. The Prosecution Office reiterated the annulment of the Licensing and IBAMA was requested to present new information about the Railroad operation and the removal of families. After IBAMA’s manifestation on August 12, 2014, the files were remitted to be analyzed by the court. The preliminary order was not granted on September 15, 2014, and the State of Pará presented its lack of interest in the claim. On February 27, 2015 an order was published to inform the beginning of the term applicable to Vale to present its comments on the licensing process filed by IBAMA. On March 30, 2015, Vale’s motion was filed. Waiting for decision.

Chances of loss

 

Remote.

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Eventual decision unfavorable to Vale, may compromise the licensing process for the expansion of EFC, with impacts on logistic operations of VALE to deploy the production transportation plan for Project S11D.

Amount provisioned (if any)

 

None.

 

4) Process no. 0021337-5220114.01.3700

 

Jurisdiction

 

8th Federal Court of São Luís — Maranhão

Instance

 

1st instance

Date of filing

 

11/04/2011

Parties in the suit

 

Federal Prosecution Office (plaintiff) and IBAMA and VALE (defendants)

Amounts, goods or rights involved

 

R$ 871,290.00

Main facts

 

Public Civil Action that aims to impose onto the company and to IBAMA the duty of redoing part of the environmental study that was used as basis to the licensing process for the expansion of Carajás Railroad (“EFC”), due to alleged failure of indication of impacts caused by the expansion of EFC onto quilombolas communities located close to segment 20 of the EFC, in Maranhão (communities of Monge Belo and Santa Rosa dos Pretos).

On March 8, 2012, the Court approved the agreement entered by and between the parties, under which, Vale agreed upon: (i) transfer the amount of R$700,000.00, to be managed by the Cultural Foundation Palmares and applied in the structural and cultural development of communities which protection is the object of this claim; (ii) carry out environmental studies of environmental recovery actions with hydric bodies located in the inside of quilombolas lands of Monge Belo and Santa Rosa dos Pretos; (iii) build, subsequently, four bridges in the inside of segment 20 of EFC, each one within a maximum period of 18 months, starting on the date of licensing by

 

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IBAMA; (iv) alter all the level passages related to each bridge to be built, signaling and lighting the passages to be used by the communities; (v) place fences on both sides of the EFC at the segment 20, protecting the areas used as crossing by people and animals. On July 2013, Vale filed a petition claiming that all its obligations, disregarding actions by IBAMA and/or Fundação Cultural Palmares have been complied with.

In December 2013, the Prosecution Office filed a brief stating the non-compliance with obligations assumed under the agreement.

In view of this brief by the MPF, the court requested that Instituto Nacional de Colonização e Reforma Agrária (“INCRA”), IBAMA, Fundação Cultural Palmares, and Vale should prove compliance with the obligations, determining that Vale should comply with such obligations within sixty days. Vale was ordered to present justification within thirty days for the change in the schedule as provided for in sub item (e) in clause four of the judicial agreement (construction of bridges for vehicles and people). Thus, in October 2014, Vale presented a petition informing compliance with items (a), (b) and (f) and informing the new schedule to build the bridge, object of this agreement. After comments by MPF, as described above, the files were submitted to the judge. Decision pending.

Chances of loss

 

Probable.

Analysis of impact in the case of losing the suit/ Reasons for importance for the Company

 

Despite of an agreement signed in this claim, under which the company agrees upon several obligations related to the social-economic aspects of the area, eventual non-compliance of such agreement may, in the worst scenario, motivate judicial decisions that suspend expansion and operation of EFC in the area, compromising logistic operations of the railroad for indefinite period.

Amount provisioned (if any)

 

R$700 thousand

 

4.4 — In-court, administrative or arbitration proceedings that are not confidential involving managers, former managers, controllers, former controllers or investors

 

1) Motion to Disagree in Special Appeal no. 1.310.535

Original Claim no. 005530-40.2007.8.19.0001

 

Jurisdiction

 

Appeals: Motion to Disagree before the 2nd Section of the Special Court of the STJ and Extraordinary Appeal before the STF (Original Court — 48th Civil Court of Rio de Janeiro)

Instance

 

Higher Court

Date of filing

 

05/09/2007

Parties in the suit

 

Petros (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

Vale was requested to make an escrow deposit as payment on March 8, 2010 in the amount of R$ 346,773,910.20, due to the temporary collection claim filed by Petros. Although no final decision has been rendered yet, on August 23, 2011, Petros, to increase the amount deposited in escrow, presented a surety bond issued by Banco Bradesco in the amount of R$ 497.0 million.

Main facts

 

Petros filed an action claiming the receipt of purges made because of inflation arising from the economic plans called Plano Verão and Plano Collor on amounts paid under forward contracts for buying and selling gold concluded with Vale from 1988. These contracts were paid up and settled by Petros at that time. However, Petros started legal proceedings aimed at applying the decision on a matter taken in the STJ for savings accounts books, to contracts concluded with Vale. Vale maintains that the inflationary adjustments are not due; however, all decisions have been unfavorable to the company. An appeal was filed against this decision, but the appeal was not granted. Vale timely filed a Motion to Disagree before the 2nd Section of STJ. waiting to be judged. The special appeal filed by Vale was rejected by the STJ. Currently, there is an appeal (interlocutory appeal) filed by the

 

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Company waiting to be judged by the STJ. The preliminary decision, - as there are appeals waiting to be judged - Vale was determined to pay R$ 346,773,910.20 claimed by PETROS in the lawsuit. To increase the amount deposited in escrow, Petros presented a bank surety bond in the amount of R$ 497 million. Should the appeal is successful and there are changes in the merit of the case, Vale may be entitled to recover the amount provided to Petros. There also is an extraordinary appeal filed by Vale to be processed and judged by the STF.

Chances of loss

 

Probable

Analysis of impact in the case of losing the suit

 

If a decision unfavorable to Vale becomes final (res judicata), the Company shall not have to pay anything else taking into account the escrow deposit of R$ 346,773,910.20 mentioned above. Additionally, such a decision can open a precedent for similar judgments in other cases where future contracts for sale of gold are in dispute (total of 12 cases, including this one. For more details see item 4.6 of this Reference Form).

Amount provisioned (if any)

 

No amount has been allocated given the escrow deposit made by Vale, which was withdrawn by Petros, upon the presentation of bank guarantee.

 

2) Claim no. 0079940-46.2010.4.01.3800

 

Jurisdiction

 

18th Federal Court of Belo Horizonte — Minas Gerais

Instance

 

1st Instance

Date of filing

 

02/18/2004

Parties in the suit

 

Transger S.A. (plaintiff) and Ferrovia Centro Atlântica S.A., Mineração Tacumã Ltda, KRJ Participações S.A., CPP Participações S.A., Carmo Administração e Participações Ltda, Fundação Vale do Rio Doce de Seguridade Social - Valia and Companhia Siderúrgica Nacional - CSN (defendants)

Amounts, goods or rights involved

 

Incalculable — Request for annulment of the General Meeting.

Main facts

 

The plaintiff brought a lawsuit requesting additionally to compensation, annulment of the General Meeting authorizing the capital increase of Ferrovia Centro-Atlântica S.A. - FCA in 2003 on the grounds of alleged practice of abusive acts by FCA’s controlling group. The decision that judged the action to be well founded, was annulled by the Court of Justice of Minas Gerais, and determined the production of new expert evidence. During the preparation of the new expert evidence, the National Agency of Land Carriage (ANTT, according to the initials in Portuguese) stated its interest in participating in the case and, for this reason, the jurisdiction in this procedure was transferred to the Federal Justice of Minas Gerais.
The judge of the 18th Federal Court of Belo Horizonte issued a decision recognizing the jurisdiction of the Federal Courts to judge the case because of ANTT’s interest in the maintenance of the concession and accurateness of the administrative act. ANTT appeared in the files, ratifying its understanding regarding the validity of the act authorizing increase of FCA’s capital stock. All parties were summoned to present final arguments, including ANTT, and the files were forwarded to the judge on October 30, 2013 to prepare the decision.

Chances of loss

 

Possible

Analysis of impact in the case of losing the suit / Relevance to the Company

 

Incalculable amount

Amount provisioned (if any)

 

None

 

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3. Motion in Special Appeal no. 271.951 (Original Procedure No. 0529364272010.8.13.0145)

 

Jurisdiction

 

4th Panel of the Superior Court of Justice — STJ Original Court - 7th Civil Court of Juiz de Fora/Minas Gerais

Instance

 

1st Instance

Date of filing

 

October 12, 2012 (original date August 20, 2010)

Parties in the suit

 

SUDFER (plaintiff), and MRS Logística S.A., Companhia Siderúrgica Nacional S.A., Minerações Brasileiras Reunidas S.A. - MBR, Usiminas — Usinas Siderúrgicas de Minas Gerais, Gerdau S.A. and Vale S.A. (defendants)

Amounts, goods or rights involved

 

Incalculable

Main facts

 

Repair claim filed by Clube Sudfer, claiming that the controlling shareholders of MRS Logística S.A. (“MRS”), including Vale, have been acting abusing power, causing direct damages to MRS and, indirectly, to the minor shareholders. The plaintiff claims that ever since privatization of the former Rede Ferroviária Federal S.A. (“RFFSA”), when the exploration concession for the Southeastern Portion was granted to MRS, which controlling shareholders at the time were (and still are) clients of the railroad, they have adopted a tariff policy in their own favor and in non-egalitarian terms, because, for usual clients, in average, the fee was half (50%) of the maximum fee authorized by the National Agency for Land Transportation (ANTT), while non-usual clients were charged with the maximum tariff. The plaintiff claims that adoption of this tariff policy had caused damage to MRS, and the company failed to have better gains — charging a smaller fee from usual clients — and supposedly caused indirect loss to the minor shareholders, because they have not received dividends. Based on such claims, the plaintiff asked for: (i) condemnation of the controlling shareholders to pay any and all direct material damages imposed on MRS until the improper practice has been stopped, due to (i) the unfair reduction of the profits of the company, (ii) the non-payment of dividends, and (iii) the payment of less dividends in view of the reduced tariffs for controlling shareholders; (ii) controlling shareholders to be obliged to contract with MRS under “igualitarian terms”, considering the maximum level of the fee authorized by the Competent Authority; and (iii) condemnation of defendants to pay the 5% premium provided for in article 246, § 2 in Law 6.404, dated December 15, 1976, as well as winning fees. In January 2011, Vale and MBR presented their defenses. With the reply, exceptions were presented claiming inapplicability and impugnation of the amount of the cause. The inapplicability exception filed by Vale was rejected. Against this decision, Vale filed a bill of review, which suspension effect was granted until judgment. In January 2012, the appeal was granted to determine the competence transfer to the city of Rio de Janeiro. Against this decision, Clube Sudfer filed a Special Appeal, which was not accepted by the court of origin. Unhappy, the investment club filed a Special Appeal before the STJ, which was not recognized for being untimely. Clube filed an appeal against this decision, which has been waiting to be judged at the STJ since May 2014. While the appeal is not judged, the process remains suspended.

Chances of loss

 

Possible

Analysis of impact in the case of losing the suit / Relevance to the Company

 

Any unfavorable decision in the lawsuit would generate financial losses for the Company and would damage its image.

Amount provisioned (if any)

 

None

 

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4) Special Appeal no. 1363585 (Original Procedure No. 0497166342010.8.13.0145)

 

Jurisdiction

 

4th Panel of the Superior Court of Justice — STJ Original Court - 8th Civil Court of Juiz de Fora — Minas Gerais

Instance

 

Higher

Date of filing

 

January 24, 2013 January 24, 2013 January 24, 2013.

Parties in the suit

 

SUDFER (plaintiff) and Júlio Fontana Neto, Henrique Aché Pillar, José Paulo de Oliveira Alves, Pablo Javier de La Quintana Bruggemann, Lauro Henrique Campos Rezende, Wanderlei Viçoso Fagundes, Hugo Serrado Stoffel, Guilherme Frederico Escalhão, Delson de Miranda Tolentino, Marcus Jurandir de Araújo Tambasco, Chequer Hanna Bou-Habib, Roberto Gottschalk, Joaquim de Souza Gomes, Luiz Antônio Bonaguara, Companhia Siderúrgica Nacional S.A., Minerações Brasileiras Reunidas S.A. - MBR, Usiminas — Usinas Siderúrgicas de Minas Gerais, Gerdau S.A., and Vale S.A. (defendant)

Amounts, goods or rights involved

 

Incalculable

Main facts

 

Clube Sudfer, as minor shareholder of MRS Logística S.A. (“MRS”), filed a claim against the directors, members of the Board of Directors, and controlling shareholders of MRS (including Vale). The Plaintiff claims that directors and members of the Board have incurred in poor management acts upon approving the tariff model that prejudices MRS, in force in the period between 1998 and 2002. The plaintiff claims that there was a conflict of interests between the controlling shareholders and MRS, to the extent that, as usual clients of the railroad, the determination of fees lower than market value was favorable to them. As consequence of the adoption of this tariff model, MRS faced losses, without distribution of dividends to shareholders. As such dividends were not distributed, the plaintiff claims to be unable to comply with its financial commitments with third parties, and, additionally, was not able to receive financing from BNDES to participate in the second offer of MSR shares, during the privatization process. Based on these claims, plaintiff claims: (i) condemnation of defendants to the payment of indemnity for moral damages in the amount of R$ 150.0 thousand; (ii) condemnation of controlling shareholders to comply with the obligation to do, namely, the sale, proportional to the share held by each one, of 3,744,440 shares issued by MRS, for the same price and under the same conditions established in the Privatization Term; and (iii) considering the claimed shares, condemnation of defendants to the payment of all dividend-related differences due to the non-payment of dividends.

 

On March 15, 2012, Vale, MBR and former MRS managers Chequer Hanna Bou-Habib, Guilherme Frederico Escalhão, Hugo Serrado Stoffel and Roberto Gottschalk submitted their arguments. Vale also raised procedural issues (lack of competence exception), aiming to have the claim remitted to Rio de Janeiro. There was a decision accepting this claim and determining remittance of the files to the court in Rio de Janeiro. Clube Sudfer filed an appeal against this decision, which was not granted in July 2012. In view of the rejection, Clube Sudfer filed a Special Appeal, which has been waiting to be judged by the STJ since February 2013. While the appeal is not judged, the process remains suspended.

Chances of loss

 

Possible

Analysis of impact in the case of losing the suit / Relevance to the Company

 

Any unfavorable decision in the lawsuit would generate financial losses for the Company and would damage its image.

Amount provisioned (if any)

 

None

 

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5) Procedure No. 2010.51.01.002548-3 — Writ of Mandamus

 

Jurisdiction

 

32nd Federal Court of Rio de Janeiro

Instance

 

1st Instance

Date of filing

 

10/25/2012

Parties in the suit

 

Clube SUDFER (Plaintiff) and the President of the Tangible Values Commission - CVM, Alberto Regis Távora, Chequer Hanna Bou-Habib, Vale S.A., Companhia Siderúrgica Nacional S.A., Delson de Miranda Tolentino, George Josef Schmidt, Godofredo Mendes Vianna, Henrique Ache Pillar, Inacio Clemente da Silva, Joao Paulo do Amaral Braga, Joaquim de Souza Gomes, Jose Paulo de Oliveira Alves, Julio Cesar Pinto, Julio Fontana Neto, Klaus Helmut Schweizer, Lauro Henrique Campos Rezende, Luiz Antonio Bonaguara, Marcus Jurandir de Araujo Tambasco, Marianne von Lachmann, Minerações Brasileiras Reunidas S.A. - - MBR, Pablo Javier de la Quintanna Bruggemann, Rinaldo Campos Soares, Valter Luis de Sousa, Wanderlei Vicoso Fagundes, Otavio de Garcia Lazcano, Andreas Walter Brehm, Guilherme Frederico Escalhão, Hugo Serrado Stoffel, Oscar Augusto de Camargo Filho, Roberto Gottschalk, Estela Maria de Almeida Palombo, Mauro Rolf Fernandes Knudsen (defendants).

Amounts, goods or rights involved

 

Incalculable

Main facts

 

Writ of Mandamus filed by Clube Sudfer against the act attributed to the president of CVM, claiming that the judgment of Administrative Procedure (“PAS”) no. 14/05, filed by Clube Sudfer before CVM, was full of vices. The plaintiff claims that the final decision on such PAS is full of vices as it fails to adopt conclusions by the Investigation Commission, responsible for the technical inspection at MRS Logística S.A. (“MRS”) to investigate claims presented by Clube Sudfer, regarding the alleged poor management by directors and members of the board of MRS, as well as the alleged abuse of power by major shareholders, including Vale. Based on such claims, the plaintiff claims: (i) preliminarily, the granting of a preliminary order to suspend PAS no. 14/05, to prevent judgment of the appeal by the Council of Appeals of the National System; and, in merit, it claims (ii) reformation of the decision rejecting the administrative request of annulment of the judgment of PAS no. 14/05, and consequent remittance of files to CVM; and (iii) new judgment to be responsibility of the CVM Panel, with new composition, declaring impediment and/or suspension of all CVM members that voted against Clube Sudfer.

 

This claim was originally distributed in February 2012, before the 22nd federal Court of the State of Rio de Janeiro, solely in face of CVM. In April 2010, the preliminary order was granted, determining suspension of PAS no. 14/05, to prevent judgment of the appeal. CVM filed an appeal against this decision, which was granted by the Federal Regional Court of the 2nd Region, to authorize the regular procedure of the appeal. In January 2011, upon request by the Federal Prosecution Office, all the defendants accused in PAS no. 14/05 were determined to be included as defendants in the writ of mandamus. In April 2011, the process was redistributed to the 32nd of the Federal Court of the State of Rio de Janeiro. In June 2011, Vale presented an appeal. Between 2011 and 2013, the claims defendants were regulated, including CVM as defendant. In March 2014, Clube Sudfer was invited to present response to the appeals presented. In September 2014, the decision was published, denying the request by Clube Sudfer, recognizing the termination of the right to file a writ of mandamus. No appeal was filed by Clube Sudfer. The files were remitted for the archival in December 2014.

 

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Chances of loss

 

Remote

Analysis of impact in the case of losing the suit / Relevance to the Company

 

Any unfavorable decision in the lawsuit would generate financial losses for the Company and would damage its image.

Amount provisioned (if any)

 

None

 

6) Procedure no. 0393909-98.2012.8.19.0001

 

Jurisdiction

 

3rd Corporate Court of Rio de Janeiro

Instance

 

1st instance

Date of filing

 

10/05/2012

Parties in the suit

 

Carteira Administradora Coletiva Dynamo, Ruth Cazal, Fernanda Cazal, Roberto Amaral de Almeida Rocha, Alexandra Lima Alves Derenzi, Breno Wajchenberg, Roka Fundo de Investimento Multimercado, and Invester Clube de Investimentos (plaintiff) and Vale (defendant)

Amounts, goods or rights involved

 

Around R$ 89.0 million.

Main facts

 

Plaintiff’s claim that Vale had issued debentures based on deeds that provided for security deadline conditions other than those agreed upon at general meeting, reason why they claim Vale is condemned to pay the debentures according to the estimated compensation at the general meeting minutes. Vale was cited on May 27, 2013 and filed its defense on June 17, 2013. The court of the 13th Civil Court understood that, due to the issue within, the procedure should proceed at one of the corporate courts. The process was forwarded to the 3rd Corporate Court. Being a claim which object arises out of a right, there was no production of evidence and on February 5, 2015, the decision was issued judging the claim to be applicable. On February 20, 2015, Vale appealed, and the term for response by the plaintiff has not started yet. Pending judgment.

Chances of loss

 

Possible

Analysis of impact in the case of losing the suit / Relevance to the Company

 

Eventual unfavorable decision in the procedure would cause financial losses to the Company.

Amount provisioned (if any)

 

None.

 

4.5 — Relevant confidential claims

 

On December 31, 2014, the Company was not a party in any relevant and sensitive cases.

 

4.6 — Publicly known and relevant repeated or related in-court, administrative or arbitration proceedings

 

(i) Labor

 

This item 4.6 of the Reference Form highlights the amount allocated in relation to repeated or related claims. Given the size of the Company, the number of employees and service providers and the number of labor claims, only those repetitive processes that represent more than 5% (five percent) of all claims filed against the Company on December 31, 2014, described in the table below, namely: joint/subsidiary liability (13%), overtime (9%) additional payment due to unhealthy or risky work environments (7%), fines (6%) and commuting hours (5%).

 

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Fact and/or legal cause

 

The more recurring objects are subsidiary/joint liability, overtime, additional payment for hazardous/unhealthy conditions, hours “in itinere” and fines.

Amounts involved

 

R$ 4.3 billion

Amount provisioned

 

R$ 1.0 billion

Company practice or that of subsidiary which caused the contingency

 

Difference of interpretation between the Company, employees and unions to various facts, legal and regulatory instruments concerning the issues above.

 

(ii) Tax

 

Fact and/or legal cause

 

Discussion about the taxable base for the calculation of the Financial Compensation for Exploring Mineral Resources — CFEM (for its acronym in Portuguese)

Amounts involved

 

R$ 4,837 billion (including interest and fines by December 31, 2014).

Amount provisioned (if any)

 

R$ 302 million.

Company practice or that of subsidiary which caused the contingency

 

Vale is involved in many administrative and legal proceedings concerning the collection of CFEM credits. Such claims result from tax assessments by the National Department of Mineral Production — DNPM, an independent government agency under the control of the Ministry of Mines and Energy and involve discussions on the alleged difference in values resulting from tax deductions and travel expenses, arbitration and prescription term for collection, incidence of CFEM on pellets and on final client’s sales invoicing abroad and irretroactivity of IN 6/00. In 2012, the Company paid values related to external transportation and, additionally, values analyzed by the Workgroup (comprised by Vale and DNPM members) went down, and in 2013 the Company paid the amounts related to transportation that had not ended yet, and the statute of limitation is set forth as five years.

 

Fact and/or legal cause

 

Collection of State VAT (ICMS) on interstate transfer of ore.

Amounts involved

 

Pará:
Original total amount: R$ 1.430 billion (12/31/2014)

Amount provisioned (if any)

 

None.

Company practice or that of subsidiary which caused the contingency

 

Tax authorities in the State of Pará filed, in 2010 and 2013, six acts of infringement claiming payment of ICMS incurring on the transfer of iron ore from the mines in the State of Pará to port facilities in the State of Maranhão. The acts of infringements are based on differences in the understanding related to the calculation of ICMS in interstate transfer operations for iron ore between establishments of the same title holder. In any event, Vale claims that the Tax on Goods and Services, in interstate transfer, should incur on the cost price under the terms in Supplemental Law (LC) no. 87/96, as this is a produced good and not “non-industrial product”. Three of these acts of infringement are in the judicial phase and cover years 2007 to 2009, in the total amount of R$ 760 million (in December 2014) — amount guaranteed by a collateral letter. The other three acts of infringement — related to 2010 to 2012 — were judged as final in the administrative phase in November 2014 against the Company, and refer to R$ 670 million (in December 2014) and will be object of judicial claims, when the Company will present a guarantee for their payment.

 

Fact and/or legal cause

 

Collection of ICMS on transportation

Amounts involved

 

Minas Gerais: Total amount: R$ 1,140 billion (12/31/14).

Amount provisioned (if any)

 

None.

 

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Company practice or that of subsidiary which caused the contingency

 

Vale disagrees with the payment of Tax on Goods and Services (ICMS), allegedly due to the State of Minas Gerais, incurring on the transportation of iron ore by Vale itself.
Regarding collection of generating facts related to years 2009 and 2010 (R$ 460 million), an annulment claim was filed on January 22, 2015. On January 30, 2015, a preliminary decision was published in favor of the Company. Regarding acts of infringement for collection of generating facts occurring in years 2011 to 2013 (R$ 680 million), impugnation was filed on December 30, 2014 and is currently waiting judgment.
In any event, Vale claims that ICMS is not due as there is no provision of service for itself.

 

(iii) Civil

 

Fact and/or legal cause

 

Twelve pension funds claim receipt of purges made because of inflation arising from economic plans called Plano Verão and Plano Collor on amounts paid under contracts for buying and selling gold concluded with Vale from 1988. More specifically, in the Petros case, which is the most significant one in amount terms, Vale was condemned to pay the R$ 346,773,910.20 (item 4.4, table 1, above).

Amounts involved

 

R$ 199,648,743.47, corresponding to the total amount from the other 11 cases, that is, excluding the Petros case, which is dealt with separately.

Amount provisioned (if any)

 

R$ 640,895.01 related to the ELETROS case.

Company practice or that of subsidiary which caused the contingency

 

The contingency has been generated according to the edition of economic plans called Plano Verão and Plano Collor, both created by the Federal Government between 1989 and 1991. The contracts in discussion around these were all paid by Vale and considered to be settled by the plaintiffs at the time. However, the plaintiffs started legal proceedings aimed at extending application of the decision on a matter judged in the STJ for savings accounts books, to contracts concluded with Vale. The Company maintains that repayment of inflationary purges is not due.

 

4.7                               Other significant contingencies

 

Vale was involved in discussion with Swiss authorities regarding the granting of tax benefits to its Swiss subsidiary, Vale International. The dispute was resolved in December 2012 when Vale International paid the additional federal taxes claimed by the Swiss federal authorities, in four payments in the total amount of CHF 212 million Swiss francs. The first payment of CHF 53.2 million was made in January 2013 and payment of the last installment is expected in 2015.

 

Vale International’s federal and regional tax exemptions were renewed at a rate of 80% through 2015, and are subject to certain conditions related to employment, real estate investment, and collaboration with Swiss universities.

 

Relevant Conduct Modification Agreements and Terms of Commitment

 

The Company is a party in the following relevant terms of commitment and conduct modification agreements:

 

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Cooperation Agreement not resulting from Administrative / Legal Proceeding

Origin: Terms of Engagement signed with the Indigenous Community (TI) Mãe Maria

 

a)             Parties

 

Vale, Indigenous Association Te Mêmpapytarkate Akrãtikatêjê da Montanha, Jê Jõkrityiti (Akrãkaprekti) Association, Indigenous Association Parkatêjê Amjip Tar Kaxuwa and Indigenous Association Kyikatêjê and Fundação Nacional do Índio — (“FUNAI”), with the Federal Prosecution Office (“MPF”) at Marabá, acting as intervening party.

b)             Agreement Date

 

03/01/2012, 07/27/2012, 07/24/2012, and 08/02/2012

c)              Description of the facts that have led to entering this agreement

 

Based on its social accountability policy, Vale already had entered into Engagement Agreements with the indigenous individuals from the Mãe Maria TI, which expired in 2012. Therefore, due to the influence of the Carajás Railroad (“EFC”) on this community, Vale decided to continue to send funds to meet the urgent needs of the individuals from this community, making sure that the Indigenous Component study and Basic Environmental Plan (PBA) were conducted, documents that are required for the licensing process to expand the Carajás Railroad, now, with FUNAI, helping communities to manage funds.

d)             Commitments made

 

Financial transfer in support to health, education actions, productive activities, surveillance of the territory and administration. On the other hand, indigenous communities commit not to stop any productive activity or invade Vale facilities, in particular the Carajás Railroad, and they also authorize the Indigenous Component study and the Basic Environmental Plan (PBA), documents required for the licensing process to the project to expand the Carajás Railroad.

e)              Deadline, if any

 

Many different deadlines due in January 2015, time of conclusion of the Study of Indigenous Component and Basin Environmental Plan (PBA).

f)               Information about the conduct adopted to comply with the commitments made in the agreement

 

The Community Relations Director had two focal points monitoring compliance with the commitment made in the Engagement Agreement, in particular the transfer of financial resources.

g)             Consequences in the event of noncompliance

 

Failure to comply by indigenous people causes suspension of the transfer of funds and health service. When non-compliance is by Vale, there is risk of indigenous people promoting actions that stop or affect Company or subsidiaries activities, as manifestations that imply stoppage at the EFC, prejudicing railroad operations. Said manifestations by the indigenous people also tend to restrict freedom of access of Vale’s teams and hired third parties who run studies inherent to environmental licensing processes and actions related to compliance with conditions, which may be characterized as non-compliance with the environmental licenses granted by the environmental entity, weakening Vale’s position, or of its subsidiaries, at the institutional level, with not prejudice to the executive measures to be taken by the MPF, IBAMA, FUNAI, and the other autarchies involved with the protection of indigenous rights.

 

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2nd Amendment to the Agreement to Promote Sustainable Development, executed with FUNAI and the Krenak People, effective between 2011 and 2019, and this agreement is an amendment to the Agreement that settled Public Civil Action no.  2006.38.13.009676-0

 

Origin: Agreement that settled the Public Civil Action filed by the MPF and FUNAI against CEMIG — Companhia Energética de Minas Gerais, CVRD — Companhia Vale do Rio Doce and CHA — Consórcio Hidrelétrico Aimorés (“Public Civil Action” and “Agreement”, respectively). After termination of the Agreement, on 11/30/2011, the Company voluntarily executed: (i) the Agreement to Promote Sustainable Development of the Indigenous Land of the Krenak (“Agreement to Promote”), (ii) the First Amendment to the Agreement to Promote and (ii) the Second Amendment to the Agreement to Promote Segundo Aditivo ao Termo de Fomento.

 

a)             Parties

 

a)             Agreement - MPF, FUNAI, CEMIG — Companhia Energética de Minas Gerais, CVRD — Companhia Vale do Rio Doce and CHA — Consórcio Hidrelétrico Aimorés;

b)             Agreement to promote — Vale, Krenak Indigenous People, FUNAI and MPF;

c)              First Amendment to the Agreement to Promote — Vale, Krenak Indigenous People, FUNAI and MPF;

d)             Second Amendment to the Agreement to Promote - Vale, Krenak Indigenous People and FUNAI

b)             Agreement Date

 

(a)         Agreement —executed on 07/18/2008 to 11/30/2011

(b)         Agreement to Promote — executed on 10/24/2011 — effective from 12/01/2011 to 06/01/2012

(c)          First Amendment to the Agreement to Promote — executed on 05/03/2012 — effective from 12/01/2011 to 12/01/2013*

(d)         Second Amendment to the Agreement to Promote — executed on 03/27/2015 — effective from 12/01/2011 — 12/01/2019*

 


*Amendments above alter terms in the original Agreement to Promote, with retroactive effects. This is the reason their respective effective dates are 12/01/2011, date of effectiveness of the Agreement to Promote.

c)              Description of the facts that have led to entering this agreement

 

Approval of the Agreement settled the Public Civil Action filed by the MPF and FUNAI, that aimed the deployment of mitigating and compensation measures arising out of the installation of Usina Hidrelétrica de Aimorés. The purpose of the Agreement was the provision of environmental, social, and economic support, by recovering 54 hectare of green area, construction of 5 cultural centers and deployment of milk cattle project. After termination of the Agreement, voluntarily by the Company, and aiming to maintain the support and the relationship between Vale and the Krenak People, new terms were executed, maintaining the Company assistance to the development of the indigenous people. The contract currently in effect is the Second Amendment to the Agreement to Promote.

d)             Commitments made

 

Provide financial and technical support to milk cattle project.

e)              Deadline, if any

 

(a)         Agreement — 07/18/2008 to 11/30/2011 — executed on 07/18/2008

(b)         Agreement to Promote — 12/01/2011 to 06/01/2012 — executed on 10/24/2011

 

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(c)          First Amendment to the Agreement to Promote — 12/01/2011 to 12/01/2013* - executed on 05/03/2012

(d)         Second Amendment to the Agreement to Promote — 12/01/2011 — 12/01/2019* - executed on 03/27/2015

 


* Amendments above alter terms in the original Agreement to Promote, with retroactive effects. This is the reason their respective effective dates are 12/01/2011, date of effectiveness of the Agreement to Promote.

 

 

 

f)               Information about the conduct adopted to comply with the commitments made in the agreement

 

The Department of Community Relations includes a focal unit that monitors compliance with obligations set forth in the Second Amendment to the Agreement to Promote.

g)             Consequences in the event of noncompliance

 

Failure to comply with the Second Amendment of the Agreement to Promote by indigenous people causes suspension of the transfer of funds. When non-compliance is by Vale, there is risk of indigenous people promoting actions that stop or affect Company or subsidiaries activities, as manifestations that imply stoppage at the EFC, prejudicing railroad operations. Said manifestations by the indigenous people also tend to restrict freedom of access of Vale’s teams and hired third parties who run studies inherent to environmental licensing processes and actions related to compliance with conditions, which may be characterized as non-compliance with the environmental licenses granted by the environmental entity, weakening Vale’s position, or of its subsidiaries, at the institutional level, with not prejudice to the executive measures to be taken by the MPF, IBAMA, FUNAI, and the other autarchies involved with the protection of indigenous rights.

 

Agreement of Social and Environmental Commitment FUNAI, Vale, MPF and Tupiniquim People of Terra Indígena Comboios (“TI Comboios”), executed in August 2014, related to the Subprogram of Social and Environmental Liabilities of the Basic Environmental Plan ( (PBA) of the Corrective Operation License (“LOC”) of Estrada for Ferro Vitória-Minas

 

Origin: - Agreement of Social and Environmental Commitment related to the Subprogram of Social and Environmental Liabilities of the Basic Environmental Plan (PBA) of LOC for Estrada de Ferro Vitória-Minas

 

a)             Parties

 

Vale, MPF, FUNAI and the Tupiniquim People of TI Comboios.

b)             Agreement Date

 

08/13/2014

c)              Description of the facts that have led to entering this agreement

 

Based on the Indigenous Component Study, responsible for identifying possible impacts of the EFVM on the TI Comboios, in the Corrective Operation License Process for EFVM, actions were proposed under the Environmental Basic Plan, including the Subprogram of Social and Environmental Liabilities, aiming to provide financial funds to the indigenous people to be used in specific areas: education, health, home, production activity and social projects.

d)             Commitments made

 

Transfer financial funds busing a judicial account, with intermediation of the MPF and FUNAI, to support indigenous people in actions at the following areas: education, health, home, production activity, and social projects.

 

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e)              Deadline, if any

 

Until full and appropriate destination of the funds, while Company obligation is to transfer R$ 5,000,000.00 (five million reais) in 2 payments, which has been complied with, with no need for additional investments, and only compliance with some conditions by the indigenous people is pending, as their access to the funds is conditioned to approval by the MPF and FUNAI of the project proposal to be presented, to use the funds for the above mentioned specific areas.

f)               Information about the conduct adopted to comply with the commitments made in the agreement

 

The Department of Community Relations includes a focal unit that monitors compliance with obligations set forth in the Agreement of Social and Environmental Commitment

g)             Consequences in the event of noncompliance

 

Failure to comply with the Second Amendment of the Agreement to Promote by indigenous people causes suspension of the transfer of funds. When non-compliance is by Vale, there is risk of indigenous people promoting actions that stop or affect Company or subsidiaries activities, as manifestations that imply stoppage at the EFC, prejudicing railroad operations. Said manifestations by the indigenous people also tend to restrict freedom of access of Vale’s teams and hired third parties who run studies inherent to environmental licensing processes and actions related to compliance with conditions, which may be characterized as non-compliance with the environmental licenses granted by the environmental entity, weakening Vale’s position, or of its subsidiaries, at the institutional level, with not prejudice to the executive measures to be taken by the MPF, IBAMA, FUNAI, and the other autarchies involved with the protection of indigenous rights.

 

Legal Agreement

Origin: Proceeding no. 21337.52.2011

 

h)             Parties

 

Vale, MPF, Palmares Cultural Foundation, National Institute for Colonization and Land Reform, and IBAMA.

i)                Agreement Date

 

03/08/2012

j)                Description of the facts that have led to entering this agreement

 

The MPF has accused Vale, who subsidized the licensing process for the Carajás Railroad expansion project, of lacking the environmental study investigating the diagnostic impact of the expansion on the two quilombo communities located in the State of Maranhão.

k)             Commitments made

 

(i) Transfer the amount of R$ 700,000.00 to the Palmares Foundation to help with the construction of clinics and of an educational center; and (ii) Development of a study of the local environmental impact, recovery of waterways, and the building of overpasses in the next four years, as specified in the legal agreement schedule.

l)                Deadline, if any

 

Sparse deadlines, with commitment to be met through the end of the Carajás Railroad expansion project. Among them are: (i) the already made payment of R$ 700,000.00 to the communities to finance the building of social devices in the community and Palmares Foundation; (ii) development of an environmental study — already done — and the adoption of measures to mitigate the impact of the Company’s operations and activities in the region; (iii) building of four overpasses for the communities that are parties in the agreement and with a deadline of construction extending over four years; and (iv) 

 

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improvement of the current passageways until the overpasses are built in the region. These commitments are underway.

m)         Information about the conduct adopted to comply with the commitments made in the agreement

 

The General Manager of Project Relations, who works under the Director of Northern Logistic Projects (DIPL), focuses on engineering and public relations, monitoring compliance with the activities developed by Vale. The commitments and deadlines reflect the item above.

n)             Consequences in the event of noncompliance

 

The MPF may request that the Company comply with the commitments made, under penalty of a fine determined by a competent federal judge.

o)             Other notes

 

 

Conduct Modification Agreement (TAC) no. 283/2004

Origin: Preparation Proceeding no. 0203/01 - Regional Labor Public Prosecution Office of the 1st region — Rio de Janeiro

 

a)             Parties

 

Labor Prosecution Office and Vale S.A.

b)             Agreement Date

 

12/15/20014

c)              Description of the facts that have led to entering this agreement

 

Legal obligation to train and hire people with disabilities to meet legal requirements, including regarding the quota set forth in article no. 93 of Law no. 8.212/91

d)             Commitments made

 

Initially, professionally train about 34 to 40 disabled people to start. To develop a national program. To enter into partnerships with Organization like SENAI for training. During training, to provide transportation, food, and medical care. After training, to hire people with disabilities.

e)              Deadline, if any

 

The TAC is renewed yearly and it indicates the year’s quota for training and hiring.

f)               Information about the conduct adopted to comply with the commitments made in the agreement

 

Development of an inclusion program for people with disabilities.

g)             Consequences in the event of noncompliance

 

R$1,000.00 per worker that is not trained and hired, within the quota for that particular year

h)             Other notes

 

The TAC allows Vale to fail to fully comply with the quote set forth by Law no. 8.212/91, while complying with obligations set forth therein. If there is noncompliance with the TAC, Vale must immediately meet the quote specified by the Law, losing this requirement provided by the Agreement.

 

Environmental Obligation Agreement: TCA at do Pico do Itabirito

Origin: Public Civil Investigation no. 319.02.0001-8 MPMG

 

a)             Parties

 

Minerações Brasileiras Reunidas S.A. - MBR, Vale S.A., Ministério Público Estadual-MG, Instituto Estadual de Florestas, Secretaria de Estado do Meio Ambiente e Desenvolvimento Sustentável de Minas Gerais, and Anglogold Ashanti Brasil Mineração Ltda.

b)             Agreement Date

 

7/9/2010

c)              Description of the facts that

 

Agreement signed for the enforcement of protection measures

 

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have led to entering this agreement

 

to the area known as Pico do Itabirito and archeological site of Cata Branca.

d)             Commitments made

 

Environmental and landscape remediation in protected areas.

e)              Deadline, if any

 

Schedule presented to the State Prosecution Office — expected conclusion: July 2015.

f)               Information about the conduct adopted to comply with the commitments made in the agreement

 

Procedures to recover areas in progress, with fencing and signage as archeological site, environmental education programs and environmental remediation project at the area known as Pico do Itabirito.

g)             Consequences in the event of noncompliance

 

Fine R$2,500.00/day delaying enforcement of the agreed and non-complied with portion.

h)             Other notes

 

 

4.8                               Rules of the country of origin and of the country in which the securities are held in custody

 

Not applicable to the Company, as it is not a foreign issuer.

 

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5.1                               Description of the main market risks

 

Considering the nature of the business and operations of the Company, the main factors of market risk to which the company is exposed are:

 

·                  exchange rates and interest rates;

·                  product and inputs prices;

 

Exchange risk and interest rate

 

The Company’s cash flow is subject to the volatility of several currencies, since its products prices are indexed predominantly on the US dollar while a significant portion of its costs, expenses and investments are indexed in other currencies, in particular in Brazilian real and Canadian dollars. Frequently, Vale uses derivatives, especially swaps and forward operations, attempting to reduce the potential cash flow volatility arising out of this currency difference. Vale also uses swaps to translate part of the debt service costs denominated in reais into US dollars.

 

The company is also exposed to interest rates on loans and financing. Debts with floating interest rate in US dollars consist mainly of loans that include exportation pre-payment operations and loan from commercial banks and multilateral organizations. Overall, these debts are indexed according to Libor (London Interbank offered Rate) variations. While considering the effect of interest rate volatility onto cash flow, the Company considers possible effect of natural hedge between fluctuations in US interest rates and prices of commodities in the decision making process for financial investments.

 

On December 31, 2014, 71.7% of Vale’s debt was in American dollars (US$), corresponding to R$ 54,014 million, of which R$ 35,350 million were tied to fixed interest rates and R$ 18,664 million were tied to Libor. Another 21.9% of the debt is in Brazilian Real (R$), corresponding to R$ 16,495 million, of which R$ 5,150 million were tied to the IBR Rate, R$ 7,437 million were tied to the TJLP (long term interest rates) and R$ 3,907 million to fixed interest rates and others. The remaining 6.4% of the debt were expressed predominantly in euros (€), corresponding to R$ 4,848 million, at fixed interest rate.

 

For more information about risks on exchange and interest rates, see item 4.1 in this Reference Form.

 

Risk of product and inputs prices

 

The company is exposed to market risks related to price volatility for commodities and inputs. The Company’s main products are: iron ore and pellets, nickel, copper products, fertilizers and coal. The Company’s main input are different material and equipment, including tires, transporting belts, parts and components of mining equipment, rail equipment, industrial facilities and workshop maintenance, fuels and gases, and electric power.

 

For more information on the risk of product prices, see item 4.1 in this Reference Form.

 

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5.2                               Description of the policy for management of market risks

 

The Company understands that risk management is essential to support its growth plan, strategic planning and financial flexibility. Therefore, Vale has developed its risk management strategy with the objective of providing an integrated view of risks to which it is exposed. To do this, it not only assesses the impact of variables negotiated in the financial market on business results (market risk), but also those arising from a liquidity risks, risks from the obligations assumed by third parties to the Company (credit risk), those inherent to inappropriate and deficient internal processes, personnel, systems or external events (operational risk), and others.

 

Vale’s Board of Directors established a policy of corporate risk management and a Risk Management Executive Committee for purposes of supporting the growth plan, the strategic planning, and continuity of Company businesses, in addition to strengthening the Vale Group’s capital structure and asset management, ensuring an appropriate flexibility in financial management, maintaining the necessary level of solidity for the level of investment, as well as strengthening corporate governance practices.

 

The policies of corporate risk management determine that Vale should measure and monitor its corporate risk in a consolidated manner, for purposes of ensuring that the total level of corporate risk is aligned with guidelines set by the Board of Directors and the Executive Directors.

 

The Risk Management Executive Committee, created by the Board of Directors, is responsible for supporting the Executive Directors in risk assessment and for issuing opinions related to Company risk management. It is also responsible for supervising and reviewing the principles and instruments used in corporate risk management.

 

The Executive Directors are responsible for approving the developments of policies in rules, regulations and responsibilities and informing the Board of Directors on such procedures.

 

Rules and guidelines used in risk management complement the corporate risk management policy and define Company practices, procedures, controls, roles and responsibilities related to risk management.

 

When needed, the company may allocate specific risk limits to management activities requiring those, including, without limitation, limits on market risk, corporate and sovereign risks, according to acceptable limits to corporate risk.

 

a.                                      Risks for which protection is sought

 

Vale is exposed to the behavior of several market risk factors (especially the price of products and input, exchange rates and interest rates) that could impact its cash flow. Assessment of this potential impact, arising out of the volatility of risk factors and its correlations, is performed periodically to support the decision making process, the Company growth strategy, ensuring financial flexibility and monitoring volatility of future cash flows.

 

Thus, when needed, market risk mitigation strategies are assessed and deployed in line with such goals. Some of these strategies use financial instruments, including derivatives. Portfolios comprised of financial instruments are monthly monitored in a consolidated manner, allowing the follow-up of financial results and their impact on cash flow.

 

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b.                                      Asset protection strategy (hedge)

 

In line with Vale risk management policy, commodities-related risk mitigation strategies may also be used to adequate the risk profile and reduce the cash flow volatility. For these mitigation strategies, the company mainly uses forwards, future, or zero-cost collars operations.

 

In the case of cash flow exchange hedge involving income, costs, expenses and investments, the main risk mitigation strategies are currency and swap operations.

 

Vale deployed hedge operations to protect its cash flow against market risk from its debts — especially exchange risk. Swap operations are used to convert debts in reais and euros into US dollars that mature on similar dates — or, in some cases, earlier - than debt final maturity date. Their amounts are similar to the payment of interest and principal, according to market liquidity risks.

 

Swap operations that mature earlier than debts final maturity are renegotiated through time in order to have matching — or close - maturity dates. Therefore, on the settlement date, the swap results will compensate part of the Exchange rate variation on Vale obligations, helping to stabilize the cash flow.

 

In the case of debt instruments denominated in reais, if there is real (R$) increase (decrease) before the North-American dollar (US$), the negative (positive) impact in Vale’s debt service (interest and/or principal payment), in North-American dollars, will be partially offset by the positive (negative) effect from the swap operation, regardless of the US$/R$ Exchange rate on the date of payment. The same reasoning is applicable to debts denominated in other currencies and their respective swap operations.

 

c.                                       Instruments used for asset protection (hedge)

 

Protection programs and hedge programs employed by Vale, and their objectives include:

 

·                                          Protection program of loans and financing in reais, indexed to CDI: In order to reduce the volatility of the cash flow, swap transactions have been made in order to convert the cash flow of debt, indexed to the CDI to U.S. dollars, in loans and financing contracts. In these operations, Vale pays fixed and / or floating rates (Libor) in U.S. dollars and receives remuneration linked to the CDI.

 

·                                          Protection program of loans and financing in reais, indexed to TJLP: In order to reduce the volatility of the cash flow, swap transactions have been made in order to convert the cash flow of debt indexed to the TJLP to U.S. dollars, in loans and financing contracts with BNDES. In these operations, Vale pays fixed and/or floating rates (Libor) in U.S. dollars and receives remuneration linked to the TJLP.

 

·                                          Protection program of loans and financing in reais with fixed rates: In order to reduce the volatility of the cash flow, swap transactions have been made in order to convert the cash flow of debt denominated in reais at fixed rate to US dollars in loans contracts with BNDES. In these operations, Vale pays fixed rates in U.S. dollars and receives fixed rates in reais.

 

·                                          Protection program of loans and financing in reais, indexed to the IPCA. In order to reduce the volatility of the cash flow, swap transactions have been made in order to convert the cash flow of debt indexed to the IPCA to U.S. dollars, in debenture agreements indexed to the IPCA issued by Vale in 2014, with total issuing value of R$ 1 billion. In these operations, Vale pays fixed rates in U.S. dollars and receives remuneration linked to the IPCA.

 

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·                                          Protection Program for loans and financing in Euros: In order to reduce the volatility of the cost of debt in US dollars, swap transactions were made to convert the cash flow of debts in euros for U.S. dollars. These operations were used to convert the flow of part of the debts in euros, with nominal value of up to € 750 million each, issued in 2010 and 2012 by Vale. In these operations, Vale receives fixed rates in Euros and pays compensation linked to fixed floating rates in US dollars.

 

On December 31, 2014, the amount of the principal and of the debt’s interest rate in Brazilian real converted through swaps in US dollars was R$ 13,817.6 million (US$ 5,202.0 million) and the amount of the principal and of the debt’s interest rate in Euros converted through swaps into US dollars was €1,000 million (US$ 1,895.5 million). The average cost of these operations was 2.92% per year after the swapping. Due to the market’s liquidity conditions, the average term of swap operations may be lower than the debt’s average term.

 

·                                          Exchange hedge program for disbursements in Canadian dollars: In order to reduce the volatility of cash flow, forward operations were made to mitigate the exchange exposure arising out of the unmatched currencies in US dollars revenue and Canadian dollars disbursements.

 

·                                          Protection program for nickel operations: The objective of this program is to reduce the volatility of cash flows, and eliminate the decoupling between the pricing of the nickel purchase (concentrated, cathode, sinter, and other types) and the resale period of the processed product The products purchased are raw material used in the process of production of refined nickel. In this case, operations usually made are the selling of nickel for future liquidation either in the Stock Market (LME) or over-the-counter.

 

·                                          Sales program for nickel at a fixed price: aiming to maintain its exposure to fluctuations in the price of nickel, it has been carried out derivative transactions to convert to a floating-price basis commercial nickel contracts with those clients seeking to fix the price. The operations are intended to ensure that prices for these sales are equivalent to the average price of the London Metal Exchange (LME) upon physical delivery to the customer. Typically, operations made within this program are purchases of nickel for future liquidation, either in the Stock Market (LME) or over-the-counter. These operations are reverted before the original maturity date in order to match with the dates of liquidation of the commercial contracts that had a fixed price.

 

·                                          Protection program for selling of copper scrap: Hedge operations were made in order to reduce the volatility of the cash flow and eliminate the mismatching between the pricing period of the purchase of copper scrap. Copper scrap bought is combined with other inputs in order to manufacture copper for final customers. In this case, operations usually made are sales for future liquidation either in the Stock Market (LME) or over-the-counter.

 

·                                          Hedge Program for purchase of fuel oil - Bunker Oil: In order to reduce the impact of fluctuations in the price of fuel oil (Bunker Oil) when procuring freight, and hence reduce the volatility of Company’s cash flow, hedge operations were carried out. The operations are usually made by the contracting of future purchases.

 

Hedge Accounting

 

According to the “Accounting for Derivative Financial Instruments and Hedging Activities” pronouncement, all derivatives, assigned in hedge relations or not, are recorded in the balance sheet at fair value and gains and losses in fair value are recorded in the current result, unless when qualified as hedge accounting. A derivative should be assigned in hedge to be qualified as hedge accounting. These rules include determining which portions of hedge are deemed to be effective or non-effective. In general, a hedge relation is effective when a change in fair value is compensated by an equal and contrary change in the fair value of the hedged item. According to these rules, effectiveness tests are run to evaluate the effectiveness and quantify the non-effectiveness of the hedges.

 

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A cash flow hedge is a protection against the exposure to volatility in the expected future cash flow, attributable to a specific risk, as a future purchase or sale. If a derivative is designated as cash flow hedge, the effective portion in the changes of derivative fair value is recorded in other comprehensive income, and recognized in the result when the hedged item affects the period result. The non-effective portion of the changes in derivative fair value designated as hedge is recorded in result. If a portion of the derivative contract is excluded for effectiveness test purposes (for instance the value in time), the value of such excluded portion is included in the result.

 

d.                                      Parameters used for managing those risks

 

The parameters used to check the qualification or disqualification of the Company’s exposure are:

 

(i)                                     verification of execution of the programs mentioned in 5.2(c) above;

 

(ii)                                  analysis and constant monitoring of the contracted volumes, and

 

(iii)       adjustment to the adequacy of maturity dates, taking into account their corresponding protection or hedge strategies, guaranteeing the framing of Vale’s exposures. The failure to match exposure and protection strategies may occur if:

 

a.                                the protection volume S.A.mounts are higher than the respective exposure volume S.A.mounts;

b.                                the exposure that is protected ends; or

c.                                 the maturity dates of protection strategies and the respective exposures no longer match.

 

To avoid potential non-matching due to item (iii.a) above, the criterion adopted is periodic follow up of volume S.A.mounts to be realized used as basis to propose strategy proposals. In the case of protection of input prices, for instance, if consumption updated estimates point to a decrease in volumes compared to initial estimates used to propose protection strategies, protection strategy volumes will be adjusted accordingly.

 

To avoid potential non-matching due to item (iii.b) above, if during periodic follow up the initial exposure fails to be realized, the protection strategy ends immediately (unwind position).

 

To avoid potential non-matching due to item (iii.c) above, the company constantly checks the alignment between protection strategies and the initially estimate exposure maturity.

 

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e.                                       If the Company uses various financial instruments with various objectives for asset protection (hedge) and what these goals are

 

When needed, the company may allocate specific risk limits to management activities requiring those, including, without limitation, limits on market risk, corporate and sovereign risks, according to acceptable limits to corporate risk.

 

·                  Sale of Vale’s future gold production (byproduct): Vale Switzerland S.A. concluded, after approval by the Board of Directors, final contracts with Silver Wheaton Corp. (SLW), a Canadian company with shares negotiated in the Toronto Stock Exchange and New York Stock exchange, to sell 70% of the payable gold flow produced as a byproduct in certain nickel mines in Sudbury for 20 years, and with Silver Wheaton (Caymans) Ltd. to sell 25% of the payable gold flow produced as a byproduct in the Salobo copper mine for the longevity of the mine. In addition to the original payment of US$ 1.9 billion in cash, Vale Switzerland received 10 million SLW warrants at a strike price of US$ 65.00 for 10 years, and this portion is an American buy-out option. Additionally, Vale will receive cash payments in the future for every ounce (oz.) of gold delivered to SLW as per the agreement, at the lowest value between US$ 400 per ounce (plus an annual adjustment for the 1% inflation starting in 2016 in the Salobo case) and the market price. The transaction releases a considerable amount contained in the Vale’s world class base metal assets, to the extent that it attributes to the payable gold flow produced as a byproduct of Salobo the amount of US$ 5.32 billion, in addition to the payment of US$ 400 per ounce of gold delivered, given that there will be no additional expenses for extracting the gold found in the copper concentrate produced in Salobo.

 

Additionally, on March 2, 2015, Vale entered into a contractual amendment with Silver Wheaton (Caymans) Ltd., wholly-owned subsidiary, for purposes of selling an additional 25% flow of payable gold, produced as byproduct of the copper mining at the Salobo mine, during the mine’s use life. Vale will receive an initial payment in cash of US$ 900 million and future payments in cash, per ounce (oz) of gold provided to Silver Wheaton based on the lower value between US$ 400 per ounce and the market price, and this value will be updated annually at 1% starting in 2017. Vale may also receive an additional payment in cash, depending on its decision to expand the capacity to process the copper mining at the Salobo mine to over 28 Mtpa prior to 2036. This additional amount may vary between US$ 88 million and US$ 720 million, depending on the time and size of the expansion.

 

·                  Position in embedded derivatives: Vale’s cash flow is also vulnerable to several market risks associated with contracts that contain embedded derivatives or that work as derivatives. From Vale’s perspectives, these include, but are not limited to, commercial contracts, purchase agreements, lease agreements, bonds, insurance policies and loans. The embedded derivatives observed on December 31, 2014 were the following: 1) Purchase of intermediate products and raw materials. Purchase agreements for raw materials and nickel concentrate that contain price provisions based on the future price of copper and nickel. These provisions are considered embedded derivatives. 2) Gas purchase for the pelleting company in Oman. The Companhia de Pelotização Vale Omã (LLC), a Vale subsidiary, has a natural gas purchase agreement with a clause establishing an award that may be paid if the sale price for Vale’s pellet is greater than a specific price pre-determined in the gas supply contract. This clause is considered an embedded derivative.

 

f.                                        Organizational structure for risk management control

 

The Executive Board for Risk Management, created by the Board of Directors, is the main body in the risk management structure, being responsible for supporting the Executive Board in risk assessment and for issuing opinions on the risk management at Vale Group. It is also responsible for monitoring and managing corporate risks, as well as supervising and reviewing the main corporate risk management principles and instruments, in addition to periodically reporting to Vale Executive Directors on the main risks and respective exposures. For more information about the members of Vale’s Executive Board for Risk Management, see item 12.7 in this Reference Form.

 

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The financial committee is responsible for issuing opinions on Vale corporate risk policies. The Board of Directors is responsible for approving such policies.

 

The Executive Board is responsible for approving policy developments into rules, regulations and responsibilities and for notifying the Board of Directors on such procedures.

 

Risk management guidelines and instructions complement the corporate risk management policy and define practices, processes, controls, roles and responsibilities in the Company regarding risk management.

 

In Vale, the area formally responsible for risk management is the Treasury and Financial Department, and includes the Insurance and Market and Credit Risk Management, Operational Risk Management, and Insurance. Depending on the type of risk, management is centralized or decentralized. Several other departments act jointly in the integrated risk management process.

 

The recommendation and implementation of derivative-related financial operations are carried out by independent areas. It is the responsibility of the area of risk management to define and propose to the Executive Board for Risk Management operations or measures to mitigate market risk consistent with Vale’s strategy. It is the responsibility of the financial area to carry out the transactions involving derivative contracts. The independence between areas ensures effective control over these operations.

 

g.                                      Adequacy of the operational structure and internal controls to verify the effectiveness of the policy adopted

 

In case of market risks, the monitoring and periodic assessment of Vale’s consolidated position of financial instruments used to mitigate market risks allow it to keep pace with the financial results and the impact on cash flow and ensure that the goals originally outlined are met. The fair value calculation of the positions is made available monthly for management monitoring.

 

Several areas act as compliance in the process of risk management: the back-office, part of the General Board of Financial, is responsible for confirming the financial characteristics of transactions as well as the counter-parties with which the operations were performed, report the fair value of the positions. This area also assesses whether the operations were performed according to internal approval given. As well as this area, the area of internal controls, acts to verify the integrity of the controls that mitigate risks in the contracted transactions within the above mentioned governance criteria.

 

In case of other risks, additionally to the risk management area, there are several other areas responsible for risk management.

 

Additionally, internal audit also participates in the compliance process with regulations.

 

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5.3                               Significant changes in key market risks

 

There were not significant changes in the main market risks during the period.

 

5.4                               Other relevant information

 

In line with the integrated view of risks exposure, Vale considers in risk management, additionally to market risk management, liquidity risk, the risk from the obligations assumed by third parties to the Company (credit risk), those inherent to inappropriate and deficient internal processes, personnel, systems or external events (operational risk), and others.

 

Credit Risk of Counterparties

 

Vale’s credit risk of counterparties arises from potential negative impacts in its cash flow due to uncertainty in the ability of having counterparts meet their contractual obligations, forward sales, transaction with derivatives, warrants, advancement payments to suppliers, and cash investments. To manage that risk, Vale has procedures and processes, such as approval and credit limits control, obligatory exposure diversification through several counterparts and monitoring the portfolio’s credit risk, which provide a structure to evaluate and manage the credit risk of counterparties and maintain the risk above the acceptable levels.

 

Vale’s counterparts may be divided into three categories: clients, responsible for obligations represented by receivables related to sales in installments; financial institutions with whom Vale maintains its cash investments or acquires transactions with derivatives; and suppliers of equipment, products and services, in case of anticipated payments.

 

Regarding credit risk, the company adopts the following management standards:

 

Credit Risk Assessment for commercial operations (sales to customers)

 

For the commercial credit risk, which arises from sales of products and services to final customers, the Risk Management Department, according to current powers, approves or requests the approval of credit risk limits for each counterpart. Besides that, the Executive Board annually sets global commercial credit risk limits for client portfolio.

 

Vale attributes an internal credit risk classification and a credit limit for each client based on a credit risk assessment quantitative method, using three main information sources: i) the expected default frequency (“Expected Default Frequency” or “EDF”) found by the KMV model (Moody’s); ii) credit ratings attributed by the main international rating agencies; and iii) client’s financial statements to make an economic-financial analysis based on financial indicators. This methodology is based on market prices, external credit classifications and financial information of the counterparty, as well as qualitative information regarding the strategic position and history of the counterparties’ commercial relationship.

 

Whenever deemed appropriate, the quantitative credit analysis is complemented by a qualitative analysis which takes into consideration the payment history of that counterpart, the time of relationship with Vale and the strategic position of the counterpart in its economic sector, and other factors.

 

Depending on the counterpart’s credit risk or the consolidated credit risk profile of Vale, risk mitigation strategies are used to minimize the Company credit risk in order to achieve the acceptable risk limit approved by the Executive Board. The main credit risk mitigation strategies include discount from non-collateralized receivables, insurance contracts, mortgage, credit letter and corporate and bank collaterals.

 

Vale has a well-diversified accounts receivable portfolio from a geographical standpoint, China, Europe, Brazil and Japan being the regions with more significant exposures. According to each region, different guarantees can be used to enhance the credit quality of the receivables.

 

The Company controls its account receivables portfolio through Credit Management and Cash Collection committees, in which representatives from risk management, cash collection and commercial departments periodically monitor each counterpart position. Additionally, Vale maintains credit risk systemic controls that block additional sales to counterparts with past due receivables or exposures that exceed approved limits.

 

The Credit and Collection Management Committees are internal committees of the Company, that were not established by the Board of Directors or the Company By-Laws, and which purpose is not the deliberation or consultation of Vale’s managing bodies.

 

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Credit Risk Assessment for treasury operations (cash flow investments and derivative operations)

 

The control of the exposure from cash investments and derivatives instruments is done through the following procedures: annual approval by the Executive Board on credit limits by counterpart, control of portfolio diversification, counterparts’ spread variations and overall credit risk of treasury portfolio. There is also a monitoring of all positions, control of exposure versus limits, and periodical reporting to the Executive Board for Risk Management.

The calculation of exposure to a specific counterpart that has derivative transactions with Vale, we consider the sum of exposures of each derivative acquired with this counterpart. The exposure for each derivative is defined as the future value calculated by the due date, considering a variation of market risk factors affecting the value of the derivative instrument.

 

Vale also uses a risk assessment classification to evaluate the counterparts in treasury operations, following a method similar to that used for commercial credit risk management, for purposes of calculating the possibility of counterpart default.

 

According to the type of counterpart, different variables are used: i) the expected default frequency from the Expected Default Frequency (EDF) from Moddy’s Investors Service model; ii) credit spreads found in CDS (Credit Default Swaps) or in the Bond Market; iii) credit ratings attributed by the main international rating agencies; and iii) client’s financial statements to make an economic-financial analysis based on financial indicators.

 

Liquidity Risk

 

The liquidity risk arises from the possibility that Vale might not perform its obligations on due dates, as well as face difficulties to meet its cash flow requirements due to market liquidity constraints.

 

To mitigate such risk, Vale has a revolving credit facility to help manage short term liquidity and to enable more efficiency in cash management, being consistent with the strategic focus on cost of capital reduction. The revolving credit lines available were acquired from a syndicate of several global commercial banks

 

Credit Risk

 

Vale’s credit risk, seen as Vale’s ability to obtain credit in the market, may be indicated through public evaluations by rating agencies Moody’s, Standard and Poor’s, Fitch and DBRS.

 

Vale rigorously accompanies the main indicators that support the credit rating presented by these agencies and, in its financial strategy, aims to adjust its decisions in order to present performance within limits indicated in the methodologies of these agencies, aiming to maintain its investment degree.

 

Capital Management

 

The Company’s capital management policy aims to find a structure that ensures the continuity of its businesses in the long term. In this view, the Company has been able to generate value to its shareholders, through the payment of dividends and capital gains, while it maintains an appropriate debt profile applicable to its activities, with average amortization term of 9.1 years, thus avoiding concentration in one specific period.

 

Operational Risk

 

Operational risk management is the structured approach Vale uses to manage the uncertainties related to the eventual deficiency or default in internal processes, personnel, systems, and external events, in compliance with the ISO 31000’s principles and guidelines.

 

The main operational risks are monitored periodically, securing the effectiveness of current key controls in of prevention/mitigation and the execution of risk treatment strategy (establishment of new controls and action plans, changes in environmental risk, transfer of part of the risk by acquiring insurance, etc.).

 

Therefore, it is Vale policy to maintain a clear perspective of the main risks, allocating capital to approach them systematically and efficiently way.”

 

Insurance

 

Vale acquires several types of insurance policies, including: operational risk insurance, engineering (project) insurance, credit risk insurance, liability, life insurance for employees, etc. The coverage of these policies, similar to those used in general in the mining industry, are acquired according to company’s defined goals, the corporate risk management practices and limitations imposed by the global insurance and reinsurance markets.

 

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Insurance management is done with the support of insurance management committees existing in different operational areas of the Company. Management instruments used by Vale include captive reinsurers that allow for the retention of part of the risk, acquiring insurances on competitive basis, as well as direct access to the main insurance and reinsurance international markets.

 

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6.1/6.2/6.4 Establishment of the Company. Company Lifetime and Date of Filing with CVM

 

Date of Establishment of Issuer

01.11.1943

Legal Form of the Issuer

Mixed economy Company

Country of Establishment

Brazil

Company Lifetime

Company lifetime Undetermined

Date of Filing with CVM

01.02.1970

 

6.3                               Brief History

 

Vale was initially founded by the Brazilian Federal Government (Government of Brazil) on June 1, 1942, through Decree-Law No. 4352, and definitively on January 11, 1943, by the Assembly for the Definitive Constitution of the Companhia Vale do Rio Doce S.A., in the form of mixed economy company, aiming to mine, trade, transport and export iron ore from the Itabira mines, and run the Vitória-Minas Railroad (EFVM), which carried iron ore and agricultural products from Vale do Rio Doce, in south-eastern Brazil, to the port of Victoria, located in Espírito Santo.

 

The privatization process was initiated by the Company in 1997. Under Privatization Decree PND-A-01/97/VALE and the Resolution of the National Privatization Council - CND paragraph 2, of March 5, 1997, the Extraordinary General Assembly approved on April 18, 1997 the issue of 388,559,056 participatory non-convertible debentures, with a view to guaranteeing its pre-privatization shareholders, including the Federal Government itself, the right to participation in revenues from Vale’s and its subsidiaries’ mineral deposits, which were not valued for purposes of fixing the minimum price in the auction for the privatization of Vale. The Participatory Debentures were allocated to the shareholders of Vale in payment of the redemption value of preferred class “B shares” issued as bonus, in the proportion of one share owned by holders of class “A” common and preferred shares at the time, through the part capitalization of Vale’s revenue reserves. The Participatory Debentures could only be traded with prior authorization of CVM, as of three months from the end of Secondary Public Offering of Shares under the privatization process.

 

On May 6, 1997 the privatization auction was held, when the Brazilian government sold 104,318,070 Vale common shares, equivalent to 41.73% of the voting capital for Valepar SA (Valepar), for approximately R$ 3.3 billion.

 

Later, under the terms of the Bid, the Brazilian government sold another 11,120,919 shares representing approximately 4.5% of the outstanding common shares and 8,744,308 class “A” preferred shares, representing 6.3% of class “A” shares in circulation, through a limited offer to the employees of Vale.

 

On March 20, 2002 a Secondary Public Offering of Shares issued by Vale was held, in which the Brazilian Government and the National Bank for Economic and Social Development (BNDES) each sold 34,255,582 Vale common shares. The demand by investors in Brazil and abroad was substantial, exceeding supply by about three times, which led to the sale of the entire batch of 68,511,164 shares. A portion of about 50.2% was posted in the Brazilian market and the remainder was sold to foreign investors. Later, on October 4, 2002, the proper certification of the Participatory Debentures was obtained from CVM, the Securities Commission, allowing their trading on the secondary market.

 

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