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PRESS RELEASE: Fitch Rates Vale's Proposed Sr. Unsecured Bond 'BBB'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--November 03, 2009--

Fitch Ratings has assigned a 'BBB' rating to Vale S.A.'s (Vale) proposed bond due 2039. This bond will be issued through its subsidiary Vale Overseas Limited and will be unconditionally guaranteed by Vale. Net proceeds from the proposed issuance will be used for general corporate purposes.

The current ratings of Vale are as follows:

-- Local currency Issuer Default Rating (IDR) 'BBB'; -- Foreign currency IDR of 'BBB'; -- National scale rating of 'AAA (bra)';

The Rating Outlook is Stable.

Strong Business Positions Continue to Support Rating:

Vale's ratings continue to reflect the company's leading market positions in iron ore and nickel, as well as its growing presence in aluminum. Vale's leadership position within these markets allows it to manage supply in a way that can support prices to a degree. The high quality of its ore results in industry leading cost structures in most products, allowing the company to generate positive cash flow during cyclical downturns. The company's large iron ore, nickel and bauxite reserves will continue to support organic growth.

Strong Liquidity Position:

Vale ended Sept. 30, 2009 with US$13 billion of cash and US$22.3 billion of total adjusted debt, as calculated by Fitch. The company's amortization schedule is quite manageable. Vale has US$3 billion of debt that matures between Oct. 1, 2009 and Dec. 31, 2010. The company faces long-term debt amortizations of US$2.6 billion in 2011, US$1.2 billion in 2012 and US$3.2 billion in 2013. In addition to having a substantial cash position, Vale has US$1.9 billion of undrawn revolving credit lines that it could use to enhance its liquidity. They consist of a US$1.150 billion credit line at Vale International and a US$750 million credit facility at Vale Inco.

Cash Flow Levels Starting To Rise:

During the latest 12 months (LTM) ended Sept. 30, 2009, Vale generated US$8.5 billion of EBITDA and US$12 billion of cash flow from operations (CFFO). These figures are down substantially from the company's 2008 EBITDA of US$17.6 billion and CFFO of US$17.1 billion due to lower prices and volumes, particularly for iron ore. The strong recovery in prices for nickel and aluminum, plus increasing demand for iron ore from China and the end of the destocking process in many of the company's markets resulted in Vale generating US$3 billion of EBITDA during the third quarter. The fourth quarter of 2009 is expected to be much stronger than the last quarter of 2008, in which the company generated only US$1.6 billion of EBITDA. As a result, the company's EBITDA for 2009 should grow to about US$10 billion.

Event Risk is High in Near- to Medium-Term:

Vale's credit ratios are currently very strong for the rating category, especially considering the depth of the downturn in prices and demand for commodities. During 2008 and 2007, the company spent US$9 billion and US$6.7 billion, respectively, on capital expenditures. Some of the key projects that were associated with this cash flow - particularly the Goro and Onca Puma nickel projects - will significantly enhance the company's cash flow during 2010 and 2011 and will further deleverage the company.

As a leading mining company with a comfortable liquidity position and capital structure, Vale is well positioned to purchase other mining companies or assets owned by them. The company has a track record of maintaining an investment grade capital structure throughout a number of acquisitions in recent years, including Inco. It also has a strong enough balance sheet to withstand most acquisitions without a rating downgrade. Nevertheless, as the mining industry continues to consolidate the risk of a transaction that would change the company's credit profile remains somewhat elevated.

Long-term Credit Risk Remains the Company's Exposure to China:

Vale has benefited enormously from China's growing demand for most commodities. During 2008, China's global market shares were: 53% of seaborne iron ore, 29% of nickel, 34% of aluminum and 27% of copper. The country accounted for 17.4% of Vale's gross revenues during 2008 and 28.7% of its iron ore sales. During the first nine months of 2009, the slowdown in the company's other markets resulted in China accounting for 37% of the company's sales and 55% of its iron ore sales. A reduction in demand for Vale's products from its Chinese clients and/or a deterioration of its relationship with its customers in China could lead to a negative rating action.

Additional information is available at www.fitchratings.com