Case 39 Vale S.A. Debt Financing Across Borders Vale SA is a global producer of iron ore and nickel and is headquartered in Brazil. The company experienced rapid growth which led to the need for more capital: $ 1.0 billion USD. The question arises in which country or currency this capital should be raised. Being global also impacts access to various capital markets in a variety of countries/cities: the U.S., but London, Frankfurt, Paris, Tokyo may also be possibilities. Interest rates may vary from country to country and currencies most certainly do. How does that impact a companys choice for the denomination for its new capital?

Case Questions

1. Looking at the yields anticipated by Vale in each of the three currencies it is considering for this issue, is it not obvious that the euro issue is preferred?

2. What is the hedged cost of funds (in U.S. dollars) to Vale from the euro and British pound issues?

3. What is the credit spread implied by the three yields anticipated by Vale? How do these compare to average credit spreads in each of the markets?

4. Compare the yield offered to Vale in each of the three currencies to yields offered by comparable companies in each of the three currencies.

Exhibit 1 Vale SA Income Statement (in millions of U.S. dollars) Year Ended December 31 2005 2006 2007 2008 2009 Revenue 14,581 21,188 36,373 30,464 27,814 Cost of goods sold 6,996 9,710 16,896 13,887 15,898 7,585 11,478 19,477 16,577 11,916 Selling and general 694 913 1,431 1,562 1,359 Other operating expenses 645 1,167 1,581 3,181 2,997 6,246 9,398 16,465 11,834 7,560 Interest expense (income) 414 817 (155) 853 662 Other nonoperating income (expense) 107 (194) (533) (1,317) 1,901 5,939 8,387 16,087 9,664 8,799 Taxes 1,015 1,585 3,979 287 2,824 Minority interest (445) (519) (873) (187) (97) Net income 4,479 6,283 11,235 9,190 5,878 Data source: Vale 20-F filings, 200009. Source: Capital IQ

Exhibit 2 Vale SA Balance Sheet Statement (in millions of U.S. dollars) As of December 31 2005 2006 2007 2008 2009 Cash 1,159 4,574 1,195 10,716 7,582 Receivables 1,851 3,720 4,028 3,438 3,377 Inventory 1,387 2,979 4,076 4,183 3,391 Other current assets 993 1,436 2,580 5,872 7,590 5,390 12,709 11,879 24,209 21,940 Property, plant, and equipment 14,484 36,309 51,647 47,719 66,047 Goodwill 0 0 0 3,328 4,118 Other long-term assets 2,736 8,530 11,114 4,976 8,685 22,610 57,548 74,640 80,232 100,790 Accounts payable 1,151 2,416 2,411 2,266 2,207 Short-term debt 0 0 0 469 370 Current portion long-term debt 1,482 1,712 1,887 683 3,042 Other current liabilities 2,370 3,657 6,565 4,629 4,369 5,003 7,785 10,863 8,047 9,988 Long-term debt 3,888 21,522 18,222 18,438 20,719 Minority interest 1,265 2,807 2,630 2,626 3,330 Other long-term liabilities 2,137 7,143 10,895 9,543 11,846 12,293 39,257 42,610 38,654 45,883 Common equity 10,317 18,291 32,030 41,578 54,907 22,610 57,548 74,640 80,232 100,790 Data source: Vale 20-F filings, 200009.

Exhibit 3 Vale SA Interest Rates and Exchange Rates as of April 30, 2010 U.S. Dollar Euro British Pound Spot rate (in U.S. dollars) 1.3739 1.5296 (USD/EUR) (USD/GBP) Interest rates by maturity (%) 1-year 0.492 1.100 1.154 2-year 1.084 1.471 1.657 3-year 1.690 1.825 2.277 4-year 2.206 2.138 2.798 5-year 2.636 2.419 3.177 6-year 2.987 2.669 3.493 7-year 3.264 2.885 3.782 8-year 3.486 3.071 4.054 Other 10-year yields (%) Government (U.S., Germany, UK) 3.826 3.092 3.939 AAA corporate 4.588 3.828 4.753 BBB corporate 5.930 4.969 5.562 Note: Interest rates are zero-curve fixed-to-floating swap rates appropriate for pricing currency forward rates and indicative of prevailing interbank market rates for the given maturities. Data sources: U.S. Federal Reserve Board and Datastream.

Exhibit 4 Vale SA Debt Outstanding as of December 31, 2009 Maturity Date Coupon Offer Date Amount Currency Offering Price Offering YTM (in millions of U.S. dollars) May-15-2012 7.750 May-08-2002 400 U.S. dollar 99.917 7.762 Jun-15-2012 6.750 Jul-07-2009 292 U.S. dollar 100.000 6.750 Jun-15-2012 6.750 Jul-07-2009 649 U.S. dollar 100.000 6.750 Aug-15-2013 9.000 Oct-27-2003 282 U.S. dollar 98.386 9.250 Aug-15-2013 9.000 Aug-01-2003 300 U.S. dollar 98.386 9.250 Nov-20-2013 Floating rate Nov-20-2006 2,316 Brazilian real Floating rate Floating rate Mar-15-2014 6.125 May-05-2004 150 U.S. dollar 100.000 6.125 Oct-15-2015 5.700 Sep-23-2003 300 U.S. dollar 99.978 5.702 Jan-11-2016 6.250 Jan-05-2006 1,000 U.S. dollar 99.970 6.254 Jan-23-2017 6.250 Nov-16-2006 1,250 U.S. dollar 99.267 6.347 Sep-15-2019 5.625 Sep-08-2009 1,000 U.S. dollar 99.232 5.727 Mar-14-2023 1.000 Apr-29-2003 273 U.S. dollar 91.381 1.500 Sep-15-2032 7.200 Sep-18-2002 400 U.S. dollar 99.552 7.237 Jan-17-2034 8.250 Jan-09-2004 500 U.S. dollar 98.904 8.350 Nov-21-2036 6.875 Nov-16-2006 2,500 U.S. dollar 98.478 6.997 Nov-10-2039 6.875 Nov-03-2009 1,000 U.S. dollar 98.564 6.990 Mar-14-2052 3.500 Apr-29-2003 227 U.S. dollar 100.000 3.500 Data source: Capital IQ.

Exhibit 5 Vale SA Outstanding Debt Issues of Comparable Companies Ticker Company Name Currency Headquarters Maturity Date YTM on Apr-30-2010 Moodys Rating S&P Rating Coupon XTA Xstrata plc U.S. dollar Switzerland Jun-01-2017 5.432 Baa2 BBB 5.500 AA Alcoa Inc. U.S. dollar United States Jun-01-2018 5.548 Baa3 BBB 6.500 MT ArcelorMittal U.S. dollar Luxembourg Jun-01-2018 5.217 Baa3 BBB 6.125 VMC Vulcan Materials Company U.S. dollar United States Jun-01-2018 5.353 Baa2 BBB 7.000 RIOLN Rio Tinto plc U.S. dollar UK/Australia Jul-01-2018 4.580 Baa1 BBB+ 6.500 ABX Barrick Gold Corporation U.S. dollar United States Sep-01-2018 4.702 Baa1 A 6.800 AA Alcoa Inc. U.S. dollar United States Feb-01-2019 6.608 Baa3 BBB 5.720 AAl Anglo American U.S. dollar United Kingdom Apr-01-2019 5.317 Baa1 BBB 9.375 MT ArcelorMittal Euro Luxembourg Jun-01-2016 4.634 Baa3 BBB 9.375 AAL Anglo American Euro United Kingdom Dec-01-2016 4.584 Baa1 BBB 4.375 XTA Xstrata Euro Switzerland Jun-01-2017 4.522 Baa2 BBB 5.250 GASSM Gas Natural Euro Spain Feb-01-2018 4.580 Baa2 BBB 4.125 GOGLN Go-Ahead Group plc British pound United Kingdom Sep-01-2017 5.385 Baa3 BBB 5.375 REEDLN Reed Elsevier British pound UK/Netherlands Dec-01-2017 4.869 Baa1 BBB+ 7.000 TLM Talisman Energy Inc. British pound United States Dec-01-2017 5.007 Baa2 BBB 6.625 TITIM Telecom Italia Group British pound Italy Dec-01-2017 5.421 Baa2 BBB 7.375 AALLN Anglo American British pound United Kingdom May-01-2018 5.353 Baa1 BBB 6.875 XTA Xstrata British pound Switzerland May-01-2020 5.896 Baa2 BBB 7.375 Data sources: Datastream and case writer estimates.

Quarterly Government Bond Yields Dec, 2005 Mar, 2006 Jun, 2006 Sep, 2006 Dec, 2006 Mar, 2007 Jun, 2007 Sep, 2007 Dec, 2007 Mar, 2008 Jun, 2008 Sep, 2008 Dec, 2008 Mar, 2009 Jun, 2009 Sep, 2009 Dec, 2009 Mar, 20100% 1% 2% 3% 4% 5% 6% Germany (in EUR) United Kingdom (in GBP) United States (in USD)

Quarterly Credit Spreads Dec, 2005 Mar, 2006 Jun, 2006 Sep, 2006 Dec, 2006 Mar, 2007 Jun, 2007 Sep, 2007 Dec, 2007 Mar, 2008 Jun, 2008 Sep, 2008 Dec, 2008 Mar, 2009 Jun, 2009 Sep, 2009 Dec, 2009 Mar, 20100% 1% 2% 3% 4% 5% 6% 7% EUR-BBB GBP-BBB USD-BBB

Quarterly Inflation Rates by Currency Dec, 2005 Mar, 2006 Jun, 2006 Sep, 2006 Dec, 2006 Mar, 2007 Jun, 2007 Sep, 2007 Dec, 2007 Mar, 2008 Jun, 2008 Sep, 2008 Dec, 2008 Mar, 2009 Jun, 2009 Sep, 2009 Dec, 2009 Mar, 2010-4% -2% 0% 2% 4% 6% 8% 10% BRL EUR USD GBP

Monthly Exchange Rates Dec, 2005 Jan, 2006 Feb, 2006 Mar, 2006 Apr, 2006 May, 2006 Jun, 2006 Jul, 2006 Aug, 2006 Sep, 2006 Oct, 2006 Nov, 2006 Dec, 2006 Jan, 2007 Feb, 2007 Mar, 2007 Apr, 2007 May, 2007 Jun, 2007 Jul, 2007 Aug, 2007 Sep, 2007 Oct, 2007 Nov, 2007 Dec, 2007 Jan, 2008 Feb, 2008 Mar, 2008 Apr, 2008 May, 2008 Jun, 2008 Jul, 2008 Aug, 2008 Sep, 2008 Oct, 2008 Nov, 2008 Dec, 2008 Jan, 2009 Feb, 2009 Mar, 2009 Apr, 2009 May, 2009 Jun, 2009 Jul, 2009 Aug, 2009 Sep, 2009 Oct, 2009 Nov, 2009 Dec, 2009 Jan, 2010 Feb, 2010 Mar, 20100 0.5 1 1.5 2 2.5 USD/EUR USD/GBP USD/BRL

Inflation and Yields Quarter Ended: Inflation Government Yields Corporate Yields - AAA Corporate Yields - BBB Credit Spreads BRL EUR USD GBP Germany (in EUR)United Kingdom (in GBP)United States (in USD)EUR-AAA GBP-AAA USD-AAA EUR-BBB GBP-BBB USD-BBB EUR-BBB GBP-BBB USD-BBB Dec, 2005 3.469% 0.763% 3.522% 1.116% 3.309% 4.100% 4.369% 3.471% 4.560% 5.018% 4.219% 5.344% 5.640% 0.910% 1.244% 1.271% Mar, 2006 4.244% 0.380% 3.346% 2.382% 3.771% 4.398% 4.847% 3.995% 4.843% 5.530% 4.786% 5.629% 6.070% 1.015% 1.231% 1.223% Jun, 2006 2.163% 0.474% 3.555% 1.735% 4.071% 4.710% 5.136% 4.317% 5.175% 5.783% 5.113% 5.944% 6.420% 1.042% 1.234% 1.284% Sep, 2006 4.501% 0.473% 3.280% 3.673% 3.709% 4.523% 4.628% 3.974% 5.013% 5.201% 4.746% 5.754% 5.910% 1.037% 1.231% 1.282% Dec, 2006 4.803% 0.758% 2.871% 3.341% 3.948% 4.741% 4.702% 4.208% 5.182% 5.408% 4.876% 5.906% 5.940% 0.928% 1.165% 1.238% Mar, 2007 5.256% 1.701% 3.173% 3.073% 4.057% 4.969% 4.644% 4.346% 5.429% 5.404% 4.948% 6.078% 5.880% 0.891% 1.109% 1.236% Jun, 2007 6.528% 1.981% 2.947% 3.361% 4.574% 5.463% 5.024% 4.889% 5.973% 5.707% 5.402% 6.597% 6.310% 0.828% 1.134% 1.286% Sep, 2007 5.763% 2.074% 2.594% 2.643% 4.329% 5.011% 4.587% 4.794% 5.733% 5.513% 5.472% 6.456% 6.300% 1.143% 1.445% 1.714% Dec, 2007 6.793% 1.974% 2.736% 2.463% 4.307% 4.508% 4.023% 4.890% 5.431% 5.129% 5.864% 6.217% 6.110% 1.557% 1.709% 2.087% Mar, 2008 6.470% 1.301% 2.112% 3.096% 3.899% 4.348% 3.410% 4.653% 5.485% 4.822% 6.097% 6.751% 6.340% 2.198% 2.403% 2.930% Jun, 2008 6.474% 1.388% 1.944% 2.863% 4.621% 5.130% 3.969% 5.313% 6.145% 5.069% 6.529% 7.252% 6.730% 1.908% 2.122% 2.761% Sep, 2008 6.847% 1.385% 2.560% 2.622% 4.015% 4.449% 3.823% 5.125% 5.817% 5.108% 6.675% 6.861% 6.990% 2.660% 2.412% 3.167% Dec, 2008 0.934% 1.935% 1.964% 3.372% 2.951% 3.020% 2.212% 4.646% 5.061% 3.766% 7.643% 6.969% 7.950% 4.692% 3.949% 5.738% Mar, 2009 -2.019% 1.560% 2.006% 1.284% 2.994% 3.166% 2.663% 4.627% 4.319% 4.137% 7.607% 6.499% 8.390% 4.613% 3.333% 5.727% Jun, 2009 -1.744% 1.369% 1.496% 0.857% 3.386% 3.690% 3.533% 4.737% 4.636% 4.536% 6.935% 6.623% 7.550% 3.549% 2.933% 4.017% Sep, 2009 -1.262% 1.913% 0.560% 1.865% 3.220% 3.592% 3.305% 4.106% 4.667% 3.943% 5.712% 5.893% 6.160% 2.492% 2.301% 2.855% Dec, 2009 4.404% 1.175% 0.684% 1.399% 3.387% 4.015% 3.837% 4.178% 4.962% 4.514% 5.405% 5.966% 6.360% 2.018% 1.951% 2.523% Mar, 2010 8.907% 1.445% 0.477% 3.576% 3.092% 3.939% 3.826% 3.828% 4.753% 4.588% 4.969% 5.562% 5.930% 1.877% 1.623% 2.104%

Exchange Rates Month Ended: USD/EUR USD/GBP USD/BRL Dec, 2005 1.1861 1.7458 0.4384 Jan, 2006 1.2126 1.7686 0.4412 Feb, 2006 1.194 1.748 0.4632 Mar, 2006 1.2028 1.7442 0.4645 Apr, 2006 1.2273 1.768 0.4699 May, 2006 1.2767 1.8687 0.4609 Jun, 2006 1.2661 1.8435 0.4446 Jul, 2006 1.2681 1.8443 0.4570 Aug, 2006 1.281 1.8941 0.4640 Sep, 2006 1.2722 1.8839 0.4613 Oct, 2006 1.2617 1.8765 0.4660 Nov, 2006 1.2888 1.9125 0.4639 Dec, 2006 1.3205 1.9629 0.4656 Jan, 2007 1.2993 1.9587 0.4678 Feb, 2007 1.308 1.9589 0.4776 Mar, 2007 1.3246 1.9474 0.4789 Apr, 2007 1.3513 1.9879 0.4926 May, 2007 1.3518 1.9842 0.5041 Jun, 2007 1.3421 1.9867 0.5175 Jul, 2007 1.3726 2.0355 0.5316 Aug, 2007 1.3626 2.011 0.5097 Sep, 2007 1.391 2.0184 0.5257 Oct, 2007 1.4233 2.0449 0.5560 Nov, 2007 1.4683 2.0701 0.5660 Dec, 2007 1.4559 2.0161 0.5602 Jan, 2008 1.4728 1.9702 0.5647 Feb, 2008 1.4759 1.9646 0.5784 Mar, 2008 1.552 2.0015 0.5851 Apr, 2008 1.5754 1.9816 0.5930 May, 2008 1.5554 1.965 0.6030 Jun, 2008 1.5562 1.9664 0.6181 Jul, 2008 1.5759 1.9888 0.6289 Aug, 2008 1.4955 1.8865 0.6201 Sep, 2008 1.4342 1.7973 0.5546 Oct, 2008 1.3266 1.6862 0.4585 Nov, 2008 1.2744 1.5327 0.4405 Dec, 2008 1.3511 1.4854 0.4175 Jan, 2009 1.3244 1.4462 0.4333 Feb, 2009 1.2797 1.4422 0.4305 Mar, 2009 1.305 1.417 0.4318 Apr, 2009 1.3199 1.4712 0.4540 May, 2009 1.3646 1.5418 0.4833 Jun, 2009 1.4014 1.6369 0.5106 Jul, 2009 1.4092 1.6378 0.5174 Aug, 2009 1.4266 1.6532 0.5419 Sep, 2009 1.4575 1.6323 0.5498 Oct, 2009 1.4821 1.6212 0.5754 Nov, 2009 1.4908 1.6599 0.5791 Dec, 2009 1.4579 1.6226 0.5712 Jan, 2010 1.4266 1.6158 0.5613 Feb, 2010 1.368 1.5618 0.5429