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

 

September, 2016

 

Vale S.A.

 

Avenida das Américas, No. 700
22640-100 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

 

GRAPHIC

 

Interim Financial Statements

September 30, 2016

 

 

IFRS in US$

 

1



Table of Contents

 

GRAPHIC

 

Vale S.A. Interim Financial Statements

Contents

 

 

Page

Report of independent registered public accounting firm

3

Condensed Consolidated Income Statement

4

Condensed Consolidated Statement of Comprehensive Income

5

Condensed Consolidated Cash Flow Statement

6

Condensed Consolidated Balance Sheet

7

Condensed Consolidated Statement of Changes in Equity

8

Selected Notes to the Interim Financial Statements

9

1.

Corporate information

9

2.

Basis for preparation of the interim financial statements

9

3.

Information by business segment

10

4.

Liabilities related to associates and joint ventures

16

5.

Non-current assets and liabilities held for sale

18

6.

Acquisitions and divestitures

19

7.

Cash and cash equivalents

19

8.

Accounts receivable

20

9.

Inventories

20

10.

Investments in associates and joint ventures

20

11.

Intangibles

22

12.

Property, plant and equipment

23

13.

Loans and borrowings

24

14.

Litigation

26

15.

Income taxes

28

16.

Employee postretirement obligations

29

17.

Financial instruments classification

29

18.

Fair value estimate

30

19.

Derivative financial instruments

30

20.

Stockholders’ equity

40

21.

Costs and expenses by nature

41

22.

Financial results

42

23.

Deferred revenue – Gold stream

42

24.

Commitments

43

25.

Related parties

44

Members of the Board of Directors, Fiscal Council, Advisory Committees and Executive Officers

46

 

2



Table of Contents

 

GRAPHIC

 

KPMG Auditores Independentes

 

Central Tel 55 (21) 3515-9400

Av. Almirante Barroso, 52 - 4º

 

Fax

55 (21) 3515-9000

20031-000 - Rio de Janeiro, RJ - Brasil

 

Internet

www.kpmg.com.br

Caixa Postal 2888

 

 

20001-970 - Rio de Janeiro, RJ - Brasil

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Vale S.A.

Rio de Janeiro - RJ

 

We have reviewed the accompanying condensed consolidated balance sheet of Vale S.A. (“the Company”) and its subsidiaries as of September 30, 2016 and the related condensed consolidated statements of income, comprehensive income and cash flows for the three- and nine-month periods ended September 30, 2016 and 2015 and the condensed consolidated statements of changes in equity for the nine-month periods ended on September 30, 2016 and 2015. These condensed consolidated financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an audit opinion.

 

Based on our review, we are not aware of any material modification that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vale S.A. and its subsidiaries as of December 31, 2015 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended, and in our report dated February 24, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in th accompanying condensed consolidated balance sheet as of December 31, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

KPMG Auditores Independentes

Rio de Janeiro, Brazil

October 26, 2016

 

 

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.

 

KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

3



Table of Contents

 

GRAPHIC

 

Condensed Consolidated Income Statement

In millions of United States dollars, except as otherwise stated

 

 

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

Notes

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenue

 

3(c)

 

7,324

 

6,505

 

19,669

 

19,710

 

Cost of goods sold and services rendered

 

21(a)

 

(4,955

)

(5,040

)

(13,999

)

(15,394

)

Gross profit

 

 

 

2,369

 

1,465

 

5,670

 

4,316

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (expenses) income

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

21(b)

 

(153

)

(131

)

(412

)

(485

)

Research and evaluation expenses

 

 

 

(85

)

(121

)

(223

)

(358

)

Pre operating and operational stoppage

 

 

 

(122

)

(266

)

(338

)

(789

)

Other operating income (expenses), net

 

21(c)

 

51

 

(113

)

(144

)

(270

)

 

 

 

 

(309

)

(631

)

(1,117

)

(1,902

)

Results on measurement or sale of non-current assets

 

5 and 6

 

(29

)

(48

)

(95

)

90

 

Operating income

 

 

 

2,031

 

786

 

4,458

 

2,504

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

 

22

 

374

 

2,556

 

7,580

 

6,375

 

Financial expenses

 

22

 

(1,421

)

(9,732

)

(5,111

)

(17,529

)

Equity results in associates and joint ventures

 

10

 

46

 

(349

)

392

 

(402

)

Others results in associates and joint ventures

 

4 and 6

 

(33

)

 

(1,146

)

97

 

Net income (loss) before income taxes

 

 

 

997

 

(6,739

)

6,173

 

(8,955

)

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

15

 

 

 

 

 

 

 

 

 

Current tax

 

 

 

(57

)

(100

)

(815

)

(237

)

Deferred tax

 

 

 

(358

)

4,603

 

(1,875

)

5,415

 

 

 

 

 

(415

)

4,503

 

(2,690

)

5,178

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

582

 

(2,236

)

3,483

 

(3,777

)

Income (loss) attributable to noncontrolling interests

 

 

 

7

 

(119

)

26

 

(217

)

Net income (loss) attributable to Vale’s stockholders

 

 

 

575

 

(2,117

)

3,457

 

(3,560

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Vale’s stockholders:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

20(b)

 

 

 

 

 

 

 

 

 

Preferred share (US$)

 

 

 

0.11

 

(0.41

)

0.67

 

(0.69

)

Common share (US$)

 

 

 

0.11

 

(0.41

)

0.67

 

(0.69

)

 

The accompanying notes are an integral part of these interim financial statements.

See report of independent registered public accounting firm.

 

4



Table of Contents

 

GRAPHIC

 

Condensed Consolidated Statement of Comprehensive Income

In millions of United States dollars

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Net income (loss)

 

582

 

(2,236

)

3,483

 

(3,777

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Items that will not be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Cumulative translation adjustments

 

(447

)

(10,966

)

6,660

 

(18,869

)

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

 

 

 

Gross balance for the period

 

(43

)

(7

)

(311

)

(14

)

Effect of taxes

 

14

 

2

 

96

 

25

 

 

 

(29

)

(5

)

(215

)

11

 

Total items that will not be reclassified subsequently to the income statement

 

(476

)

(10,971

)

6,445

 

(18,858

)

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Cumulative translation adjustments

 

 

 

 

 

 

 

 

 

Gross balance for the period

 

219

 

6,632

 

(3,459

)

10,345

 

Effect of taxes

 

18

 

 

(123

)

 

Transfer of realized results to net income, net of taxes

 

 

 

(75

)

 

 

 

237

 

6,632

 

(3,657

)

10,345

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge

 

 

 

 

 

 

 

 

 

Gross balance for the period

 

 

148

 

6

 

689

 

Effect of taxes

 

 

(2

)

(1

)

(5

)

Equity results in associates and joint ventures

 

 

(3

)

5

 

(5

)

Transfer of realized results to net income, net of taxes

 

 

(119

)

(3

)

(362

)

 

 

 

24

 

7

 

317

 

Total of items that may be reclassified subsequently to the income statement

 

237

 

6,656

 

(3,650

)

10,662

 

Total comprehensive income (loss)

 

343

 

(6,551

)

6,278

 

(11,973

)

Comprehensive income (loss) attributable to noncontrolling interests

 

(3

)

(162

)

150

 

(266

)

Comprehensive income (loss) attributable to Vale’s stockholders

 

346

 

(6,389

)

6,128

 

(11,707

)

 

The accompanying notes are an integral part of these interim financial statements.

See report of independent registered public accounting firm.

 

5



Table of Contents

 

GRAPHIC

 

Condensed Consolidated Cash Flow Statement

In millions of United States dollars

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

997

 

(6,739

)

6,173

 

(8,955

)

Adjustments for:

 

 

 

 

 

 

 

 

 

Equity results from associates and joint ventures

 

(46

)

349

 

(392

)

402

 

Others results in associates and joint ventures

 

 

 

1,113

 

(97

)

Results on disposal of property, plant and equipment and intangibles

 

(121

)

48

 

(55

)

(320

)

Depreciation, amortization and depletion

 

963

 

1,022

 

2,740

 

3,045

 

Financial results, net

 

1,047

 

7,176

 

(2,469

)

11,154

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

57

 

343

 

(136

)

686

 

Inventories

 

12

 

(331

)

28

 

(231

)

Suppliers and contractors

 

255

 

422

 

236

 

249

 

Payroll and related charges

 

(16

)

53

 

29

 

(524

)

Other taxes assets and liabilities, net

 

(43

)

(143

)

(94

)

(349

)

Deferred revenue - Gold stream (note 23) (ii)

 

524

 

 

524

 

532

 

Other assets and liabilities, net

 

(402

)

113

 

(659

)

350

 

Cash provided from operations

 

3,227

 

2,313

 

7,038

 

5,942

 

Interest on loans and borrowings paid

 

(423

)

(381

)

(1,245

)

(1,157

)

Derivatives received (paid), net (note 19)

 

(191

)

(167

)

(1,054

)

(927

)

Interest on participative stockholders’ debentures paid

 

 

 

(37

)

(39

)

Income taxes

 

(88

)

(47

)

(347

)

(365

)

Income taxes - Settlement program

 

(116

)

(89

)

(304

)

(298

)

Net cash provided by operating activities

 

2,409

 

1,629

 

4,051

 

3,156

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

Financial investments redeemed (invested)

 

69

 

51

 

46

 

303

 

Loans and advances granted

 

(71

)

25

 

(126

)

(41

)

Additions to investments

 

(9

)

(8

)

(230

)

(144

)

Additions to property, plant and equipment and intangible (note 3(b))

 

(1,249

)

(1,870

)

(3,847

)

(6,181

)

Dividends and interest on capital received from associates and joint ventures

 

 

19

 

118

 

231

 

Proceeds from disposal of assets and investments

 

326

 

472

 

350

 

1,033

 

Proceeds from gold stream transaction

 

276

 

 

276

 

368

 

Net cash used in investing activities

 

(658

)

(1,311

)

(3,413

)

(4,431

)

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

Loans and borrowings (i)

 

 

 

 

 

 

 

 

 

Additions

 

1,573

 

1,066

 

6,206

 

3,950

 

Repayments

 

(1,987

)

(928

)

(4,953

)

(1,814

)

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

Dividends and interest on capital paid to Vale’s stockholders

 

 

 

 

(1,000

)

Dividends and interest on capital paid to noncontrolling interest

 

(129

)

 

(204

)

(12

)

Transactions with noncontrolling stockholders

 

 

1,089

 

(17

)

1,049

 

Net cash provided by (used in) financing activities

 

(543

)

1,227

 

1,032

 

2,173

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

1,208

 

1,545

 

1,670

 

898

 

Cash and cash equivalents in the beginning of the period

 

4,168

 

3,158

 

3,591

 

3,974

 

Effect of exchange rate changes on cash and cash equivalents

 

(7

)

(306

)

108

 

(475

)

Cash and cash equivalents at end of the period

 

5,369

 

4,397

 

5,369

 

4,397

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

 

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

 

172

 

195

 

562

 

568

 

 


(i) Includes transactions with related parties: Bradesco, Banco do Brasil and Banco Nacional do Desenvolvimento Econômico e Social - BNDES.

(ii) Net of warrants.

 

The accompanying notes are an integral part of these interim financial statements.

See report of independent registered public accounting firm.

 

6



Table of Contents

 

GRAPHIC

 

Condensed Consolidated Balance Sheet

In millions of United States dollars

 

 

 

Notes

 

September 30, 2016

 

December 31, 2015

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

7

 

5,369

 

3,591

 

Financial investments

 

 

 

115

 

28

 

Derivative financial instruments

 

19

 

141

 

121

 

Accounts receivable

 

8

 

2,556

 

1,476

 

Inventories

 

9

 

3,900

 

3,528

 

Recoverable income taxes

 

 

 

317

 

900

 

Recoverable taxes

 

 

 

1,603

 

1,404

 

Related parties

 

25

 

66

 

70

 

Others

 

 

 

651

 

311

 

 

 

 

 

14,718

 

11,429

 

 

 

 

 

 

 

 

 

Non-current assets held for sale

 

5

 

4,789

 

4,044

 

 

 

 

 

19,507

 

15,473

 

Non-current assets

 

 

 

 

 

 

 

Derivative financial instruments

 

19

 

504

 

93

 

Loans

 

 

 

182

 

188

 

Recoverable income taxes

 

 

 

542

 

471

 

Recoverable taxes

 

 

 

688

 

501

 

Deferred income taxes

 

15(a)

 

6,849

 

7,904

 

Judicial deposits

 

14(c)

 

1,073

 

882

 

Related parties

 

25

 

19

 

1

 

Others

 

 

 

661

 

613

 

 

 

 

 

10,518

 

10,653

 

 

 

 

 

 

 

 

 

Investments in associates and joint ventures

 

10

 

3,976

 

2,940

 

Intangibles

 

11

 

6,959

 

5,324

 

Property, plant and equipment

 

12

 

61,127

 

54,102

 

 

 

 

 

82,580

 

73,019

 

Total assets

 

 

 

102,087

 

88,492

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Suppliers and contractors

 

 

 

3,751

 

3,365

 

Payroll and related charges

 

 

 

593

 

375

 

Derivative financial instruments

 

19

 

868

 

2,076

 

Loans and borrowings

 

13

 

2,181

 

2,506

 

Related parties

 

25

 

558

 

475

 

Income taxes - Settlement program

 

15(c)

 

449

 

345

 

Taxes payable

 

 

 

185

 

250

 

Provision for income taxes

 

 

 

154

 

241

 

Employee postretirement obligations

 

16

 

72

 

68

 

Asset retirement obligations

 

 

 

70

 

89

 

Liabilities related to associates and joint ventures

 

4

 

329

 

 

Others

 

 

 

1,488

 

648

 

 

 

 

 

10,698

 

10,438

 

 

 

 

 

 

 

 

 

Liabilities associated with non-current assets held for sale

 

5

 

149

 

107

 

 

 

 

 

10,847

 

10,545

 

Non-current liabilities

 

 

 

 

 

 

 

Derivative financial instruments

 

19

 

1,167

 

1,429

 

Loans and borrowings

 

13

 

29,268

 

26,347

 

Related parties

 

25

 

137

 

213

 

Employee postretirement obligations

 

16

 

2,113

 

1,750

 

Provisions for litigation

 

14(a)

 

919

 

822

 

Income taxes - Settlement program

 

15(c)

 

4,977

 

4,085

 

Deferred income taxes

 

15(a)

 

1,676

 

1,670

 

Asset retirement obligations

 

 

 

3,169

 

2,385

 

Participative stockholders’ debentures

 

 

 

658

 

342

 

Deferred revenue - Gold stream

 

23

 

2,158

 

1,749

 

Liabilities related to associates and joint ventures

 

4

 

795

 

 

Others

 

 

 

2,372

 

1,451

 

 

 

 

 

49,409

 

42,243

 

Total liabilities

 

 

 

60,256

 

52,788

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Equity attributable to Vale’s stockholders

 

20

 

39,719

 

33,589

 

Equity attributable to noncontrolling interests

 

 

 

2,112

 

2,115

 

Total stockholders’ equity

 

 

 

41,831

 

35,704

 

Total liabilities and stockholders’ equity

 

 

 

102,087

 

88,492

 

 

The accompanying notes are an integral part of these interim financial statements.

See report of independent registered public accounting firm.

 

7



Table of Contents

 

GRAPHIC

 

Condensed Consolidated Statement of Changes in Equity

In millions of United States dollars

 

 

 

Share
capital

 

Results on
conversion
of shares

 

Results from
operation with
noncontrolling
interest

 

Profit
reserves

 

Treasury
stocks

 

Unrealized fair
value gain
(losses)

 

Cumulative
translation
adjustments

 

Retained
earnings

 

Equity
attributable
to Vale’s
stockholders

 

Equity
attributable to
noncontrolling
interests

 

Total
stockholder’s
equity

 

Balance at December 31, 2015

 

61,614

 

(152

)

(702

)

985

 

(1,477

)

(992

)

(25,687

)

 

33,589

 

2,115

 

35,704

 

Net income

 

 

 

 

 

 

 

 

3,457

 

3,457

 

26

 

3,483

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

(215

)

 

 

(215

)

 

(215

)

Cash flow hedge

 

 

 

 

 

 

7

 

 

 

7

 

 

7

 

Translation adjustments

 

 

 

 

200

 

 

(90

)

2,608

 

161

 

2,879

 

124

 

3,003

 

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(174

)

(174

)

Acquisitions and disposal of participation of noncontrolling interest

 

 

 

2

 

 

 

 

 

 

2

 

 

2

 

Capitalization of noncontrolling interest advances

 

 

 

 

 

 

 

 

 

 

21

 

21

 

Balance at September 30, 2016

 

61,614

 

(152

)

(700

)

1,185

 

(1,477

)

(1,290

)

(23,079

)

3,618

 

39,719

 

2,112

 

41,831

 

 

 

 

Share
capital

 

Results on
conversion
of shares

 

Results from
operation with
noncontrolling
interest

 

Profit
reserves

 

Treasury
stocks

 

Unrealized fair
value gain
(losses)

 

Cumulative
translation
adjustments

 

Retained
earnings
(loss)

 

Equity
attributable
to Vale’s
stockholders

 

Equity
attributable to
noncontrolling
interests

 

Total
stockholder’s
equity

 

Balance at December 31, 2014

 

61,614

 

(152

)

(449

)

19,985

 

(1,477

)

(1,713

)

(22,686

)

 

55,122

 

1,199

 

56,321

 

Loss

 

 

 

 

 

 

 

 

(3,560

)

(3,560

)

(217

)

(3,777

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

11

 

 

 

11

 

 

11

 

Cash flow hedge

 

 

 

 

 

 

317

 

 

 

317

 

 

317

 

Translation adjustments

 

 

 

 

(6,404

)

 

214

 

(3,062

)

777

 

(8,475

)

(49

)

(8,524

)

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and interest on capital of Vale’s stockholders

 

 

 

 

(1,000

)

 

 

 

 

(1,000

)

 

(1,000

)

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(6

)

(6

)

Acquisitions and disposal of participation of noncontrolling interest

 

 

 

180

 

 

 

 

(336

)

 

(156

)

1,289

 

1,133

 

Capitalization of noncontrolling interest advances

 

 

 

 

 

 

 

 

 

 

26

 

26

 

Balance at September 30, 2015

 

61,614

 

(152

)

(269

)

12,581

 

(1,477

)

(1,171

)

(26,084

)

(2,783

)

42,259

 

2,242

 

44,501

 

 

The accompanying notes are an integral part of these interim financial statements.

See report of independent registered public accounting firm.

 

8



Table of Contents

 

GRAPHIC

 

Selected Notes to the Interim Financial Statements

Expressed in millions of United States dollar, unless otherwise stated

 

1.                                      Corporate information

 

Vale S.A. (the “Parent Company”) is a public company headquartered at 700, Avenida das Américas, Rio de Janeiro, Brazil with securities traded on the stock exchanges of São Paulo - BM&F BOVESPA (Vale3 and Vale5), New York - NYSE (VALE and VALE.P) and Paris - NYSE Euronext (Vale3 and Vale5).

 

Vale and its direct and indirect subsidiaries (“Vale”, “Group” or “Company”) are producers of iron ore and iron ore pellets, key raw materials for steelmaking, and producers of nickel, which is used to produce stainless steel and metal alloys employed in the production of several products. The Group also produces copper, metallurgical and thermal coal, potash, phosphates and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The information by segment is presented in note 3.

 

2.                                      Basis for preparation of the interim financial statements

 

a)        Statement of compliance

 

The condensed consolidated interim financial statements of the Company (“interim financial statements”) present the accounts of the Group, and have been prepared in accordance with IAS 34 Interim Financial Reporting of the International Financial Reporting Standards (“IFRS”) as adopted by the International Accounting Standards Board (“IASB”).

 

b)        Basis of presentation

 

The interim financial statements have been prepared under the historical cost convention as adjusted to reflect: (i) the fair value of financial instruments measured at fair value through income statement or available-for-sale financial instruments measured at fair value through the statement of comprehensive income; and (ii) impairment of assets.

 

The accounting practices, accounting estimates and judgments, risk management and measurement methods are the same as those adopted when preparing the financial statements for the year ended December 31, 2015. These interim financial statements were prepared to update users about relevant information presented in the period and should be read in conjunction with the financial statements for the year ended December 31, 2015.

 

The interim financial statements of the Group and its associates and joint ventures are measured using the currency of the primary economic environment in which each entity operates (“functional currency”). In the case of the Parent Company the functional currency is the Brazilian real (“BRL” or “R$”). For presentation purposes, these interim financial statements are presented in United States dollar (“USD” or “US$”) as the Company believes that this is how international investors analyze the financial statements.

 

The exchange rates used by the Group for major currencies to translate its operations are as follows:

 

 

 

 

 

 

 

Average rate for the

 

 

 

Closing rate

 

Three months period ended

 

Nine months period ended

 

 

 

September 30,
2016

 

December 31,
2015

 

September 30,
2016

 

September 30,
2015

 

September 30,
2016

 

September 30,
2015

 

Brazilian Reais (“R$”)

 

3.2462

 

3.9048

 

3.2460

 

3.5379

 

3.5450

 

3.1684

 

Canadian dollar (“CAD”)

 

2.4757

 

2.8171

 

2.4881

 

2.7024

 

2.6802

 

2.5090

 

Australian dollar (“AUD”)

 

2.4895

 

2.8532

 

2.4616

 

2.5642

 

2.6273

 

2.4067

 

Euro (“EUR” or “€”)

 

3.6484

 

4.2504

 

3.6232

 

3.9365

 

3.9549

 

3.5285

 

 

Subsequent events were evaluated through October 26, 2016, which is the date the interim financial statements were approved by the Board of Directors.

 

c)         Accounting standards issued but not yet effective

 

The standards and interpretations issued by IASB relevant to the Company but not yet effective are disclosed below:

 

·                  IFRS 9 Financial instruments.

·                  IFRS 15 Revenue from contracts with customers.

·                  IFRS 16 Leases.

·                  Amendments to IAS 12 — Recognition of deferred tax assets.

·                  Amendments to IAS 7 — Disclosure Initiative.

·                  Amendments to IFRS 2 — Classification and measurement of share-based payment transactions.

·                  Amendments to IFRS 4 — Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

 

The Company is currently analyzing potential impacts regarding these pronouncements on its financial statements.

 

9



Table of Contents

 

GRAPHIC

 

3.                            Information by business segment

 

The information presented to the Executive Board on the performance of each segment is derived from the accounting records.

 

a)        Adjusted EBITDA

 

Adjusted EBITDA is used by management to support the decision making process for segments. The definition of adjusted EBITDA for the Company is the operating income or loss less (i) the depreciation, depletion and amortization, (ii) results on measurement or sales of non-current assets, (iii) impairment, (iv) onerous contracts and plus (v) dividends received from associates and joint ventures.

 

 

 

Three months period ended September 30, 2016

 

 

 

Net operating revenue

 

Cost of goods sold and
services rendered

 

Sales, administrative
and other operating
expenses

 

Research and evaluation
expenses

 

Pre operating and
operational stoppage

 

Adjusted EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

3,782

 

(1,648

)

(80

)

(25

)

(40

)

1,989

 

Pellets

 

991

 

(512

)

(8

)

(4

)

(5

)

462

 

Ferroalloys and manganese

 

76

 

(63

)

(6

)

 

(3

)

4

 

Other ferrous products and services

 

110

 

(70

)

(1

)

 

(1

)

38

 

 

 

4,959

 

(2,293

)

(95

)

(29

)

(49

)

2,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

163

 

(157

)

3

 

(3

)

(13

)

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

1,159

 

(792

)

(31

)

(21

)

(26

)

289

 

Copper

 

420

 

(255

)

(2

)

(2

)

 

161

 

Other base metals products

 

 

 

150

 

 

 

150

 

 

 

1,579

 

(1,047

)

117

 

(23

)

(26

)

600

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

34

 

(35

)

(1

)

(1

)

(4

)

(7

)

Phosphates

 

470

 

(413

)

(26

)

(3

)

 

28

 

Nitrogen

 

69

 

(53

)

(2

)

(1

)

 

13

 

Other fertilizers products

 

25

 

 

 

 

 

25

 

 

 

598

 

(501

)

(29

)

(5

)

(4

)

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

25

 

(58

)

(64

)

(25

)

 

(122

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

7,324

 

(4,056

)

(68

)

(85

)

(92

)

3,023

 

 

10



Table of Contents

 

GRAPHIC

 

 

 

Three months period ended September 30, 2015

 

 

 

Net operating
revenue

 

Cost of goods sold
and services rendered

 

Sales, administrative
and other operating
expenses

 

Research and
evaluation expenses

 

Pre operating and
operational stoppage

 

Dividends received
from associates and
joint ventures

 

Adjusted EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

3,278

 

(1,838

)

(169

)

(26

)

(23

)

 

1,222

 

Pellets

 

883

 

(508

)

13

 

(1

)

(5

)

 

382

 

Ferroalloys and manganese

 

26

 

(31

)

(2

)

 

(4

)

 

(11

)

Other ferrous products and services

 

125

 

(70

)

5

 

(1

)

 

 

59

 

 

 

4,312

 

(2,447

)

(153

)

(28

)

(32

)

 

1,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

127

 

(207

)

(17

)

(7

)

(25

)

 

(129

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

1,011

 

(820

)

8

 

(23

)

(97

)

 

79

 

Copper

 

336

 

(218

)

(1

)

(3

)

 

 

114

 

 

 

1,347

 

(1,038

)

7

 

(26

)

(97

)

 

193

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

41

 

(29

)

(1

)

(15

)

(8

)

 

(12

)

Phosphates

 

560

 

(364

)

(3

)

(7

)

(20

)

 

166

 

Nitrogen

 

80

 

(51

)

(1

)

(1

)

(1

)

 

26

 

Other fertilizers products

 

17

 

 

 

 

 

 

17

 

 

 

698

 

(444

)

(5

)

(23

)

(29

)

 

197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

21

 

(43

)

2

 

(37

)

 

 

19

 

(38

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

6,505

 

(4,179

)

(166

)

(121

)

(183

)

19

 

1,875

 

 

11



Table of Contents

 

GRAPHIC

 

 

 

Nine months period ended September 30, 2016

 

 

 

Net operating
revenue

 

Cost of goods sold
and services rendered

 

Sales, administrative
and other operating
expenses

 

Research and
evaluation expenses

 

Pre operating and
operational stoppage

 

Dividends received
from associates and
joint ventures

 

Adjusted EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

10,208

 

(4,609

)

(386

)

(52

)

(107

)

 

5,054

 

Pellets

 

2,611

 

(1,408

)

(43

)

(8

)

(17

)

60

 

1,195

 

Ferroalloys and manganese

 

185

 

(162

)

(3

)

 

(9

)

 

11

 

Other ferrous products and services

 

300

 

(192

)

2

 

(1

)

(2

)

 

107

 

 

 

13,304

 

(6,371

)

(430

)

(61

)

(135

)

60

 

6,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

463

 

(687

)

46

 

(8

)

(24

)

 

(210

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

3,209

 

(2,332

)

(55

)

(57

)

(84

)

 

681

 

Copper

 

1,170

 

(684

)

(9

)

(3

)

 

 

474

 

Other base metals products

 

 

 

150

 

 

 

 

150

 

 

 

4,379

 

(3,016

)

86

 

(60

)

(84

)

 

1,305

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

79

 

(75

)

2

 

(4

)

(12

)

 

(10

)

Phosphates

 

1,123

 

(976

)

(62

)

(10

)

(2

)

 

73

 

Nitrogen

 

187

 

(139

)

(8

)

(2

)

 

 

38

 

Other fertilizers products

 

57

 

 

 

 

 

3

 

60

 

 

 

1,446

 

(1,190

)

(68

)

(16

)

(14

)

3

 

161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

77

 

(158

)

(106

)

(78

)

(2

)

55

 

(212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

19,669

 

(11,422

)

(472

)

(223

)

(259

)

118

 

7,411

 

 

12



Table of Contents

 

GRAPHIC

 

 

 

Nine months period ended September 30, 2015

 

 

 

Net operating
revenue

 

Cost of goods sold
and services rendered

 

Sales, administrative
and other operating
expenses

 

Research and
evaluation expenses

 

Pre operating and
operational stoppage

 

Dividends received
from associates and
joint ventures

 

Adjusted EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

9,385

 

(5,680

)

(526

)

(95

)

(74

)

 

3,010

 

Pellets

 

2,820

 

(1,668

)

16

 

(3

)

(19

)

203

 

1,349

 

Ferroalloys and manganese

 

149

 

(130

)

(2

)

 

(14

)

 

3

 

Other ferrous products and services

 

378

 

(266

)

12

 

(3

)

(1

)

8

 

128

 

 

 

12,732

 

(7,744

)

(500

)

(101

)

(108

)

211

 

4,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

418

 

(579

)

(131

)

(18

)

(49

)

 

(359

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

3,586

 

(2,501

)

(80

)

(73

)

(322

)

 

610

 

Copper

 

1,119

 

(664

)

(11

)

(6

)

(1

)

 

437

 

Other base metals products

 

 

 

230

 

 

 

 

230

 

 

 

4,705

 

(3,165

)

139

 

(79

)

(323

)

 

1,277

 

Fertilizers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potash

 

102

 

(70

)

4

 

(38

)

(16

)

 

(18

)

Phosphates

 

1,362

 

(923

)

(23

)

(20

)

(42

)

 

354

 

Nitrogen

 

237

 

(157

)

(4

)

(2

)

(3

)

 

71

 

Other fertilizers products

 

43

 

 

 

 

 

 

43

 

 

 

1,744

 

(1,150

)

(23

)

(60

)

(61

)

 

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

111

 

(102

)

(97

)

(100

)

 

20

 

(168

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

19,710

 

(12,740

)

(612

)

(358

)

(541

)

231

 

5,690

 

 

13



Table of Contents

 

 

Adjusted Ebitda is reconciled to net income (loss) as follows:

 

 

 

Three months period ended September 30

 

Nine months period ended September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Adjusted EBITDA

 

3,023

 

1,875

 

7,411

 

5,690

 

Depreciation, depletion and amortization

 

(963

)

(1,022

)

(2,740

)

(3,045

)

Dividends received from associates and joint ventures

 

 

(19

)

(118

)

(231

)

Results on measurement or sale of non-current assets

 

(29

)

(48

)

(95

)

90

 

Operating income

 

2,031

 

786

 

4,458

 

2,504

 

 

 

 

 

 

 

 

 

 

 

Financial results, net

 

(1,047

)

(7,176

)

2,469

 

(11,154

)

Equity results in associates and joint ventures

 

46

 

(349

)

392

 

(402

)

Others results in associates and joint ventures

 

(33

)

 

(1,146

)

97

 

Income taxes

 

(415

)

4,503

 

(2,690

)

5,178

 

Income (loss) attributable to noncontrolling interests

 

(7

)

119

 

(26

)

217

 

Income (loss) attributable to Vale’s stockholders

 

575

 

(2,117

)

3,457

 

(3,560

)

 

b)   Assets by segment

 

 

 

September 30, 2016

 

Three months
period ended
September 30,
2016

 

Nine months
period ended
September 30,
2016

 

 

 

Product inventory

 

Investments in
associates and
joint ventures

 

Property, plant and
equipment and
intangible assets

 

Additions to
property, plant
and equipment
and intangible (i)

 

Additions to
property, plant
and equipment
and intangible (i)

 

 

 

 

 

 

 

 

 

 

 

 

 

Ferrous minerals

 

1,287

 

1,831

 

34,344

 

797

 

2,481

 

Coal

 

95

 

291

 

1,953

 

152

 

441

 

Base metals

 

1,142

 

16

 

24,983

 

189

 

691

 

Fertilizers

 

248

 

90

 

4,555

 

99

 

207

 

Others

 

1

 

1,748

 

2,251

 

12

 

27

 

Total

 

2,773

 

3,976

 

68,086

 

1,249

 

3,847

 

 


(i) Includes only cash effect.

 

 

 

December 31, 2015

 

Three months
period ended
September 30,
2015

 

Nine months
period ended
September 30,
2015

 

 

 

Product inventory

 

Investments in
associates and
joint ventures

 

Property, plant and
equipment and
intangible assets

 

Additions to
property, plant
and equipment
and intangible (i)

 

Additions to
property, plant
and equipment
and intangible (i)

 

 

 

 

 

 

 

 

 

 

 

 

 

Ferrous minerals

 

1,036

 

1,479

 

28,202

 

1,099

 

3,858

 

Coal

 

53

 

306

 

1,812

 

330

 

1,076

 

Base metals

 

1,166

 

17

 

23,522

 

368

 

1,021

 

Fertilizers

 

295

 

75

 

3,866

 

55

 

161

 

Others

 

3

 

1,063

 

2,024

 

18

 

65

 

Total

 

2,553

 

2,940

 

59,426

 

1,870

 

6,181

 

 


(i) Includes only cash effect.

 

14



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c)   Revenues by geographic area

 

 

 

Three months period ended September 30, 2016

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Fertilizers

 

Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas, except United States and Brazil

 

81

 

 

304

 

11

 

 

396

 

United States of America

 

54

 

 

184

 

 

 

238

 

Europe

 

624

 

56

 

446

 

21

 

 

1,147

 

Middle East/Africa/Oceania

 

333

 

14

 

4

 

 

 

351

 

Japan

 

373

 

18

 

92

 

 

 

483

 

China

 

2,720

 

17

 

172

 

 

 

2,909

 

Asia, except Japan and China

 

286

 

58

 

333

 

10

 

 

687

 

Brazil

 

488

 

 

44

 

556

 

25

 

1,113

 

Net operating revenue

 

4,959

 

163

 

1,579

 

598

 

25

 

7,324

 

 

 

 

Three months period ended September 30, 2015

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Fertilizers

 

Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas, except United States and Brazil

 

82

 

12

 

206

 

19

 

 

319

 

United States of America

 

9

 

 

176

 

 

3

 

188

 

Europe

 

627

 

23

 

422

 

37

 

 

1,109

 

Middle East/Africa/Oceania

 

229

 

15

 

8

 

3

 

 

255

 

Japan

 

389

 

22

 

88

 

 

 

499

 

China

 

2,355

 

24

 

176

 

 

 

2,555

 

Asia, except Japan and China

 

225

 

30

 

226

 

13

 

 

494

 

Brazil

 

396

 

1

 

45

 

626

 

18

 

1,086

 

Net operating revenue

 

4,312

 

127

 

1,347

 

698

 

21

 

6,505

 

 

 

 

Nine months period ended September 30, 2016

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Fertilizers

 

Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas, except United States and Brazil

 

246

 

14

 

862

 

28

 

 

1,150

 

United States of America

 

141

 

 

532

 

 

4

 

677

 

Europe

 

1,702

 

85

 

1,364

 

69

 

 

3,220

 

Middle East/Africa/Oceania

 

784

 

55

 

17

 

3

 

 

859

 

Japan

 

927

 

83

 

218

 

 

 

1,228

 

China

 

7,573

 

48

 

442

 

 

 

8,063

 

Asia, except Japan and China

 

671

 

178

 

840

 

49

 

 

1,738

 

Brazil

 

1,260

 

 

104

 

1,297

 

73

 

2,734

 

Net operating revenue

 

13,304

 

463

 

4,379

 

1,446

 

77

 

19,669

 

 

 

 

Nine months period ended September 30, 2015

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Fertilizers

 

Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas, except United States and Brazil

 

279

 

16

 

843

 

52

 

 

1,190

 

United States of America

 

24

 

 

644

 

 

18

 

686

 

Europe

 

1,908

 

74

 

1,432

 

99

 

 

3,513

 

Middle East/Africa/Oceania

 

807

 

82

 

64

 

6

 

 

959

 

Japan

 

1,155

 

61

 

282

 

 

 

1,498

 

China

 

6,381

 

36

 

498

 

 

 

6,915

 

Asia, except Japan and China

 

864

 

132

 

720

 

50

 

 

1,766

 

Brazil

 

1,314

 

17

 

222

 

1,537

 

93

 

3,183

 

Net operating revenue

 

12,732

 

418

 

4,705

 

1,744

 

111

 

19,710

 

 

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4.             Liabilities related to associates and joint ventures

 

Refers to the provision to comply with the obligations under the agreement related to the dam failure of Samarco Mineração S.A. (“Samarco”), which is a Brazilian joint venture between Vale S.A. and BHP Billiton Brasil Ltda. (“BHPB”), as follows:

 

a) Reparation agreement

 

Samarco and its shareholders, Vale S.A. and BHPB, entered into an Agreement in connection with the US$6.3 billion (R$20.2 billion) lawsuit (“Agreement”) on March 2, 2016 with the Brazilian federal government, the two Brazilian states affected by the failure (Espírito Santo and Minas Gerais) and other governmental authorities in order to implement the programs for remediation and compensation of the areas and communities affected by Samarco’s dam failure.

 

The Agreement does not contemplate admission of civil, criminal or administrative liability for the Fundão dam failure.

 

The Agreement has a 15-year term, renewable for successive one-year periods until all the obligations under the Agreement have been performed.

 

Under the Agreement, Samarco, Vale S.A. and BHPB have agreed to establish a foundation to develop and implement social and economic remediation and compensation, to be funded by Samarco as follows: US$623 (R$2.0 billion) in 2016, US$374 (R$1.2 billion) in 2017 and US$374 (R$1.2 billion) in 2018. From 2019 to 2021, Samarco agreed to provide funding based on the amounts needed to implement the projects approved for the relevant year, subject to an annual minimum of US$249 (R$800) and an annual maximum of US$498 (R$1.6 billion). From 2022 onwards, Samarco will provide the necessary funding in order to complete remaining programs approved for each relevant year. The foundation will allocate an annual amount of US$75 (R$240) over 15 years to the implementation of compensation programs, and these annual amounts are included in the annual contributions described above for the first six years. Through the end of 2018, US$156 (R$500) will be provided for sewage collection and treatment and solid waste disposal under the terms of the Agreement.

 

To the extent that Samarco does not meet its funding obligations to the foundation, each of Vale S.A. and BHPB will provide, under the terms of the Agreement, funds to the Foundation in proportion to its 50% equity interest in Samarco.

 

On June 24, 2016, the Renova Foundation (“Foundation”) was constituted, under the Agreement, to develop and implement the socioeconomic and environmental´s restoration and compensation programs. The Foundation began its operations in August of 2016.

 

As the consequence of the dam failure, the governmental authorities ordered the suspension of Samarco’s operations.

 

b) Estimates used for the provision

 

The Samarco initially expected to resume its operations in the last quarter of 2016. Based on this assumption, Samarco´s cash flow projections indicated that Samarco would be able to generate all or a substantial part of the funding required under the Agreement. This assumption was supported by studies of technical solutions available, combined with the progress of the repair works on the remaining dam structures after the dam failure and the definition of the contractual scope of the remediation measures and compensation to the communities impacted by the dam failure. Consequently, no provision was recognized in the Company´s financial statements as of March 31, 2016.

 

However, in view of the current stage of the necessary procedures to resume operations and the uncertainties related to the licensing approval by the governmental authorities during the current year, Samarco reviewed its assumption and concluded that was unable to make a reliable estimate of how and when its operations will resume.

 

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Therefore, the Company recognized a provision on its interim financial statements as of June 30, 2016, in the amount of US$1,732 (R$5,560) which was discounted at a free-risk rate, resulting in US$1,163 (R$3,733) liability, which represents its best estimate of the obligation to comply with the reparation and compensation programs under the Agreement, equivalent to the percentage of 50% entered into under the Agreement by Vale.

 

On August, 2016, Samarco issued non-convertible private debentures which were subscribed equally by the Company and BHPB, and the resources contributed by Vale S.A. were allocated as follows: (i) US$45 (R$146) was used by Samarco in the reparation programs in accordance with the agreement, and therefore, discounted from the provision of US$1,163 (R$3,733) mentioned above; and (ii) US$33 (R$106) applied by Samarco´s to fund its working capital, and recognized in the income statement as “Others results in associates and joint ventures” in the third quarter of 2016. Funds to working capital requirements will be released on an as-needed basis by the shareholders and will be subject to achieving certain milestones, without undertaking an obligation to Samarco.

 

For the period ended in September 2016, the movements of the provision are as follows:

 

Balance at June 30, 2016

 

3,733

 

 

 

 

 

Payments

 

(146

)

Interests

 

62

 

Balances at September 30, 2016

 

3,649 

 

 

 

 

 

Current liabilities

 

1,069

 

Non-current liabilities

 

2,580

 

 

At each reporting period, the Company will reassess the key assumptions used by Samarco in the preparation of the projected future cash flows and will adjust the provision, if required.

 

c) Relevant information of Samarco

 

Samarco disbursed US$88 (R$285) and US$294 (R$1,016) in the accident reparation during the three and nine months period ended September 30, 2016, respectively. Since the initial date of the accident, US$326 (R$1,141) has been disbursed to comply with the obligations under the agreement.

 

d) Contingencies related to Samarco accident

 

(i) Public civil claim filed by the Federal Government and others

 

The federal government, the two Brazilian states affected by the failure (Espirito Santo and Minas Gerais) and other governmental authorities have initiated a public civil lawsuit against Samarco and its shareholders, Vale S.A. and BHPB, which the estimated value indicated by the plaintiffs in US$6.3 billion (R$20.2 billion).

 

On May 5, 2016, the Agreement was ratified by the Federal Regional Court (TRF), 1st Region signed in March 2, 2016. In July, 2016 the Superior Court of Justice (STJ) in Brazil issued an interim order, suspending the decision of TRF, which ratified the Agreement until the final judgments of the claim.

 

On August 17, 2016, the TRF of the 1st Region has rejected the appeal presented by Samarco, Vale S.A. e BHPB against the interim order and overruled the judicial decision that ratified the Agreement. The decision granted by the TRF of the 1st Region, among other measures, confirmed a prior injunction that prohibited the defendants from transferring or conveying any of their interest in its Brazilian iron ore concessions, without, however, limiting their production and commercial activities.

 

Only the judicial decision that ratified the Agreement was suspended and, therefore, the Agreement between the parties remains valid, and the parties will continue fulfilling their obligations under the Agreement.

 

(ii) U.S. Securities class action suits

 

Vale S.A. and certain of its officers have been named as defendants in securities class action suits in Federal Court in New York brought by holders of Vale’s American Depositary Receipts under U.S. federal securities laws. The lawsuits allege that Vale S.A. made false and misleading statements or omitted to make disclosures concerning the risks and dangers of the operations of Samarco’s Fundão dam and the adequacy of related programs and procedures. The plaintiffs have not specified an amount of alleged damages in these actions. Vale S.A. intends to vigorously mount a full defense against the allegations. The litigation is at a very early stage. On March 7, 2016, the judge overseeing the securities class actions issued an order consolidating these actions and designating lead plaintiffs and counsel. On April 29, 2016, lead plaintiffs filed a Consolidated Amended Complaint that will serve as the operative complaint in the litigation. In July 2016, Vale S.A. and the individual defendants filed a motion to dismiss the Amended Complaint. In August 2016, the plaintiffs submitted their opposition to the motion to dismiss, which was replied by the defendants in September 2016. The decision on the motion to dismiss remains pending.

 

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(iii) Public civil action filed by Federal Prosecution Office

 

On May 3, 2016, the Federal Prosecution Office (MPF) filed a public civil action against Samarco and its shareholders and presented several demands, including: (i) the adoption of measures for mitigating the social, economic and environmental impacts resulting from the Fundão dam failure and other emergency measures; (ii) the payment of compensation to the community; and (iii) payments for the collective moral damage. The initial action value claimed by the Federal Prosecution Office (MPF) is US$48 billion (R$155 billion). The first conciliatory hearing was held on September 13th and a second hearing might be scheduled by the judge.

 

(iv) Criminal lawsuit

 

On October 20, 2016, the Federal Prosecutors Office (MPF) offered a criminal lawsuit to the Brazilian Federal Justice Court against Vale, BHPB, Samarco, VogBr Recursos Hídricos e Geotecnia Ltda. and 22 individuals for alleged crimes against the environment, urban planning and cultural heritage, flooding, landslide, as well as for alleged crimes against the victims of the Fundão dam failure. The MPF also requested that, if found guilty at the end of the criminal procedure, and the accused, the Judge imposes the minimum amount needed to repair the damage caused by the dam failure. So far, Vale was not serviced to present its defense.

 

(v) Other lawsuits

 

In addition, Samarco and its shareholders were named as a defendant in several other lawsuits brought by individuals, corporations and governmental entities seeking damages for material or personnel damages.

 

These lawsuits and petitions are at very early stages, thus it is not possible to determine a range of outcomes and/or reliable estimates of the potential exposure at this time. No contingent liability has been quantified and no provision was recognized for these other lawsuits.

 

5.         Non-current assets and liabilities held for sale

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Shipping assets

 

Nacala

 

Total

 

Nacala

 

 

 

 

 

 

 

 

 

 

 

Non-current assets held for sale

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

11

 

11

 

3

 

Other current assets

 

 

97

 

97

 

134

 

Property, plant and equipment and Intangible, net

 

497

 

4,184

 

4,681

 

3,907

 

Total assets

 

497

 

4,292

 

4,789

 

4,044

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with non-current assets held for sale

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

 

138

 

138

 

93

 

Other current liabilities

 

 

11

 

11

 

14

 

Total liabilities

 

 

149

 

149

 

107

 

Net non-current assets held for sale

 

497

 

4,143

 

4,640

 

3,937

 

 

a) Shipping assets

 

In June 2016, Vale approved a plan to dispose its fleet of ships. As a consequence, the referenced assets were reclassified to non-current assets held for sale and a loss of US$58 was recorded in the income statement as “Results on measurement or sale of non-current assets”.

 

b)   Coal - Nacala logistic corridor (“Nacala”)

 

See note 6.

 

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6.         Acquisitions and divestitures

 

2016

 

Coal assets - In December 2014, the Company signed an agreement with Mitsui & Co., Ltd. (“Mitsui”) to sell 50% of its stake in the Nacala corridor and 15% of Vale´s stake in Vale Moçambique. After completion of the transaction, Vale will indirectly own 81% of the Moatize mine and approximately 50% of Nacala Assets, sharing control with Mitsui and therefore will not consolidate the assets, liabilities and results of Nacala Corridor. On that date, the assets and liabilities related to Nacala were classified as non-current assets held for sale with no impact in the income statement.

 

In September 2016, the Company reviewed the terms related to this transaction, in which Mitsui agreed to contribute up to US$450, being: (i) US$255 for a 15% of Vale’s stake in the Moatize coal mine; and (ii) an additional contribution of up to US$ 195 based on meeting certain conditions, including mine performance. Mitsui will also contribute US$348 for a 50% stake in the equity and quasi-equity instruments of the Nacala and extend a long-term facility of US$165.

 

As at September 2016, completion of the transaction remains subject to successful completion of the Project Finance and certain government approvals.

 

Shipping assets — In June 2016, the Company concluded the sale of three vessels VLOC’s of 400,000 tons for the consortium led by ICBC International (ICBC) and recognized a loss of US$8 in the income statement as “Results on measurement or sales of non-current assets”. For this transaction, Vale received cash proceeds of US$269 in the third quarter of 2016.

 

Thyssenkrupp Companhia Siderúrgica do Atlântico Ltd (“CSA”)In April 2016, the Company sold 100% of its interest at CSA (26.87%) for a non-significant amount. The transaction resulted in US$75 loss on recycling the “Cumulative translation adjustments” recognized in the income statement as “Others results in associates and joint ventures”.

 

Minas da Serra Geral S.A. (“MSG”) — In March 2016, the Company completed the purchase option on additional 50% participation at MSG which was owned by JFE Steel Corporation (“JFE”) in the amount of US$17. Vale now holds 100% of MSG’s total stockholder’s equity.

 

2015

 

Energy generation assets - In December 2013, the Company signed agreements with CEMIG Geração e Transmissão S.A. (“CEMIG GT”) to incorporate two joint ventures, Aliança Norte Participações S.A. and Aliança Geração de Energia S.A and exchange of assets and shares. The transaction was completed in the first quarter of 2015, in which Vale received cash proceeds of US$97 and recognized a gain of US$18 as “Others results in associates and joint ventures” and a gain of US$193 as “Results on measurement or sales of non-current assets”.

 

7.         Cash and cash equivalents

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

Cash and bank deposits

 

2,921

 

2,018

 

Short-term investments

 

2,448

 

1,573

 

 

 

5,369

 

3,591

 

 

Cash and cash equivalents includes cash, immediately redeemable deposits and short-term investments with an insignificant risk of change in value. They are readily convertible to cash, part in R$, indexed to the Brazilian Interbank Interest rate (“DI Rate”or”CDI”) and part denominated in US$, mainly time deposits.

 

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Table of Contents

 

 

8.         Accounts receivable

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

Trade receivables

 

2,621

 

1,534

 

Provision for doubtful debts

 

(65

)

(58

)

 

 

2,556

 

1,476

 

 

 

 

 

 

 

Trade receivables related to the steel sector - %

 

74.66

%

75.32

%

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Provision for doubtful debts recorded in the income statement

 

 

(10

)

 

(11

)

Trade receivables write-offs recorded in the income statement

 

(2

)

1

 

(5

)

(6

)

 

No individual customer represents over 10% of receivables or revenues.

 

9.         Inventories

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

Product inventory

 

3,074

 

3,071

 

Impairment of product inventory

 

(301

)

(518

)

 

 

2,773

 

2,553

 

 

 

 

 

 

 

Consumable inventory

 

1,127

 

975

 

Total

 

3,900

 

3,528

 

 

Product inventories by segments are presented in note 3(b).

 

10.          Investments in associates and joint ventures

 

Changes in investments in associates and joint ventures are as follows:

 

 

 

2016

 

2015

 

Balance at June 30,

 

3,963

 

4,208

 

Additions

 

9

 

8

 

Disposals

 

(4

)

 

Translation adjustment

 

(43

)

(750

)

Equity results in income statement

 

46

 

(349

)

Dividends declared

 

0

 

(8

)

Others

 

5

 

(8

)

Balance at September 30,

 

3,976

 

3,101

 

 

 

 

2016

 

2015

 

Balance at January 1st,

 

2,940

 

4,133

 

Acquisitions

 

 

579

 

Additions

 

228

 

26

 

Disposals

 

(4

)

79

 

Translation adjustment

 

543

 

(1,245

)

Equity results in income statement

 

392

 

(402

)

Dividends declared

 

(116

)

(91

)

Transfer to held for sale

 

 

(5

)

Others

 

(7

)

27

 

Balance at September 30,

 

3,976

 

3,101

 

 

20



Table of Contents

 

GRAPHIC

 

 

 

 

 

 

 

Investments in associates and joint
ventures

 

Equity results in Income statement

 

Dividends received

 

 

 

 

 

 

 

 

 

 

 

Three months period ended

 

Nine months period ended

 

Three months period ended

 

Nine months period ended

 

Associates and joint ventures

 

%
ownership

 

% voting
capital

 

September 30,
2016

 

December 31,
2015

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Baovale Mineração S.A.

 

50.00

 

50.00

 

30

 

24

 

9

 

5

 

8

 

6

 

 

 

 

 

Companhia Coreano-Brasileira de Pelotização

 

50.00

 

50.00

 

67

 

62

 

2

 

7

 

11

 

18

 

 

 

13

 

11

 

Companhia Hispano-Brasileira de Pelotização (i)

 

50.89

 

51.00

 

64

 

57

 

4

 

5

 

10

 

11

 

 

 

18

 

16

 

Companhia Ítalo-Brasileira de Pelotização (i)

 

50.90

 

51.00

 

71

 

50

 

5

 

6

 

11

 

16

 

 

 

9

 

13

 

Companhia Nipo-Brasileira de Pelotização(i)

 

51.00

 

51.11

 

111

 

104

 

9

 

11

 

17

 

35

 

 

 

20

 

17

 

Minas da Serra Geral S.A. (iii)

 

100.00

 

100.00

 

 

13

 

 

 

 

(1

)

 

 

 

 

MRS Logística S.A.

 

48.16

 

46.75

 

497

 

368

 

17

 

8

 

49

 

32

 

 

 

 

 

Samarco Mineração S.A. (ii)

 

50.00

 

50.00

 

 

 

 

(120

)

 

(167

)

 

 

 

146

 

VLI S.A.

 

37.60

 

37.60

 

969

 

778

 

16

 

13

 

32

 

32

 

 

 

 

8

 

Zhuhai YPM Pellet Co.

 

25.00

 

25.00

 

22

 

23

 

 

 

 

 

 

 

 

 

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

1,831

 

1,479

 

62

 

(65

)

138

 

(18

)

 

 

60

 

212

 

Coal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Henan Longyu Energy Resources Co., Ltd.

 

25.00

 

25.00

 

291

 

306

 

2

 

(9

)

(8

)

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Korea Nickel Corp.

 

25.00

 

25.00

 

16

 

17

 

1

 

(1

)

(1

)

(3

)

 

 

 

 

Teal Minerals Inc.

 

50.00

 

50.00

 

 

 

(3

)

(9

)

(3

)

(30

)

 

 

 

 

 

 

 

 

 

 

16

 

17

 

(2

)

(10

)

(4

)

(33

)

 

 

 

 

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aliança Geração de Energia S.A. (i)

 

55.00

 

55.00

 

588

 

481

 

11

 

7

 

33

 

26

 

 

15

 

22

 

15

 

Aliança Norte Energia Participações S.A. (i)

 

51.00

 

51.00

 

143

 

81

 

2

 

(1

)

(1

)

1

 

 

 

 

 

California Steel Industries, Inc.

 

50.00

 

50.00

 

178

 

157

 

17

 

(8

)

20

 

(22

)

 

 

 

 

Companhia Siderúrgica do Pecém

 

50.00

 

50.00

 

686

 

225

 

(52

)

(245

)

177

 

(311

)

 

 

 

 

Mineração Rio Grande do Norte S.A.

 

40.00

 

40.00

 

132

 

93

 

7

 

10

 

42

 

20

 

 

3

 

32

 

3

 

Thyssenkrupp Companhia Siderúrgica do Atlântico Ltd. (iii)

 

 

 

 

 

 

(29

)

 

(60

)

 

 

 

 

Others

 

 

 

 

 

111

 

101

 

(1

)

1

 

(5

)

1

 

 

1

 

4

 

1

 

 

 

 

 

 

 

1,838

 

1,138

 

(16

)

(265

)

266

 

(345

)

 

19

 

58

 

19

 

Total

 

 

 

 

 

3,976

 

2,940

 

46

 

(349

)

392

 

(402

)

 

19

 

118

 

231

 

 


(i)    Although the Company held majority of the voting capital, the entities are accounted under equity method due to shareholders agreements.

(ii)   Note 4.

(iii)  Note 6

 

21


 


Table of Contents

 

 

11.       Intangibles

 

Changes in intangibles are as follows:

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at June 30, 2016

 

3,219

 

3,123

 

140

 

431

 

6,913

 

Additions

 

 

206

 

 

6

 

212

 

Disposals

 

 

(3

)

 

 

(3

)

Amortization

 

 

(103

)

(1

)

(39

)

(143

)

Translation adjustment

 

(28

)

13

 

(1

)

(4

)

(20

)

Balance at September 30, 2016

 

3,191

 

3,236

 

138

 

394

 

6,959

 

Cost

 

3,191

 

4,376

 

218

 

1,572

 

9,357

 

Accumulated amortization

 

 

(1,140

)

(80

)

(1,178

)

(2,398

)

 

 

3,191

 

3,236

 

138

 

394

 

6,959

 

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at June 30, 2015

 

3,464

 

2,146

 

254

 

476

 

6,340

 

Additions

 

 

129

 

 

28

 

157

 

Amortization

 

 

(34

)

(10

)

(36

)

(80

)

Translation adjustment

 

(310

)

(470

)

(21

)

(103

)

(904

)

Balance at September 30, 2015

 

3,154

 

1,771

 

223

 

365

 

5,513

 

Cost

 

3,154

 

2,663

 

476

 

998

 

7,291

 

Accumulated amortization

 

 

(892

)

(253

)

(633

)

(1,778

)

 

 

3,154

 

1,771

 

223

 

365

 

5,513

 

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2015

 

2,956

 

1,814

 

207

 

347

 

5,324

 

Additions

 

 

1,015

 

1

 

10

 

1,026

 

Disposals

 

 

(8

)

 

 

(8

)

Amortization

 

 

(177

)

(2

)

(117

)

(296

)

Translation adjustment

 

235

 

515

 

(1

)

80

 

829

 

Transfers

 

 

77

 

(67

)

74

 

84

 

Balance at September 30, 2016

 

3,191

 

3,236

 

138

 

394

 

6,959

 

Cost

 

3,191

 

4,376

 

218

 

1,572

 

9,357

 

Accumulated amortization

 

 

(1,140

)

(80

)

(1,178

)

(2,398

)

 

 

3,191

 

3,236

 

138

 

394

 

6,959

 

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2014

 

3,760

 

2,213

 

297

 

550

 

6,820

 

Additions

 

 

487

 

 

119

 

606

 

Disposals

 

 

(17

)

 

 

(17

)

Amortization

 

 

(116

)

(32

)

(122

)

(270

)

Translation adjustment

 

(645

)

(796

)

(42

)

(182

)

(1,665

)

Acquisition of subsidiary

 

39

 

 

 

 

39

 

Balance at September 30, 2015

 

3,154

 

1,771

 

223

 

365

 

5,513

 

Cost

 

3,154

 

2,663

 

476

 

998

 

7,291

 

Accumulated amortization

 

 

(892

)

(253

)

(633

)

(1,778

)

 

 

3,154

 

1,771

 

223

 

365

 

5,513

 

 

22



Table of Contents

 

 

12.          Property, plant and equipment

 

Changes in property, plant and equipment are as follows:

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at June 30, 2016

 

891

 

10,320

 

9,232

 

7,983

 

11,166

 

6,848

 

14,519

 

60,959

 

Additions (i)

 

 

 

 

 

 

 

1,347

 

1,347

 

Disposals

 

 

(1

)

(2

)

(15

)

(122

)

(2

)

 

(142

)

Depreciation and amortization

 

 

(143

)

(182

)

(213

)

(186

)

(144

)

 

(868

)

Translation adjustment

 

(8

)

(89

)

(79

)

(58

)

(95

)

(65

)

(233

)

(627

)

Assets retirement obligations

 

 

 

 

 

458

 

 

 

458

 

Transfers

 

23

 

705

 

351

 

275

 

28

 

164

 

(1,546

)

 

Balance at September 30, 2016

 

906

 

10,792

 

9,320

 

7,972

 

11,249

 

6,801

 

14,087

 

61,127

 

Cost

 

906

 

16,588

 

15,209

 

14,175

 

19,108

 

10,544

 

14,087

 

90,617

 

Accumulated depreciation

 

 

(5,796

)

(5,889

)

(6,203

)

(7,859

)

(3,743

)

 

(29,490

)

 

 

906

 

10,792

 

9,320

 

7,972

 

11,249

 

6,801

 

14,087

 

61,127

 

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at June 30, 2015

 

999

 

12,064

 

10,087

 

9,379

 

13,143

 

10,330

 

15,275

 

71,277

 

Additions (i)

 

 

 

 

 

 

 

2,592

 

2,592

 

Disposals

 

 

 

(30

)

(13

)

 

(583

)

(6

)

(632

)

Depreciation and amortization

 

 

(125

)

(154

)

(240

)

(175

)

(176

)

 

(870

)

Transfers to non-current assets held for sale

 

 

 

 

 

(127

)

 

 

(127

)

Translation adjustment

 

(168

)

(1,791

)

(1,818

)

(1,137

)

(1,721

)

(1,132

)

(2,620

)

(10,387

)

Transfers

 

(55

)

455

 

933

 

128

 

198

 

563

 

(2,222

)

 

Balance at September 30, 2015

 

776

 

10,603

 

9,018

 

8,117

 

11,318

 

9,002

 

13,019

 

61,853

 

Cost

 

776

 

13,384

 

13,213

 

12,676

 

16,918

 

12,542

 

13,019

 

82,528

 

Accumulated depreciation

 

 

(2,781

)

(4,195

)

(4,559

)

(5,600

)

(3,540

)

 

(20,675

)

 

 

776

 

10,603

 

9,018

 

8,117

 

11,318

 

9,002

 

13,019

 

61,853

 

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2015

 

766

 

9,101

 

8,292

 

7,307

 

10,304

 

7,206

 

11,126

 

54,102

 

Additions (i)

 

 

 

 

 

 

 

3,242

 

3,242

 

Disposals

 

 

(1

)

(3

)

(28

)

(125

)

(345

)

(21

)

(523

)

Depreciation and amortization

 

 

(372

)

(471

)

(663

)

(590

)

(454

)

 

(2,550

)

Transfers to non-current assets held for sale

 

 

 

 

 

 

(497

)

 

(497

)

Translation adjustment

 

114

 

793

 

1,004

 

655

 

907

 

957

 

2,493

 

6,923

 

Assets retirement obligations

 

 

 

 

 

513

 

 

 

513

 

Transfers

 

26

 

1,271

 

498

 

701

 

240

 

(66

)

(2,753

)

(83

)

Balance at September 30, 2016

 

906

 

10,792

 

9,320

 

7,972

 

11,249

 

6,801

 

14,087

 

61,127

 

Cost

 

906

 

16,588

 

15,209

 

14,175

 

19,108

 

10,544

 

14,087

 

90,617

 

Accumulated depreciation

 

 

(5,796

)

(5,889

)

(6,203

)

(7,859

)

(3,743

)

 

(29,490

)

 

 

906

 

10,792

 

9,320

 

7,972

 

11,249

 

6,801

 

14,087

 

61,127

 

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2014

 

1,069

 

11,654

 

10,813

 

9,287

 

14,929

 

10,954

 

19,416

 

78,122

 

Additions (i)

 

 

 

 

 

 

 

6,399

 

6,399

 

Disposals

 

 

(5

)

(37

)

(33

)

(151

)

(1,101

)

(8

)

(1,335

)

Depreciation and amortization

 

 

(402

)

(548

)

(816

)

(636

)

(555

)

 

(2,957

)

Transfers to non-current assets held for sale

 

 

 

 

 

(127

)

 

 

(127

)

Translation adjustment

 

(300

)

(3,320

)

(3,178

)

(2,006

)

(2,881

)

(2,244

)

(4,440

)

(18,369

)

Transfers

 

7

 

2,676

 

1,968

 

1,684

 

184

 

1,829

 

(8,348

)

 

Acquisition of subsidiary

 

 

 

 

1

 

 

119

 

 

120

 

Balance at September 30, 2015

 

776

 

10,603

 

9,018

 

8,117

 

11,318

 

9,002

 

13,019

 

61,853

 

Cost

 

776

 

13,384

 

13,213

 

12,676

 

16,918

 

12,542

 

13,019

 

82,528

 

Accumulated depreciation

 

 

(2,781

)

(4,195

)

(4,559

)

(5,600

)

(3,540

)

 

(20,675

)

 

 

776

 

10,603

 

9,018

 

8,117

 

11,318

 

9,002

 

13,019

 

61,853

 

 


(i) Includes capitalized borrowing costs, see cash flow.

 

There are no material changes to the net book value of consolidated property, plant and equipment pledged to secure judicial claims and loans and borrowings (note 13(d)) compared to those disclosed in the financial statements as at December 31, 2015.

 

23



Table of Contents

 

 

13.                               Loans and borrowings

 

a)        Total debt

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

December 31, 2015

 

Debt contracts in the international markets

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

US$

 

384

 

241

 

7,075

 

5,174

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

US$

 

410

 

1,191

 

13,090

 

12,923

 

EUR

 

 

 

1,686

 

1,633

 

Other currencies

 

15

 

14

 

215

 

169

 

Accrued charges

 

279

 

326

 

 

 

 

 

1,088

 

1,772

 

22,066

 

19,899

 

Debt contracts in Brazil

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

R$, indexed to TJLP, TR, IPCA, IGP-M and CDI

 

369

 

212

 

5,661

 

4,709

 

Basket of currencies and US$ indexed to LIBOR

 

333

 

290

 

1,249

 

1,342

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

R$

 

76

 

63

 

264

 

268

 

Accrued charges

 

315

 

169

 

28

 

129

 

 

 

1,093

 

734

 

7,202

 

6,448

 

 

 

2,181

 

2,506

 

29,268

 

26,347

 

 

The future flows of debt payments (principal and interest) per nature of funding are as follows:

 

 

 

Bank loans (i)

 

Capital markets (i)

 

Development 
agencies (i)

 

Debt principal (i)

 

Estimated future 
payments of 
interest (ii)

 

2016

 

5

 

 

210

 

215

 

1,653

 

2017

 

628

 

 

1,009

 

1,637

 

1,708

 

2018

 

2,052

 

843

 

1,169

 

4,064

 

1,599

 

2019

 

992

 

1,000

 

1,341

 

3,333

 

1,381

 

2020

 

3,394

 

1,339

 

907

 

5,640

 

1,215

 

2021

 

366

 

1,342

 

882

 

2,590

 

1,002

 

Between 2022 and 2025

 

1,225

 

3,345

 

1,049

 

5,619

 

2,609

 

2026 onwards

 

88

 

7,489

 

152

 

7,729

 

5,871

 

 

 

8,750

 

15,358

 

6,719

 

30,827

 

17,038

 

 


(i)        Does not include accrued charges.

 

(ii)     Consists of estimated future payments of interest, calculated based on interest rate curves and foreign exchange rates applicable as at September 30, 2016 and considering that all amortization payments and payments at maturity on loans and borrowings will be made on their contracted payments dates. The amount includes the estimated values of future interest payments (not yet accrued), in addition to interest already recognized in the financial statements.

 

At September 30, 2016, the average annual interest rates by currency are as follows:

 

 

 

Average interest rate (i)

 

Total debt

 

Loans and borrowings in

 

 

 

 

 

US$

 

4.55

%

22,781

 

R$ (ii)

 

11.15

%

6,703

 

EUR (iii)

 

4.06

%

1,734

 

Other currencies

 

3.50

%

231

 

 

 

 

 

31,449

 

 


(i)        In order to determine the average interest rate for debt contracts with floating rates, the Company used the last renegotiated rate at September 30, 2016.

 

(ii)     R$ denominated debt that bears interest at IPCA, CDI, TR or TJLP, plus spread. For a total of US$4,583, the Company entered into derivative transactions to mitigate the exposure to the cash flow variations of the floating rate debt denominated in R$, resulting in an average cost of 2.19% per year in US$.

 

(iii)  Eurobonds, for which the Company entered into derivatives to mitigate the exposure to the cash flow variations of the debt denominated in EUR, resulting in an average cost of 4.29% per year in US$.

 

24



Table of Contents

 

 

b)        Credit and financing lines

 

 

 

 

 

 

 

 

 

 

 

Available amount

 

 

 

Contractual

 

Date of 

 

Period of the

 

 

 

September 30,

 

Type

 

currency

 

agreement

 

agreement

 

Total amount

 

2016

 

Credit lines

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facilities

 

US$

 

May 2015

 

5 years

 

3,000

 

1,200

 

Revolving credit facilities

 

US$

 

July 2013

 

5 years

 

2,000

 

1,800

 

Financing lines

 

 

 

 

 

 

 

 

 

 

 

BNDES (i)

 

R$

 

April 2008

 

10 years

 

2,249

 

276

 

BNDES - CLN 150

 

R$

 

September 2012

 

10 years

 

1,196

 

6

 

BNDES - S11D e S11D Logística

 

R$

 

May 2014

 

10 years

 

1,899

 

754

 

 


(i)        Memorandum of understanding signature date, however term is considered from the signature date of each contract amendment. This credit line supported or supports the Usina VIII, Onça Puma, Salobo I and II and capital expenditure of Itabira projects.

 

c)         Funding

 

During 2016, the Company drew down part of its revolving credit facilities of which US$2,000 is outstanding at September 30, 2016.

 

In June and August 2016, the Company issued through its wholly owned subsidiary Vale Overseas Limited the guaranteed notes due 2021 and 2026 totaling US$2,250. These notes bear a coupon of 5.875% and 6.250% per year, respectively, payable semi-annually, and were sold at a price of 100.000% of the principal amount.

 

d)        Guarantees

 

As at September 30, 2016 and December 31, 2015, loans and borrowings are secured by property, plant and equipment and receivables in the amount of US$469 and US$495, respectively.

 

The securities issued through Vale’s 100%-owned finance subsidiary Vale Overseas Limited are fully and unconditionally guaranteed by Vale.

 

e)         Covenants

 

Some of the Company’s debt agreements with lenders contain financial covenants. The main covenants in those agreements require maintaining certain ratios, such as debt to EBITDA (Earnings before Interest Taxes, Depreciation and Amortization) and interest coverage. The Company has not identified any instances of noncompliance as at September 30, 2016 and December 31, 2015.

 

25



Table of Contents

 

 

14.                               Litigation

 

a)        Provision for litigation

 

Vale is party to labor, civil, tax and other ongoing lawsuits, at administrative and court levels. Provisions for losses resulting from lawsuits are estimated and updated by the Company, based on analysis from the Company’s legal consultants. Changes in provision for litigation are as follows:

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental 
litigation

 

Total of litigation
provision

 

Balance at June 30, 2016

 

231

 

112

 

555

 

26

 

924

 

Additions

 

6

 

26

 

74

 

 

106

 

Reversals

 

(1

)

(29

)

(40

)

(4

)

(74

)

Payments

 

(2

)

(3

)

(23

)

 

(28

)

Indexation and interest

 

(4

)

(6

)

15

 

(1

)

4

 

Translation adjustment

 

(4

)

(2

)

(6

)

(1

)

(13

)

Balance at September 30, 2016

 

226

 

98

 

575

 

20

 

919

 

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at June 30, 2015

 

322

 

131

 

625

 

69

 

1,147

 

Additions

 

19

 

8

 

59

 

 

86

 

Reversals

 

(9

)

(9

)

(72

)

 

(90

)

Payments

 

(16

)

(39

)

(6

)

(10

)

(71

)

Indexation and interest

 

17

 

5

 

(23

)

8

 

7

 

Translation adjustment

 

(60

)

(23

)

(131

)

(7

)

(221

)

Balance at September 30, 2015

 

273

 

73

 

452

 

60

 

858

 

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
 litigation

 

Total of litigation
provision

 

Balance at December 31, 2015

 

269

 

79

 

454

 

20

 

822

 

Additions

 

41

 

82

 

184

 

5

 

312

 

Reversals

 

(40

)

(51

)

(87

)

(8

)

(186

)

Payments

 

(93

)

(47

)

(91

)

 

(231

)

Indexation and interest

 

27

 

16

 

22

 

(1

)

64

 

Translation adjustment

 

22

 

19

 

93

 

4

 

138

 

Balance at September 30, 2016

 

226

 

98

 

575

 

20

 

919

 

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at December 31, 2014

 

366

 

118

 

706

 

92

 

1,282

 

Additions

 

177

 

55

 

124

 

 

356

 

Reversals

 

(182

)

(39

)

(114

)

(1

)

(336

)

Payments

 

(19

)

(38

)

(20

)

(21

)

(98

)

Indexation and interest

 

29

 

18

 

(19

)

2

 

30

 

Translation adjustment

 

(98

)

(41

)

(225

)

(12

)

(376

)

Balance at September 30, 2015

 

273

 

73

 

452

 

60

 

858

 

 

b)        Contingent liabilities

 

Contingent liabilities of administrative and judicial claims, with expectation of loss classified as possible, and for which the recognition of a provision is not considered necessary by the Company, based on legal advice are as follows:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

Tax litigation

 

7,901

 

5,326

 

Civil litigation

 

1,600

 

1,335

 

Labor litigation

 

2,695

 

1,866

 

Environmental litigation

 

1,846

 

1,381

 

Total

 

14,042

 

9,908

 

 

26



Table of Contents

 

 

i - Tax litigation - Our most significant tax-related contingent liabilities result from disputes related to (i) the deductibility of our payments of social security contributions on the net income (CSLL) from our taxable income, (ii) challenges of certain tax credits we deducted from our PIS and COFINS payments, (iii) assessments of CFEM (royalties), and (iv) charges of value-added tax on services and circulation of goods (ICMS), especially relating to certain tax credits we claimed from the sale and transmission of energy, ICMS charges in connection with the transfer of iron ore between different Brazilian states, ICMS charges on our own transportation costs and challenges to other tax credits we claimed.  The changes reported in the period resulted from interest and inflation adjustments in the amounts in dispute.

 

ii - Civil litigation - Most of those claims have been filed by suppliers for indemnification under construction contracts, primarily relating to certain alleged damages, payments and contractual penalties. A number of other claims related to contractual disputes regarding inflation index.

 

iii - Labor litigation - Represents individual claims by employees and service providers, primarily involving demands for additional compensation for overtime work, time spent commuting or health and safety conditions; and the Brazilian federal social security administration (“INSS”) regarding contributions on compensation programs based on profits.

 

iv - Environmental litigation - The most significant claims concern alleged procedural deficiencies in licensing processes, non-compliance with existing environmental licenses or damage to the environment.

 

c)         Judicial deposits

 

In addition to the provisions and contingent liabilities, the Company is required by law to make judicial deposits to secure a potential adverse outcome of certain lawsuits. These court-ordered deposits are monetarily adjusted and reported as non-current assets until a judicial decision to draw the deposit occurs.

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

 

 

 

Tax litigation

 

268

 

211

 

Civil litigation

 

69

 

102

 

Labor litigation

 

715

 

553

 

Environmental litigation

 

21

 

16

 

Total

 

1,073

 

882

 

 

d)        Others

 

In the third quarter of 2015, the Company filed an enforceable action in the amount of R$524 (US$147) referring to the final court decision in favor of the Company of the accrued interest of compulsory deposits from 1987 to 1993. Currently it is not possible to estimate the economic benefit inflow as the counterparty can appeal on the calculation. Consequently, the asset was not recognized in the financial statements.

 

For contingencies related to Samarco Mineração S.A., see note 4.

 

27



Table of Contents

 

15.                               Income taxes

 

a)        Deferred income tax

 

Changes in deferred tax are as follows:

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at June 30, 2016

 

7,289

 

1,739

 

5,550

 

Effect in income statement

 

(263

)

95

 

(358

)

Transfers between asset and liabilities

 

(148

)

(148

)

 

Translation adjustment

 

(52

)

(1

)

(51

)

Other comprehensive income

 

23

 

(9

)

32

 

Balance at September 30, 2016

 

6,849

 

1,676

 

5,173

 

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at June 30, 2015

 

4,300

 

3,089

 

1,211

 

Effect in income statement

 

4,605

 

2

 

4,603

 

Translation adjustment

 

(934

)

(206

)

(728

)

Other comprehensive income

 

11

 

11

 

 

Balance at September 30, 2015

 

7,982

 

2,896

 

5,086

 

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at December 31, 2015

 

7,904

 

1,670

 

6,234

 

Effect in income statement

 

(1,835

)

40

 

(1,875

)

Transfers between asset and liabilities

 

(4

)

(4

)

 

Translation adjustment

 

891

 

49

 

842

 

Other comprehensive income

 

(107

)

(79

)

(28

)

Balance at September 30, 2016

 

6,849

 

1,676

 

5,173

 

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at December 31, 2014

 

3,976

 

3,341

 

635

 

Effect in income statement

 

5,364

 

(51

)

5,415

 

Translation adjustment

 

(1,375

)

(402

)

(973

)

Other comprehensive income

 

28

 

8

 

20

 

Acquisition of subsidiary

 

(11

)

 

(11

)

Balance at September 30, 2015

 

7,982

 

2,896

 

5,086

 

 

b)        Income tax reconciliation

 

The total amount presented as income taxes in the income statement is reconciled to the rate established by law, as follows:

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Net income (loss) before income taxes

 

997

 

(6,739

)

6,173

 

(8,955

)

Income taxes at statutory rates - 34%

 

(339

)

2,291

 

(2,099

)

3,045

 

Adjustments that affect the basis of taxes:

 

 

 

 

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

 

 

 

356

 

Tax incentives

 

92

 

12

 

190

 

37

 

Equity results

 

9

 

(119

)

129

 

(137

)

Additions (reversals) of tax loss carry forward

 

68

 

2,848

 

(98

)

2,848

 

Unrecognized tax losses of the period

 

(170

)

(387

)

(519

)

(579

)

Others results in associates and joint ventures

 

(11

)

 

(364

)

 

Others

 

(64

)

(142

)

71

 

(392

)

Income taxes

 

(415

)

4,503

 

(2,690

)

5,178

 

 

c)         Income taxes - Settlement program (“REFIS”)

 

In 2013, the Company elected to participate in the REFIS, a federal tax settlement program, to settle most of the claims related to the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012.

 

At September 30, 2016, the balance of US$5,426 (US$449 as current and US$4,977 as non-current) is due in 145 remaining monthly installments, bearing interest at the SELIC rate.

 

28



Table of Contents

 

 

16.                               Employee postretirement obligations

 

Reconciliation of assets and liabilities recognized in the balance sheet

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
benefits

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Others
benefits

 

Balance at beginning of the period

 

961

 

 

 

1,301

 

 

 

Interest income

 

115

 

 

 

130

 

 

 

Changes in asset ceiling and onerous liability

 

530

 

 

 

(54

)

 

 

Translation adjustment

 

262

 

 

 

(416

)

 

 

Balance at end of the period

 

1,868

 

 

 

961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount recognized in the balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of actuarial liabilities

 

(3,069

)

(4,300

)

(1,382

)

(2,474

)

(3,689

)

(1,223

)

Fair value of assets

 

4,937

 

3,497

 

 

3,435

 

3,094

 

 

Effect of the asset ceiling

 

(1,868

)

 

 

(961

)

 

 

Liabilities

 

 

(803

)

(1,382

)

 

(595

)

(1,223

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

(20

)

(52

)

 

(17

)

(51

)

Non-current liabilities

 

 

(783

)

(1,330

)

 

(578

)

(1,172

)

Liabilities

 

 

(803

)

(1,382

)

 

(595

)

(1,223

)

 

17.                               Financial instruments classification

 

 

 

September 30, 2016

 

December 31, 2015

 

Financial assets

 

Loans and
receivables or
amortized cost

 

At fair value
through net
income

 

Total

 

Loans and
receivables or
amortized cost

 

At fair value
through net
income

 

Derivatives
designated as
hedge
accounting

 

Total

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

5,369

 

 

5,369

 

3,591

 

 

 

3,591

 

Financial investments

 

115

 

 

115

 

28

 

 

 

28

 

Derivative financial instruments

 

 

141

 

141

 

 

121

 

 

121

 

Accounts receivable

 

2,556

 

 

2,556

 

1,476

 

 

 

1,476

 

Related parties

 

66

 

 

66

 

70

 

 

 

70

 

 

 

8,106

 

141

 

8,247

 

5,165

 

121

 

 

5,286

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

504

 

504

 

 

93

 

 

93

 

Loans

 

182

 

 

182

 

188

 

 

 

188

 

Related parties

 

19

 

 

19

 

1

 

 

 

1

 

 

 

201

 

504

 

705

 

189

 

93

 

 

282

 

Total of financial assets

 

8,307

 

645

 

8,952

 

5,354

 

214

 

 

5,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

3,751

 

 

3,751

 

3,365

 

 

 

3,365

 

Derivative financial instruments

 

 

868

 

868

 

 

2,023

 

53

 

2,076

 

Loans and borrowings

 

2,181

 

 

2,181

 

2,506

 

 

 

2,506

 

Related parties

 

558

 

 

558

 

475

 

 

 

475

 

 

 

6,490

 

868

 

7,358

 

6,346

 

2,023

 

53

 

8,422

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

1,167

 

1,167

 

 

1,429

 

 

1,429

 

Loans and borrowings

 

29,268

 

 

29,268

 

26,347

 

 

 

26,347

 

Related parties

 

137

 

 

137

 

213

 

 

 

213

 

Participative stockholders’ debentures

 

 

658

 

658

 

 

342

 

 

342

 

Others (i)

 

 

252

 

252

 

 

141

 

 

141

 

 

 

29,405

 

2,077

 

31,482

 

26,560

 

1,912

 

 

28,472

 

Total of financial liabilities

 

35,895

 

2,945

 

38,840

 

32,906

 

3,935

 

53

 

36,894

 

 


(i) See note 18(a).

 

29



Table of Contents

 

 

18.                               Fair value estimate

 

a)        Assets and liabilities measured and recognized at fair value:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Level 2

 

Level 3

 

Total

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

316

 

329

 

645

 

214

 

 

214

 

Total

 

316

 

329

 

645

 

214

 

 

214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

1,787

 

248

 

2,035

 

3,505

 

 

3,505

 

Participative stockholders’ debentures

 

658

 

 

658

 

342

 

 

342

 

Others (minimum return instrument)

 

 

252

 

252

 

 

141

 

141

 

Total

 

2,445

 

500

 

2,945

 

3,847

 

141

 

3,988

 

 

There are no changes in the methods and techniques of evaluation of instruments above compared to disclosed in the financial statements as at December 31, 2015.

 

b)        Fair value of financial instruments not measured at fair value

 

The fair values and carrying amounts of loans (net of interest) are as follows:

 

Financial liabilities

 

Balance

 

Fair value

 

Level 1

 

Level 2

 

September 30, 2016

 

 

 

 

 

 

 

 

 

Debt principal

 

30,827

 

29,789

 

14,288

 

15,501

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

Debt principal

 

28,229

 

26,233

 

12,297

 

13,936

 

 

19.                               Derivative financial instruments

 

a)        Derivatives effects on balance sheet

 

 

 

Assets

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

131

 

 

69

 

 

IPCA swap

 

7

 

74

 

2

 

16

 

Pré-dolar swap

 

2

 

16

 

 

 

 

 

140

 

90

 

71

 

16

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

1

 

5

 

50

 

11

 

 

 

1

 

5

 

50

 

11

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

409

 

 

66

 

 

 

 

409

 

 

66

 

Total

 

141

 

504

 

121

 

93

 

 

30


 


Table of Contents

 

GRAPHIC

 

 

 

Liabilities

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

659

 

779

 

799

 

1,131

 

IPCA swap

 

19

 

75

 

21

 

101

 

Eurobonds swap

 

6

 

24

 

146

 

29

 

Euro Forward

 

7

 

 

 

 

Pre dollar swap

 

20

 

36

 

93

 

72

 

 

 

711

 

914

 

1,059

 

1,333

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

2

 

4

 

40

 

10

 

Bunker oil

 

155

 

 

924

 

 

 

 

157

 

4

 

964

 

10

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

249

 

 

86

 

 

 

 

249

 

 

86

 

Derivatives designated as cash flow hedge accounting

 

 

 

 

 

 

 

 

 

Bunker oil

 

 

 

50

 

 

Foreign exchange

 

 

 

3

 

 

 

 

 

 

53

 

 

Total

 

868

 

1,167

 

2,076

 

1,429

 

 

b)        Effects of derivatives on the income statement, cash flow and other comprehensive income

 

 

 

Three months period ended September 30

 

 

 

Gain (loss) recognized in the
income statement

 

Financial settlement
inflows(outflows)

 

Gain(loss) recognized in other
comprehensive income

 

 

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(57

)

(891

)

4

 

2

 

 

 

IPCA swap

 

1

 

(110

)

(26

)

 

 

 

Eurobonds swap

 

9

 

(14

)

 

 

 

 

Euro forward

 

5

 

 

 

 

 

 

Pre dollar swap

 

(7

)

(181

)

 

(3

)

 

 

 

 

(49

)

(1,196

)

(22

)

(1

)

 

 

Commodities price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel

 

(3

)

(19

)

(3

)

(22

)

 

 

Bunker oil

 

(7

)

(530

)

(166

)

(30

)

 

 

 

 

(10

)

(549

)

(169

)

(52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

20

 

(43

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedge accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

Bunker oil

 

 

(121

)

 

(104

)

 

22

 

Foreign exchange

 

 

(11

)

 

(10

)

 

5

 

 

 

 

(132

)

 

(114

)

 

27

 

Total

 

(39

)

(1,920

)

(191

)

(167

)

 

27

 

 

31



Table of Contents

 

GRAPHIC

 

 

 

Nine months period ended September 30

 

 

 

Gain (loss) recognized in the
income statement

 

Financial settlement
inflows(outflows)

 

Gain(loss) recognized in other
comprehensive income

 

 

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

781

 

(1,662

)

(88

)

(334

)

 

 

IPCA swap

 

74

 

(159

)

(25

)

7

 

 

 

Eurobonds swap

 

3

 

(137

)

(142

)

(13

)

 

 

Euro forward

 

(7

)

 

 

 

 

 

Pre dollar swap

 

69

 

(257

)

(74

)

(7

)

 

 

 

 

920

 

(2,215

)

(329

)

(347

)

 

 

Commodities price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel

 

(40

)

(38

)

(29

)

(48

)

 

 

Bunker oil

 

127

 

(500

)

(642

)

(175

)

 

 

 

 

87

 

(538

)

(671

)

(223

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

156

 

(114

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedge accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

Bunker oil

 

 

(305

)

(51

)

(322

)

 

310

 

Foreign exchange

 

(3

)

(35

)

(3

)

(35

)

2

 

12

 

 

 

(3

)

(340

)

(54

)

(357

)

2

 

322

 

Total

 

1,160

 

(3,207

)

(1,054

)

(927

)

2

 

322

 

 

During 2015, the Company implemented bunker oil purchase cash flows protection program and recognized as cost of goods sold and services rendered and financial expense the amounts of US$118 and US$1,799 for the three months period ended on September 30, 2015, respectively, and the amounts of US$299 and US$2,902 for the nine months period ended on September 30, 2015, respectively. In 2016, all derivatives impacts were charged to financial results.

 

The maturity dates of the derivative financial instruments are as follows:

 

 

 

Last maturity dates

Currencies and interest rates

 

July 2023

Bunker oil

 

December 2016

Nickel

 

September 2018

Others

 

December 2027

 

Additional information about derivatives financial instruments

 

The risk of the derivatives portfolio is measured using the delta-Normal parametric approach, and considers that the future distribution of the risk factors and its correlations tends to present the same statistic properties verified in the historical data. The value at risk estimate considers a 95% confidence level for a one-business day time horizon.

 

There was no cash amount deposited as margin call regarding derivative positions on September 30, 2016. The derivative positions described in this document did not have initial costs associated.

 

The following tables detail the derivatives positions for Vale and its controlled companies as of September 30, 2016, with the following information: notional amount, fair value including credit risk, gains or losses in the period, value at risk and the fair value breakdown by year of maturity.

 

a)                           Foreign exchange and interest rates derivative positions

 

(i)       Protection programs for the R$ denominated debt instruments

 

In order to reduce cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments denominated in R$ with interest rates linked mainly to CDI, TJLP and IPCA. In those swaps, Vale pays fixed or floating rates in US$ and receives payments in R$ linked to the interest rates of the protected debt instruments.

 

The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to R$. These programs transform into US$ the obligations linked to R$ to achieve a currency offset in the Company’s cash flows, by matching its receivables - mainly linked to US$ - with its payables.

 

32



Table of Contents

 

GRAPHIC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidação financeira

 

 

 

 

 

 

 

 

 

 

 

 

 

Valor principal

 

 

 

 

 

Valor justo

 

Entradas (Saídas)

 

Valor em Risco

 

Valor justo por ano

 

Fluxo

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

Índice

 

Taxa Média

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

30 de Setembro de 2016

 

30 de Setembro de 2016

 

2016

 

2017

 

2018

 

2019+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap CDI vs. Taxa Fixa em US$

 

 

 

 

 

 

 

 

 

 

 

(580

)

(783

)

105

 

51

 

(420

)

25

 

(186

)

 

Ativo

 

R$

6,289

 

R$

5,239

 

CDI

 

106.78

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

2,563

 

US$

2,288

 

Pré

 

3.46

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap TJLP vs. Taxa Fixa em US$

 

 

 

 

 

 

 

 

 

 

 

(671

)

(1,015

)

(189

)

69

 

(14

)

(220

)

(109

)

(329

)

Ativo

 

R$

4,559

 

R$

5,484

 

TJLP +

 

1.33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

2,126

 

US$

2,611

 

Pré

 

1.72

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap TJLP vs. Taxa flutuante em US$

 

 

 

 

 

 

 

 

 

 

 

(56

)

(63

)

(2

)

5

 

(1

)

(3

)

(4

)

(48

)

Ativo

 

R$

253

 

R$

267

 

TJLP +

 

0.92

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

147

 

US$

156

 

Libor +

 

-1.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap Taxa Fixa em R$ vs. Taxa Fixa em US$

 

 

 

 

 

 

 

 

 

 

 

(38

)

(165

)

(76

)

23

 

(15

)

(4

)

12

 

(30

)

Ativo

 

R$

1,107

 

R$

1,356

 

Pré

 

7.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

383

 

US$

528

 

Pré

 

-0.79

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap IPCA vs. Taxa Fixa em US$

 

 

 

 

 

 

 

 

 

 

 

(59

)

(105

)

1

 

12

 

 

7

 

5.2

 

(70

)

Ativo

 

R$

1,000

 

R$

1,000

 

IPCA +

 

6.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

434

 

US$

434

 

Pré

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap IPCA vs. CDI

 

 

 

 

 

 

 

 

 

 

 

46

 

2

 

(26

)

0.4

 

 

(19

)

(9

)

73

 

Ativo

 

R$

1,350

 

R$

1,350

 

IPCA +

 

6.62

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

R$

1,350

 

US$

1,350

 

CDI

 

98.58

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii)   Protection program for EUR denominated debt instruments

 

In order to reduce the cash flow volatility, swap and forward transactions were implemented to convert into US$ the cash flows from certain debt instruments issued in Euros by Vale. In those swaps, Vale receives fixed rates in EUR and pays fixed rates in US$. And in those forwards only the principal amount of the debt is converted from EUR to US$.

 

The swap and forward transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to EUR. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to EUR/US$ exchange rate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidação financeira

 

 

 

 

 

 

 

 

 

 

 

 

 

Valor principal

 

 

 

 

 

Valor justo

 

Entradas (Saídas)

 

Valor em Risco

 

Valor justo por ano

 

Fluxo

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

Índice

 

Taxa Média

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

30 de Setembro de 2016

 

30 de Setembro de 2016

 

2016

 

2017

 

2018

 

2019+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap Taxa Fixa em EUR vs. Taxa Fixa em US$

 

 

 

 

 

 

 

 

 

(30

)

(175

)

(141

)

12

 

 

(5

)

(5

)

(19

)

Ativo

 

500

 

1,000

 

Pré

 

3.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passivo

 

US$

613

 

US$

1,302

 

Pré

 

4.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidação financeira

 

 

 

 

 

 

 

 

 

Valor principal

 

Compra /

 

Taxa Média

 

Valor justo

 

Entradas (Saídas)

 

Valor em Risco

 

Valor justo por ano

 

Fluxo

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

Venda

 

(USD/EUR)

 

30 de Setembro de 2016

 

31 de Dezembro de 2015

 

30 de Setembro de 2016

 

30 de Setembro de 2016

 

2016

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Termo

 

500

 

 

C

 

1.143

 

(7

)

 

 

6.1

 

 

(8

)

 

(iii)                            Foreign exchange hedging program for disbursements in CAD

 

In order to reduce the cash flow volatility, forward transactions were implemented to mitigate the foreign exchange exposure that arises from the currency mismatch between revenues denominated in US$ and disbursements denominated in CAD.

 

The forward transactions were negotiated over-the-counter and the protected item is part of the CAD denominated disbursements. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to CAD/US$ exchange rate. This program is classified under the hedge accounting requirements, and it was settled in the first quarter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Settlement

 

 

 

Fair value

 

 

 

Notional

 

Bought /

 

Average rate

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(CAD / USD)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

CAD

10

 

B

 

1.028

 

 

(2

)

 

 

 

 

33



Table of Contents

 

GRAPHIC

 

b)                           Commodities derivative positions

 

(i)       Bunker Oil purchase cash flows protection program

 

In order to partially reduce the impact of bunker oil price fluctuation on maritime freight hiring/supply and, consequently, reducing the company’s cash flow volatility, bunker oil derivatives were implemented. These transactions are usually executed through forward purchases and zero cost-collars.

 

The derivative transactions were negotiated over-the-counter and the protected item is part of the Vale’s costs linked to bunker oil prices. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to bunker oil prices changes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

Fair value

 

 

 

Notional (ton)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(US$/ton)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

352,500

 

1,867,500

 

B

 

511

 

(88

)

(577

)

(457

)

4

 

(88

)

Call options

 

540,000

 

2,041,500

 

B

 

380

 

0.18

 

0.02

 

 

0.12

 

0.18

 

Put options

 

540,000

 

2,041,500

 

S

 

300

 

(27

)

(297

)

(173

)

5

 

(27

)

Total

 

 

 

 

 

 

 

 

 

(115

)

(873

)

 

 

 

 

(115

)

 

As at September 30, 2016 and December 31, 2015, excludes US$40 e US$101, respectively, of transactions in which the financial settlement occurs subsequently of the closing month.

 

(ii)   Protection programs for base metals raw materials and products

 

In the operational protection program for nickel sales at fixed prices, derivatives transactions were implemented to convert into floating prices the contracts with clients that required a fixed price, in order to keep nickel revenues exposed to nickel price fluctuations. Those operations are usually implemented through the purchase of nickel forwards.

 

In the operational protection program for the purchase of raw materials and products, derivatives transactions were implemented, usually through the sale of nickel and copper forward or futures, in order to reduce the mismatch between the pricing period of purchases (concentrate, cathode, sinter, scrap and others) and the pricing period of the final product sales to the clients.

 

The derivative transactions are negotiated at London Metal Exchange or over-the-counter and the protected item is part of Vale’s revenues and costs linked to nickel and copper prices. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to nickel and copper prices changes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

 

 

 

 

 

 

 

 

Notional (ton)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(US$/ton)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016

 

2017

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price sales protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

12,923

 

16,917

 

B

 

10,272

 

4

 

(46

)

(30

)

4

 

(1

)

2

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw material purchase protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

153

 

118

 

S

 

9,890

 

(0.11

)

0.10

 

(0.10

)

0.05

 

(0.11

)

 

 

Copper forwards

 

1,262

 

385

 

S

 

4,873

 

(0.00

)

0.09

 

0.09

 

0.05

 

(0.00

)

 

 

Total

 

 

 

 

 

 

 

 

 

(0.11

)

0.19

 

 

 

 

 

(0.11

)

 

 

 

c)                            Silver Wheaton Corp. warrants

 

The company owns warrants of Silver Wheaton Corp. (SLW), a Canadian company with stocks negotiated in Toronto Stock Exchange and New York Stock Exchange. Such warrants configure American call options and were received as part of the payment regarding the sale of part of gold payable flows produced as a sub product from Salobo copper mine and some nickel mines in Sudbury.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

Fair value

 

 

 

Notional (quantity)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(US$/share)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

10,000,000

 

10,000,000

 

B

 

44

 

80

 

7

 

 

8

 

80

 

 

34



Table of Contents

 

GRAPHIC

 

d)                           Call options from debentures

 

The company has debentures in which lenders have call options of a specified quantity of Ferrovia Norte Sul S.A. ordinary shares, later changed to VLI S.A. shares. The call option’s strike price is given by the debentures’ remaining notional in each exercise date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

Fair value

 

 

 

Notional (quantity)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(R$/share)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

140,239

 

140,239

 

S

 

8,570

 

(37

)

(39

)

 

2

 

(37

)

 

e)                            Options related to Minerações Brasileiras Reunidas S.A. (“MBR”) shares

 

The Company entered into a contract that has options related to MBR shares. Under certain restrict and contingent conditions, which are beyond the buyer’s control, such as illegality due to changes in the law, the contract has a clause that gives the buyer the right to sell back its stake to the Company. It this case, the Company could settle through cash or shares. On the other hand, the Company has the right to buy back this non-controlling interest in the subsidiary.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

Fair value

 

 

 

Notional (quantity, in millions)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(R$/share)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

2,139

 

2,139

 

B/S

 

1.9

 

119

 

15

 

 

10

 

119

 

 

f)                             Embedded derivatives in commercial contracts

 

The Company has some nickel concentrate and raw materials purchase agreements in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

Fair value

 

 

 

Notional (ton)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(US$/ton)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

5,538

 

3,877

 

S

 

10,236

 

0.3

 

3.0

 

 

 

 

 

0.3

 

Copper forwards

 

4,527

 

5,939

 

S

 

4,768

 

0.3

 

2.0

 

 

 

 

 

0.3

 

Total

 

 

 

 

 

 

 

 

 

0.5

 

5.0

 

 

2.3

 

0.5

 

 

The Company has also a natural gas purchase agreement in which there´s a clause that defines that a premium can be charged if the Company’s pellet sales prices trade above a pre-defined level. This clause is considered an embedded derivative.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial settlement

 

 

 

 

 

 

 

 

 

 

 

Notional (volume/month)

 

Bought /

 

Average strike

 

Fair value

 

Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

September 30, 2016

 

December 31, 2015

 

Sold

 

(US$/ton)

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

September 30, 2016

 

2016

 

2017

 

2018+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

746,667

 

746,667

 

S

 

179

 

(1.7

)

 

 

1.1

 

(0.0

)

(0.0

)

(1.7

)

 

g)                           Sensitivity analysis of derivative financial instruments

 

The following tables present the potential value of the instruments given hypothetical stress scenarios for the main market risk factors that impact the derivatives positions. The scenarios were defined as follows:

 

·   Scenario I: fair value calculation considering market prices as of September 30, 2016

·   Scenario II: fair value estimated considering a 25% deterioration in the associated risk variables

·   Scenario III: fair value estimated considering a 50% deterioration in the associated risk variables

 

35



Table of Contents

 

GRAPHIC

 

Instrument

 

Instrument’s main risk events

 

Scenario I

 

Scenario II

 

Scenario III

 

 

 

 

 

 

 

 

 

 

 

CDI vs. US$ fixed rate swap

 

R$ depreciation

 

(581

)

(1,235

)

(1,889

)

 

 

US$ interest rate inside Brazil decrease

 

(581

)

(588

)

(596

)

 

 

Brazilian interest rate increase

 

(581

)

(582

)

(584

)

Protected item: R$ denominated debt

 

R$ depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ fixed rate swap

 

R$ depreciation

 

(671

)

(1,193

)

(1,715

)

 

 

US$ interest rate inside Brazil decrease

 

(671

)

(696

)

(721

)

 

 

Brazilian interest rate increase

 

(671

)

(732

)

(788

)

 

 

TJLP interest rate decrease

 

(671

)

(714

)

(758

)

Protected item: R$ denominated debt

 

R$ depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ floating rate swap

 

R$ depreciation

 

(56

)

(90

)

(124

)

 

 

US$ interest rate inside Brazil decrease

 

(56

)

(58

)

(61

)

 

 

Brazilian interest rate increase

 

(56

)

(60

)

(64

)

 

 

TJLP interest rate decrease

 

(56

)

(59

)

(62

)

Protected item: R$ denominated debt

 

R$ depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

R$ depreciation

 

(38

)

(138

)

(238

)

 

 

US$ interest rate inside Brazil decrease

 

(38

)

(49

)

(61

)

 

 

Brazilian interest rate increase

 

(38

)

(67

)

(93

)

Protected item: R$ denominated debt

 

R$ depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. US$ fixed rate swap

 

R$ depreciation

 

(59

)

(176

)

(294

)

 

 

US$ interest rate inside Brazil decrease

 

(59

)

(65

)

(73

)

 

 

Brazilian interest rate increase

 

(59

)

(88

)

(114

)

 

 

IPCA index decrease

 

(59

)

(73

)

(88

)

Protected item: R$ denominated debt

 

R$ depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. CDI swap

 

Brazilian interest rate increase

 

46

 

(1

)

(42

)

 

 

IPCA index decrease

 

46

 

22

 

(1

)

Protected item: R$ denominated debt linked to IPCA

 

IPCA index decrease

 

n.a.

 

(22

)

1

 

 

 

 

 

 

 

 

 

 

 

EUR fixed rate vs. US$ fixed rate swap

 

EUR depreciation

 

(30

)

(207

)

(385

)

 

 

Euribor increase

 

(30

)

(33

)

(36

)

 

 

US$ Libor decrease

 

(30

)

(43

)

(56

)

Protected item: EUR denominated debt

 

EUR depreciation

 

n.a.

 

207

 

385

 

 

 

 

 

 

 

 

 

 

 

EUR Forward

 

EUR depreciation

 

(8

)

(148

)

(288

)

 

 

Euribor increase

 

(8

)

(8

)

(8

)

 

 

US$ Libor decrease

 

(8

)

(8

)

(9

)

Protected item: EUR denominated debt

 

EUR depreciation

 

n.a.

 

148

 

288

 

 

Instrument

 

Instrument’s main risk events

 

Scenario I

 

Scenario II

 

Scenario III

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil protection

 

 

 

 

 

 

 

 

 

Forwards and options

 

Bunker Oil price decrease

 

(115

)

(169

)

(227

)

Protected item: Part of costs linked to bunker oil prices

 

Bunker Oil price decrease

 

n.a.

 

169

 

227

 

 

 

 

 

 

 

 

 

 

 

Nickel sales fixed price protection

 

 

 

 

 

 

 

 

 

Forwards

 

Nickel price decrease

 

4

 

(30

)

(64

)

Protected item: Part of nickel revenues with fixed prices

 

Nickel price fluctuation

 

n.a.

 

30

 

64

 

 

 

 

 

 

 

 

 

 

 

Purchase protection program

 

 

 

 

 

 

 

 

 

Nickel forwards

 

Nickel price increase

 

(0.1

)

(0.5

)

(0.9

)

Protected item: Part of costs linked to nickel prices

 

Nickel price increase

 

n.a.

 

0.5

 

0.9

 

 

 

 

 

 

 

 

 

 

 

Copper forwards

 

Copper price increase

 

(0.0

)

(0.6

)

(1.2

)

Protected item: Part of costs linked to copper prices

 

Copper price increase

 

n.a.

 

0.6

 

1.2

 

 

 

 

 

 

 

 

 

 

 

SLW warrants

 

SLW stock price decrease

 

80

 

44

 

15

 

 

 

 

 

 

 

 

 

 

 

VLI call options

 

VLI stock value increase

 

(37

)

(56

)

(79

)

 

 

 

 

 

 

 

 

 

 

Options regarding non-controlling interest in subsidiary

 

Subsidiary stock value decrease

 

119

 

20

 

(49

)

 

36



Table of Contents

 

GRAPHIC

 

Instrument

 

Main risks

 

Scenario I

 

Scenario II

 

Scenario III

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives - Raw material purchase (nickel)

 

Nickel price increase

 

0.3

 

(13.8

)

(27.9

)

Embedded derivatives - Raw material purchase (copper)

 

Copper price increase

 

0.3

 

(5.1

)

(10.4

)

Embedded derivatives - Gas purchase

 

Pellet price increase

 

(0.5

)

(2.3

)

(4.9

)

 

h)                           Financial counterparties’ ratings

 

The transactions of derivative instruments, cash and cash equivalents as well as investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies.

 

The table below presents the ratings in foreign currency published by agencies Moody’s and S&P regarding the main financial institutions that we had outstanding positions as of September 30, 2016.

 

Long term ratings by counterparty

 

Moody’s

 

S&P

 

ANZ Australia and New Zealand Banking

 

Aa2

 

AA-

 

Banco Bradesco

 

Ba3

 

BB

 

Banco de Credito del Peru

 

Baa1

 

BBB

 

Banco do Brasil

 

Ba3

 

BB

 

Banco do Nordeste

 

Ba3

 

BB

 

Banco Safra

 

Ba3

 

BB

 

Banco Santander

 

Ba3

 

BB

 

Banco Votorantim

 

Ba3

 

BB

 

Bank of America

 

Baa1

 

BBB+

 

Bank of Nova Scotia

 

Aa3

 

A+

 

Bank of Tokyo Mitsubishi UFJ

 

A1

 

A

 

Banpara

 

Ba3

 

BB-

 

Barclays

 

Baa3

 

BBB

 

BBVA

 

A3

 

BBB+

 

BNP Paribas

 

A1

 

A

 

BTG Pactual

 

Ba3

 

BB-

 

Caixa Economica Federal

 

Ba3

 

BB

 

Citigroup

 

Baa1

 

BBB+

 

Credit Agricole

 

A1

 

A

 

Deutsche Bank

 

A3

 

BBB+

 

Goldman Sachs

 

A3

 

BBB+

 

HSBC

 

A1

 

A

 

Intesa Sanpaolo Spa

 

A3

 

BBB-

 

Itau Unibanco

 

Ba3

 

BB

 

JP Morgan Chase & Co

 

A3

 

A-

 

Macquarie Group Ltd

 

A3

 

BBB

 

Morgan Stanley

 

A3

 

BBB+

 

National Australia Bank NAB

 

Aa2

 

AA-

 

Royal Bank of Canada

 

Aa3

 

AA-

 

Societe Generale

 

A2

 

A

 

Standard Bank Group

 

Baa3

 

 

Standard Chartered

 

A1

 

BBB+

 

 

i)                              Market curves

 

The curves used on the pricing of derivatives instruments were developed based on data from BM&F, Central Bank of Brazil, London Metals Exchange and Bloomberg.

 

(i)       Products

 

Nickel

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

10,460

 

MAR17

 

10,617

 

SEP17

 

10,683

 

OCT16

 

10,544

 

APR17

 

10,627

 

SEP18

 

10,798

 

NOV16

 

10,560

 

MAY17

 

10,640

 

SEP19

 

10,882

 

DEC16

 

10,578

 

JUN17

 

10,650

 

SEP20

 

10,964

 

JAN17

 

10,593

 

JUL17

 

10,662

 

 

 

 

 

FEB17

 

10,605

 

AUG17

 

10,673

 

 

 

 

 

 

Copper

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

SPOT

 

2.21

 

MAR17

 

2.21

 

SEP17

 

2.22

 

OCT16

 

2.20

 

APR17

 

2.22

 

SEP18

 

2.23

 

NOV16

 

2.21

 

MAY17

 

2.22

 

SEP19

 

2.25

 

DEC16

 

2.21

 

JUN17

 

2.22

 

SEP20

 

2.26

 

JAN17

 

2.21

 

JUL17

 

2.22

 

 

 

 

 

FEB17

 

2.21

 

AUG17

 

2.22

 

 

 

 

 

 

Bunker Oil

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

256

 

MAR17

 

262

 

SEP17

 

267

 

OCT16

 

259

 

APR17

 

263

 

SEP18

 

280

 

NOV16

 

262

 

MAY17

 

264

 

SEP19

 

293

 

DEC16

 

262

 

JUN17

 

264

 

SEP20

 

308

 

JAN17

 

262

 

JUL17

 

265

 

 

 

 

 

FEB17

 

261

 

AUG17

 

266

 

 

 

 

 

 

37



Table of Contents

 

GRAPHIC

 

(ii)   Foreign exchange and interest rates

 

US$-Brazil Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

11/01/16

 

1.61

 

09/01/17

 

2.00

 

01/02/20

 

2.86

 

12/01/16

 

1.74

 

10/02/17

 

2.05

 

04/01/20

 

2.98

 

01/02/17

 

1.78

 

01/02/18

 

2.17

 

07/01/20

 

3.07

 

02/01/17

 

1.81

 

04/02/18

 

2.25

 

10/01/20

 

3.18

 

03/01/17

 

1.82

 

07/02/18

 

2.36

 

01/04/21

 

3.28

 

04/03/17

 

1.83

 

10/01/18

 

2.42

 

04/01/21

 

3.34

 

05/02/17

 

1.86

 

01/02/19

 

2.54

 

07/01/21

 

3.43

 

06/01/17

 

1.92

 

04/01/19

 

2.62

 

10/01/21

 

3.52

 

07/03/17

 

1.93

 

07/01/19

 

2.68

 

01/03/22

 

3.57

 

08/01/17

 

1.99

 

10/01/19

 

2.72

 

01/02/23

 

3.87

 

 

US$ Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

0.53

 

6M

 

0.91

 

11M

 

0.94

 

2M

 

0.65

 

7M

 

0.92

 

12M

 

0.94

 

3M

 

0.85

 

8M

 

0.93

 

2Y

 

1.02

 

4M

 

0.88

 

9M

 

0.93

 

3Y

 

1.08

 

5M

 

0.90

 

10M

 

0.94

 

4Y

 

1.15

 

 

TJLP

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

11/01/16

 

7.50

 

09/01/17

 

7.50

 

01/02/20

 

7.50

 

12/01/16

 

7.50

 

10/02/17

 

7.50

 

04/01/20

 

7.50

 

01/02/17

 

7.50

 

01/02/18

 

7.50

 

07/01/20

 

7.50

 

02/01/17

 

7.50

 

04/02/18

 

7.50

 

10/01/20

 

7.50

 

03/01/17

 

7.50

 

07/02/18

 

7.50

 

01/04/21

 

7.50

 

04/03/17

 

7.50

 

10/01/18

 

7.50

 

04/01/21

 

7.50

 

05/02/17

 

7.50

 

01/02/19

 

7.50

 

07/01/21

 

7.50

 

06/01/17

 

7.50

 

04/01/19

 

7.50

 

10/01/21

 

7.50

 

07/03/17

 

7.50

 

07/01/19

 

7.50

 

01/03/22

 

7.50

 

08/01/17

 

7.50

 

10/01/19

 

7.50

 

01/02/23

 

7.50

 

 

38



Table of Contents

 

GRAPHIC

 

BRL Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

11/01/16

 

14.03

 

09/01/17

 

12.58

 

01/02/20

 

11.58

 

12/01/16

 

13.93

 

10/02/17

 

12.48

 

04/01/20

 

11.60

 

01/02/17

 

13.77

 

01/02/18

 

12.19

 

07/01/20

 

11.61

 

02/01/17

 

13.60

 

04/02/18

 

12.01

 

10/01/20

 

11.59

 

03/01/17

 

13.48

 

07/02/18

 

11.85

 

01/04/21

 

11.58

 

04/03/17

 

13.32

 

10/01/18

 

11.73

 

04/01/21

 

11.59

 

05/02/17

 

13.16

 

01/02/19

 

11.63

 

07/01/21

 

11.59

 

06/01/17

 

13.00

 

04/01/19

 

11.59

 

10/01/21

 

11.60

 

07/03/17

 

12.88

 

07/01/19

 

11.57

 

01/03/22

 

11.60

 

08/01/17

 

12.72

 

10/01/19

 

11.58

 

01/02/23

 

11.68

 

 

Implicit Inflation (IPCA)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

11/01/16

 

7.40

 

09/01/17

 

6.04

 

01/02/20

 

5.27

 

12/01/16

 

7.32

 

10/02/17

 

5.95

 

04/01/20

 

5.29

 

01/02/17

 

7.16

 

01/02/18

 

5.75

 

07/01/20

 

5.30

 

02/01/17

 

7.00

 

04/02/18

 

5.63

 

10/01/20

 

5.29

 

03/01/17

 

6.89

 

07/02/18

 

5.50

 

01/04/21

 

5.28

 

04/03/17

 

6.74

 

10/01/18

 

5.41

 

04/01/21

 

5.29

 

05/02/17

 

6.59

 

01/02/19

 

5.32

 

07/01/21

 

5.30

 

06/01/17

 

6.43

 

04/01/19

 

5.28

 

10/01/21

 

5.31

 

07/03/17

 

6.32

 

07/01/19

 

5.26

 

01/03/22

 

5.32

 

08/01/17

 

6.17

 

10/01/19

 

5.27

 

01/02/23

 

5.43

 

 

EUR Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

-0.38

 

6M

 

-0.11

 

11M

 

-0.01

 

2M

 

-0.35

 

7M

 

-0.08

 

12M

 

0.00

 

3M

 

-0.32

 

8M

 

-0.05

 

2Y

 

-0.22

 

4M

 

-0.21

 

9M

 

-0.04

 

3Y

 

-0.21

 

5M

 

-0.15

 

10M

 

-0.02

 

4Y

 

-0.19

 

 

CAD Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

0.88

 

6M

 

1.01

 

11M

 

0.10

 

2M

 

0.89

 

7M

 

0.74

 

12M

 

0.01

 

3M

 

0.90

 

8M

 

0.51

 

2Y

 

0.88

 

4M

 

0.96

 

9M

 

0.34

 

3Y

 

0.91

 

5M

 

1.00

 

10M

 

0.21

 

4Y

 

0.95

 

 

Currencies - Ending rates

 

CAD/US$

 

0.7623

 

US$/BRL

 

3.2462

 

EUR/US$

 

1.1222

 

 

39



Table of Contents

 

GRAPHIC

 

20.          Stockholders’ equity

 

a)   Share capital

 

At September 30, 2016 and December 31, 2015, the share capital was US$61,614 corresponding to 5,244,316,120 shares issued and fully paid without par value.

 

 

 

September 30, 2016

 

 

 

ON

 

PNA

 

Total

 

Stockholders

 

 

 

 

 

 

 

Valepar S.A.

 

1,716,435,045

 

20,340,000

 

1,736,775,045

 

Brazilian Government (Golden Share)

 

 

12

 

12

 

Foreign investors - ADRs

 

792,920,634

 

640,657,142

 

1,433,577,776

 

FMP - FGTS

 

75,083,246

 

 

75,083,246

 

PIBB - BNDES

 

742,578

 

993,751

 

1,736,329

 

BNDESPar

 

206,378,882

 

66,185,272

 

272,564,154

 

Foreign institutional investors in local market

 

273,953,175

 

746,942,370

 

1,020,895,545

 

Institutional investors

 

76,600,716

 

128,382,435

 

204,983,151

 

Retail investors in Brazil

 

43,538,724

 

364,220,944

 

407,759,668

 

Shares outstanding

 

3,185,653,000

 

1,967,721,926

 

5,153,374,926

 

Shares in treasury

 

31,535,402

 

59,405,792

 

90,941,194

 

Total issued shares

 

3,217,188,402

 

2,027,127,718

 

5,244,316,120

 

 

 

 

 

 

 

 

 

Amounts per class of shares (in millions)

 

38,525

 

23,089

 

61,614

 

 

 

 

 

 

 

 

 

Total authorized shares

 

3,600,000,000

 

7,200,000,000

 

10,800,000,000

 

 

b)   Basic and diluted earnings per share

 

Basic and diluted earnings per share are as follows:

 

 

 

Three months period ended

 

Nine months period ended

 

 

 

September 30

 

September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Net income (loss) attributable to Vale’s stockholders

 

575

 

(2,117

)

3,457

 

(3,560

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) available to preferred stockholders

 

220

 

(808

)

1,320

 

(1,359

)

Income (loss) available to common stockholders

 

355

 

(1,309

)

2,137

 

(2,201

)

Total

 

575

 

(2,117

)

3,457

 

(3,560

)

Thousands of shares

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding - preferred shares

 

1,967,722

 

1,967,722

 

1,967,722

 

1,967,722

 

Weighted average number of shares outstanding - common shares

 

3,185,653

 

3,185,653

 

3,185,653

 

3,185,653

 

Total

 

5,153,375

 

5,153,375

 

5,153,375

 

5,153,375

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

Preferred share

 

0.11

 

(0.41

)

0.67

 

(0.69

)

Common share

 

0.11

 

(0.41

)

0.67

 

(0.69

)

 

40



Table of Contents

 

GRAPHIC

 

21.                               Costs and expenses by nature

 

a)        Cost of goods sold and services rendered

 

 

 

Three months period ended September 30

 

Nine months period ended September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Personnel

 

581

 

567

 

1,681

 

1,724

 

Materials and services

 

1,017

 

980

 

2,955

 

2,925

 

Fuel oil and gas

 

338

 

315

 

962

 

974

 

Maintenance

 

739

 

595

 

2,015

 

1,939

 

Energy

 

215

 

139

 

568

 

452

 

Acquisition of products

 

132

 

168

 

361

 

672

 

Depreciation and depletion

 

899

 

861

 

2,577

 

2,654

 

Freight

 

617

 

909

 

1,728

 

2,534

 

Others

 

417

 

506

 

1,152

 

1,520

 

Total

 

4,955

 

5,040

 

13,999

 

15,394

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

4,817

 

4,925

 

13,639

 

14,994

 

Cost of services rendered

 

138

 

115

 

360

 

400

 

Total

 

4,955

 

5,040

 

13,999

 

15,394

 

 

b)        Selling and administrative expenses

 

 

 

Three months period ended September 30

 

Nine months period ended September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Personnel

 

61

 

56

 

170

 

212

 

Services (consulting, infrastructure and others)

 

19

 

26

 

53

 

80

 

Advertising and publicity

 

2

 

4

 

5

 

10

 

Depreciation and amortization

 

37

 

31

 

93

 

95

 

Travel expenses

 

2

 

3

 

5

 

9

 

Taxes and rents

 

4

 

3

 

11

 

13

 

Others

 

28

 

8

 

75

 

66

 

Total

 

153

 

131

 

412

 

485

 

 

c)         Others operational expenses (incomes), net

 

 

 

Three months period ended
September 30

 

Nine months period ended
September 30

 

 

 

2016

 

2015

 

2016

 

2015

 

Provision for litigation

 

32

 

(4

)

126

 

20

 

Provision for loss with VAT credits (ICMS)

 

27

 

55

 

62

 

157

 

Provision for profit sharing program

 

20

 

1

 

26

 

20

 

Provision (reversals) for disposal of materials and inventories

 

4

 

7

 

(73

)

101

 

Gold stream transaction

 

(150

)

 

(150

)

(230

)

Others

 

16

 

54

 

153

 

202

 

Total

 

(51

)

113

 

144

 

270

 

 

41



Table of Contents

 

GRAPHIC

 

22.                               Financial result

 

 

 

Three months period ended September
30

 

Nine months period ended September
30

 

 

2016

 

2015

 

2016

 

2015

 

Financial expenses

 

 

 

 

 

 

 

 

 

Loans and borrowings gross interest

 

(466

)

(434

)

(1,330

)

(1,230

)

Capitalized loans and borrowing costs

 

172

 

195

 

562

 

568

 

Labor, tax and civil lawsuits

 

(4

)

10

 

(25

)

(40

)

Derivative financial instruments

 

(101

)

(1,799

)

(325

)

(3,224

)

Indexation and exchange rate variation (a)

 

(605

)

(7,581

)

(2,830

)

(13,518

)

Participative stockholders’ debentures

 

(48

)

75

 

(250

)

711

 

Expenses of REFIS

 

(144

)

(138

)

(387

)

(425

)

Others

 

(225

)

(60

)

(526

)

(371

)

 

 

(1,421

)

(9,732

)

(5,111

)

(17,529

)

Financial income

 

 

 

 

 

 

 

 

 

Short-term investments

 

6

 

51

 

75

 

98

 

Derivative financial instruments

 

62

 

 

1,485

 

322

 

Indexation and exchange rate variation (b)

 

277

 

2,464

 

5,966

 

5,865

 

Others

 

29

 

41

 

54

 

90

 

 

 

374

 

2,556

 

7,580

 

6,375

 

Financial results, net

 

(1,047

)

(7,176

)

2,469

 

(11,154

)

 

 

 

 

 

 

 

 

 

 

Summary of indexation and exchange rate variation

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

(295

)

(6,913

)

5,124

 

(11,035

)

Others

 

(33

)

1,796

 

(1,988

)

3,382

 

Net (a) + (b)

 

(328

)

(5,117

)

3,136

 

(7,653

)

 

23.                               Deferred revenue - Gold stream

 

In August 2016, the Company entered into an amendment to the original agreement with Silver Wheaton Corp. (“SLW”) to sell an additional 25% premium of the payable gold stream in copper concentrate from the Salobo copper mine for the life of the mine. In this transaction, the Company received: (i) an initial cash payment of US$800 ; (ii) an option value with a reduction of the exercise price, from US$65.00 to US$43.75, of the 10 million warrants of SLW held by Vale since 2013 and maturing in 2023; and (iii) future cash payments for each ounce of gold delivered to SLW under the agreement, equal to the lesser of US$400 per oz (plus a 1% annual adjustment from 2019 onwards) and the prevailing market price.

 

Vale may also receive an additional cash payment contingent on its decision to expand its capacity to process Salobo copper ores to more than 28 Mtpy before 2036. Salobo I and Salobo II, which are ramping up, will have a total capacity to process 24 Mtpy of run-of-mine (ROM). The contingent additional cash payment could range from US$113 to US$953 depending on ore grade, timing and size of the expansion.

 

This transaction was bifurcated into two identifiable components (i) the sale of the mineral rights which resulted in US$150 gain in the income statement under “Other operating income (expenses), net” and, (ii) US$549 recorded as deferred revenue (liability) related to the services for gold extraction on the portion in which Vale operates as an agent for SLW gold extraction.

 

After the completion of this transaction SLW holds 75% of the payable gold stream in copper concentrated from the Salobo mine and 70% of the gold extracted during the next 20 years as a by-product of the Sudbury nickel mines. During the three months period ended September 30, 2016 and 2015, the Company recognized US$58 and US$23, respectively, and during the nine months period ended September 30, 2016 and 2015, US$141 and US$70, respectively, in income statement related to rendered services of the original and amended transactions.

 

Defining the gain on sale of mineral interest and the deferred revenue portion of the transaction required the use of critical accounting estimates as follow:

 

· Discount rates used to measure the present value of future inflows and outflows;

· Allocation of costs between copper and gold based on relative prices;

· Expected margin for the independent elements (sale of mineral rights and service for gold extraction) based on Company’s best estimate.

 

42



Table of Contents

 

GRAPHIC

 

24.                               Commitments

 

a)        Base metals operations

 

In December 2015, the put option related to the dilution of Sumic Nickel Netherland B.V. (“Sumic”) interest in Vale Nouvelle-Calédonie S.A.S. (“VNC”) was automatically triggered.

 

In March 2016, Vale Canada Limited purchased the equity interest held by Sumic in VNC for US$135.

 

b)        Participative stockholders’ debentures

 

At October 3rd, 2016 (subsequently event), the company has paid the semiannual remuneration to stockholders debentures the amount of US$51 (R$164).

 

c)  Operating lease and purchase obligations

 

The future payment commitments for operating lease and purchase obligations are as follows:

 

2016

 

37

 

2017

 

55

 

2018

 

58

 

2019

 

50

 

2020 and thereafter

 

53

 

Total minimum payments required

 

253

 

 

d)  Guarantees provided

 

As of September 30, 2016, corporate guarantees provided by Vale (within the limit of its direct or indirect interest) for the companies Norte Energia S.A. and Companhia Siderúrgica do Pecém S.A. totaled US$354 and US$1,351, respectively.

 

43



Table of Contents

 

GRAPHIC

 

25.          Related parties

 

Transactions with related parties are made by the Company at arm´s-length, observing the price and usual market conditions and therefore do not generate any undue benefit to their counterparties or loss to the Company.

 

In the normal course of operations, Vale enters into contracts with related parties (associates, joint ventures and stockholders), related to the sale and purchase of products and services, loans, derivatives, leasing of assets, sale of raw material and railway transportation services.

 

The balances of these related party transactions and their effects on the financial statements are as follows:

 

 

 

Assets

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Cash and
cash
equivalents

 

Derivative
financial
instruments

 

Accounts
receivable

 

Related
parties

 

Cash and
cash
equivalents

 

Derivative
financial
instruments

 

Accounts
receivable

 

Related
parties

 

Banco Bradesco S.A.

 

536

 

219

 

 

 

37

 

66

 

 

 

Banco do Brasil S.A.

 

155

 

31

 

 

 

395

 

16

 

 

 

Baovale Mineração S.A.

 

 

 

 

 

 

 

 

1

 

Companhia Coreano-Brasileira de Pelotização

 

 

 

 

14

 

 

 

 

6

 

Companhia Hispano-Brasileira de Pelotização

 

 

 

2

 

 

 

 

1

 

4

 

Companhia Ítalo-Brasileira de Pelotização

 

 

 

 

 

 

 

 

8

 

Companhia Nipo-Brasileira de Pelotização

 

 

 

 

22

 

 

 

 

9

 

Companhia Siderúrgica do Atlântico

 

 

 

 

16

 

 

 

 

 

Companhia Siderúrgica do Pecem

 

 

 

57

 

 

 

 

 

 

Consórcio de Rebocadores da Baia de São Marcos

 

 

 

12

 

 

 

 

15

 

 

Ferrovia Norte Sul S.A.

 

 

 

1

 

 

 

 

3

 

 

Mitsui & Co., Ltd.

 

 

 

3

 

 

 

 

1

 

 

MRS Logística S.A.

 

 

 

 

19

 

 

 

 

17

 

VLI Multimodal S.A.

 

 

 

5

 

 

 

 

9

 

 

VLI Operações Portuárias S.A.

 

 

 

2

 

 

 

 

25

 

 

VLI S.A.

 

 

 

2

 

12

 

 

 

 

10

 

Others

 

 

 

21

 

2

 

 

 

24

 

16

 

Total

 

691

 

250

 

105

 

85

 

432

 

82

 

78

 

71

 

 

 

 

Liabilities

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Derivative
financial
instruments

 

Others 
liabilities

 

Related
parties

 

Loans and
borrowings

 

Derivative
financial
instruments

 

Others
liabilities

 

Related
parties

 

Loans and
borrowings

 

Aliança Geração de Energia S.A.

 

 

12

 

48

 

 

 

11

 

 

 

Banco Bradesco S.A.

 

470

 

 

 

6

 

205

 

54

 

 

370

 

Banco do Brasil S.A.

 

209

 

 

 

2,885

 

250

 

 

 

2,625

 

BNDES

 

38

 

 

 

4,473

 

39

 

 

 

4,066

 

Baovale Mineração S.A.

 

 

22

 

 

 

 

8

 

 

 

BNDES Participações S.A.

 

 

 

 

440

 

 

 

 

371

 

Companhia Coreano-Brasileira de Pelotização

 

 

46

 

30

 

 

 

4

 

70

 

 

Companhia Hispano-Brasileira de Pelotização

 

 

25

 

31

 

 

 

37

 

7

 

 

Companhia Ítalo-Brasileira de Pelotização

 

 

32

 

50

 

 

 

3

 

64

 

 

Companhia Nipo-Brasileira de Pelotização

 

 

92

 

61

 

 

 

9

 

112

 

 

Consórcio de Rebocadores da Baía de São Marcos

 

 

 

 

 

 

8

 

 

 

Ferrovia Centro-Atlântica S.A.

 

 

 

83

 

 

 

 

68

 

 

Mitsui & Co., Ltd.

 

 

13

 

 

 

 

11

 

 

 

MRS Logística S.A.

 

 

13

 

 

 

 

23

 

 

 

Sumic Nickel Netherland B.V

 

 

 

352

 

 

 

 

352

 

 

VLI S.A.

 

 

1

 

34

 

 

 

 

 

 

Others

 

 

29

 

6

 

 

 

22

 

15

 

 

Total

 

717

 

285

 

695

 

7,804

 

494

 

190

 

688

 

7,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44



Table of Contents

 

GRAPHIC

 

 

 

Three months period ended September 30

 

 

 

2016

 

2015

 

 

 

Net operating
revenue

 

Costs and
expenses

 

Financial
result

 

Net operating
revenue

 

Costs and 
expenses

 

Financial
result

 

Aliança Geração de Energia S.A.

 

 

(32

)

 

6

 

 

 

Banco Bradesco S.A. (i)

 

 

 

(249

)

 

 

(87

)

Banco do Brasil S.A. (i)

 

 

 

(244

)

 

 

(127

)

Baovale Mineração S.A.

 

 

(4

)

 

 

 

 

BNDES (i)

 

 

 

(162

)

 

 

(96

)

BNDES Participações S.A. (i)

 

 

 

(22

)

 

 

(1

)

Companhia Coreano-Brasileira de Pelotização

 

 

(6

)

(5

)

 

(24

)

 

Companhia Hispano-Brasileira de Pelotização

 

 

(12

)

(3

)

 

(16

)

 

Companhia Ítalo-Brasileira de Pelotização

 

 

(13

)

(6

)

 

(20

)

 

Companhia Nipo-Brasileira de Pelotização

 

 

(27

)

(9

)

 

(23

)

 

Companhia Siderúrgica do Pecem

 

59

 

 

 

 

 

 

Ferrovia Centro Atlântica S.A.

 

11

 

(9

)

(1

)

13

 

(9

)

(1

)

Ferrovia Norte Sul S.A.

 

3

 

 

 

 

 

 

Mitsui & Co., Ltd.

 

41

 

 

 

41

 

 

 

MRS Logística S.A.

 

 

(133

)

 

 

(110

)

 

Samarco Mineração S.A.

 

 

 

 

20

 

 

 

VLI Multimodal S.A.

 

9

 

 

 

 

 

 

VLI Operações Portuárias S.A.

 

31

 

(7

)

 

28

 

 

 

VLI S.A.

 

34

 

 

 

42

 

 

 

Others

 

2

 

(9

)

3

 

11

 

(5

)

4

 

Total

 

190

 

(252

)

(698

)

161

 

(207

)

(308

)

 


(i)  Does not include exchange rate variation.

 

 

 

Nine months period ended September 30

 

 

 

2016

 

2015

 

 

 

Net operating
revenue

 

Costs and
expenses

 

Financial
result

 

Net operating
revenue

 

Costs and
expenses

 

Financial
result

 

Aliança Geração de Energia S.A.

 

 

(94

)

 

6

 

 

 

Banco Bradesco S.A. (i)

 

 

 

(115

)

 

 

(161

)

Banco do Brasil S.A. (i)

 

 

 

(326

)

 

 

(250

)

Baovale Mineração S.A.

 

 

(12

)

 

 

(20

)

 

BNDES (i)

 

 

 

(313

)

 

 

(132

)

BNDES Participações S.A. (i)

 

 

 

(42

)

 

 

(11

)

Companhia Coreano-Brasileira de Pelotização

 

 

(42

)

(5

)

 

(58

)

 

Companhia Hispano-Brasileira de Pelotização

 

 

(31

)

(3

)

 

(37

)

 

Companhia Ítalo-Brasileira de Pelotização

 

 

(35

)

(6

)

 

(48

)

 

Companhia Nipo-Brasileira de Pelotização

 

 

(80

)

(9

)

 

(73

)

 

Companhia Siderúrgica do Atlântico

 

 

(6

)

 

 

 

 

Companhia Siderúrgica do Pecem

 

91

 

 

 

 

 

 

Ferrovia Centro Atlântica S.A.

 

30

 

(22

)

(2

)

37

 

(30

)

(1

)

Ferrovia Norte Sul S.A.

 

14

 

 

 

 

 

 

Mitsui & Co., Ltd.

 

103

 

 

 

150

 

 

 

MRS Logística S.A.

 

 

(335

)

 

 

(370

)

 

Samarco Mineração S.A.

 

 

 

 

109

 

 

 

VLI Multimodal S.A.

 

9

 

 

 

 

 

 

VLI Operações Portuárias S.A.

 

99

 

(11

)

 

29

 

 

 

VLI S.A.

 

93

 

 

 

172

 

 

 

Others

 

12

 

(24

)

1

 

43

 

(29

)

5

 

Total

 

451

 

(692

)

(820

)

546

 

(665

)

(550

)

 


(i) Does not include exchange rate variation.

 

45



Table of Contents

 

GRAPHIC

 

Members of the Board of Directors, Fiscal Council, Advisory Committees and Executive Officers

 

 

 

 

Board of Directors

 

 

 

 

 

Gueitiro Matsuo Genso

 

Governance and Sustainability Committee

Chairman

 

Fernando Jorge Buso Gomes

 

 

Fernando Santos do Nascimento

Sérgio Alexandre Figueiredo Clemente

 

Eduardo de Oliveira Rodrigues Filho

Vice-President

 

Priscila Valle Costa de Oliveira

 

 

Ricardo Simonsen

Dan Antonio Marinho Conrado

 

 

Marcel Juviniano Barros

 

Fiscal Council

Eduardo Refinetti Guardia

 

 

Fernando Jorge Buso Gomes

 

Marcelo Amaral Moraes

Motomu Takahashi

 

Chairman

Oscar Augusto de Camargo Filho

 

 

Eduardo de Salles Bartolomeo

 

Paulo José dos Reis Souza

Lucio Azevedo

 

Sandro Kohler Marcondes

Alberto Guth

 

Aníbal Moreira dos Santos

 

 

Raphael Manhães Martins

Alternate

 

 

Gilberto Antonio Vieira

 

 

Moacir Nachbar Junior

 

Alternate

Arthur Prado Silva

 

Paula Bicudo de Castro Magalhães

Francisco Ferreira Alexandre

 

Sergio Mamede Rosa do Nascimento

Robson Rocha

 

Oswaldo Mário Pego de Amorim Azevedo

Luiz Mauricio Leuzinger

 

Julio Sergio de Souza Cardozo

Yoshitomo Nishimitsu

 

 

Eduardo de Oliveira Rodrigues Filho

 

Executive Officers

Marcelo Marcolino

 

 

Carlos Roberto de Assis Ferreira

 

Murilo Pinto de Oliveira Ferreira

Marcelo Gasparino

 

Chief Executive Officer

 

 

 

 

 

Clovis Torres Junior

Advisory Committees of the Board of Directors

 

Executive Officer (Human Resources, Health & Safety, Sustainability, Energy, Mergers and Acquisitions, Governance, Corporate Integrity, Legal and Tax)

 

 

 

Controlling Committee

 

Luciano Siani Pires

Eduardo Cesar Pasa

 

Executive Officer (Finance and Investors Relations)

Moacir Nachbar Junior

 

 

Oswaldo Mário Pego de Amorim Azevedo

 

Roger Allan Downey

 

 

Executive Officer (Fertilizers, Coal and Strategy)

 

 

 

Executive Development Committee

 

Gerd Peter Poppinga

Oscar Augusto de Camargo Filho

 

Executive Officer (Ferrous)

Marcel Juviniano Barros

 

 

Fernando Jorge Buso Gomes

 

Humberto Ramos de Freitas

Tatiana Boavista Barros Heil

 

Executive Officer (Logistics and Mineral Research)

 

 

 

Strategic Committee

 

Jennifer Anne Maki

Murilo Pinto de Oliveira Ferreira

 

Executive Officer (Base Metals)

Gueitiro Matsuo Genso

 

 

Luiz Carlos Trabuco Cappi

 

 

Oscar Augusto de Camargo Filho

 

 

Eduardo de Salles Bartolomeo

 

Rogerio Nogueira

 

 

Global Controller Director

Finance Committee

 

 

Gilmar Dalilo Cezar Wanderley

 

Murilo Muller

Fernando Jorge Buso Gomes

 

Controllership Director

Eduardo de Oliveira Rodrigues Filho

 

 

Marcelo Marcolino

 

Dioni Brasil

 

 

Accounting Manager

 

 

TC-CRC-RJ 083305/O-8

 

46



Table of Contents

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Vale S.A.

 

(Registrant)

 

 

 

 

By:

/s/ Andre Figueiredo

Date: October 27, 2016

 

Andre Figueiredo

 

 

Director of Investor Relations