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Table of Contents

As filed with the Securities and Exchange Commission on April 10, 2017


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2016
Commission file number: 001-15030

VALE S.A.
(Exact name of Registrant as specified in its charter)

Federative Republic of Brazil
(Jurisdiction of incorporation or organization)

Luciano Siani Pires, Chief Financial Officer
phone: +55 21 3814 8888
fax: +55 21 3814 8820

Avenida das Américas, 700 – Bloco 8 – Loja 318
22640-100 Rio de Janeiro, RJ, Brazil

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on
Which Registered

Preferred class A shares of Vale, no par value per share

New York Stock Exchange*

American Depositary Shares (evidenced by American Depositary Receipts), each representing one preferred class A share of Vale

New York Stock Exchange

Common shares of Vale, no par value per share

New York Stock Exchange*

American Depositary Shares (evidenced by American Depositary Receipts), each representing one common share of Vale

New York Stock Exchange

5.625% Guaranteed Notes due 2019, issued by Vale Overseas

New York Stock Exchange

4.625% Guaranteed Notes due 2020, issued by Vale Overseas

New York Stock Exchange

5.875% Guaranteed Notes due 2021, issued by Vale Overseas

New York Stock Exchange

4.375% Guaranteed Notes due 2022, issued by Vale Overseas

New York Stock Exchange

6.250% Guaranteed Notes due 2026, issued by Vale Overseas

New York Stock Exchange

8.250% Guaranteed Notes due 2034, issued by Vale Overseas

New York Stock Exchange

6.875% Guaranteed Notes due 2036, issued by Vale Overseas

New York Stock Exchange

6.875% Guaranteed Notes due 2039, issued by Vale Overseas

New York Stock Exchange

5.625% Notes due 2042, issued by Vale S.A.

New York Stock Exchange

*
Shares are not listed for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of stock of Vale as of December 31, 2016 was:
3,185,653,000 common shares, no par value per share
1,967,721,914 preferred class A shares, no par value per share
12 golden shares, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý    No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o    No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý                                            Accelerated filer o                                             Non-accelerated filer o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o      International Financial Reporting Standards as issued by the International Accounting Standards Board ý      Other o
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o    Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý

   


Table of Contents


TABLE OF CONTENTS

 
Page
Form 20-F cross reference guide ii
Forward-looking statements iv
Risk factors 1
Selected financial data 15

I.     Information on the company


 
Business overview 17
Lines of business 27

1.     Ferrous minerals

29

2.     Base metals

39

3.     Coal

52

4.     Infrastructure

54

5.     Other investments

61
Reserves 62
Capital expenditures 71
Regulatory matters 73
Discontinued operations 78

II.    Operating and financial review and prospects


 
Overview 81
Results of operations 87
Liquidity and capital resources 100
Contractual obligations 103
Off-balance sheet arrangements 103
Critical accounting policies and estimates 103
Risk management 107


III.  Share ownership and trading




 
Major shareholders 109
Related party transactions 116
Distributions 118
Trading markets 119
Share price history 120
Depositary shares 120

Purchases of equity securities by the issuer and affiliated purchasers

121

IV.    Management and employees


 
Management 122
Management compensation 133
Employees 135

V.     Additional information


 
Legal proceedings 136
Memorandum and articles of association 144
Shareholder debentures 151

Exchange controls and other limitations affecting security holders

152
Taxation 154

Evaluation of disclosure controls and procedures

161

Management's report on internal control over financial reporting

161
Corporate governance 162
Code of ethics and conduct 164
Principal accountant fees and services 165
Information filed with securities regulators 166
Exhibits 167
Glossary 168
Signatures 173

Index to consolidated financial statements


F-1

i


Table of Contents


FORM 20-F CROSS REFERENCE GUIDE

Item
Form 20-F caption
Location in this report
Page

1

Identity of directors, senior management and advisers

Not applicable

2

Offer statistics and expected timetable

Not applicable

3

Key information

   

3A Selected financial data

Selected financial data

15

3B Capitalization and indebtedness

Not applicable

3C Reasons for the offer and use of proceeds

Not applicable

3D Risk factors

Risk factors

1

4

Information on the Company

   

4A History and development of the company

Business overview, Capital expenditures

17, 71

4B Business overview

Business overview, Lines of business, Reserves, Regulatory matters

17, 27, 62, 73

4C Organizational structure

Exhibit 8

4D Property, plant and equipment

Lines of business, Capital expenditures, Regulatory matters

27, 71, 73

4A

Unresolved staff comments

None

5

Operating and financial review and prospects

   

5A Operating results

Results of operations

87

5B Liquidity and capital resources

Liquidity and capital resources

100

5C Research and development, patents and licenses, etc. 

Capital expenditures

71

5D Trend information

Results of operations

87

5E Off-balance sheet arrangements

Off-balance sheet arrangements

103

 

Critical accounting policies and estimates

103

5F Tabular disclosure of contractual obligations

Contractual obligations

103

5G Safe harbor

Forward-looking statements

iv

6

Directors, senior management and employees

 

6A Directors and senior management

Management

122

6B Compensation

Management compensation

133

6C Board practices

Management—Board of directors

122

6D Employees

Employees

135

6E Share ownership

Major shareholders,

 

 

Major shareholders, Employees—Performance-based compensation

109, 136

7

Major shareholders and related party transactions

   

7A Major shareholders

Major shareholders

109

7B Related party transactions

Related party transactions

116

7C Interests of experts and counsel

Not applicable

8

Financial information

   

8A Consolidated statements and other financial information

Financial statements

F-1

 

Distributions

118

 

Legal proceedings

136

8B Significant changes

Not applicable

9

The offer and listing

   

9A Offer and listing details

Share price history

120

9B Plan of distribution

Not applicable

9C Markets

Trading markets

119

9D Selling shareholders                                                    

Not applicable

9E Dilution

Not applicable

9F Expenses of the issue

Not applicable

ii


Table of Contents

Item
Form 20-F caption
Location in this report
Page

10

Additional information

   

10A Share capital

Memorandum and articles of association—Common shares and preferred shares

144

10B Memorandum and articles of association

Memorandum and articles of association

144

10C Material contracts

Lines of business, Results of operations, Related party transactions

27, 87, 116

10D Exchange controls

Exchange controls and other limitations affecting security holders

152

10E Taxation

Taxation

154

10F Dividends and paying agents

Not applicable

10G Statement by experts

Reserves

62

10H Documents on display

Information filed with securities regulators

166

10I Subsidiary information

Not applicable

11

Quantitative and qualitative disclosures about market risk

Risk management

107

12

Description of securities other than equity securities

   

12A Debt securities

Not applicable

12B Warrants and rights

Not applicable

12C Other securities

Not applicable

12D American Depositary Shares

Depositary shares

120

13

Defaults, dividend arrearages and delinquencies

Not applicable

14

Material modifications to the rights of security holders and use of proceeds

Not applicable

15

Controls and procedures

Evaluation of disclosure controls and procedures

161

 

Management's report on internal control over financial reporting

161

16A

Audit Committee financial expert

Management—Fiscal Council

130

16B

Code of ethics

Code of ethics and conduct

164

16C

Principal accountant fees and services

Principal accountant fees and services

165

16D

Exemptions from the listing standards for audit committees

Management—Fiscal Council; Corporate governance

130, 162

16E

Purchase of equity securities by the issuer and affiliated purchasers

Purchases of equity securities by the issuer and affiliated purchasers

121

16F

Change in registrant's certifying accountant

Not applicable

16G

Corporate governance

Corporate governance

162

16H

Mine safety disclosure

Not applicable

17

Financial statements

Not applicable

18

Financial statements

Financial statements

F-1

19

Exhibits

Exhibits

167

iii


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FORWARD-LOOKING STATEMENTS

          This annual report contains statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Many of those forward-looking statements can be identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "should," "plan," "intend," "estimate" and "potential," among others. Those statements appear in a number of places and include statements regarding our intent, belief or current expectations with respect to:

          We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of various factors. These risks and uncertainties include factors relating to (a) economic, political and social issues in the countries in which we operate, (b) the global economy, (c) commodity prices, (d) financial and capital markets, (e) the mining and metals businesses, which are cyclical in nature, and their dependence upon global industrial production, which is also cyclical, (f) regulation and taxation, (g) operational incidents or accidents, and (h) the high degree of global competition in the markets in which we operate. For additional information on factors that could cause our actual results to differ from expectations reflected in forward-looking statements, see Risk factors. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments. All forward-looking statements attributed to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement.



          Vale S.A. is a stock corporation, or sociedade por ações, that was organized on January 11, 1943 under the laws of the Federative Republic of Brazil for an unlimited period of time. Its head office is located at Avenida das Américas, 700 - bloco 8 - loja 318 - Barra da Tijuca, Rio de Janeiro, RJ, Brazil, and its telephone number is 55-21-3485-5000.

          In this report, references to "Vale" are to Vale S.A. References to "we," "us" or the "Company" are to Vale and, except where the context otherwise requires, its consolidated subsidiaries. References to our "preferred shares" are to our preferred class A shares. References to our "ADSs" or "American Depositary Shares" include both our common American Depositary Shares (our "common ADSs"), each of which represents one common share of Vale, and our preferred class A American Depositary Shares (our "preferred ADSs"), each of which represents one class A preferred share of Vale. American Depositary Shares are represented by American Depositary Receipts ("ADRs") issued by the depositary.

          Unless otherwise specified, we use metric units.

          References to "real," "reais" or "R$" are to the official currency of Brazil, the real (singular) or reais (plural). References to "U.S. dollars" or "US$" are to United States dollars. References to "A$" are to Australian dollars. References to "€" are to Euros.

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RISK FACTORS

External risks

          As a mining company, we are a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and maintain production capacity, build infrastructure, preserve the environment and minimize social impacts. Sensitivity to industrial production, together with the need for significant long-term capital investments, are important sources of risk for our financial performance and growth prospects.

          China has been the main driver of global demand for minerals and metals over the last few years. In 2016, Chinese demand represented 72% of global demand for seaborne iron ore, 52% of global demand for nickel and 48% of global demand for copper. The percentage of our net operating revenues attributable to sales to customers in China was 46.4% in 2016. Therefore, any contraction of China's economic growth could result in lower demand for our products, leading to lower revenues, cash flow and profitability. Poor performance in the Chinese real estate sector, the largest consumer of carbon steel in China, would also negatively impact our results.

          Demand for our iron ore, coal and nickel products depends on global demand for steel. Iron ore and iron ore pellets, which together accounted for 71.5% of our 2016 net operating revenues, are used to produce carbon steel. Nickel, which accounted for 11.1% of our 2016 net operating revenues, is used mainly to produce stainless and alloy steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectorial factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products. In addition, vertical backward integration of the steel and stainless steel industries and the use of scrap could reduce the global seaborne trade of iron ore and primary nickel. The demand for copper is affected by the demand for copper wire, and a sustained decline in the construction industry could have a negative impact on our copper business.

          Global prices for metals are subject to significant fluctuations and are affected by many factors, including actual and expected global macroeconomic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels, technological developments, regulatory and international trade matters, investments by commodity funds and others and actions of participants in the commodity markets. Sustained low market prices for the products we sell may result in the suspension of certain of our projects and operations, decrease in our mineral reserves, impairment of assets, and may adversely affect our cash flows, financial position and results of operations.

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          We are mostly affected by movements in iron ore prices. For example, a price reduction of US$1 per dry metric ton unit ("dmt") in the average iron ore price would have reduced our operating income for the year ended December 31, 2016 by approximately US$325 million. Average iron ore prices significantly changed in the last four years, from US$135 per dmt in 2013 to US$97 per dmt in 2014, US$55.5 per dmt in 2015 and US$58.5 per dmt in 2016, according to the average Platts IODEX (62% Fe CFR China). On February 28, 2017 the year to date average Platts IODEX iron ore price was US$84.8 per dmt. In addition to reduced demand for iron ore, an excess in supply has adversely affected our prices since 2014 and supply may grow with the expected conclusion of certain iron ore projects in coming years.

          World nickel prices were adversely affected by lower demand in the first half of 2016, but benefited from increased demand, especially from the Chinese stainless steel sector, in the second half of 2016. Nickel refining in China, primarily using imported nickel ores and related raw materials, increased significantly between 2006 and 2015, with Chinese nickel pig iron production representing 19% of global nickel output. Since 2014, Chinese nickel pig iron production has been adversely affected by export restrictions in feed-producing countries, but the revocation or relaxation of export restrictions in feed producing countries, such as Indonesia, may benefit the production of nickel pig iron in China, which may in turn adversely affect global nickel prices. In January 2017, the Indonesian government issued a ministerial decree allowing for the controlled recommencement of nickel ore exports from Indonesia. For additional information about the average realized prices for the products we sell, see Operating and financial review and prospects—Overview—Major factors affecting prices.

          Lower utilization of capacity during periods of weak demand may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations. In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or previous labor or government agreements.

          Conversely, during periods of high demand, our ability to rapidly increase production capacity is limited, which could prevent us from meeting demand for our products. Moreover, we may be unable to complete expansions and greenfield projects in time to take advantage of rising demand for iron ore, nickel or other products. When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore, iron ore pellets or nickel from joint ventures or unrelated parties and reselling it, which would increase our costs and narrow our operating margins. If we are unable to satisfy excess customer demand in this way, we may lose customers. In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.

          A substantial portion of our revenues and our debt is denominated in U.S. dollars, and given that our functional currency is the Brazilian real, changes in exchange rates may result in (i) losses or gains on our net U.S. dollar-denominated indebtedness and accounts receivable and (ii) fair value losses or gains on currency derivatives we use to stabilize our cash flow in U.S. dollars. In 2016, we had foreign exchange gains of US$3.3 billion, while in 2015 and 2014 we had foreign exchange losses of US$7.0 billion and US$2.1 billion, respectively. In addition, changing values of the Brazilian real, the Canadian dollar, the Australian dollar, the Indonesian rupiah and other currencies against the U.S. dollar affects our results since most of our costs of goods sold is denominated in currencies other than the U.S. dollar, principally the real (55% in 2016) and the Canadian dollar (12% in 2016), while our revenues are mostly U.S. dollar-denominated. We expect currency fluctuations to continue to affect our financial income, expense and cash flow generation.

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          Significant volatility in currency prices may also result in disruption of foreign exchange markets, which could limit our ability to transfer or to convert certain currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. The central banks and governments of the countries in which we operate may institute restrictive exchange rate policies in the future and impose taxes on foreign exchange transactions.

Financial risks

          Lower prices of our products may adversely affect our future cash flows, credit ratings and our ability to secure financing at attractive rates. It may also negatively affect our ability to fund our capital investments, pay dividends and comply with the financial covenants in some of our long-term debt instruments.

          Also, certain Canadian provinces where we operate require us to provide financial assurances, such as letters of credit, surety bonds or cash collateral, to cover certain closure and remediation costs after we conclude our operations. We may be required to increase the amount of these financial assurances if our credit ratings are downgraded below certain levels. If we are unable to provide these financial assurances, we would need to have discussions with the relevant jurisdictions about other options and ultimately it could affect our ability to operate in these jurisdictions.

          In the past few years, we have entered into agreements to dispose of assets and to make strategic partnerships, in order to optimize our business portfolio and implement our financing strategy and capital expenditure plans. We may continue to seek opportunities for divestments and strategic partnerships in the future. We are exposed to a number of risks in connection with these transactions, including imposition of regulatory conditions, inability to satisfy conditions for completion or for receipt of additional payments, and negative market reactions. If we are unable to complete our dispositions or strategic partnerships, particularly the sale of our fertilizer business or our partnership in our coal assets in Mozambique, we may have to revise our business and financing strategy and incur additional costs, which could in turn adversely affect our results of operations, financial conditions or reputation.

Risks relating to legal proceedings and Samarco dam failure

          We are involved in legal proceedings in which adverse parties have claimed substantial amounts, including several legal proceedings and investigations relating to the failure of Samarco's Fundão tailings dam. Although we are vigorously contesting them, the outcomes of these proceedings are uncertain and may result in obligations that could materially adversely affect our business and the value of the securities issued by Vale and its subsidiaries. For additional information, see Additional information—Legal proceedings.

          In November 2015, the Fundão tailings dam owned by Samarco failed, causing environmental damage in the surrounding area. The failure of Samarco's tailings dam has adversely affected and will continue to affect our business, but the full impact is still uncertain and cannot be estimated. Below is a discussion of the main effects of the dam failure on our business.

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Political, economic, social and regulatory risks

          Our financial performance may be negatively affected by regulatory, political, economic and social conditions in countries in which we have significant operations or projects. In many of these jurisdictions, we are exposed to various risks such as political instability, bribery, extortion, corruption, robbery, sabotage, kidnapping, civil strife, acts of war, guerilla activities, piracy in international shipping routes and terrorism. These issues may adversely affect the economic and other conditions under which we operate in ways that could have a materially negative effect on our business. As an example, sections of our Carajás railroad (EFC) in the Brazilian state of Pará and other railways worldwide are subject to interruptions that can harm our operations and adversely affect our business.

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          The Brazilian federal government's economic policies may have important effects on Brazilian companies, including us, and on market conditions and prices of securities of Brazilian companies. Our financial condition and results of operations may be adversely affected by the following factors and the Brazilian federal government's response to these factors:

          Historically, the country's political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration and heightened volatility in the securities issued abroad by Brazilian companies. In August 2016, the Brazilian Congress approved the impeachment of the Brazilian president. Also, ongoing corruption investigations have led to charges against public officials, members of several political parties and directors and officers of many Brazilian companies. Political instability may aggravate economic uncertainties in Brazil and increase volatility of securities of Brazilian issuers.

          In 2015 and 2016, Brazil faced an economic recession, adverse fiscal developments and political instability, which may continue in 2017. Brazilian GDP declined by 3.6% in 2016 and by 3.85% in 2015, while unemployment increased to 11.5% in 2016 from 6.9% in 2015. Inflation, as reported by the consumer price index (IPCA), was 6.29% in 2016, 10.67% in 2015 and 6.41% in 2014. The Brazilian Central Bank's base interest rate (SELIC) was 13.75% on December 31, 2016, 14.25% on December 31, 2015 and 11.75% on December 31, 2014. Future economic, social and political developments in Brazil may impair our business, financial condition or results of operations, or cause the market value of our securities to decline.

          Disputes with communities where we operate may arise from time to time. In some instances, our operations and mineral reserves are located on or near lands owned or used by indigenous people or other groups of stakeholders. Some of our mining and other operations are located in territories where title may be subject to disputes or uncertainties, or in areas claimed for agriculture or land reform purposes, which may lead to disagreements with landowners, organized social movements, local communities and the government. We may be required to consult and negotiate with these groups as part of the process to obtain licenses required to operate, to mitigate impact on our operations or to obtain access to their lands.

          Disagreements or disputes with local groups, including indigenous groups, organized social movements and local communities, could cause delays or interruptions to our operations, adversely affect our reputation or otherwise hamper our ability to develop our reserves and conduct our operations. Protesters have taken actions to disrupt our operations and projects, and they may continue to do so in the future, which may harm our operations and could adversely affect our business.

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          Mining is subject to government regulation, including taxes and royalties, which can have a significant financial impact on our operations. In the countries where we are present, we are subject to potential renegotiation, nullification or forced modification of existing contracts and licenses, expropriation or nationalization of property, foreign exchange controls, changes in local laws and regulations and policies. We are also subject to new taxes or raising of existing taxes and royalty rates, reduction of tax exemptions and benefits, renegotiation of tax stabilization agreements or changes on the basis on which taxes are calculated in a manner that is unfavorable to us. Governments that have committed to provide a stable taxation or regulatory environment may alter those commitments or shorten their duration. We also face the risk of having to submit to the jurisdiction of a foreign court or arbitration panel or having to enforce a judgment against a sovereign nation within its own territory.

          We are also required to meet domestic beneficiation requirements in certain countries, such as local processing rules, export taxes or restrictions or charges on unprocessed ores. The imposition of or increase in such requirements, taxes or charges can significantly increase the risk profile and costs of operations in those jurisdictions. We and the mining industry are subject to rising trends of resource nationalism in certain countries in which we operate that can result in constraints on our operations, increased taxation or even expropriations and nationalizations.

          Our operations depend on authorizations and concessions from governmental regulatory agencies in the countries in which we operate. We are subject to laws and regulations in many jurisdictions that can change at any time, and changes in laws and regulations may require modifications to our technologies and operations and result in unanticipated capital expenditures.

          Some of our mining concessions are subject to fixed expiration dates and might only be renewed a limited number of times for a limited period of time. Apart from mining concessions, we may need to obtain various authorizations, licenses and permits from governmental or other regulatory bodies in connection with the planning, maintenance, operation and closure of our mines and related logistics infrastructure, which may be subject to fixed expiration dates or periodic review or renewal. There is no assurance that renewals will be granted as and when sought, and there is no assurance that new conditions will not be imposed in connection with renewal. Fees for mining concessions might increase substantially due to the passage of time from the original issuance of each individual exploration license. If so, the costs of holding or renewing our mining concessions may render our business objectives not viable. Accordingly, we need to continually assess the mineral potential of each mining concession, particularly at the time of renewal, to determine if the costs of maintaining the concession are justified by the results of operations to date, and we might elect to let some of our concessions lapse. There can be no assurance that concessions will be obtained on terms favorable to us, or at all, for our future intended mining or exploration targets.

          In a number of jurisdictions where we have exploration projects, we may be required to retrocede to the state a certain portion of the area covered by the exploration license as a condition to renewing the license or obtaining a mining concession. This requirement can lead to a substantial loss of part of the mineral deposit originally identified in our feasibility studies. For more information on mining concessions and other similar rights, see Information on the CompanyRegulatory matters.

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Operational risks

          We are investing to maintain and further increase our production capacity and logistics capabilities. We regularly review the economic viability of our projects. As a result of this review, we may decide to postpone, suspend or interrupt the implementation of certain projects. Our projects are also subject to a number of risks that may adversely affect our growth prospects and profitability, including the following:

          Ineffective project management and operational breakdowns might require us to suspend or curtail operations, which could generally reduce our productivity. Operational breakdowns could entail failure of critical plant and machinery. There can be no assurance that ineffective project management or other operational problems will not occur. Any damages to our projects or delays in our operations caused by ineffective project management or operational breakdowns could materially and adversely affect our business and results of operations. Our business is subject to a number of operational risks that may adversely affect our results of operations, such as:

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          Customers, suppliers, contractors, financial institutions, joint venture partners and other counterparties may fail to perform existing contracts and obligations, which may unfavorably impact our operations and financial results. The ability of suppliers and customers to perform their obligations may be adversely affected in times of financial stress and economic downturn.

          We currently operate important parts of our iron ore, pelletizing, nickel, coal, copper, fertilizers, bauxite and steel businesses through joint ventures. Important parts of our electricity investments and projects are operated through consortia or joint ventures. Our forecasts and plans for these joint ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide skilled and competent managerial personnel. If any of our partners fails to observe its commitments, the affected joint venture or consortium may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans.

          Some of our investments are controlled by partners or have separate and independent management. These investments may not fully comply with our standards, controls and procedures, including our health, safety, environment and community standards. Failure by any of our partners or joint ventures to adopt adequate standards, controls and procedures could lead to higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely affect our results and reputation.

          Our businesses are generally subject to a number of risks and hazards, which could result in damage to, or destruction of, properties, facilities and equipment. The insurance we maintain against risks that are typical in our business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost, or at all. Even when it is available, we may self-insure where we determine that is more cost-effective to do so. As a result, accidents or other negative developments involving our mining, production or transportation facilities could have a material adverse effect on our operations.

          A substantial number of our employees, and some of the employees of our subcontractors, are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic negotiation. Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. For more information about labor relations, see Management and employeesEmployees. Moreover, we could be adversely affected by labor disruptions involving unrelated parties that may provide us with goods or services.

          Costs of fuel oil, gas and electricity are a significant component of our cost of production, representing 10.9% of our total cost of goods sold in 2016. To fulfill our energy needs, we depend on the following sources: oil byproducts, which represented 36% of total energy needs in 2016, electricity (32%), natural gas (15%), coal (15%) and other energy sources (2%).

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          Electricity costs represented 3.9% of our total cost of goods sold in 2016. If we are unable to secure reliable access to electricity at acceptable prices, we may be forced to curtail production or may experience higher production costs, either of which would adversely affect our results of operations. We face the risk of energy shortages in the countries where we have operations and projects, especially Brazil, due to lack of infrastructure or weather conditions, such as floods or droughts. Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply of electricity for our operations.

          We rely on information technology ("IT") systems for the operation of many of our business processes. Failures in our IT systems, whether caused by accident or malicious acts, may result in the disclosure or theft of sensible information, misappropriation of funds and disruptions to our business operations.

Health, safety and environmental risks

          Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the environment and the use of natural resources, and the mining industry is generally subject to significant risks and hazards, including fire, explosion, toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfalls, incidents involving dams, failure of other operational structures and incidents involving mobile equipment, vehicles or machinery. This could occur by accident or by breach of operating and maintenance standards, and could result in a significant environmental and social impacts, damage to or destruction of mineral properties or production facilities, personal injury, illness or death of employees, contractors or community members close to operations, environmental damage, delays in production, monetary losses and possible legal liability. Additionally, in remote localities, our employees may be exposed to tropical and contagious diseases that may affect their health and safety. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business, stakeholders or reputation.

          Nearly all aspects of our activities, products, services and projects around the world are subject to environmental regulations and health and safety regulations, which may expose us to increased liability or increased costs. These regulations require us to have environmental licenses, permits and authorizations for our operations and projects, and to conduct environmental and social impact assessments in order to get approval for our projects and permission for initiating construction. Significant changes to existing operations are also subject to these requirements. Difficulties in obtaining or renewing permits may lead to construction delays, cost increases, and may adversely impact our production volumes. Environmental and health and safety regulations also impose standards and controls on activities relating to mineral research, mining, pelletizing activities, railway and marine services, ports, decommissioning, refining, distribution and marketing of our products. Such regulation may give rise to significant costs and liabilities. Litigation relating to these or other matters may adversely affect our financial condition or cause harm to our reputation.

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          Environmental and health and safety regulation in many countries in which we operate has become stricter in recent years, and it is possible that more regulation or more aggressive enforcement of existing regulations will adversely affect us by imposing restrictions on our activities and products, creating new requirements for the issuance or renewal of environmental licenses, raising our costs or requiring us to engage in expensive reclamation efforts. For example, changes in Brazilian legislation for the protection of caves have required us to conduct extensive technical studies and to negotiate compensatory measures with Brazilian environmental regulators in order to continue to operate in certain sites. It is possible that in certain of our iron ore mining operations or projects, we may be required to limit or modify our mining plans or to incur additional costs to preserve caves or to compensate for the impact on them, with potential consequences for production volumes, costs or reserves in our iron ore business. For more information about Brazilian environmental regulations related to caves, see Information on the CompanyRegulatory mattersEnvironmental regulations.

          In response to the failure of Samarco's tailings dam in Minas Gerais, additional environmental and health and safety laws and regulations may be forthcoming in Brazil and authorities may impose more stringent conditions in connection with the licensing process of our projects and operations. Also, we may encounter delays in the receipt of environmental operating license for other tailings dams.

          National policies and international regulations regarding climate change may affect a number of our businesses in various countries. The ratification of the Paris Agreement in 2016 increased international pressure for the establishment of a global carbon price, and on companies to adopt carbon pricing strategies. The pricing of greenhouse gas emissions may impact our operational costs, mainly through higher price for fossil fuels as mining is an energy intensive industry. Consumption of coal, one of the products we sell, in particular, is facing pressure from international institutions due to its carbon intensity.

          Regulatory initiatives at the national and international levels that affect our shipping practices could increase our costs or require us to make new capital expenditures.

          Natural disasters, such as wind storms, droughts, floods, earthquakes and tsunamis may adversely affect our operations and projects in the countries where we operate, and may cause a contraction in sales to countries adversely affected due to, among other factors, power outages and the destruction of industrial facilities and infrastructure. The physical impact of climate change on our business remains uncertain, but we are likely to experience changes in rainfall patterns, increased temperatures, water shortages, rising sea levels, increased storm frequency and intensity as a result of climate change, which may adversely affect our operations. On some occasions in recent years, we have determined that force majeure events have occurred due to effect of severe weather on our mining and logistics activities.

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Risks relating to our mining reserves

          Our reported reserves are estimated quantities of ore and minerals that we have determined can be economically mined and processed under present and assumed future conditions. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life may require revisions based on actual production experience, projects, updated exploration drilling data and other factors. For example, lower market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in regulatory requirements or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a reduction of reserves. Such a reduction could affect depreciation and amortization rates and have an adverse effect on our financial performance.

          We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to sustain our current level of production beyond the remaining lives of our existing mines.

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

          If a project proves not to be economically feasible by the time we are able to exploit it, we may incur substantial losses and be obliged to take write-downs. In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in delays and cost overruns that may render the project not economically feasible.

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          Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, mines may move from being open pit to underground, and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at greater depths. As a result, over time, we usually experience rising unit extraction costs with respect to each mine, or we may need to make additional investments, including adaptation or construction of processing plants and expansion or construction of tailings dams. Several of our mines have been operating for long periods, and we will likely experience rising extraction costs per unit in the future at these operations in particular.

Risks relating to our corporate structure

          As of March 31, 2017, Valepar S.A. ("Valepar") owned 53.9% of our outstanding common stock and 33.7% of our total outstanding capital. As a result of its share ownership, Valepar can elect the majority of our board of directors and control the outcome of some actions that require shareholder approval. The shareholders of Valepar are party to a shareholders' agreement that governs Valepar's actions in its capacity as a shareholder of Vale. The existing shareholders' agreement will expire on May 9, 2017, and certain Valepar shareholders have entered into a new shareholders' agreement that will become effective on May 10, 2017, for a period of six months or until the merger of Valepar into Vale. The new shareholders' agreement contemplates a proposal to change our governance structure and the execution of a shareholders' agreement at the Vale level, binding with respect to 20% of our common shares, which will continue to give significant influence to these shareholders. For a description of our ownership structure and of the shareholders' agreements, see Share ownership and tradingMajor shareholders.

          The Brazilian government owns 12 golden shares of Vale, granting it limited veto power over certain company actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining activities. For a detailed description of the Brazilian government's veto powers, see Additional information—Memorandum and articles of association—Common shares and preferred shares.

          Pursuant to the new shareholder's agreement of Valepar, which will become effective on May 10, 2017, Valepar is expected to submit a proposal to simplify our shareholding structure and corporate governance, with the purpose of eventually enabling Vale to be listed on BM&FBOVESPA's Novo Mercado special segment and making Vale a company without defined control. For a description of our ownership structure and the proposed changes to the Valepar shareholders' agreements pursuant to the Proposal, see Share ownership and trading—Major shareholders.

          The implementation of the proposal to simplify our shareholding structure is subject to, among other requirements, (i) the approval of the proposal, including the merger of Valepar into Vale, by our shareholders and the executive officers and board of directors of Vale and Valepar, and (ii) the acceptance by at least 54.09% of class A preferred shares of the voluntary conversion into common shares, within 45 days from the shareholders' meeting decision on the matter. We cannot predict how long it will take to implement all the necessary steps or whether they will be successfully implemented at all. Finally, we cannot predict whether or when we will migrate to the Novo Mercado segment of the BM&FBOVESPA, as the listing is subject to conversion of all of our preferred shares into common shares.

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          The uncertainty in the timing and effective implementation may delay or limit our ability to achieve certain benefits that might derive from the simplified corporate ownership structure and eventual migration to the Novo Mercado, such as increased liquidity for shareholders. We cannot guarantee that these benefits will be fully realized, and any failure to achieve those benefits may affect the value of our shares and ADSs.

          We operate in a global environment, and our activities extend over multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide. Our governance and compliance processes, which include the review of internal control over financial reporting, may not prevent future breaches of legal, accounting or governance standards. We may be subject to breaches of our Code of Ethics and Conduct, anti-corruption policies and business conduct protocols and to instances of fraudulent behavior, corrupt practices and dishonesty by our employees, contractors or other agents. Our failure to comply with applicable laws and other standards could subject us to fines, loss of operating licenses and reputational harm.

          Our investors may be located in jurisdictions outside Brazil and could seek to bring actions against us or our directors or officers in the courts of their home jurisdictions. We are a Brazilian company, and the majority of our officers and directors are residents of Brazil. The vast majority of our assets and the assets of our officers and directors are likely to be located in jurisdictions other than the home jurisdictions of our foreign investors. It might not be possible for investors outside Brazil to effect service of process within their home jurisdictions on us or on our officers or directors who reside outside their home jurisdictions. In addition, a final conclusive foreign judgment will be enforceable in the courts of Brazil without a re-examination of the merits only if previously confirmed by the Brazilian Superior Court of Justice (STJ—Superior Tribunal de Justiça), and confirmation will only be granted if the foreign judgment: (a) fulfills all formalities required for its enforceability under the laws of the country where it was issued; (b) was issued by a competent court after due service of process on the defendant, as required under applicable law; (c) is not subject to appeal; (d) does not conflict with a final and unappealable decision issued by a Brazilian court; (e) was authenticated by a Brazilian consulate in the country in which it was issued or is duly apostilled in accordance with the Convention for Abolishing the Requirement of Legalization for Foreign Public Documents and is accompanied by a sworn translation into Portuguese, unless this procedure was exempted by an international treaty entered into by Brazil; (f) it does not cover matters subject to the exclusive jurisdiction of the Brazilian courts; and (g) is not contrary to Brazilian national sovereignty, public policy or good morals. Therefore, investors might not be able to recover against us or our directors and officers on judgments of the courts of their home jurisdictions predicated upon the laws of such jurisdictions.

Risks relating to our depositary shares

          The custodian for the shares underlying our ADSs maintains a registration with the Central Bank of Brazil entitling it to remit U.S. dollars outside Brazil for payments of dividends and other distributions relating to the shares underlying our ADSs or upon the disposition of the underlying shares. If an ADR holder exchanges its ADSs for the underlying shares, it will be entitled to rely on the custodian's registration for only five business days from the date of exchange. Thereafter, an ADR holder may not be able to obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, the underlying shares unless it obtains its own registration under applicable regulation, which permits qualifying institutional foreign investors to buy and sell securities on the BM&FBOVESPA. For more information regarding these exchange controls, see Additional informationExchange controls and other limitations affecting security holders. If an ADR holder attempts to obtain its own registration, it may incur expenses or suffer delays in the application process, which could delay the receipt of dividends or other distributions relating to the underlying shares or the return of capital in a timely manner.

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          The custodian's registration or any registration obtained could be affected by future legislative changes, and additional restrictions applicable to ADR holders, the disposition of the underlying shares or the repatriation of the proceeds from disposition could be imposed in the future.

          The ability of ADR holders to exercise preemptive rights is not assured, particularly if the applicable law in the holder's jurisdiction (for example, the Securities Act in the United States) requires that either a registration statement be effective or an exemption from registration be available with respect to those rights, as is in the case in the United States. We are not obligated to extend the offer of preemptive rights to holders of ADRs, to file a registration statement in the United States, or to make any other similar filing in any other jurisdiction, relating to preemptive rights or to undertake steps that may be needed to make exemptions from registration available, and we cannot assure holders that we will file any registration statement or take such steps.

          ADR holders do not have the rights of shareholders. They have only the contractual rights set forth for their benefit under the deposit agreements. ADR holders are not permitted to attend shareholders' meetings, and they may only vote by providing instructions to the depositary. In practice, the ability of a holder of ADRs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary either directly or through the holder's custodian and clearing system. With respect to ADSs for which instructions are not received, the depositary may, subject to certain limitations, grant a proxy to a person designated by us.

          We are a global company with securities traded in several different markets and investors located in many different countries. The legal regime for the protection of investors varies around the world, sometimes in important ways, and investors in our securities should recognize that the protections and remedies available to them may be different from those to which they are accustomed in their home markets. We are subject to securities legislation in several countries, which have different rules, supervision and enforcement practices. The only corporate law applicable to our parent company is the law of Brazil, with its specific substantive rules and judicial procedures. We are subject to corporate governance rules in several jurisdictions where our securities are listed, but as a foreign private issuer, we are not required to follow many of the corporate governance rules that apply to U.S. domestic issuers with securities listed on the New York Stock Exchange, and we are not subject to the U.S. proxy rules.

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SELECTED FINANCIAL DATA

          The tables below present selected consolidated financial information as of and for the periods indicated. You should read this information together with our consolidated financial statements in this annual report. The comparative information for 2012 to 2015 has been re-presented to report our fertilizers segment as discontinued operations.

Consolidated statement of income data

 
For the year ended December 31,
 
2012 2013 2014 2015 2016
 
(US$ million)

Net operating revenues

42,983 43,953 35,124 23,384 27,488

Cost of goods sold and services rendered

(22,407 ) (21,668 ) (22,790 ) (18,751 ) (17,650 )

Selling, general, administrative and other operating expenses, net

(1,954 ) (1,101 ) (2,059 ) (819 ) (774 )

Research and evaluation expenses

(1,356 ) (748 ) (662 ) (395 ) (319 )

Pre-operating and operational stoppage

(3,495 ) (2,375 ) (975 ) (942 ) (453 )

Impairment of non-current assets and onerous contracts

(4,023 ) (182 ) (99 ) (8,769 ) (1,174 )

Results on measurement or sales of non-current assets

(377 ) (215 ) (167 ) 61 (66 )

Operating income (loss)

9,371 17,664 8,372 (6,231 ) 7,052

Non-operating income (expenses):

         

Financial income (expenses), net

(3,976 ) (8,314 ) (6,018 ) (10,654 ) 1,843

Equity results in associates and joint ventures

645 469 501 (445 ) 309

Impairment and other results in associates and joint ventures

(1,941 ) 14 (61 ) (349 ) (1,220 )

Net income (loss) before income taxes

4,099 9,833 2,794 (17,679 ) 7,984

Income taxes

(32 ) (6,889 ) (1,603 ) 5,249 (2,781 )

Net income (loss) from continuing operations

4,067 2,944 1,191 (12,430 ) 5,203

Loss attributable to non-controlling interests

(311 ) (191 ) (308 ) (501 ) (8 )

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

4,378 3,135 1,499 (11,929 ) 5,211

Net income (loss) from discontinued operations attributable to Vale's stockholders

1,076 (2,551 ) (842 ) (200 ) (1,229 )

Net income (loss) attributable to Vale's stockholders

5,454 584 657 (12,129 ) 3,982

Loss attributable to non-controlling interests

(257 ) (178 ) (304 ) (491 ) (6 )

Net income (loss)

5,197 406 353 (12,620 ) 3,976

Total cash paid to stockholders(1)

6,000 4,500 4,200 1,500 250

(1)
Consists of total cash paid to stockholders during the period, whether classified as dividends or interest on stockholders' equity.

Earnings (loss) per share

 
For the year ended December 31,
 
2012 2013 2014 2015 2016
 
(US$, except as noted)

Earnings (loss) per share from continuing operations:

         

Per common share

0.86 0.61 0.29 (2.31 ) 1.01

Per preferred share

0.86 0.61 0.29 (2.31 ) 1.01

Earnings (loss) per share from discontinued operations:

         

Per common share

0.20 (0.50 ) (0.16 ) (0.04 ) (0.24 )

Per preferred share

0.20 (0.50 ) (0.16 ) (0.04 ) (0.24 )

Earnings (loss) per share:

         

Per common share

1.06 0.11 0.13 (2.35 ) 0.77

Per preferred share

1.06 0.11 0.13 (2.35 ) 0.77

Weighted average number of shares outstanding (in thousands)(1):

         

Common shares

3,172,179 3,185,653 3,185,653 3,185,653 3,185,653

Preferred shares

1,933,491 1,967,722 1,967,722 1,967,722 1,967,722

Total

5,105,670 5,153,375 5,153,375 5,153,375 5,153,375

Distributions to stockholders per share(2):

         

Expressed in US$

1.17 0.87 0.81 0.29 0.05

Expressed in R$

2.26 1.81 1.89 0.98 0.17

(1)
Each common ADS represents one common share and each preferred ADS represents one preferred share.
(2)
Our distributions to shareholders may be classified as either dividends or interest on shareholders' equity. In many years, part of each distribution has been classified as interest on shareholders' equity and part has been classified as dividends. For information about distributions paid to shareholders, see Share ownership and tradingDistributions.

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Balance sheet data

 
                As of December 31,                 
 
2012 2013 2014 2015 2016
 
(US$ million)

Current assets

22,069 20,611 16,594 11,429 13,978

Non-current assets held for sale

457 3,766 3,640 4,044 8,589

Property, plant and equipment, net and intangible assets

94,093 88,536 84,942 59,426 62,290

Investments in associated companies and joint ventures

6,384 3,584 4,133 2,940 3,696

Non-current assets

7,574 8,100 7,180 10,653 10,461

Total assets

130,577 124,597 116,489 88,492 99,014

Current liabilities

12,402 9,164 10,626 10,438 10,142

Liabilities associated with non-current assets held for sale

169 448 111 107 1,090

Long-term liabilities(1)

16,380 22,379 22,043 15,896 19,096

Long-term debt(2)

26,799 27,670 27,388 26,347 27,662

Total liabilities

55,750 59,661 60,168 52,788 57,990

Stockholders' equity:

         

Capital stock

60,578 60,578 61,614 61,614 61,614

Additional paid-in capital

(552 ) (552 ) (601 ) (854 ) (851 )

Retained earnings and revenue reserves

13,213 3,299 (5,891 ) (27,171 ) (21,721 )

Total Vale shareholders' equity

73,239 63,325 55,122 33,589 39,042

Non-controlling interests

1,588 1,611 1,199 2,115 1,982

Total stockholders' equity

74,827 64,936 56,321 35,704 41,024

Total liabilities and stockholders' equity

130,577 124,597 116,489 88,492 99,014

(1)
Excludes long-term debt.
(2)
Excludes current portion of long-term debt.

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I.  INFORMATION ON THE COMPANY

BUSINESS OVERVIEW

Summary

          We are one of the largest metals and mining companies in the world, based on market capitalization. We are the world's largest producer of iron ore and iron ore pellets and the world's largest producer of nickel. We also produce manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold, silver and cobalt. We are engaged in greenfield mineral exploration in six countries around the globe. We operate large logistics systems in Brazil and other regions of the world, including railroads, maritime terminals and ports, which are integrated with our mining operations. In addition, we have a portfolio of maritime freight assets, floating transfer stations and distribution centers to support the delivery of iron ore worldwide. Directly and through affiliates and joint ventures, we also have investments in energy and steel businesses.

          The following table presents the breakdown of total net operating revenues attributable to each of our lines of business of continuing operations.

 
Year ended December 31,
 
2014 2015 2016
 
US$ million
% of total
US$ million
% of total
US$ million
% of total

Ferrous minerals:

           

Iron ore

19,301 55.0% 12,330 52.7% 15,784 57.4%

Pellets

5,263 15.0 3,600 15.4 3,827 13.9

Ferroalloys and manganese

392 1.1 162 0.7 302 1.1

Other ferrous products and services

741 2.1 470 2.0 438 1.6

Subtotal

25,697 73.2 16,562 70.8 20,351 74.0

Coal

739 2.1 526 2.3 839 3.1

Base metals: Nickel and other products(1)

6,241 17.8 4,693 20.1 4,472 16.3

Copper(2)

1,451 4.1 1,470 6.3 1,667 6.0

Subtotal

7,692 21.9 6,163 26.4 6,139 22.3

Other(3)

996 2.8 133 0.5 159 0.6

Total net operating revenues from continuing operations

35,124 100.0% 23,384 100.0% 27,488 100.0%

(1)
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(2)
Does not include copper produced in our nickel operations.
(3)
Includes energy.

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          In December 2016, we agreed to sell a substantial part of our fertilizer business to The Mosaic Company ("Mosaic"), subject to certain conditions precedent. As a result, this segment is reported as discontinued operations. Until closing of the transaction, which is expected by the end of 2017, we continue to conduct potash and phosphate operations in Brazil and to hold a 51% voting interest in a joint venture that operates a phosphate rock mine in Peru. See —Discontinued Operations.

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Business strategy

          Our mission is to transform natural resources into prosperity and sustainable development. In all of our lines of business, we are committed to:

          Below are the highlights of our major business strategies.

          We are committed to promoting sustainable development, which means generating value for our shareholders and other stakeholders, and simultaneously improving health and safety of our workers, enhancing the well-being of the communities surrounding our operations and protecting the environment. This can be achieved through conscious and responsible management, corporate voluntary actions and cross-sectorial partnerships. Below is a list of measures illustrating our commitment to sustainability:

          In all of our lines of businesses, we are committed to investing in world-class assets, with long life, low cost, potential to expand and high quality output, capable of creating value through different economic cycles. We exercise disciplined capital management and maintaining a low cost structure. The preservation of our credit ratings and reduction of our debt leverage are also among our key commitments. In the past years, we suspended operations of assets in response to market conditions and disposed of assets that we have determined to be non-strategic or in order to optimize the structure of our business portfolio. The divestiture of assets improves capital allocation and unlocks funds to finance the execution of top priority projects and to manage our liquidity.

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          We are committed to improving our competitiveness in the global iron ore market, by focusing our product line to capture industry trends, improving quality and productivity, controlling costs, strengthening our logistics infrastructure of railroads, ports, shipping and distribution centers, and strengthening relationships with customers. Our diversified portfolio of high quality products, strong technical marketing strategy, efficient logistics and long-standing relationships with major customers will help us achieve this goal.

          We will continue to promote the Brazilian blend fines (BRBF), a product resulting from blending fines from Carajás, which contain a higher concentration of iron and a lower concentration of silica in the ore, with fines from the Southern and Southeastern Systems, which contain a lower concentration of iron in the ore. The resulting blend offers strong performance in any kind of sintering operation. It is blended and sold in our Teluk Rubiah Maritime Terminal in Malaysia and in five distribution centers in China, which reduces the time to reach Asian markets and increases our distribution capillarity by allowing the use of smaller vessels. The blending strategy also permits the use of iron ore with lower concentration, particularly from the Southern System, allowing more efficient mining plans and increases use of dry processing methods, which in turn reduce capital expenditures, expand the life of our mines and reduce the use of water in our operations.

          We have been expanding the capacity of our railroads and ports, entering into long term affreightment agreements and developing distribution centers in Asia to meet the logistics needs of our iron ore and coal businesses.

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          We are the world's largest nickel producer, with large-scale, long-life and low-cost operations, a substantial resource base and diversified mining operations that produce nickel from nickel sulfides and laterites using advanced technology. We have processing facilities in North America, Europe, Asia, Brazil, New Caledonia and Indonesia, which produce an array of products for use in most nickel applications. We are a leading producer of high-quality nickel products for non-stainless steel applications, such as plating, alloy steels, high nickel alloys and batteries, which represented 58% of our refined nickel sales in 2016. Our goal is to strengthen our competitiveness in the nickel business. In the long-term, the battery segment shows an important upside potential as electric vehicle production continues to attract significant investments, which could positively impact nickel price and our nickel premiums. We continue to optimize our operations and to review our asset utilization aiming to increase productivity and improve returns.

          We produce copper concentrates from our Sossego and Salobo facilities located in the Carajás region. These copper mines benefit from our infrastructure facilities serving the Northern System. The gold we produce at Sossego and Salobo increases the total aggregated value of those operations. A key aspect of our strategy for our copper assets in the Carajás region is to improve our efficiency and asset utilization while evaluating opportunities to extend our operations at Sossego and expand Salobo. We also produce copper as a coproduct in our nickel operations, principally at Sudbury and Voisey's Bay, in Canada.

          We have coal operations in Moatize (Mozambique), and we hold a minority interest in a joint venture in China. We intend to increase our coal production, mainly through the expansion of a new coal handling processing plant (CHPP) of coal in the Moatize operations in Mozambique and the ramp-up of the Nacala Logistics Corridor in Mozambique and Malawi, where we have entered into a strategic partnership with Mitsui. As we complete the ramp-up of our new CHPP in Moatize and the Nacala Logistics Corridor, our costs are expected to reduce, enhancing the competitiveness of our coal operations.

          We are taking advantage of our global presence to develop mineral exploration initiatives. We conduct brownfield exploration to maximize results from existing mining areas and to support both projects and operations. We conduct our greenfield exploration activities in six countries, which are Brazil, Peru, Chile, Canada, Australia and Indonesia. In particular, we seek to identify opportunities and develop deposits with the potential for large scale production at low cost. Our exploration activities are focused on iron ore, nickel and copper.

          As a large consumer of electricity, we have invested in power generation projects to support our operations and to reduce our exposure to the volatility of energy prices and regulatory uncertainties. Accordingly, we have developed hydroelectric power generation plants in Brazil, Canada and Indonesia, and 50% of our worldwide electricity needs come from our own plants. We are seeking to develop a clean energy mix by focusing on reducing our carbon footprint.

Significant changes in our business

          We summarize below major events related to our organic growth, divestitures, acquisitions and other significant developments in our business since the beginning of 2016.

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          We have an extensive program of investments in the organic growth of our businesses. Our main investment projects are summarized under —Capital expenditures. The most significant projects that have come on stream since the beginning of 2016 are summarized below:

          We are always seeking to optimize the structure of our portfolio of businesses in order to achieve the most efficient allocation of capital. We summarize below our most significant dispositions since the beginning of 2016.

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          In September 2016, we agreed with Mitsui the new terms of our partnership in coal assets in Mozambique. Under these new terms, Mitsui agreed to pay us an amount of up to US$450 million, consisting of: (i) a fixed payment of US$255 million for 15% of our 95% stake in the Moatize coal mine and (ii) an additional amount of up to US$195 million, subject to certain conditions, including mine performance. Mitsui will also contribute an amount of approximately US$348 million for 50% of our 70% stake in the Nacala Logistics Corridor and extend a long-term facility of US$165 million to Nacala Logistics Corridor. We completed the equity transaction with Mitsui on March 27, 2017. The total value of the transaction will be approximately US$770 million, including all amounts mentioned above except the additional amount of up to US$195 million, which is subject to certain conditions still to be satisfied. From these US$770 million, we received US$733 million upon completion of the equity transaction on March 27, 2017, and expect to receive the remainder upon closing of the project financing, which is expected to occur during 2017. If the project financing is not signed before the end of 2017, Mitsui has certain rights to transfer its participation in the Moatize coal mine and the Nacala Logistics Corridor back to us. See Lines of Business—Infrastructure—Railroads.

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          In December 2016, we obtained the operational environmental license for the S11D project located in Carajás, Brazil. This license is a key step in the process of expanding our iron ore production and improving our competitiveness in the iron ore business.

          We plan to optimize our nickel operations across Canada, as part of an overall strategy to reduce our atmospheric emissions and comply with local regulations. Our goal is to concentrate our refining and smelting activities in Sudbury, where we will focus on the production of copper concentrate, copper matte and refined nickel. In Long Harbour we will produce nickel rounds, copper cathode and cobalt metal. We will phase out our smelting and refining activities in Thompson, where we will focus on nickel concentrate production.

Failure of Samarco's tailings dam in Minas Gerais

          On November 5, 2015, the Fundão tailings dams owned by Samarco failed, releasing tailings downstream, reaching and flooding certain communities and causing impacts on communities and the environment along the Rio Doce river. The failure resulted in 19 fatalities, and caused property and environmental damage to the affected areas.

          After the dam failure, Samarco, together with the public authorities, provided first aid, food, water, housing, social assistance and financial aid to the affected families and individuals, and both Vale and BHPB, Samarco's shareholders, have been actively involved in supporting Samarco during this period. In addition to these emergency actions, Samarco has been monitoring the affected area, performing emergency work to contain any movement of tailings, reinforcing the structures of its dams and dikes to ensure the safety of the region and mitigating the environmental and social impacts of the event. Samarco continues to reinforce and improve the structures of its dams to contain the remaining tailings.

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          Our operation in the Mariana mining complex, near Samarco's mining area, was also negatively impacted by the failure of Samarco's tailings dam. A major conveyor belt connecting our Fábrica Nova mine to our Timbopeba beneficiation plant was damaged, and the Alegria mine is operating with a dry beneficiation process.

          Following the dam failure, governmental authorities ordered the suspension of Samarco's operations. With the exception of the Fundão tailings dam and the Santarém water dam, which was impacted by the overflow of tailings from the Fundão dam, all other production assets owned by Samarco were undamaged. Samarco's management is working on a plan that would permit it to resume operations and provide a long-term solution for the disposal of tailings. The feasibility, timing and scope of measures necessary to resume Samarco's operations remain uncertain.

          In December 2016, we entered into a non-binding term sheet outlining the general terms and conditions to permit Samarco, upon its eventual resumption of operations, to deposit its tailings in our Timbopeba pit. A definitive agreement is being negotiated and is subject to due diligence and governmental approvals. The use of the Timbopeba pit may allow Samarco to operate for several years without a new tailings structure.

          In March 2016, Samarco and its shareholders, Vale S.A. and BHPB entered into the Framework Agreement 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 programs for remediation and compensation of the areas and communities affected by Samarco's dam failure. The Framework Agreement has a 15-year term, renewable for successive one-year periods until all the obligations under the Framework Agreement have been performed. The Framework Agreement does not provide for admission of civil, criminal or administrative liability for the Fundão dam failure.

          In June 2016, Samarco, Vale S.A. and BHPB created the Renova Foundation to develop and implement social and economic remediation and compensation pursuant to the Framework Agreement. The foundation must be funded by Samarco according to the following schedule: R$2.0 billion (US$614 million) in 2016, R$1.2 billion (US$368 million) in 2017 and R$1.2 billion (US$368 million) 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 R$800 million (US$245 million) and an annual maximum of R$1.6 billion (US$491 million). Starting in 2022, Samarco will provide the necessary funding in order to complete remaining programs approved for each year. The foundation will allocate an annual amount of R$240 million (US$74 million) 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, R$500 million (US$153 million) will be provided for sewage collection and treatment and solid waste disposal under the terms of the Framework Agreement.

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          In January 2017, Samarco, Vale and BHPB entered into two preliminary agreements with the MPF in connection with the pending public civil actions brought by the Brazilian Government and others and the public civil action brought by the MPF, which are described under Additional information—Legal proceedings.

          In March 2017, the court partially ratified the first agreement, pending the appointment of an expert and conclusion of the final agreement. We expect the Framework Agreement and the agreements with the MPF to be a first step towards the settlement of these actions. Any final settlement of these actions is subject to approval by the court.

          For a discussion of the impact of the failure of Samarco's tailings dam in our financial statements, see Operating and financial review and prospects—Failure of Samarco's tailing dams.

Reorganization of our shareholding structure and share ownership by controlling shareholders

          Pursuant to the new shareholders' agreement entered into by certain shareholders of Valepar, our controlling shareholder, on February 19, 2017, Valepar is expected to make a proposal to simplify our shareholding structure and corporate governance, with the purpose of eventually enabling Vale to be listed on BM&FBOVESPA's Novo Mercado special segment and making Vale a company without defined control. This proposal is composed of a series of indivisible and interdependent steps, and is subject to approval by our shareholders and the executive officers and board of directors of Vale and Valepar. The proposal contemplates (i) the voluntary conversion of at least 54.09% of our class A preferred shares into common shares, (ii) the amendment of our bylaws to adjust them, to the extent possible, to Novo Mercado rules, and (iii) the merger of Valepar into Vale. Subsequently, certain former shareholders of Valepar will enter into a new shareholders' agreement at the Vale level. Our eventual migration to the Novo Mercado segment of the BM&FBOVESPA is also subject to conversion of all of our preferred shares into common shares. For a description of our ownership structure and the proposed changes to the Valepar shareholders' agreements pursuant to the Proposal, see Share ownership and trading—Major shareholders.

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LINES OF BUSINESS

          Our principal lines of business consist of mining and related logistics. This section presents information about operations, production, sales and competition and is organized as follows.

1.   Ferrous minerals

    1.1   Iron ore and iron ore pellets
            1.1.1   Iron ore operations
            1.1.2   Iron ore production
            1.1.3   Iron ore pellets operations
            1.1.4   Iron ore pellets production
            1.1.5   Customers, sales and marketing
            1.1.6   Competition

    1.2   Manganese ore and ferroalloys
            1.2.1   Manganese ore operations and production
            1.2.2   Ferroalloys operations and production
            1.2.3   Manganese ore and ferroalloys: sales and
            competition

2.   Base metals

    2.1   Nickel
            2.1.1   Operations
            2.1.2   Production
            2.1.3   Customers and sales
            2.1.4   Competition

    2.2   Copper
            2.2.1   Operations
            2.2.2   Production
            2.2.3   Customers and sales
            2.2.4   Competition

    2.3   PGMs and other precious metals
    2.4   Cobalt
3.   Coal

    3.1   Operations
    3.2   Production
    3.3   Customers and sales
    3.4   Competition

4.   Infrastructure

    4.1   Logistics
            4.1.1   Railroads
            4.1.2   Ports and maritime terminals
            4.1.3   Shipping

    4.2   Energy

5.   Other investments

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MAP

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1.    Ferrous minerals

          Our ferrous minerals business includes iron ore mining, iron ore pellet production, manganese ore mining and ferroalloy production. Each of these activities is described below.

          We conduct our iron ore business in Brazil primarily at the parent-company level, through our subsidiaries, Mineração Corumbaense Reunida S.A. ("MCR") and Minerações Brasileiras Reunidas S.A.—MBR ("MBR"). Our mines, all of which are open pit, and their related operations are mainly concentrated in three systems: the Southeastern, Southern and Northern Systems, each with its own transportation capabilities. We also conduct mining operations in the Midwestern System and we have a 50% stake in Samarco. Samarco's operations have been suspended following the failure of one of its tailings dams located in Minas Gerais in November 2015 (see Business overview—Failure of Samarco's tailings dam in Minas Gerais). We conduct each of our iron ore operations in Brazil under concessions from the federal government granted for an indefinite period, subject to the life of the mines.

Company/Mining System   Location   Description/History   Mineralization   Operations   Power source   Access/Transportation
Vale                        
Northern System   Carajás, state of Pará   Divided into Serra Norte, Serra Sul and Serra Leste (Northern, Southern and Eastern ranges). Since 1984, we have been conducting mining activities in the northern range, which is divided into three main mining areas (N4W, N4E and N5) and two major beneficiation plants. In 2014, we started a new mine and beneficiation plant in Serra Leste. Our operations in Serra Sul, where our S11D project is located, started in 2016.   High-grade hematite ore type (iron grade of more than 65% on average).   Open-pit mining operations. In Serra Norte, one of the major plants applies the natural moisture beneficiation process, consisting of crushing and screening, and the other applies both the natural moisture and the wet beneficiation process in distinct lines. The wet beneficiation process consists simply of sizing operations, including screening, hydrocycloning, crushing and filtration. Output from this site consists of sinter feed, pellet feed and lump ore. Serra Leste and Serra Sul natural moisture beneficiation process consists of crushing and screening. Serra Sul produces only sinter feed and Serra Leste produces lump and sinter feed.   Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements.   EFC railroad transports the iron ore to the Ponta da Madeira maritime terminal in the Brazilian state of Maranhão. Serra Leste iron ore is transported by trucks from the mine site to EFC railroad. The Serra Sul ore is shipped via the Carajás railroad (EFC) via the new 101-kilometers long railroad branch
Southeastern System   Iron Quadrangle, state of Minas Gerais   Three mining complexes: Itabira (two mines, with three major beneficiation plants), Minas Centrais (two mines, with two major beneficiation plants and one secondary plant) and Mariana (three mines, with two major beneficiation plants).   Ore reserves with high ratios of itabirite ore relative to hematite ore type. Itabirite ore type has iron grade of 35-60%. Part of the ore is concentrated to achieve shipping grade and part is shipped and blended in Asia with the high grade ore from our Northern System.   Open-pit mining operations. We generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining complexes.   Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements.   EFVM railroad connects these mines to the Tubarão port.

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Company/Mining System   Location   Description/History   Mineralization   Operations   Power source   Access/Transportation
Southern System   Iron Quadrangle, state of Minas Gerais   Three major mining complexes: Minas Itabirito (four mines and three major beneficiation plants); Vargem Grande (three mines and two major beneficiation plants); and Paraopeba (five mines and two major beneficiation plants).   Ore reserves with high ratios of itabirite ore type relative to hematite ore type. Itabirite ore has iron grade of 35-60%. Part of the ore is concentrated to achieve shipping grade and part is shipped and blended in Asia with the high grade ore from our Northern System.   Open-pit mining operations. We generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining complexes.   Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements.   MRS transports our iron ore products from the mines to our Guaíba Island and Itaguaí maritime terminals in the Brazilian state of Rio de Janeiro. EFVM railroad connects certain mines to the Tubarão port.
Midwestern System   State of Mato Grosso do Sul   Two mines and two plants located in the city of Corumbá.   Hematite ore type, which generates lump ore predominantly. Iron grade of 62% on average.   Open-pit mining operations. The beneficiation process for the run-of-mine consists of standard crushing and classification steps, producing lump and sinter feed.   Supplied through the national electricity grid. Acquired from regional utility companies.   Part of the sales are transported through barges traveling along the Paraguay river to the ports in Argentina, moving to Europe and Asia markets from there. Another part of the sales is delivered to customers in the ports of Corumbá.
Samarco   Iron Quadrangle, state of Minas Gerais   Integrated system comprised of two mines, three beneficiation plants, three pipelines, four pellet plants and a port. The mines and the beneficiation plants are located in the state of Minas Gerais and the pellet plants and port are located in the state of Espírito Santo. From Minas Gerais to Espírito Santo state production flows through the three pipelines which extend for approximately 400 Km.   Itabirite ore type.   Open-pit mining operations. The three beneficiation plants, located at the site, process the run-of-mine by means of standard crushing, milling and concentration steps, producing pellet feed and sinter feed. Samarco's mining operations have been suspended following the failure of one of its tailings dams located in Minas Gerais in November 2015 (see Business overview—Failure of Samarco's tailings dam in Minas Gerais).   Supplied through the national electricity grid. Acquired from regional utility companies or produced directly by Samarco.   Samarco's mines supply Samarco's pellet plants using three pipelines extending approximately 400 kilometers. These pipelines transport the iron ore from the beneficiation plants to the pelletizing plants. From the pelletizing plants to the Ubu port in the Brazilian state of Espírito Santo pellets are transported by conveyor belts of approximately 1 kilometer.

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          The following table sets forth information about our iron ore production.

 
 
Production for the year ended December 31(2),  
 
 
2016
process
recovery(4)
Mine/Plant Type 2014 2015 2016
 
 
(million metric tons)
(%)

Southeastern System

         

Itabira

Open pit 35.8 35.6 33.4 49.6

Minas Centrais(1)

Open pit 33.7 41.3 40.9 67.6

Mariana

Open pit 39.4 36.1 28.4 89.4

Total Southeastern System

108.9 113.0 102.7  

Southern System

         

Minas Itabirito

Open pit 41.0 41.4 40.1 71.7

Vargem Grande

Open pit 25.0 29.3 29.2 64.9

Paraopeba

Open pit 31.2 28.1 26.4 95.9

Total Southern System

97.2 98.8 95.7  

Northern System

         

Serra Norte

Open pit 117.5 127.6 143.6 95.5

Serra Leste

Open pit 2.2 2.0 4.2 98.9

Serra Sul

Open pit 0.4 100.0

Total Northern System

119.7 129.6 148.1  

Midwestern System

         

Corumbá

Open pit 3.8 2.8 1.9 73.9

Urucum

Open pit 2.1 1.7 0.4 65.8

Total Midwestern System

5.8 4.5 2.3  

Total Vale Systems(2)

331.6 345.9 348.8  

Samarco(3)

Open pit 13.1 12.7 0.0  

Total

344.7 358.6 348.8  

(1)
Agua Limpa mine and plants are part of the Minas Centrais operations and are owned by Baovale Mineração S.A. ("Baovale"). We own 100% of the voting shares and 50% of the total shares of Baovale. Production figures for Água Limpa have not been adjusted to reflect our ownership interest.
(2)
Production figures represent the mass obtained after beneficiation process, with minor contribution of run-of-mine production and third-party ore purchases.
(3)
Production figures for Samarco, in which we have a 50% interest, have been adjusted to reflect our ownership interest.
(4)
Process recovery figures do not include third-party ore purchases.

          We produce iron ore pellets in Brazil and Oman, directly and through joint ventures, as set forth in the table below. We also have a 25% interest in two iron ore pelletizing plants in China, Zhuhai YPM Pellet Co., Ltd. ("Zhuhai YPM") and Anyang Yu Vale Yongtong Pellet Co., Ltd. ("Anyang"). Our total estimated nominal capacity is 64.7 Mtpy, including the full capacity of our pelletizing plants in Oman, but not including our joint ventures Samarco, Zhuhai YPM and Anyang. We supply all of the iron ore requirements of our wholly-owned pellet plants and part of the iron ore requirements for Samarco and Zhuhai YPM. In 2016, we sold 1.08 million metric tons of pellet feed to Zhuhai YPM and 0.33 million metric tons to Anyang YVY. We suspended our sales of run-of-mine to Samarco following the failure of Samarco's tailings dam in November 2015.

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Company/Plant   Description/History   Nominal
capacity
(Mtpy)
  Power source   Other information   Vale's
share
(%)
  Partners

Brazil:

                                                                                                             

Vale

                         

Tubarão (state of
Espírito Santo)

  Three wholly-owned pellet plants
(Tubarão I, II and VIII) and five
leased plants (Itabrasco, Hispanobras,
Kobrasco and two Nibrasco plants).
These plants receive iron ore
primarily from our Southeastern
System mines and distribution is
made though our logistics
infrastructure.
  36.7(1)   Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
  Operations at the Tubarão I and II
pellet plants have been suspended
since November 13, 2012 in response
to changes in steel industry demand
for raw materials, and replaced by
Tubarão VIII, a newer and more
efficient plant.
    100.0     –  

Fábrica (state of
Minas Gerais)

  Part of the Southern System. Receives
iron ore from Minas Itabirito mining
complex, more specifically from João
Pereira and Segredo mines.
Production is mostly transported by
MRS and EFVM.
    4.5       Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
    –       100.0     –  

Vargem Grande (state
of Minas Gerais)

  Part of the Southern System. Receives
iron ore from Minas Itabirito and
Vargem Grande mining complexes,
more specifically from Sapecado,
Galinheiro, Capitão do Mato and
Tamanduá mines and the production
is mostly transported by MRS.
    7.0       Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
    –       100.0     –  

São Luís (state of
Maranhão)

  Part of the Northern System. Receives
iron ore from the Carajás mines and
production is shipped to customers
through our Ponta da Madeira
maritime terminal.
  7.5         –     On October 8, 2012, we suspended
operations at the São Luís pellet
plant in response to changes in steel
industry demand for raw materials.
We plan to re-start the São Luis
pellet plant in the beginning of 2018,
after the renewal of its operational
license, the revamp of the plant and
the upgrade of its automation system.
    100.0     –

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Company/Plant   Description/History   Nominal
capacity
(Mtpy)
  Power source   Other information   Vale's
share
(%)
  Partners
                                                                                              

Samarco

  Four pellet plants, with aggregate
nominal capacity of 30.5 Mtpy,
located in the Ponta Ubu unit, in
Anchieta, state of Espírito Santo.
  30.5(2)   Supplied through the national
electricity grid. Acquired from
regional utility companies or
produced directly by Samarco.
  In January 2016, Samarco suspended
its pelletizing operations as pelletizing
feed became unavailable as a result of
the suspension of its mining
operations in November 2015.
    50.0   BHP Billiton
Brasil Ltda.

Oman:

                       

                                

Vale Oman
Pelletizing
Company LLC

 

Vale's industrial complex. Two pellet
plants with a total nominal capacity of
9.0 Mtpy. The pelletizing plants are
integrated with our distribution center
that has a nominal capacity to handle
40.0 Mtpy.

 

9.0    

 

Supplied through the national
electricity grid.

 

Oman plants are supplied by iron ore
from the Iron Quadrangle state of
Minas Gerais through the Tubarão
Port (80%) and by iron ore from
Carajás through the Ponta de
Madeira Port (20%).

   

70.0

 

Oman Oil
Company S.A.O.C.


(1)
Our environmental operating licenses for the Tubarão pellet plants provide for a capacity of 36.2 Mtpy.
(2)
The actual capacity will be revised based on the conditions under which Samarco resumes operations.

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          The following table sets forth information about our main iron ore pellet production.

 
Production for the year ended December 31,
Company 2014 2015 2016
 
(million metric tons)

Vale(1)

43.0 46.2 46.2

Samarco

12.1 12.3 0.0

Total

55.1 58.5 46.2

(1)
Figure indicates actual production, including full production from our pellet plants in Oman and the five pellet plants we lease in Brazil. The operating leases for Itabrasco, Kobraco and Hispanobras' pellet plants expire in 2018, and the operating leases for the two Nibraco's pellet plants expire in 2019.

          We supply all of our iron ore and iron ore pellets (including our share of joint-venture pellet production) to the steel industry. Prevailing and expected levels of demand for steel products affect demand for our iron ore and iron ore pellets. Demand for steel products is influenced by many factors, such as global manufacturing production, civil construction and infrastructure spending. For further information about demand and prices, see Operating and financial review and prospects—Major factors affecting prices.

          In 2016, China accounted for 58% of our iron ore and iron ore pellet shipments, and Asia as a whole accounted for 71%. Europe accounted for 14%, followed by Brazil with 8%. Our 10 largest customers collectively purchased 130 million metric tons of iron ore and iron ore pellets from us, representing 38% of our 2016 iron ore and iron ore pellet sales volumes and 36% of our total iron ore and iron ore pellet revenues. In 2016, no individual customer accounted for more than 10% of our iron ore and iron ore pellet shipments.

          Of our total 2016 pellet production, including the production of our joint ventures, 62.9% was blast furnace pellets and 37.1% was direct reduction pellets. Blast furnace and direct reduction are different technologies employed by steel mills to produce steels, each using different types of pellets. In 2016, the Asian market (mainly Japan, South Korea and Taiwan), the European market and the Brazilian market were the primary markets for our blast furnace pellets, while the Middle East, North America and North Africa were the primary markets for our direct reduction pellets.

          We invest in customer service in order to improve our competitiveness. We work with our customers to understand their objectives and to provide them with iron ore solutions to meet specific customer needs. Using our expertise in mining, agglomeration and iron-making processes, we search for technical solutions that will balance the best use of our world-class mining assets and the satisfaction of our customers. We believe that our ability to provide customers with a total iron ore solution and the quality of our products are both very important advantages helping us improve our competitiveness in relation to competitors that may be more conveniently located geographically. In addition to offering technical assistance to our customers, we have sales offices in St. Prex (Switzerland), Tokyo (Japan), Seoul (South Korea), Singapore, Dubai (UAE) and Shanghai (China), which support the global sales by Vale International, and an office in Brazil, which supports sales to South America. These offices also allow us to stay in close contact with our customers, monitor their requirements and our contract performance, and ensure that our customers receive timely deliveries.

          We sell iron ore and iron ore pellets under different arrangements, including long-term contracts with customers and on a spot basis through tenders and trading platforms. Our pricing is generally linked to market price indexes and uses a variety of mechanisms, including current spot prices and average prices over specified periods. In cases where the products are priced before the final price is determinable at delivery, we recognize the sale based on a provisional price with a subsequent adjustment reflecting the final price.

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          In 2015 and 2016, we hedged part of our total exposure to bunker oil prices relating to our owned fleet and long-term contracts of affreightment connected to our FOB, CFR and domestic sales. The 2015 hedge program was settled in 2015 and 2016. We expect the 2016 hedge program to be settled in 2017.

          The global iron ore and iron ore pellet markets are highly competitive. The main factors affecting competition are price, quality and range of products offered, reliability, operating costs and shipping costs.

          With respect to pellets, our major competitors are LKAB, Iron Ore Company of Canada (IOC), Ferrexpo, Arcelor Mittal Mines Canada (former Quebec Cartier Mining Co.) and Bahrain Steel (former Gulf Industrial Investment Co.).

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          We conduct our manganese mining operations in Brazil through Vale S.A. and our wholly-owned subsidiaries Vale Manganês S.A. ("Vale Manganês") and MCR. Our mining operations are carried out under concessions from the federal government granted for an indefinite period. Our mines produce metallurgical ore, used primarily for the production of manganese ferroalloys, raw material to produce carbon and stainless steel.

Mining complex   Company   Location   Description/History   Mineralization   Operations   Power source   Access/ Transportation

Azul

  Vale S.A.   State of Pará   Open-pit mining operations and on-site beneficiation plant.   High and medium-grade ores (22-53% manganese grade).   Crushing and classification steps, producing lumps and fines.   Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements.   Manganese ore is transported by truck and EFC railroad to the Ponta da Madeira maritime terminal.

Morro da Mina

  Vale Manganês   State of Minas Gerais   Open-pit mining operations and one major beneficiation plant. In January 2015, we suspended operations due to market conditions. In October 2016, we resumed operations to provide manganese ore to the Barbacena ferroalloy plant.   Medium and low-grade ores (an average content of 31% manganese grade).   Crushing, screening and dense-heavy medium separation DMS / HMS process producing lumps to the Barbacena ferroalloy plant.   Supplied through the national electricity grid. Acquired from regional utility companies.   Manganese ore is transported by trucks to the Barbacena ferroalloy plant.

Urucum

  MCR   State of Mato Grosso do Sul   Underground mining operations and on-site beneficiation plant.   High-grade ores (an average content of 46% manganese grade).   Crushing and classification steps, producing lumps and fines.   Supplied through the national electricity grid. Acquired from regional utility companies.   Manganese ore is transported by barges traveling along the Paraguay and Paraná rivers to transhipper.

          The following table sets forth information about our manganese ore production, obtained after beneficiation process, and mass recovery for the year of 2016.

 
   
  Production for the year ended December 31,    
 
   
  2016 process
recovery
Mine   Type   2014   2015   2016
 
   
  (million metric tons)
  (%)

Azul

  Open pit   1.7   1.7   1.7   51.2

Morro da Mina(1)

  Open pit   0.1     0.0   70.0

Urucum

  Underground   0.6   0.7   0.7   82.0

    Total

  2.4   2.4   2.4    

(1)
We suspended operations at Morro da Mina Mine in 2015 due to market conditions. We resumed operations in October 2016 to provide manganese ore to the Barbacena ferroalloy plant.

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Table of Contents

          We conduct our manganese ferroalloys business through our wholly-owned subsidiary Vale Manganês. The production of manganese ferroalloys consumes significant amounts of electricity, which is provided through power purchase agreements. For information on the risks associated with potential energy shortages, see Risk factors.

          We produce several types of manganese ferroalloys, such as high carbon and medium carbon ferro-manganese and ferro-silicon manganese.

Plant   Location   Description/History   Nominal capacity   Power source

Minas Gerais Plants

  Cities of Barbacena and Ouro Preto   Barbacena has six furnaces, two of which are refining furnaces and a briquetting plant. Ouro Preto has three furnaces which are currently not operating.   Barbacena: 66,000 tons per year (54,000 tons per year of ferro-silicon manganese and 12,000 tons per year of ferro-manganese medium carbon).

Ouro Preto: 64,000 tons per year of ferro-silicon manganese.

  Supplied through the national electricity grid. Acquired through power purchase agreements.

Bahia Plant

  City of Simões Filho   Four furnaces, two converters and a sintering plant.   135,000 tons per year (42,000 tons per year of ferro-silicon manganese and 93,000 tons per year of high carbon ferro-manganese). The plant has a capacity to refine until 40,000 tons per year of ferro-manganese high carbon to produce ferro-manganese medium carbon alloy, according to market demand.   Supplied through the national electricity grid. Energy acquired from CHESF or through power purchase agreements.

          The following table sets forth information about our manganese ferroalloys production.

 
Production for the year ended December 31(1),
Plant 2014 2015 2016
 
(thousand metric tons)

Barbacena

    50       6     48

Ouro Preto

      8       1     –

Simões Filho

  113     92     77

Total

  171     99   124

(1)
Production figures reflect unfinished material, which is further processed by a crushing and screening facility. Average mass recovery in this process is 85%.

          We suspended operations at the Ouro Preto plant in February 2014, due to market conditions. In January 2015, the power purchase agreement pursuant to which we acquire energy for our Barbacena and Ouro Preto plants expired, and we also suspended operations in our Barbacena plant. The Barbacena plant resumed operations in February 2016. We are considering power supply alternatives to these plants, taking into consideration the energy prices and current market conditions for manganese ferroalloys.

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          The markets for manganese ore and ferroalloys are highly competitive. Competition in the manganese ore market takes place in two segments. High and medium-grade manganese ore competes on a global seaborne basis, while low-grade ore competes on a regional basis. For some manganese ferroalloys, high and medium-grade ore is mandatory, while for other ores are complementary. The main suppliers of high-grade ores are located in South Africa, Gabon, Australia and Brazil. The main producers of low-grade ores are located in the Ukraine, China, Ghana, Kazakhstan, India and Mexico.

          We compete in the seaborne market with both high- and medium-grade ores from Azul and Urucum mines, where we benefit from extensive synergies with our iron ore operations, from mine to rail to port to vessels operations. Our main competitors in this segment are South32 (Australia and South Africa) and Eramet (Gabon). Our low-grade ores are consumed internally in our ferroalloy smelters.

          The manganese ferroalloy market is characterized by a large number of participants who compete primarily on the basis of price. Our competitors are located principally in countries that produce manganese ore or carbon steel. Potential entrants and substitutes come from silicon or chrome ferroalloys, who can occasionally shift to manganese, and from electrolytic manganese producers. Competitors may be either integrated smelters like us, who feed manganese ore from their own mines, or non-integrated smelters. The principal competitive factors in this market are the costs of manganese ore, electricity, logistics and reductants such as coke, coal and charcoal. We compete with both stand-alone producers and integrated producers that also mine their own ore.

          Focusing mainly in the Brazilian and South American steelmaking customers, our ferroalloys operations also benefit from synergies with our iron ore sales, marketing, procurement and logistics activities. We buy our energy and coke supplies at reasonable market prices both though medium- and long-term contracts. Competitors in the Brazilian market are about a dozen smelters with capacities from five to 90 thousand tons per year, most non-integrated ones and some of them are customers of our manganese ores. We have a distinctive advantage in comparison to them in producing higher manganese content ferroalloys.

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2.    Base metals

          2.1 Nickel

          2.1.1 Operations

          We conduct our nickel operations primarily through our wholly-owned subsidiary Vale Canada, which operates two nickel production systems, one in the North Atlantic region and the other in the Asia Pacific region. We also produce copper as a coproduct in our nickel operations in Canada and, through Vale S.A., operate a third nickel production system, Onça Puma, in the South Atlantic region. Our nickel operations are set forth in the following table.

Company/Mining System
  Location   Description/History   Operations   Mining title   Power source   Access/Transportation
North Atlantic:                        
Vale Canada   Canada—Sudbury, Ontario   Integrated mining, milling, smelting and refining operations to process ore into finished nickel with a nominal capacity of 66,000 metric tons of refined nickel per year and additional nickel oxide feed for the refinery in Wales and our nickel plants in Asia. Mining operations in Sudbury began in 1885. We acquired the Sudbury operations in 2006.  

Nickel. Primarily underground mining operations with nickel sulfide ore bodies, which also contain some copper, cobalt, PGMs, gold and silver. We also process external feeds from third parties and from our Voisey's Bay operation. We plan to cease processing Voisey's Bay feed in Sudbury during the year of 2017. In addition to producing finished nickel in Sudbury, we ship a nickel oxide intermediate product to our nickel refinery in Wales for processing to final products. We also have capabilities to ship nickel oxide to our Asian refineries. As part of our efforts to reduce sulfur dioxide and other air emissions to meet regulatory changes in Ontario and Manitoba, and to rationalize our smelting and refining assets across Canada, we will modify our processes including switching to a single flash furnace in Sudbury in 2017.

Copper. We produce two intermediate copper products, copper concentrate and copper anode, and we also produce a finished copper product, electrowon copper cathode. We will switch to a single flash furnace in Sudbury in 2017 and as a result, we will cease copper anode production resulting in increased production of copper concentrate and copper matte.

  Patented mineral rights with no expiration date; mineral leases expiring between 2017 and 2037; and mining licenses of occupation with indefinite expiration date(1).   Supplied by Ontario's provincial electricity grid and produced directly by Vale.   Located by the Trans-Canada highway and the two major railways that pass through the Sudbury area. Finished products are delivered to the North American market by truck. For overseas customers, the products are loaded into containers and travel intermodally (truck/rail/containership) through both east and west coast Canadian ports.

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Company/Mining System   Location   Description/History   Operations   Mining title   Power source   Access/Transportation
Vale Canada   Canada—Thompson, Manitoba   Integrated mining, milling, smelting and refining operations to process ore into finished nickel with a nominal capacity of 38,000 metric tons of refined nickel per year. We intend to phase out smelting and refining activities in Thompson by 2018. Thompson mineralization was discovered in 1956, and Thompson operations were acquired by us in 2006.  

Nickel. Primarily underground mining operations with nickel sulfide ore bodies, which also contain some copper and cobalt. Local concentrate is combined with nickel concentrate from our Voisey's Bay operations for smelting and refining to high quality nickel plate product. We expect to decommission one of the two furnaces in Thompson in 2017 and the other in 2018. We also expect to cease processing Voisey's Bay feed in Thompson during the year of 2017. We plan to send the majority of the feed from Thompson to be refined in Long Harbour and Sudbury. We intend to phase out smelting and refining activities in Thompson by 2018, due primarily to the capital costs associated with the federal sulfur dioxide emission limits defined under the pollution prevention plan under the Canadian Environmental Protection Act (CEPA), as well as to declining feed availability. We have secured an extension for implementation of our current sulfur dioxide emission reduction plan, which permits smelting and refining through 2018, subject to negotiated emission limits.

  Order in Council leases expiring between 2020 and 2025; mineral leases expiring in 2034.   Supplied by Manitoba's provincial utility company.   Finished products are delivered to market by truck in North America. For overseas customers, the products are loaded into containers and travel intermodally (truck/rail/containership) to final destination through both west coast and east coast Canadian ports.

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Company/Mining System   Location   Description/History   Operations   Mining title   Power source   Access/Transportation
Vale Newfoundland & Labrador Limited   Canada—Voisey's Bay and Long Harbour, Newfoundland and Labrador   Integrated open-pit mining and milling operation at Voisey's Bay producing nickel and copper concentrates with refining of nickel concentrate at Long Harbour into finished metal products with an expected nominal capacity of approximately 50,000 metric tons of refined nickel per year upon ramp-up. Voisey's Bay's operations started in 2005 and was purchased by us in 2006.   Comprised of the Ovoid open pit mine, and deposits for underground operations at a later stage. We mine nickel sulfide ore bodies, which also contain copper and cobalt. The Long Harbour facility continued to ramp up in 2016. In 2016, Long Harbour facility only processed Voisey's Bay high-grade nickel concentrates and no longer nickel in matte from PTVI. In 2017, as a result of the continuing ramp-up of the Long Harbour nickel refinery, copper cathode and cobalt metal will be produced for the first time. The portion of mid-grade and high-grade concentrate not shipped to Long Harbour in 2017 will be shipped to our Sudbury and Thompson operations for final processing (smelting and refining) while copper concentrate will be sold to the market. Shipments of nickel concentrate to Sudbury and Thompson are expected to cease by the end of 2017. We expect the ramp-up to continue at Long Harbour until the end of 2018.   Mining lease expiring in 2027, with a right of further renewals for 10-year periods.   Power at Voisey's Bay is 100% supplied through Vale owned diesel generators. Power at the Long Harbour refinery is supplied by the Newfoundland and Labrador provincial utility company.   The nickel and copper concentrates from Voisey's Bay are transported to the port by haulage trucks and then shipped by drybulk vessels to either overseas markets or to our Long Harbour and other Canadian operations for further refining.
Vale Europe Limited   U.K.—Clydach, Wales   Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 40,000 metric tons per year. The Clydach refinery commenced operations in 1902 and was acquired by us in 2006.   Processes a nickel intermediate product, nickel oxide, supplied from our Sudbury and Matsuzaka operations to produce finished nickel in the form of powders and pellets.     Supplied through the national electricity grid.   Transported to final customer in the UK and continental Europe by truck. Products for overseas customers are trucked to the ports of Southampton and Liverpool and shipped by ocean container.

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Company/Mining System   Location   Description/History   Operations   Mining title   Power source   Access/Transportation
Asia Pacific                        
PT Vale Indonesia Tbk ("PTVI")   Indonesia—Sorowako, Sulawesi   Open cast mining area and related processing facility (producer of nickel matte, an intermediate product) with a nominal capacity of approximately 80,000 metric tons of nickel in matte per year. PTVI's shares are traded on the Indonesia Stock Exchange. We indirectly hold 59.2% of PTVI's share capital, Sumitomo Metal Mining Co., Ltd ("Sumitomo") holds 20.2%, Sumitomo Corporation holds 0.1% and the public holds 20.5%. PTVI was established in 1968, commenced its commercial operations in 1978 and was acquired by us in 2006.   PTVI mines nickel laterite ore and produces nickel matte, which is shipped primarily to our nickel refinery in Japan. Pursuant to life-of-mine off-take agreements, PTVI sells 80% of its production to our wholly-owned subsidiary Vale Canada and 20% of its production to Sumitomo.   Contract of work expiring in 2025, entitled to two consecutive ten-year extensions, subject to approval of the Indonesian government. See Regulatory matters—Mining rights and regulation of mining activities.   Produced primarily by PTVI's low cost hydroelectric power plants on the Larona River (there are currently three facilities). PTVI has thermal generating facilities in order to supplement its hydroelectric power supply with a source of energy that is not subject to hydrological factors.   Trucked approximately 55 km to the river port at Malili and then loaded onto barges in order to load break-bulk vessels for onward shipment.
Vale Nouvelle- Calédonie S.A.S ("VNC")   New Caledonia—Southern Province   Mining and processing operations (producer of nickel oxide, nickel hydroxide and cobalt carbonate). We hold 95% of VNC's shares and the remaining 5% is held by Société de Participation Minière du Sud Caledonien SAS ("SPMSC") SPMSC has an obligation to increase its stake in VNC to 10% within two years after the startup of commercial production.   We are currently ramping up our nickel operation in New Caledonia. VNC utilizes a High Pressure Acid Leach ("HPAL") process to treat limonitic laterite and saprolitic laterite ores. We expect to continue to ramp-up VNC over the next four years to reach nominal production capacity of 57,000 metric tons per year of nickel contained in nickel oxide, which will be further processed in our refineries in Asia, and hydroxide cake form (IPNM), and 4,500 metric tons of cobalt in carbonate form.   Mining concessions expiring between 2017 and 2051(3).   Supplied through the national electricity grid and by independent producers.   Products are packed into containers and are trucked approximately 4 km to Prony port and shipped by ocean container.

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Company/Mining System   Location   Description/History   Operations   Mining title   Power source   Access/Transportation
Vale Japan Limited   Japan—Matsuzaka   Stand-alone nickel refinery (producer of intermediate and finished nickel), with a nominal capacity of 60,000 metric tons per year. We own 87.2% of the shares, and Sumitomo owns the remaining shares. The refinery was built in 1965 and was acquired by us in 2006.   Produces intermediate products for further processing in our refineries in Asia and the UK, and finished nickel products using nickel matte sourced from PTVI.     Supplied through the national electricity grid. Acquired from regional utility companies.   Products trucked over public roads to customers in Japan. For overseas customers, the product is loaded into containers at the plant and shipped from the ports of Yokkaichi and Nagoya.
Vale Taiwan Limited   Taiwan—Kaoshiung   Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 18,000 metric tons per year. The refinery commenced production in 1983 and was acquired by us in 2006.   Produces finished nickel for the stainless steel industry, primarily using intermediate products from our Matsuzaka and New Caledonian operations.     Supplied through the national electricity grid. Acquired from regional utility companies.   Trucked over public roads to customers in Taiwan. For overseas customers, the product is loaded into containers at the plant and shipped from the port of Kaoshiung.
Vale Nickel (Dalian) Co., Ltd   China—Dalian, Liaoning   Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 32,000 metric tons per year. We own 98.3% of the shares and Ningbo Sunhu Chemical Products Co., Ltd. owns the remaining 1.7%. The refinery commenced production in 2008.   Produces finished nickel for the stainless steel industry, primarily using intermediate products from our Matsuzaka and New Caledonian operations.     Supplied through the national electricity grid. Acquired from regional utility companies.   Product transported over public roads by truck and by railway to customers in China. It is also shipped in ocean containers to overseas and some domestic customers.
South Atlantic                        
Vale/Onça Puma   Brazil—Ourilândia do Norte, Pará   Mining and smelting operation producing a high quality ferronickel for application within the stainless steel industry.   The Onça Puma mine is built on lateritic nickel deposits of saprolitic laterite ore. The operation produces ferronickel via the rotary kiln-electric furnace process. We are currently operating with a single line, with nominal capacity estimated at 27,000 metric tons per year. We will evaluate opportunities to restart the second line operations in light of market conditions and the associated business case.   Mining concession for indefinite period.   Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements.   The ferro-nickel is transported by truck to the Vila do Conde maritime terminal in the Brazilian state of Pará, and exported in ocean containers.

(1)
In Sudbury, ten mining leases are scheduled to expire in 2017. We have submitted applications for renewal of these leases and the approval process is ongoing. We can continue to operate while the approval process is ongoing.
(2)
In March 2016, Vale Canada purchased the entire equity interest in VNC held by Sumic, a joint venture between Sumitomo and Mitsui. In April 2017, Vale Canada will pay to Sumic the share purchase price of US$135 million and repay a total amount of US$225 million in debt funding provided by Sumic to VNC.
(3)
VNC has requested a renewal of concessions that were scheduled to expire in 2015 and 2016. We can continue to operate while the approval process is ongoing.

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          The following table sets forth our annual mine production by operating mine (or, on an aggregate basis in the case of the Sulawesi operating areas operated by PTVI in Indonesia, because it is organized by mining areas rather than individual mines) and the average percentage grades of nickel and copper. The mine production at Sulawesi represents the product from PTVI's screening station delivered to PTVI's processing plant and does not include nickel losses due to drying and smelting. For our Sudbury, Thompson and Voisey's Bay operations, the production and average grades represent the mine product delivered to those operations' respective processing plants and do not include adjustments due to beneficiation, smelting or refining. For Onça Puma's operation, in Brazil and VNC's operation, in New Caledonia, the production and average grade represents in-place ore production and does not include losses due to processing.

 
2014(1) 2015(1) 2016(1)
 
 
Grade  
Grade  
Grade
 
Production Copper Nickel Production Copper Nickel Production Copper Nickel

Ontario operating mines

                 

Copper Cliff North

1,053 1.45 1.34 1,138 1.42 1.38 979 1.44 1.26

Creighton

903 1.81 2.47 774 2.00 2.33 832 2.17 2.76

Stobie

2,089 0.58 0.66 1,471 0.63 0.73 1,373 0.57 0.64

Garson

678 1.39 1.75 778 1.39 1.94 711 1.34 1.91

Coleman

1,385 3.10 1.52 1,309 2.95 1.56 1,209 3.76 1.47

Ellen

181 0.62 1.07 165 0.70 0.95 75 0.42 0.88

Totten

303 1.98 1.50 528 1.88 1.62 671 1.86 1.43

Total Ontario operations

6,591 1.57 1.36 6,164 1.64 1.46 5,850 1.84 1.47

Manitoba operating mines

                 

Thompson

1,184 1.95 1,163 1.82 1,140 1.97

Birchtree

545 1.39 564 1.47 503 1.36

Total Manitoba operations

1,729 1.78 1,727 1.71 1,643 1.78

Voisey's Bay operating mines

                 

Ovoid

2,243 1.54 2.58 2,328 1.51 2.57 2,392 1.44 2.62

Sulawesi operating mining areas

                 

Sorowako

4,391 1.99 4,694 1.99 4,708 1.93

New Caledonia operating mines

                 

VNC

2,134 1.44 2,561 1.41 2,919 1.53

Brazil operating mines

                 

Onça Puma

1,358 2.19 1,024 2.13 1,710 2.04

(1)
Production is stated in thousands of metric tons. Grade is % of copper or nickel, respectively.

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          The following table sets forth information about our nickel production, including: nickel refined through our facilities and intermediates designated for sale. The numbers below are reported on a contained nickel ore-source basis.

 
 
Finished production by ore source for the year ended December 31,
Mine Type 2014 2015 2016
 
 
(thousand metric tons contained nickel)

Sudbury

Underground 64.3 54.4 80.4

Thompson

Underground 26.1 24.8 26.5

Voisey's Bay(1)

Open pit 48.3 53.0 49.0

Sorowako(2)

Open cast 78.7 79.5 81.1

Onça Puma

Open pit 21.4 24.4 24.1

New Caledonia(3)

Open pit 18.7 26.9 34.3

External(4)

17.5 27.6 15.6

Total(5)

  274.9 290.6 311.0

(1)
Includes finished nickel produced at Long Harbour, Sudbury and Thompson.
(2)
These figures have not been adjusted to reflect our ownership. We have a 59.2% interest in PTVI, which owns the Sorowako mines.
(3)
These figures have not been adjusted to reflect our ownership. We have a 95.0% interest in VNC.
(4)
Finished nickel processed at our facilities using feeds purchased from unrelated parties.
(5)
These figures do not include tolling of feeds for unrelated parties.

          Our nickel customers are broadly distributed on a global basis. In 2016, 47% of our refined nickel sales were delivered to customers in Asia, 27% to Europe, 24% to North America and 1% to other markets. We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts generally provide stable demand for a significant portion of our annual production.

          Nickel is an exchange-traded metal, listed on the London Metal Exchange ("LME") and Shanghai Futures Exchange ("SHFE"), and most nickel products are priced according to a discount or premium to the LME price, depending primarily on the nickel product's physical and technical characteristics. Our finished nickel products represent what is known in the industry as "primary" nickel, meaning nickel produced principally from nickel ores (as opposed to "secondary" nickel, which is recovered from recycled nickel-containing material). Finished primary nickel products are distinguishable in terms of the following characteristics, which determine the product price level and the suitability for various end-use applications:

          In 2016, the principal end-use applications for nickel were:

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          In 2016, 58% of our refined nickel sales were made into non-stainless steel applications, compared to the industry average for primary nickel producers of 30%. This brings more diversification and sales volume stability to our nickel revenues. As a result of our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.

          We offer sales and technical support to our customers on a global basis through an established marketing network headquartered at our head office in Toronto (Canada). We have a well-established global marketing network for finished nickel, based at our head office in Toronto (Canada). We also have sales and technical support distributed around the world with primary back offices in Singapore and Toronto (Canada) and have sales managers located in St.Prex (Switzerland), Saddle Brook, New Jersey (United States) and at several sites throughout Asia. For information about demand and prices, see Operating and financial review and prospects—Major factors affecting prices.

          The global nickel market is highly competitive. Our key competitive strengths include our long-life mines, our low cash costs of production relative to other nickel producers, sophisticated exploration and processing technologies, and a diversified portfolio of products. Our global marketing reach, diverse product mix, and technical support direct our products into applications and geographic regions that offer the highest margins for our products.

          Our nickel deliveries represented 16% of global consumption for primary nickel in 2016. In addition to us, the largest mine-to-market integrated suppliers in the nickel industry (each with its own integrated facilities, including nickel mining, processing, refining and marketing operations) are Nornickel, Glencore, Jinchuan Nonferrous Metals Corporation and Sumitomo Metal Mining Co. Ltd. Together with us, these companies accounted for about 38% of global refined primary nickel production in 2016.

          While stainless steel production is a major driver of global nickel demand, stainless steel producers can obtain nickel with a wide range of nickel content, including secondary nickel (scrap). The choice between primary and secondary nickel is largely based on their relative prices and availability. See Operating and Financial Review and Prospects—Major factors affecting prices—Nickel.

          Competition in the nickel market is based primarily on quality and reliability of supply and price. We believe our operations are competitive in the nickel market because of the high quality of our nickel products and our relatively low production costs.

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          2.2    Copper

          2.2.1    Operations

          We conduct our copper operations at the parent-company level in Brazil and through our subsidiaries in Canada.

Mining complex/Location Location Description/History Mineralization/Operations Mining title Power source Access/Transportation
Brazil:            
Vale/Sossego Carajás, state of Pará. Two main copper ore bodies, Sossego and Sequeirinho, and a processing facility to concentrate the ore. Sossego was developed by Vale. Production started in 2004 and has a nominal capacity of 100,000 tpy of copper in concentrates. The copper ore is mined using the open-pit method, and the run-of-mine is processed by means of standard primary crushing and conveying, SAG milling (a semi-autogenous mill that uses a large rotating drum filled with ore, water and steel grinding balls to transform the ore into a fine slurry), ball milling, copper concentrate flotation, tailings disposal, concentrate thickening, filtration and load out. Mining concession for an indefinite period. Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. We truck the concentrate to a storage terminal in Parauapebas and then transport it via the EFC railroad to the Itaqui Port in São Luís, in the Brazilian state of Maranhão. We constructed an 85-kilometer road to link Sossego to Parauapebas.
Vale/Salobo Carajás, state of Pará. Salobo I processing plant started production in 2012 and has a total capacity of 100,000 tpy of copper in concentrates. The open pit mine and mill concluded their ramp up in the fourth quarter of 2016 to a capacity of 200,000 tpy of copper in concentrates with the full implementation of Salobo II expansion. Our Salobo copper mine is mined using the open-pit method, and the run-of-mine is processed by means of standard primary and secondary crushing, conveying, roller press grinding, ball milling, copper concentrate flotation, tailings disposal, concentrate thickening, filtration and load out. Mining concession for an indefinite period. Supplied through the national electricity grid. Acquired through power purchase agreements. We truck the concentrate to a storage terminal in Parauapebas and then transport it via the EFC railroad to the Itaqui Port in São Luís, in the Brazilian state of Maranhão. We constructed a 90-kilometer road to link Salobo to Parauapebas.

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Mining complex/Location Location Description/History Mineralization/Operations Mining title Power source Access/Transportation
Canada:            
Vale Canada Canada—Sudbury, Ontario See —Base metals—Nickel—Operations
Vale Canada/ Voisey's Bay Canada—Voisey's Bay, Newfoundland and Labrador See —Base metals—Nickel—Operations
Zambia:            
Lubambe Zambian Copperbelt Lubambe copper mine, which includes an underground mine, plant and related infrastructure. Teal Minerals ("TEAL") (our 50/50 joint venture with African Rainbow Minerals ("ARM")) has an 80% indirect stake in Lubambe. ZCCM Investments Holdings PLC holds the remaining (20%) stake. Nominal production capacity of 45,000 metric tons per year of copper in concentrates. Production started in October 2012. Mining concessions expiring in 2033. Long-term energy supply contract with Zesco (Zambian state owned power supplier). Copper concentrates are transported by truck to local smelters.

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          The following table sets forth our annual mine production in our Salobo and Sossego mines and the average percentage grades of copper. The production and average grade represents in-place ore production and does not include losses due to processing. For the annual production of copper as a coproduct in our nickel operations, see—Base metals—Nickel—Production.

 
2014(1) 2015(1) 2016(1)
 
Production Grade Production Grade Production Grade

Brazil

           

Sossego

15,105 0.86 12,857 0.93 12,687 0.82

Salobo

18,644 0.84 44,296 0.62 57,279 0.62

Total

33,749 0.85 57,153 0.69 69,966 0.66

(1)
Production is stated in thousands of metric tons. Grade is % of copper.

          The following table sets forth information on our copper production.

 
 
Finished production by ore source for the
year ended December 31,
Mine Type 2014 2015 2016
 
 
(thousand metric tons)

Brazil:

       

Salobo

Open pit 98 155 176

Sossego

Open pit 110 104 93

Canada: (as coproduct of nickel operations)

       

Sudbury

Underground 98 98 122

Voisey's Bay

Open pit 33 32 32

Thompson

Underground 2 1 3

External(1)

29 23 21

Zambia:

       

Lubambe(2)

Underground 10 10 8

Total

  380 424 453

(1)
We process copper at our facilities using feed purchased from unrelated parties.
(2)
Vale's attributable production capacity of 40%, which represents 80% of indirect interest through our 50% participation.

          We sell copper concentrates from Sossego and Salobo under medium and long-term contracts to copper smelters in Europe, India and Asia. We have medium-term copper supply agreements with Glencore Canada Corporation for part of the copper concentrates produced in Sudbury, which are also sold under long-term contracts in Europe and Asia. We sell copper concentrates from Voisey's Bay under long-term contracts to customers in Europe and electrowon copper from Sudbury in North America under short-term sales agreements.

          The global refined copper market is highly competitive. Producers are integrated mining companies and custom smelters, covering all regions of the world, while consumers are principally wire rod and copper-alloy producers. Competition occurs mainly on a regional level and is based primarily on production costs, quality, reliability of supply and logistics costs. The world's largest copper cathode producers are Corporación Nacional del Cobre de Chile ("Codelco"), Freeport McMoRan Copper & Gold Inc. ("Freeport-McMoRan"), Aurubis AG, Jiangxi Copper Corporation Ltd. and Glencore, operating at the parent-company level or through subsidiaries. Our participation in the global refined copper cathodes market is marginal as we position ourselves more competitively in the copper concentrate market.

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          Copper concentrate and copper anode are intermediate products in the copper production chain. Both the concentrate and anode markets are competitive, having numerous producers but fewer participants and smaller volumes than in the copper cathode market due to the high levels of integration by the major copper producers.

          In the copper concentrate market, mining occurs on a global basis with a predominant share from South America, while consumers are custom smelters located mainly in Europe and Asia. Competition in the custom copper concentrate market occurs mainly on a global level and is based on production costs, quality, logistics costs and reliability of supply. The largest competitors in the copper concentrate market are Glencore, BHP Billiton, Freeport McMoRan, Codelco, Anglo American and Antofagasta plc operating at the parent-company level or through subsidiaries. Our market share in 2016 was about 4% of the total custom copper concentrate market.

          The copper anode/blister market is very limited; generally, anodes are produced to supply each company's integrated refinery. The trade in anodes/blister is limited to those facilities that have more smelting capacity than refining capacity or to those situations where logistics cost savings provide an incentive to source anodes from outside smelters. The largest competitors in the copper anode market in 2016 included Glencore, First Quantum Minerals Ltd, Codelco, and China Nonferrous Metals, operating at the parent-company level or through subsidiaries.

          As byproducts of our Sudbury nickel operations in Canada, we recover significant quantities of PGMs, as well as small quantities of gold and silver. We operate a processing facility in Port Colborne, Ontario, which produces PGMs, gold and silver intermediate products using feed from our Sudbury operation. We have a refinery in Acton, England, where we process our intermediate products, as well as feeds purchased from unrelated parties and toll-refined materials. In 2016, PGM concentrates from our Canadian operations supplied about 88% of our PGM production, which also includes metals purchased from unrelated parties. Our base metals marketing department sells our own PGMs and other precious metals, as well as products from unrelated parties and toll-refined products, on a sales agency basis. Our copper concentrates from our Salobo and Sossego mines in Carajás, in the Brazilian state of Pará, also contain gold, the value of which we realize in the sale of those products.

          In February 2013, we sold to Silver Wheaton 25% of the gold produced as a byproduct at our Salobo copper mine, in Brazil, for the life of that mine, and 70% of the gold produced as a byproduct at our Sudbury nickel mines, in Canada, for 20 years. In each of March 2015 and August 2016, we sold to Silver Wheaton an additional 25% of the gold produced as a byproduct at our Salobo copper mine. In consideration for the August 2016 sale, we received an initial cash payment of US$800 million, an option value of approximately US$23 million from a reduction of the exercise price of the warrants of Silver Wheaton held by Vale since 2013, and ongoing payments of the lesser of US$400 per ounce (subject to a 1% annual inflation adjustment starting January 1, 2019) and the prevailing market price, for each ounce of gold that we deliver under the agreement. We may receive an additional cash payment if we expand our capacity to process Salobo copper ores to more than 28 Mtpy before 2036. The additional cash payment may range from US$113 million to US$953 million, depending on ore grade, timing and size of the expansion. See Business overview—Significant changes in our business. Pursuant to the gold stream contract, Silver Wheaton received 247,287 oz. of gold in 2016.

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          The following table sets forth information on the contained volume of precious metals as a byproduct of our production of nickel and copper concentrates.

Mine Type 2014 2015 2016
 
 
(thousand troy ounces of contained metal)

Sudbury(1):

       

Platinum

Underground 182 154 166

Palladium

Underground 398 341 322

Gold(2)

Underground 83 89 98

Salobo:

       

Gold(2)

Open pit 160 251 317

Sossego:

       

Gold

Open pit 78 80 67

(1)
Includes metal produced from unrelated parties feed purchases. Includes Ontario (Canada) and Acton (England) production. Excludes tolling from unrelated parties.
(2)
Figures represent 100% of Salobo and Sudbury contained volume of gold as a byproduct of our production of nickel and copper concentrates and do not deduct the portion of the gold sold to Silver Wheaton.

          We recover significant quantities of cobalt as a byproduct of our nickel operations. In 2016, we produced 1,851 metric tons of refined cobalt metal at our Port Colborne refinery, 3,188 metric tons of cobalt in a cobalt-based intermediate product at our nickel operations in New Caledonia, and our remaining cobalt production consisted of 761 metric tons of cobalt contained in other intermediate products (such as nickel concentrates). As a result of the ramp-up of VNC operations in New Caledonia, our production of cobalt intermediate as a byproduct of our nickel production is increasing. We sell cobalt on a global basis. Our cobalt metal is electro-refined at our Port Colborne refinery and has very high purity levels (99.8%) meeting the LME contract specification. Cobalt metal is used in the production of various alloys, particularly for aerospace applications, as well as the manufacture of cobalt-based chemicals. In 2016, Long Harbour produced a cobalt intermediate with the operation expected to begin producing high quality cobalt metal in 2017.

          The following table sets forth information on our cobalt production.

 
 
Finished production by ore source for the
year ended December 31,
Mine Type 2014 2015 2016
 
 
(contained metric tons)

Sudbury

Underground 833 751 882

Thompson

Underground 489 365 700

Voisey's Bay

Open pit 952 849 887

New Caledonia

Open pit 1,384 2,391 3,188

Others(1)

84 177 143

Total

  3,743 4,533 5,799

(1)
These figures do not include tolling of feeds for unrelated parties. Includes cobalt processed at our facilities using feeds purchased from unrelated parties and, for 2016, also includes 24 tonnes of ore sourced by PTVI.

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3. Coal

          3.1 Operations

          We produce metallurgical and thermal coal through our subsidiary Vale Moçambique, which operates the Moatize mine. We also have a minority interest in a Chinese company, Henan Longyu Energy Resources Co., Ltd. ("Longyu"). In November 2016, we sold our coal operation in Carborough Downs in Australia.

          In September 2016, we agreed with Mitsui the new terms of our partnership in coal assets in Mozambique. Under the new terms, Mitsui agreed to pay us an amount of up to US$450 million, consisting of: (i) an aggregate of US$255 million for 15% of Vale's 95% stake in the Moatize coal mine and (ii) an additional amount of up to US$195 million, subject to certain conditions, including mine performance. Mitsui will also contribute an amount of approximately US$348million for a 50% stake of Nacala Logistics Corridor and extend a long-term facility of US$165 million to Nacala Logistics Corridor. We completed the equity transaction with Mitsui on March 27, 2017. The total value of the transaction will be approximately US$770 million, including all amounts mentioned above except the additional amount of up to US$195 million, which is subject to certain conditions, such as mining performance, still to be satisfied. From these US$770 million, we received US$733 million upon completion of the equity transaction on March 27, 2017, and we expect to receive the remainder upon closing of the project financing, which is expected to occur during 2017. If the project financing is not signed before the end of 2017, Mitsui has certain rights to transfer its participation in the Moatize coal mine and the Nacala Logistics Corridor back to us.

Company/Mining complex Location Description/History Mineralization/ Operations Mining title Power source Access/ Transportation
Vale Moçambique            
Moatize Tete, Mozambique Open-cut mine, which was developed directly by Vale. Operations started in August 2011 and are expected to reach a nominal production capacity of 22 Mtpy, considering the Moatize expansion, comprised of metallurgical and thermal coal and the Nacala Logistics Corridor ramp up. Vale has an indirect 95.0% stake, and the remaining is owned by Empresa Moçambicana de Exploração Mineira, S.A. Upon conclusion of the partnership agreement, Mitsui will acquire 15% of our stake in Vale Moçambique. Produces metallurgical and thermal coal. Moatize's main branded product is the Chipanga premium hard coking coal, but there is operational flexibility for multiple products. The optimal product portfolio will come as a result of market trials. Coal from the mines is currently processed at a CHPP with a capacity of 4,000 metric tons per hour. An additional CHPP began production in August 2016, which increased feed capacity by additional 4,000 metric tons per hour. Mining concession expiring in 2032, renewable thereafter. Supplied by local utility company. Back up supply on site. The coal is transported from the mine to the Beira Port by the Linha do Sena railway and, since January 2016, to the port at Nacala-à-Velha via the Nacala Logistics Corridor.

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          The following table sets forth information on our marketable coal production.

 
 
Production for the year ended December 31,
Operation Mine type 2014 2015 2016
 
 
(thousand metric tons)

Metallurgical coal:

       

Moatize(1)

Open-cut 3,124 3,401 3,480

Thermal coal:

       

Moatize(1)

Open-cut 1,784 1,559 2,012

(1)
These figures correspond to 100% production at Moatize, and are not adjusted to reflect our ownership.

          Coal sales from our Moatize operations, in Mozambique, target global steel and energy markets, including Asia, Africa, Europe and the Americas. Our Chinese coal joint venture directs its sales into the Chinese domestic market.

          The global coal industry comprises markets for black (metallurgical and thermal) and brown (lignite) coal, and is highly competitive.

          The demand for steel, especially in Asia, underpins demand for metallurgical coal, while demand for electricity underpins demand for thermal coal. We expect some increase in coal supply from the United States, Canada and Australia, driven by increased prices in the second half of 2016, which would thus rebalance the market following the price increases caused by China intervention policies relating to domestic coal production.

          Competitiveness in the coal industry is based primarily on the economics of production costs, coal quality, transportation costs and proximity to the market. Our key competitive strengths are completion of a new and competitive transportation corridor, the proximity to the Atlantic and Indian markets (as compared to our main competitors) and the size and quality of our reserves.

          Major participants in the seaborne coal market are subsidiaries, affiliates and joint ventures of BHP Billiton, Glencore, Anglo American, Rio Tinto, Teck, Peabody, PT Adaro Energy and the Shenhua Group, among others.

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4. Infrastructure

          We have developed our logistics business based on the transportation needs of our mining operations and we also provide transportation services for other customers. We conduct our logistics businesses at the parent-company level and through subsidiaries and joint ventures, as set forth in the table below.

 
 
 
Our share of capital  
Company Business Location Voting Total Partners
 
 
 
(%)
 

Vale

Railroad (EFVM and EFC), port and maritime terminal operations

Brazil

VLI(1)

Railroad, port, inland terminal and maritime terminal operations. Holding of certain general cargo logistics assets

Brazil 37.6 37.6 FI-FGTS, Mitsui and Brookfield

MRS

Railroad operations

Brazil 46.75 48.12 CSN, Congonhas Minérios, Usiminas Participações e Logísticas, Gerdau, Railvest Investments and public investors.

CPBS

Port and maritime terminal operations

Brazil 100 100

PTVI

Port and maritime terminal operations

Indonesia 59.2 59.2 Sumitomo, public investors

Vale Logística Argentina

Port operations

Argentina 100 100

CEAR(2)(4)

Railroad

Malawi 43.4 43.4 Portos e Caminhos de Ferro de Moçambique, E.P.

CDN(3)(4)

Railroad and maritime terminal operations

Mozambique 43.4 43.4 Portos e Caminhos de Ferro de Moçambique, E.P.

CLN(4)

Railroad and port operations

Mozambique 80.0 80.0 Portos e Caminhos de Ferro de Moçambique, E.P.

Vale Logistics Limited ("VLL")(4)

Railroad operations

Malawi 100 100

Transbarge Navegación

Paraná and Paraguay Waterway System (Convoys)

Paraguay 100 100

VNC

Port and maritime terminal operations

New Caledonia 95.0 95.0 SPMSC

VMM

Port and maritime terminal operations

Malaysia 100 100

Vale Newfoundland & Labrador Limited

Port operations

Voisey's Bay and Long Harbour, in Newfoundland and Labrador 100 100

Vale Oman Distribution Center LLC

Port and maritime terminal operations

Oman 100 100

(1)
BNDES holds debentures issued by Vale that are exchangeable into part of Vale's stake in VLI. Vale's equity interests in VLI may be reduced by up to 8% if BNDES exercises its rights under those debentures.
(2)
Vale controls its interest in CEAR through an 85% interest in Sociedade de Desenvolvimento do Corredor de Nacala ("SDCN"), which owns 51% of CEAR.
(3)
Vale controls its interest in CDN through an 85% interest in SDCN, which owns 51% of CDN.
(4)
Upon completion of the transaction with Mitsui, we will hold indirectly 42.5% of the voting and total capital of CEAR, 42.5% of the voting and total capital of CDN, 50% of the voting and total capital of CLN and 50% of the voting and total capital of VLL.

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          Vitória a Minas railroad ("EFVM").    The EFVM railroad links our Southeastern System mines in the Iron Quadrangle region in the Brazilian state of Minas Gerais to the Tubarão Port, in Vitória, in the Brazilian state of Espírito Santo. We operate this 905-kilometer railroad under a 30-year renewable concession, which expires in 2027. The EFVM railroad consists of two lines of track extending for a distance of 601 kilometers to permit continuous railroad travel in opposite directions, and single-track branches of 304 kilometers. Industrial manufacturers are located in this area and major agricultural regions are also accessible to it. VLI has rights to use railroad transportation capacity on our EFVM railroad. In 2016, the EFVM railroad transported a daily average of 329.3 thousand metric tons of iron ore and 61.1 thousand metric tons of other cargo. The EFVM railroad also carried one million passengers in 2016. In 2016, we had a fleet of 325 locomotives and 19,135 wagons at EFVM, which were operated by Vale and third parties.

          Carajás railroad ("EFC").    The EFC railroad links our Northern System mines in the Carajás region in the Brazilian state of Pará to the Ponta da Madeira maritime terminal, in São Luis, in the Brazilian state of Maranhão. We operate the EFC railroad under a 30-year renewable concession, which expires in 2027. EFC extends for 997 kilometers from our Carajás mines to our Ponta da Madeira maritime terminal complex facilities located near the Itaqui Port. Its main cargo is iron ore, principally carried for us. VLI has rights to use railroad transportation capacity on our EFC railroad. In 2016, the EFC railroad transported a daily average of 419 thousand metric tons of iron ore and 22.8 thousand metric tons of other cargo. EFC also carried 293 thousand passengers in 2016. EFC supports the largest train, in terms of capacity, in Latin America, which measures 3.5 kilometers, weighs 42.01 thousand gross metric tons when loaded and has 330 cars. In 2016, EFC had a fleet of 289 locomotives and 18,135 wagons, which were operated by Vale and third parties.

          The principal items of cargo of the EFVM and EFC railroads are:

          We charge market prices for customer freight, including iron ore pellets originating from joint ventures and other enterprises in which we do not have a 100% equity interest. Market prices vary based on the distance traveled, the type of product transported and the weight of the freight in question, and are regulated by the Brazilian transportation regulatory agency, ANTT (Agência Nacional de Transportes Terrestres).

          VLI.    VLI provides integrated logistics solutions through 7,935 kilometers of railroads in Brazil (FCA and FNS), eight inland terminals with a total storage capacity of 795,000 tons and three maritime terminals and ports operations. We hold a 37.6% stake in VLI, and are party to a shareholders' agreement with FI-FGTS, Mitsui and Brookfield, which hold the remaining equity interests in VLI. VLI's main assets are:

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          In 2016, VLI transported a total of 31.98 billion ntk of general cargo, including 19.53 billion ntk from FCA and FNS and 12.45 billion ntk through operational agreements with Vale.

          MRS Logística S.A. ("MRS").    The MRS railroad is 1,643 kilometers long and links the Brazilian states of Rio de Janeiro, São Paulo and Minas Gerais. In 2016, the MRS railroad transported a daily average of 338.8 thousand metric tons of iron ore and 122.0 thousand metric tons of other cargo.

          We are concluding the ramp up of the Nacala Corridor, which connects the Moatize mine to the Nacala-à-Velha maritime terminal, located in Nacala, Mozambique, and which crosses into the Republic of Malawi. The Nacala Corridor consists of railway and port infrastructure, including greenfield and rehabilitation of existing railways in Mozambique and Malawi and a new coal port terminal in Mozambique. The Nacala Corridor will allow for the expansion of the Moatize mine and support our operations in Southeastern Africa. In Mozambique, we are operating under two concession agreements, one related to the Mozambican greenfield railway and another related to the newly constructed coal port, both held by our subsidiary Corredor Logístico Integrado de Nacala S.A. ("CLN"), which will expire in 2042, subject to renewal. We have also rehabilitated existing railroads under a concession held by our subsidiary Corredor de Desenvolvimento do Norte S.A. ("CDN"), which will expire in 2035. In Malawi, we are operating under a concession held by our subsidiary Vale Logistics Limited ("VLL"), which will expire in 2046, subject to renewal, and we have also rehabilitated existing railroads under a concession held by our subsidiary, Central East African Railway Company Limited ("CEAR"), which was extended in 2013 for a 30-year period from the commencement of rail services under VLL's greenfield railway concession.

          In November 2016, we agreed the new terms of our partnership in coal assets in Mozambique with Mitsui. Under these new terms, Mitsui will contribute an amount of approximately US$348 million for a 50% stake of Nacala Logistics Corridor and extend a long-term facility of US$165 million to Nacala Logistics Corridor. The completion of the equity transaction is subject to certain conditions precedent, including certain conditions precedents relating to the completion of a project financing in the expected amount of US$2.7 billion.

          We operate a port and maritime terminals principally as a means to complete the delivery of our iron ore and iron ore pellets to bulk carrier vessels serving the seaborne market. See Ferrous minerals—Iron ore and iron ore pelletsIron ore operations. We also use our port and terminals to handle customers' cargo.

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          Tubarão and Praia Mole Ports.    The Tubarão Port, which covers an area of 18 square kilometers, is located near the Vitória Port in the Brazilian state of Espírito Santo and contains the iron ore maritime terminal and the general cargo terminals (Terminal de Granéis Líquidos and the Terminal de Produtos Diversos). The Praia Mole port is also located near the Vitória Port.

          Ponta da Madeira maritime terminal.    Our Ponta da Madeira maritime terminal is located near the Itaqui Port, in the Brazilian state of Maranhão. Pier I can accommodate vessels of up to 420,000 DWT and has a maximum loading rate of 16,000 tons per hour. Pier III, which has two berths and three shiploaders, can accommodate vessels of up to 210,000 DWT at the south berth and 180,000 DWT at the north berth (or two vessels of 180,000 DWT simultaneously), subject to tide conditions, and has a maximum loading rate of 8,000 metric tons per hour in each shiploader. Pier IV (south berth) is able to accommodate vessels of up to 420,000 DWT and have two ship loaders that work alternately with a maximum loading rate of 16,000 tons per hour. Pier IV (north berth) is able to accommodate vessels of up to 420,000 DWT and have two ship loaders that work alternately with a maximum loading rate of 16,000 tons per hour. In 2016, Pier IV (north berth) performed pre-tests for a subsequent request for the definitive authorization to operate. Cargo shipped through our Ponta da Madeira maritime terminal consists of the Northern system production of iron ore and manganese. In 2016, 149.0 million metric tons of iron ore were handled through the terminal. The Ponta da Madeira maritime terminal has a storage yard with a static capacity of 7.7 million tons, which will be expanded to 10.7 million tons. VLI currently handles and stores fertilizers, grain, pig iron and manganese ore, which are then shipped through the Itaqui Port.

          Itaguaí maritime terminal—Cia.    Portuária Baía de Sepetiba ("CPBS"). From this terminal we mostly export iron ore from our Southern system. CPBS is a wholly-owned subsidiary that operates the Itaguaí terminal, at the Itaguaí Port, in Sepetiba in the Brazilian state of Rio de Janeiro, which is leased from Companhia Docas do Rio de Janeiro (CDRJ). The Itaguaí port terminal has a pier with one berth that allows the loading of ships up to 17.8 meters of draft and approximately 200,000 DWT of capacity. In 2016, the terminal loaded 21.4 million metric tons of iron ore.

          Guaíba Island maritime terminal.    From this terminal we also export mostly iron ore from our Southern system. We operate a maritime terminal on Guaíba Island in the Sepetiba Bay, in the Brazilian state of Rio de Janeiro. The iron ore terminal has a pier with two berths that allows the loading of ships of up to 350,000 DWT. In 2016, the terminal loaded 46.1 million metric tons of iron ore.

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          VLI also operates Inácio Barbosa maritime terminal (TMIB), owned by Petrobras, in the Brazilian state of Sergipe; Santos maritime terminal (TIPLAM), in the Brazilian state of São Paulo, which is jointly owned by VLI and Vale Fertilizantes; and Pier II in the Itaqui Port, which can accommodate vessels of up to 155,000 DWT and has a maximum loading rate of 4,500 tons per hour for pig iron and of 3,000 tons per hour for grains.

          Vale Logística Argentina S.A. ("Vale Logística Argentina") contracts third party services to operate two terminals and a transhipper in Argentina. The terminals are located at Rosario port in the province of Santa Fé and at San Nicolas port in the province of Buenos Aires. The transhipper is also located in the province of Santa Fé. We handled 1.76 million metric tons of iron and manganese ore through these ports and transhipper in 2016, which came from Corumbá, Brazil, via the Paraguay and Paraná rivers, for shipment to Brazilian, Asian and European markets.

          Vale Newfoundland and Labrador Limited operates a port as part of our mining operation at Voisey's Bay, Labrador and a port as part of our processing operation at Long Harbour, Newfoundland. The port at Voisey's Bay is used for shipping nickel, copper and re-supply. The port at Long Harbour is used to receive nickel concentrate from Voisey's Bay along with goods and materials required for the Long Harbour operation.

          Vale Oman Distribution Center LLC operates a distribution center in Liwa, Sultanate of Oman. The maritime terminal has a large deep water jetty, a 600-meter long platform connected to the shore by means of a 700-meter long trestle, and is integrated with a storage yard that has a throughput capacity to handle 40 Mtpy of iron ore and iron ore pellets per year. The loading nominal capacity is 10,000 tons per hour and the nominal unloading capacity is 9,000 tons per hour.

          PTVI owns and operates two ports in Indonesia to support its nickel mining activities.

          We own and operate a port in Prony Bay, Province Sud, New Caledonia. This port has three terminals, including a passenger ferry terminal able to berth two ships up to 50m long, a dry bulk wharf where vessels of up to 55,000 DWT can unload at a rate of 8,000 tons per day and a general cargo wharf where vessels up to 200m long can berth. The general cargo wharf can move containers at a rate of seven per hour and liquid fuels (LPG, HFO, Diesel) at a rate of 350 cubic meters per hour, and break-bulk. The port's container yard, covering an area of approximately 13,000 square meters, can receive up to 1,000 units. A bulk storage yard is linked to the port by a conveyor and has a storage capacity of 94,000 tons of limestone, 95,000 tons of sulfur, and 60,000 tons of coal.

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          Teluk Rubiah Maritime Terminal ("TRMT"). TRMT is located in the Malaysian state of Perak and has a pier with two berths that allows the unloading of vessels of approximately 400,000 DWT of capacity and the loading of vessels up to 220,000 DWT of capacity. In 2016, the terminal unloaded 21.4 million metric tons of iron ore and loaded 21.7 million metric tons of iron ore. In this terminal we produce and sell the Brazilian blend fines, by mixing iron ore produced in Carajás with iron ore produced in our Southern and Southeastern systems.

          In 2016, we shipped approximately 202 million metric tons of iron ore and pellets pursuant to transactions in which we were responsible for freight (CFR or CIF basis), which corresponds to 59% of our total iron ore and pellets sales. We transport a large amount of our iron ore products from Brazil to Asia through long-term contracts of affreightment with owners of very large ore carriers of 400,000 deadweight tons ("DWT"). These vessels reduce energy consumption and greenhouse emissions by carrying an increased amount of cargo in a single trip, offering lower shipping costs. In 2016, approximately 48 million tons of iron ore products were transported by these vessels under long term contracts of affreightment.

          We also own 8 vessels that are in operation, consisting of four very large ore carriers with a capacity of 400,000 DWT each, and four capesize vessels with capacities ranging from 150,000 to 250,000 DWT.

          We have changed our strategy with respect to maritime shipping. In the past, we owned and operated a low-cost fleet of vessels to transport our cargoes from Brazil to our markets, especially in Asia. We now focus on securing long-term shipping capacity and protecting against volatility in freight pricing through long-term contracts of affreightment, without incurring the costs relating to building and owning the vessels. Since 2014, we have sold 15 of our very large ore carriers of 400,000 DWT for an aggregate amount of US$1.584 billion. We sold three of these very large ore carries in 2016. Also, in September 2016, we agreed to sell four of our capesize vessels to Polaris Shipping Co. Ltd. for US$35 million per vessel. Two of the vessels were delivered in December 2016, and two in January 2017.

          We also own and operate two Floating Transfer Stations ("FTS") in Subic Bay, Philippines, which transfer iron ore from very large ore carriers to smaller vessels that deliver the cargo to its destinations. We have suspended operations at one of our FTS since February 2016, and we may sell both FTS in 2017.

          In the Paraná and Paraguay waterway system, we transport iron ore and manganese ores through our subsidiary Transbarge Navegación, which transported 2.98 million tons through the waterway system in 2016, and other chartered convoys. The barges are discharged in our local customers' terminals, in contracted terminals in Argentina or in the facilities of our subsidiary Vale Logística Argentina, which load the ore into ocean-going vessels. We loaded 1.76 million tons of ore, at two ports in Argentina, namely San Nicolas and Rosario, and at a transshipper into ocean-going vessels in 2016.

          We manage a fleet of 16 owned tugboats in total. We directly operate nine tugboats in the ports of Vitória and Mangaratiba, in the Brazilian states of Espírito Santo and Rio de Janeiro, respectively. We have a 50% stake in a consortium that operates four tugboats in the port of São Luís in the Brazilian states of Maranhão. Three additional tugboats are freighted to and operated by third parties, under their responsibility, in other ports in Brazil.

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          We have developed our energy assets based on the current and projected energy needs of our operations, with the goal of reducing our energy costs and minimizing the risk of energy shortages.

          Energy management and efficient supply in Brazil are priorities for us, given the uncertainties associated with changes in the regulatory environment and the risk of rising electricity prices. In 2016, our installed capacity in Brazil was 1.4 GW, sourced from directly and indirectly owned power plants. We use the electricity produced by these plants for our internal consumption needs. We currently own direct stakes in three hydroelectric power plants and four small hydroelectric power plants in operation. The hydroelectric power plant of Candonga, the operations of which remain suspended since November 2015 as a result of the failure of the Samarco Dam, is located in the Southeastern region, Machadinho is located in the Southern region, and Estreito is located in the Northern region. The small hydroelectric power plants of Ituerê, Mello, Glória and Nova Maurício are located in the Southeastern region. We also have indirect stakes in the hydroelectric power plants of Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I, Capim Branco II, through our 55% participation in Aliança Geração de Energia S.A. ("Aliança Geração"). These hydroelectric power plants are located in the Southeastern region and part of its generated electricity is directed to Vale's operations through a power purchase agreement with Aliança Geração.

          We also have a 4.59% indirect stake in Norte Energia S.A. ("Norte Energia"), the company established to develop and operate the Belo Monte hydroelectric plant in the Brazilian state of Pará, which started operations in April 2016. Our participation in the Belo Monte project gives us the right to purchase 9% of the electricity generated by the plant, which has already been contracted through a long-term power purchase agreement entered into with Norte Energia.

          We also produce, through our subsidiary Biopalma da Amazônia S.A. ("Biopalma"), palm oil in the Brazilian state of Pará, with the objective to produce biodiesel in the future through an industrial plant to be installed by Biopalma. This biodiesel, blended with regular diesel to produce diesel B20 (20% biodiesel), may be used to power our fleet of mining trucks, heavy machinery and locomotives in the Northern System operations.

          In 2016, our wholly-owned and operated hydroelectric power plants in Sudbury generated 17% of the electricity requirements of our Sudbury operations. The power plants consist of five separate generation stations with an installed generator nameplate capacity of 56 MW. The output of the plants is limited by water availability, as well as by constraints imposed by a water management plan regulated by the provincial government of Ontario. Over the course of 2016, average demand for electrical energy was 199 MW to all surface plants and mines in the Sudbury area.

          In 2016, diesel generation provided 100% of the electric requirements of our Voisey's Bay operations. We also have six diesel generators on-site, with output ranging from 12 to 14 MW, in order to meet seasonal demands.

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          Energy costs are a significant component of our nickel production costs for the processing of lateritic ore at our PTVI operations in Indonesia. A major portion of PTVI's electric furnace power requirements is supplied at a low cost by its three hydroelectric power plants on the Larona River: (i) the Larona plant, which has an average generating capacity of 165 MW, (ii) the Balambano plant, which has an average capacity of 110 MW and (iii) the Karebbe plant, with 90 MW of average generating capacity. These plants help reduce production costs by substituting oil used for power generation with hydroelectric power, reduce CO2 emissions by replacing non-renewable power generation, and enable us to increase our current nickel production capacity in Indonesia.

5.    Other investments

          Below is a list of our main investments:

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RESERVES

Presentation of information concerning reserves

          The estimates of proven and probable ore reserves at our mines and projects and the estimates of mine life included in this annual report have been prepared by our staff of experienced geologists and engineers, unless otherwise stated, and in accordance with the technical definitions established by the SEC. Under the SEC's Industry Guide 7:

          We periodically revise our reserve estimates when we have new geological data, economic assumptions or mining plans. During 2016, we performed an analysis of our reserve estimates for certain projects and operations, which is reflected in new estimates as of December 31, 2016. Reserve estimates for each operation assume that we either have or expect to obtain all of the necessary rights and permits to mine, extract and process mineral reserves at each mine. For some of our operations, the projected exhaustion date includes stockpile reclamation. Where we own less than 100% of the operation, reserve estimates have not been adjusted to reflect our ownership interest. Certain figures in the tables, discussions and notes have been rounded. For a description of risks relating to reserves and reserve estimates, see Risk factors.

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          Our reserve estimates are based on certain assumptions about future prices. We have determined that our reported reserves could be economically produced if prices for the products identified in the following table were equal to the three-year average historical prices through December 31, 2016. For this purpose, we used the three-year historical average prices set forth in the following table.

Commodity Three-year average historical price Pricing source

Iron ore:

   

Vale(1)

US$70.2 per dry metric ton Average Platts IODEX (62% Fe CFR China)

Coal(2):

   

Metallurgical—Moatize

US$111.13 per metric ton<