Vale on the effects of currency volatility
Rio de Janeiro, September 26, 2008 -
Companhia Vale do Rio Doce (Vale) in response to market comments clarifies some
issues related to the recent depreciation of the Brazilian real against the US
dollar:
(a) Most of
Vale's revenues, approximately 95%, are denominated in US dollars (USD),
whereas, in average, 60% of its operational costs and investment costs are
denominated in Brazilian reais (BRL), and the remaining in other currencies:
USD, Canadian dollars, Indonesian rupiahs, Australian dollars and euros. In
addition, Vale has assets denominated in currencies other than the BRL;
(b) Vale
definitively denies that it has realized losses derived from the BRL/USD
exchange rate volatility;
(c) Vale
uses exchange rate swaps to convert the part of its debt, which is denominated
in BRL, to USD. As a consequence, 99% of its debt denominated is denominated in
USD, consistently with its revenues composition by currency;
(d) Vale's exchange rate swaps transactions have long term maturities and have no margin calls clauses;
(e) Vale has a
conservative financial policy, using only "plain vanilla" non-levered
instruments for hedging, and has an effective control of their use;
(f) Vale's risk
management policy, approved by the Board of Directors, explicitly forbids
directional bets and speculative transactions with derivatives, and the
compliance with these rules is rigorously controlled;
(g) In its quarterly
earnings releases, Vale provides a detailed report of the results with
transactions involving derivatives, making it clear their non-cash and cash
impact on its short term performance, as well as those derived from monetary
variation of other items of its balance sheet.