Companhia Ítalo-Brasileira de Pelotização - Itabrasco · 2.2 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of

(A free translation of the original in Portuguese)

Companhia Ítalo-Brasileirade Pelotização - ItabrascoFinancial statementsat December 31, 2013and independent auditor's report

PricewaterhouseCoopers, Av. José Silva de Azevedo Neto 200, 1º e 2º, Torre Evolution IV, Barra da Tijuca, Rio de Janeiro, RJ, Brasil 22775-056T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br

PricewaterhouseCoopers, Rua da Candelária 65, 20º, Rio de Janeiro, RJ, Brasil 20091-020, Caixa Postal 949,T: (21) 3232-6112, F: (21) 2516-6319, www.pwc.com/br

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Independent auditor's report

To the Board of Directors and Stockholders ofCompanhia Ítalo-Brasileira de Pelotização - Itabrasco

We have audited the accompanying financial statements of Companhia Ítalo-Brasileira de Pelotização -Itabrasco ("Company"), which comprise the balance sheet as at December 31, 2013 and the statementsof income, changes in equity and cash flows for the year then ended, and a summary of significantaccounting policies and other explanatory information.

Management's responsibilityfor the financial statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting practices adopted in Brazil, and for such internal control as managementdetermines is necessary to enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with Brazilian and International Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror.

In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Companhia Ítalo-Brasileira de Pelotização - Itabrasco

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Opinion

In our opinion the financial statements referred to above present fairly, in all material respects, thefinancial position of Companhia Ítalo-Brasileira de Pelotização - Itabrasco as at December 31, 2013,and its financial performance and cash flows for the year then ended, in accordance with accountingpractices adopted in Brazil.

Emphasis of matter

We draw attention to Note 8 to these financial statements that says that the Company has balancesand transactions with related parties involving significant amounts in relation to its financial position.Our opinion is not qualified in respect of this matter.

Other matters

Supplementary information -statement of value added

We have also audited the statement of value added for the year ended December 31, 2013, which wasprepared under the responsibility of the Company's management as supplementary information. Thisstatement was subject to the same audit procedures described above and, in our opinion, is fairlypresented, in all material respects, in relation to the financial statements taken as a whole.

Rio de Janeiro, March 24, 2014

PricewaterhouseCoopersAuditores IndependentesCRC 2SP000160/O-5 "S" ES

Maria Salete Garcia PinheiroContadora CRC 1RJ048568/O-7 "S" ES

Companhia Ítalo-Brasileirade Pelotização - Itabrasco

Balance sheets at December 31All amounts in thousands of reais (A free translation of the original in Portuguese)

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

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Assets Notes 2013 2012 Liabilities and equity Notes 2013 2012

Current assets Current liabilitiesCash and cash equivalents 6 90,835 66,359 Trade payablesAccounts receivable Related party 8 78 604

Related party 7 and 8 1,842 Other 824 4,642Taxes recoverable 718 6 Proposed dividends 14(b) 6,176 8,068Other assets 1 2 Taxes payable 12 6,500 6,273

Other liabilities 65 18193,396 66,367

13,643 19,768Non-current assets

Long-term receivables Non-current liabilitiesJudicial deposits 13 74,313 69,637 Provision for contingencies 13 59,168 54,160Deferred taxes 11 9,449 2,342 Other provisions 2,006 2,945

83,762 71,979 61,174 57,105

Property, plant and equipment 9 172,889 187,156 Equity 14Intangible assets 10 4 11 Share capital 133,790 133,790

Revenue reserves 141,444 114,850256,655 259,146

275,234 248,640

Total assets 350,051 325,513 Total liabilities and equity 350,051 325,513


Statements of incomeYears ended December 31All amounts in thousands of reais unless otherwise stated (A free translation of the original in Portuguese)


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Notes 2013 2012

Net revenue from lease 16 53,439 62,621Cost of lease (26,552) (25,645)

Gross profit 26,887 36,976

Operating income (expenses)General and administrative expenses (694) (857)Other operating income (expenses) 17 (1,310) 5,865

(2,004) 5,008

Operating profit 24,883 41,984

Finance income (costs) 18Finance costs (7,385) (2,921)Finance income 11,361 8,267

3,976 5,346

Profit before income tax and social contribution 28,859 47,330

Income tax and social contribution 11Current (11,264) (14,087)Deferred 7,107 (971)

(4,157) (15,058)

Profit for the year 24,702 32,272

Earnings per thousand shares - in R$ 17.41 22.75


Statements of changes in equityAll amounts in thousands of reais (A free translation of the original in Portuguese)


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Revenue reserves

SpecialShare Legal Investment reserve for Retained

capital reserve reserve dividends earnings Total

At December 31, 2011 133,790 26,759 73,887 36,911 271,347Allocation of investment reserve to dividends (AGM of April 17, 2012) (10,000) (10,000)Appropriation of dividends (AGM of April 17, 2012) (36,911) (36,911)Profit for the year 32,272 32,272Allocation of profit:Mandatory minimum dividend - 25% (8,068) (8,068)Special reserve for dividends - 25% 8,068 (8,068)Investment reserve - 50% 16,136 (16,136)

At December 31, 2012 133,790 26,759 80,023 8,068 248,640Reversal of mandatory minimum dividend for 2012 (AGM of April 29, 2013) 8,068 8,068Appropriation of special reserve for dividends (AGM of April 29, 2013) 8,068 (8,068)Profit for the year 24,702 24,702Allocation of profit:Mandatory minimum dividend - 25% (6,176) (6,176)Special reserve for dividends - 25% 6,176 (6,176)Investment reserve - 50% 12,350 (12,350)

At December 31, 2013 133,790 26,759 108,509 6,176 275,234


Statements of cash flowsYears ended December 31All amounts in thousands of reais (A free translation of the original in Portuguese)


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2013 2012

Cash flows from operating activitiesProfit before income tax and social contribution 28,859 47,330

AdjustmentsDepreciation and amortization 28,925 27,949Disposal of property, plant and equipment 13Provision for contingencies (242 ) (96)Reversal of other provisions (939 ) (6,495 )Provision for ICMS loss (1,745 )Monetary and exchange variations on contingencies

and judicial deposits (1,380 ) (774 )

55,236 66,169

Changes in assets and liabilitiesAccounts receivable (1,842 ) 969Taxes recoverable (712 ) 936Judicial deposits 1,954 138Other assets 1 19Trade payables (4,344 ) 626Taxes payable (810 ) (40,283 )Other liabilities (116 ) 128

Cash from operations 49,367 28,702

Income tax and social contribution paid (10,227 ) (9,789 )

Net cash provided by (used in) operating activities 39,140 18,913

Cash flows from investing activitiesAcquisition of property, plant and equipment (14,664 ) (25,737 )

Net cash (used in) provided by investing activities (14,664 ) (25,737 )

Cash flows from financing activitiesDividends paid (70,821 )

Net cash (used in) provided by financing activities (70,821 )

Net increase (decrease) in cash and cash equivalents 24,476 (77,645 )

Cash and cash equivalents at the beginning of the year 66,359 144,004

Cash and cash equivalents at the end of the year 90,835 66,359


Statements of value addedYears ended December 31All amounts in thousands of reais (A free translation of the original in Portuguese)


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2013 2012

RevenueGross revenue from lease 58,942 69,004Other income (expenses) 773 7,728

Gross value added 59,715 76,732

Depreciation and amortization (28,925) (27,949 )

Net value added generated by the entity 30,790 48,783

Value received through transferFinance income 11,361 8,267

Total value added to distribute 42,151 57,050

Distribution of value addedPersonnel and payroll charges

Executive officers' fees 7 73Pension plan 396 342

403 415Taxes and contributions

Federal - current 16,767 20,470Federal - deferred (7,107) 971Municipal 1 1

9,661 21,442Creditors

Interest, monetary and exchange variations 7,385 2,921

StockholdersDividends 6,176 8,068Profits reinvested 18,526 24,204

24,702 32,272

Value added distributed 42,151 57,050



Notes to the financial statementsat December 31, 2013All amounts in thousands of reais unless otherwise stated

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1 Operations

Companhia Ítalo-Brasileira de Pelotização - ITABRASCO (the "Company"), a private corporationhaving its headquarters and industrial plant in the city of Vitória, State of Espírito Santo, was formedin 1973 through an association between Vale S.A. ("Vale") and ILVA Commerciale S.r.l. ("ILVA")that, together, control the Company. The Company manufactures and sells iron ore pellets, the salesof which are made to its stockholders.

In October 2008, the Company signed with its stockholder Vale an operating lease agreement of itsPellet Factory, which came into effect from the date of execution. The purpose of this agreement is togenerate gains from the synergy of the pellet factories that Vale already manages.

On February 23, 2011, the 3rd amendment to the operating lease agreement was signed, modifyingas from 2012 the calculation of the fixed installment, which shall be calculated based on the averagedepreciation recorded in the previous three years plus 12% and PIS and COFINS. Previously, thefixed installment corresponded to R$ 47,400 annually adjusted according to the variation of theGeneral Market Price Index (IGP-M) published by Fundação Getúlio Vargas (FGV).

The variable installment of the lease revenue suffered the impact of the lower demand for the volumeof pellets by Vale.

The issue of these financial statements was authorized by the Executive Board on March 24, 2014.

2 Summary of significant accounting policies

The main accounting policies applied in the preparation of these financial statements are set outbelow. These policies have been consistently applied in the years presented, unless otherwise stated.

2.1 Basis of preparation

The financial statements have been prepared in accordance with accounting practices adopted inBrazil issued by the Brazilian Accounting Pronouncements Committee (CPC), under the historicalcost convention, as modified by financial assets and financial liabilities measured at fair value.

The preparation of financial statements requires the use of certain critical accounting estimates. Italso requires management to exercise its judgment in the process of applying the Company'saccounting policies. The areas involving a higher degree of judgment or complexity, or areas whereassumptions and estimates are significant to the financial statements, are disclosed in Note 3.

2.2 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of theprimary economic environment in which the entity operates ("the functional currency"). Thefinancial statements are presented in Brazilian reais (R$), which is the Company's functionalcurrency, and also its presentation currency.



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(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions or the dates of valuation when items are remeasured.Foreign exchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in the statement of income.

Foreign exchange gains and losses are presented in the statement of income within "Finance incomeor costs".

2.3 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks and other short-term highlyliquid investments with original maturities of three months or less, and with immaterial risk ofchange in value.

2.4 Financial assets

2.4.1 Classification

The Company classifies its financial assets into the following categories: at fair value through profitor loss, loans and receivables, and available for sale. The classification depends on the purpose forwhich the financial assets were acquired. Management determines the classification of its financialassets at initial recognition. In the years presented in the financial statements, the Company hadonly financial assets classified under "loans and receivables".

Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. They are included in current assets, except for maturities greaterthan 12 months after the end of the reporting period, which are classified as non-current assets. TheCompany's loans and receivables comprise "Accounts receivable", "Judicial deposits" and "Cash andcash equivalents".

2.4.2 Recognition and measurement

Normal purchases and sales of financial assets are typically recognized on the trade date - the dateon which the Company commits to purchase or sell the asset. Investments are initially recognized atfair value plus transaction costs for all financial assets not carried at fair value through profit or loss.Financial assets are derecognized when the rights to receive cash flows from the investments haveexpired or have been transferred and the Company has transferred substantially all the risks andrewards of ownership. Loans and receivables and judicial deposits are carried at amortized costusing the effective interest rate method. Gains or losses arising from changes in the fair value of the"financial assets at fair value through profit or loss" category are presented in the statement ofincome.

2.4.3 Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount presented in the balance sheet whenthere is a legally enforceable right to offset the recognized amounts and there is an intention to settleon a net basis or realize the asset and settle the liability simultaneously.



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2.4.4 Impairment of financial assets

(a) Assets carried at amortized cost

The Company assesses at the end of each reporting period whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of financial assetsis impaired and impairment losses are incurred only if there is objective evidence of impairment as aresult of one or more events that occurred after the initial recognition of the asset (a "loss event")and that loss event (or events) has an impact on the estimated future cash flows of the financial assetor group of financial assets that can be reliably estimated.

The criteria that the Company uses to determine that there is objective evidence of an impairmentloss include:

(i) significant financial difficulty of the issuer or debtor;

(ii) a breach of contract, such as a default or delinquency in interest or principal payments;

(iii) the Company, for economic or legal reasons relating to the borrower's financial difficulty,granting to the borrower a concession that the lender would not otherwise consider;

(iv) it becomes probable that the borrower will enter bankruptcy or other financial reorganization;

(v) the disappearance of an active market for that financial asset because of financial difficulties;or

(vi) observable data indicating that there is a measurable decrease in the estimated future cashflows from a portfolio of financial assets since the initial recognition of those assets, althoughthe decrease cannot yet be identified with the individual financial assets in the portfolio,including:

adverse changes in the payment status of borrowers in the portfolio; and

national or local economic conditions that correlate with defaults on the assets in theportfolio.

The Company first assesses whether objective evidence of impairment exists.

The amount of the loss is measured as the difference between the asset's carrying amount and thepresent value of estimated future cash flows (excluding future credit losses that have not beenincurred) discounted at the financial asset's original effective interest rate. The carrying amount ofthe asset is reduced and the amount of the loss is recognized in the statement of income. If a loan orheld-to-maturity investment has a variable interest rate, the discount rate for measuring anyimpairment loss is the current effective interest rate determined under the contract. As a practicalexpedient, the Company may measure impairment on the basis of an instrument's fair value using anobservable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized (such as animprovement in the debtor's credit rating), the reversal of the previously recorded loss is recognizedin the statement of income.



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At December 31, 2013, there was no objective evidence of impairment of the Company's financialassets.

2.5 Trade receivables and receivables from related parties

Trade receivables and receivables from related parties are amounts due from Vale S.A. for leaserevenue in the ordinary course of the Company's business. If collection is expected in one year orless, they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized costusing the effective interest rate method, less provision for impairment of trade receivables. Inpractice, they are usually recognized at the amount billed, adjusted for a provision for impairment,when necessary.

2.6 Intangible assets

Computer software

Computer software licenses purchased are capitalized on the basis of the costs incurred to acquireand bring to use the specific software. These costs are amortized over the estimated useful life of thesoftware (three to five years).

Costs associated with maintaining computer software programs are recognized as an expense asincurred.

2.7 Property, plant and equipment

Land and buildings comprise mainly factories and offices. Property, plant and equipment are statedat historical cost less accumulated depreciation. Historical cost includes expenditure that is directlyattributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, asappropriate, only when it is probable that future economic benefits associated with these costs willflow to the Company and they can be measured reliably. The carrying amount of the replaced itemsor parts is derecognized. All other repairs and maintenance are charged to the statement of incomeduring the financial period in which they are incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method toreduce their cost to their residual values over their estimated useful lives, as follows:

Estimateduseful life

Buildings 33 yearsFacilities and operating systems 10 to 50 yearsAutonomous equipment 5 to 30 yearsOther 10 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end ofeach reporting period.



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An asset's carrying amount is written down immediately to the recoverable amount when it is greaterthan its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amountand are recognized within "Other operating income, net" in the statement of income.

2.8 Impairment of non-financial assets

Assets that are subject to amortization are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss isrecognized for the amount by which the asset's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset's fair value less costs to sell and its value in use. In 2013and 2012, management did not identify any event or circumstance indicating that the carryingamount may not be recoverable.

2.9 Trade payables and payables to related parties

Trade payables and payables to related parties are obligations to pay for goods or services that havebeen acquired from suppliers in the ordinary course of business. Accounts payable are classified ascurrent liabilities if payment is due in one year or less (or in the normal operating cycle of thebusiness even if longer). If not, they are presented as non-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized costusing the effective interest rate method.

2.10 Provisions

The provisions for legal claims (labor, civil and indirect taxes) are recognized when: the Companyhas a present legal or constructive obligation as a result of past events; it is probable that an outflowof resources will be required to settle the obligation; and the amount can be reliably estimated.Where there are a number of similar obligations, the likelihood that an outflow will be required insettlement is determined by considering the class of obligations as a whole. A provision is recognizedeven if the likelihood of an outflow with respect to any one item included in the same class ofobligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle theobligation using a pre-tax rate that reflects current market assessments of the time value of moneyand the risks specific to the obligation. The increase in the provision due to the time elapses isrecognized as interest expense.

2.11 Current and deferred incometax and social contribution

The income tax and social contribution expenses for the year comprise current and deferred taxes.Taxes on profit are recognized in the statement of income.

The current income tax and social contribution are calculated on the basis of the tax laws enacted orsubstantively enacted at the balance sheet date. Management periodically evaluates positions takenby the Company in income tax returns with respect to situations in which applicable tax regulation issubject to interpretation. It establishes provisions where appropriate on the basis of amountsexpected to be paid to the tax authorities.



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Deferred income tax and social contribution are recognized, using the liability method, on temporarydifferences between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. Deferred income tax and social contribution are measured at the tax rates that areexpected to apply to the period when the asset is realized or the liability is settled, based on tax rates(and tax laws) that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profit willbe available against which the temporary differences and/or tax losses can be utilized. Deferred taxliabilities are fully recognized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset currenttax assets against current tax liabilities and when the deferred tax assets and liabilities relate toincome taxes levied by the same taxing authority on either the same taxable entity or differenttaxable entities where there is the intention to settle the balances on a net basis.

2.12 Share capital

Common shares are classified in equity.

2.13 Revenue recognition

(a) Lease revenue

Leases in which the Company does not transfer substantially all the risks and rewards of ownershipof the asset are classified as operating leases.

Revenue comprises the fair value of the consideration received or receivable for the lease of thefactory to Vale, and is monthly recognized in the statement of income to the extent that:

the costs associated with the lease as well as the amount of revenue can be reliably measured; and

it is probable that future economic benefits will flow to the Company.

(b) Interest income

Interest income is recognized using the effective interest rate method. When a loan and receivableinstrument is impaired, the Company reduces the carrying amount to its recoverable amount, beingthe estimated future cash flow discounted at the original effective interest rate of the instrument.Subsequently, as time elapses, interest is incorporated into loans and receivables against interestincome. This interest income is calculated at the same effective interest rate used to determine therecoverable amount, that is, the original rate of the receivables.

2.14 Distribution of dividends

The distribution of dividends to the Company's stockholders is recognized as a liability in theCompany's financial statements at year-end based on the Company's bylaws.



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2.15 Employee benefits

(a) Pension obligations

The Company has only defined contribution plans. For these plans, the Company pays contributionsto publicly or privately administered pension plans on a mandatory, contractual or voluntary basis.The Company has no further payment obligations once the contributions have been paid. Regularcontributions comprise net periodic costs for the period in which they are due and, thus, they areincluded in personnel costs.

2.16 Accounting pronouncements

The Company prepared its financial statements based on the pronouncements already issued by theBrazilian Accounting Pronouncements Committee (CPC).

The Company does not expect any impact as a result of the new accounting standards that areeffective from January 1, 2014.

3 Critical accounting estimates and judgments

Accounting estimates and judgments are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances.

3.1 Critical accounting estimates and assumptions

Based on assumptions, the Company makes estimates concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actual results. The estimates andassumptions that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are addressed below:

(a) Income tax, social contribution and other taxes

The Company is subject to the payment of income tax according to Brazilian law. Significantjudgment is required in determining the provision for income taxes. There are many transactionsand calculations for which the ultimate tax determination is uncertain. The Company also recognizesliabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due.Where the final tax outcome of these matters is different from the amounts that were initiallyrecorded, such differences will impact the current and deferred tax assets and liabilities in the periodin which such determination is made.

(b) Useful life of the assets

The Company regularly recognizes expenses related to the depreciation of property, plant andequipment. Depreciation of assets is calculated using the straight-line method to reduce their cost totheir residual value over their estimated useful lives, at the rates stated in Note 10.



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(c) Provision for contingencies

Provisions are recognized when the Company has a present legal or constructive obligation as aresult of past events and it is probable that an outflow of resources will be required to settle theobligation and the amount can be reliably estimated.

The recognition of a provision for contingencies is determined based on estimates of loss made bythe Company's legal advisors, which are evaluated and defined by management.

4 Financial risk management

4.1 Financial risk factors

(a) Credit risk

Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions.The Company works with financial institutions based on their evaluation by a rating company, andonly operates with "AAA" institutions.

Regarding the accounts receivable, the credit risk is restricted to Vale.

(b) Liquidity risk

Cash flow forecasting is performed by the Company's management, which monitors rolling forecastsof the Company's liquidity requirements to ensure it has sufficient cash to meet operational needs.

Surplus cash held by the Company is invested in interest-earning bank accounts, time deposits,money market deposits and marketable securities, choosing instruments with appropriate maturitiesor sufficient liquidity to provide adequate margin as determined by the above-mentioned forecasts.

The Company did not hold derivative financial instruments in the periods presented in the financialstatements.

4.2 Capital management

The Company's objectives when managing capital are to safeguard the Company's ability to continueas a going concern in order to provide returns for stockholders and to maintain an optimal capitalstructure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company can make adjustments to theamount of dividends paid to stockholders, return capital to stockholders or issue new shares or sellassets to reduce, for example, debt.

4.3 Fair value estimation

The carrying values of trade receivables and payables, less impairment provision, are assumed toapproximate their fair values. The fair value of financial liabilities for disclosure purposes isestimated by discounting the future contractual cash flows at the current market interest rate that isavailable to the Company for similar financial instruments.



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5 Financial instruments by category

Loans and receivables

2013 2012

Assets as per balance sheetCash and cash equivalents 90,835 66,359Trade and other receivables,

excluding prepayments 1,842Judicial deposits 74,313 69,637

166,990 135,996

Other financial liabilities

2013 2012

Liabilities as per balance sheetTrade and other payables, excluding

legal obligations 967 5,427

6 Cash and cash equivalents

2013 2012

Cash and banks 360 413Financial investments 90,475 65,946

90,835 66,359

At December 31, 2013 the balance of financial investments comprises highly liquid investments withoriginal maturities of three months or less that are readily convertible to a known amount of cashand that are subject to an insignificant risk of changes in value. The amounts are totallydenominated in Brazilian reais (R$).

7 Accounts receivable

At December 31, 2013, accounts receivable consist mainly of revenue from the operating lease andthe transfer of ICMS credits.

2013

Accounts receivable from Vale 1,842

1,842

At December 31, 2013, no accounts receivable were past due. There is no provision for impairment oftrade receivables since there is no history of late payments.



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8 Related-party transactions

(a) Transactions and balances

Assets Liabilities

2013 2012 2013 2012

Vale 1,842 78 604

Current 1,842 78 604

The main balances related to the operating and financial result with related parties are as follows:

Revenue

2013 2012Net revenue from lease:

Vale 53,439 62,621

All the transactions with related parties are formalized through agreements entered into between theparties.

Accounts receivable from related parties represent the amounts receivable from Vale for the lease ofthe pellet factory.

In October 2008, the Company signed with its stockholder Vale an operating lease agreement of itsPellet Factory, which came into effect from the date of execution. The purpose of this agreement is togenerate gains from the synergy of the pellet factories already managed by Vale, which shall pay thefollowing amounts: (i) a fixed annual installment based on the average depreciation recorded in theprevious three years plus 12% and PIS and COFINS in force and (ii) a variable installment resultingfrom the performance of the Pellet Factory.

(b) Key management compensation

The information presented includes the basis related to executive officers. The compensation paid orfor their services is shown below:

2013 2012

Executive officers' fees 7 73

There is neither share-based compensation nor long-term benefits.



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9 Property, plant and equipment

Facilitiesand operating Autonomous Total in PP&E Total

systems equipment Other operation in progress PP&E

Balances at January 1, 2012 162,770 9,091 23 171,884 17,476 189,360Acquisition 25,737 25,737Transfer 13,334 13,334 (13,334)Depreciation (27,041) (897) (3) (27,941) (27,941 )

Balances at December 31, 2012 149,063 8,194 20 157,277 29,879 187,156

Total cost 459,528 10,649 274 470,451 29,879 500,330Accumulated depreciation (310,465) (2,455) (254) (313,174) (313,174)

Net book value 149,063 8,194 20 157,277 29,879 187,156

Balances at January 1, 2013 149,063 8,194 20 157,277 29,879 187,156Acquisition 14,664 14,664Transfer 5,572 9,783 15,355 (15,355)Disposal (1) (12 ) (13) (13)Depreciation (27,709) (1,207) (2 ) (28,918) (28,918 )

Balances at December 31, 2013 126,926 16,769 6 143,701 29,188 172,889

Total cost 465,100 20,431 262 485,793 29,188 514,981Accumulated depreciation (338,174) (3,662) (256 ) (342,092) (342,092 )

Net book value 126,926 16,769 6 143,701 29,188 172,889



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In 2013, the amount of R$ 28,918 (2012 - R$ 27,941) of depreciation was classified as cost of lease.The amount of R$ 2,373 (2012 - R$ 2,304) refers to PIS and COFINS credits taken on thedepreciation of the asset and was classified as taxes recoverable.

10 Intangible assets2013 2012

Computer software 36 36Accumulated amortization (32) (25 )

4 11

11 Income tax and social contribution

(a) Deferred income tax and social contribution

Deferred taxes are calculated on income tax and social contribution losses and the temporarydifferences between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. In Brazil, the currently enacted tax rates of 25% for income tax and 9% for socialcontribution are used to calculate deferred taxes.

Deferred tax assets are recognized to the extent that it is probable that future taxable profit will beavailable to utilize temporary differences, considering projections of future results based on internalassumptions and future economic scenarios, which are, therefore, subject to change.

The amounts included in non-current assets in the line item "Deferred taxes" refer to deferredincome tax and social contribution arising from temporary differences on provisions forcontingencies and other.

Deferred incometax and socialcontributionBase

2013 2012 Tax rate 2013 2012

Temporary differences on provisions 28,309 6,888 34% 9,625 2,342Temporary differences on monetary

restatement of judicial deposits (518) 34% (176)

27,791 6,888 9,449 2,342

(b) Reconciliation of the income taxand social contribution expense

The reconciliation of current income tax and social contribution that affect the results for the yearswith the amounts resulting from applying the statutory rate is as follows:



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2013 2012

Profit before income tax and social contribution 28,859 47,330Combined statutory rate of income tax

and social contribution 34 34

Income tax and social contributionat the statutory rates (9,812 ) (16,092 )

Non-deductible expenses 134 112Recognition (realization) of deferred income tax and social contribution 7,107 (971)Reversal of provision for ICMS loss 593Reversal of other provisions 319 2,208Other (1,905 ) (908 )

Income tax and social contribution expense (4,157 ) (15,058)

12 Taxes payable

2013 2012

Social contribution (CSLL)Due in the year 2,990 3,735Prepaid in the year (1,431 ) (2,191 )

Payable in December 1,559 1,544

Income tax (IRPJ)Due in the year 8,280 10,352Prepaid in the year (3,553 ) (6,131)

Payable in December 4,727 4,221

Other taxes payable 214 508

6,500 6,273



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13 Contingencies and commitments assumed

At the dates of the financial statements, the Company had the following liabilities and correspondingjudicial deposits, related to contingencies:

2013 2012

Judicial Provision for Judicial Provision fordeposits contingencies deposits contingencies

Deductibility of the depreciation relatedto the IPC (consumer price index) ofJanuary 1989 26,343 26,343 25,043 25,043

Differential rate for the incentive of exports 9,983 9,179 10,073 9,262Deductibility of the depreciation due to

complementary monetary restatement 11,097 11,196Value-added Tax on Sales and Services

(ICMS) on the use of electric power 18,253 18,253 15,092 15,092Emergency charges for electric power 3,681 3,681 3,475 3,475Social Integration Program (PIS) and Social

Contribution on Revenues (COFINS) onfinancial investments 2,706 2,261

PIS and COFINS on sales to Vale 402 331Other 1,848 1,712 2,166 1,288

74,313 59,168 69,637 54,160

The Company is a party to labor, civil and tax lawsuits in progress, and is discussing such matters atthe administrative and judicial levels, which, when applicable, are supported by judicial deposits.The provisions are estimated and adjusted by management, based on the opinion of its external legaladvisors, and these amounts are considered sufficient to cover probable losses.

(a) Contingencies with possible losses

Furthermore, the Company has R$ 331,238 at December 31, 2013 (R$ 350,967 in 2012), relating tothe lawsuits mentioned above, which, based on management's estimates and legal advisors' opinion,were classified as a possible loss and therefore did not require a provision for contingencies.

The major possible cases at December 31 are described below:

(i) In the period from 2006 to 2008, the Company was assessed by the Brazilian Revenue Service fornon-payment of PIS/PASEP and COFINS on the transaction of sale of pellets for the purposes ofexports. The updated amount of said lawsuits is R$ 268,561.

(ii) The Company manufactures and sells iron ore pellets and iron ore fines. According to theunderstanding of management and its legal advisors, the iron ore fines are sold in the domesticmarket and are taxed accordingly, while the iron ore pellets are sold in the foreign market andtherefore PIS/PASEP and COFINS are not levied on the sales of pellets for the purposes of exports.

Nature 2013 2012

Labor and social security 1,566 1,430Tax 329,672 349,537

331,238 350,967



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(b) Changes in judicial deposits

AdditionsMonetary

restatement2012 (write-offs) and interest 2013

Deductibility of the depreciation related tothe IPC of January 1989 25,043 1,300 26,343

ICMS on the use of electric power 15,092 3,161 18,253Differential rate for the incentive of exports 10,073 (632 ) 542 9,983Deductibility of the depreciation due to

complementary monetary restatement 11,196 (702) 603 11,097Emergency charges for electric power 3,475 206 3,681PIS and COFINS on financial investments 2,261 445 2,706PIS and COFINS on sales to Vale 331 71 402Other 2,166 (620 ) 302 1,848

69,637 (1,954 ) 6,630 74,313

(c) Changes in provision for contingencies

AdditionsMonetary

restatement2012 (write-offs) and interest 2013

Deductibility of the depreciation related tothe IPC of January 1989 25,043 1,300 26,343

ICMS on the use of electric power 15,092 3,161 18,253Differential rate for the incentive of exports 9,262 (581) 498 9,179Emergency charges for electric power 3,475 206 3,681Other 1,288 339 85 1,712

54,160 (242) 5,250 59,168



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14 Equity

(a) Share capital

Share capital at December 31, 2013 is as follows:

Numberof shares

Registered common shares without par valueLocal stockholder 651,073,140Foreign stockholder 625,540,860

1,276,614,000

Registered preferred shares without par valueLocal stockholder - Class "A" 70,923,000Foreign stockholder:

Class "B" 45,390,720Class "C" 25,532,280

141,846,000

1,418,460,000

Class A and Class B preferred shares, together with the common stock, have the right to vote to electand to remove certain members of the Executive Board. Class C preferred shares, together with thecommon stock, have the right to vote exclusively for any changes in the Company's bylaws, theapproval of the financial statements and all resolutions related to the allocation of profits, includingdistribution of dividends. All preferred shares have priority in the reimbursement of capital and areentitled to the same dividend as the common stock.

The foreign stockholder's capital is registered with the Brazilian Central Bank at US$ 9,075,493.20(US dollars) and €$ 24,448,544.06 (euros).

(b) Proposed dividends

The stockholders are entitled to receive a minimum dividend of 25% of the profit for the year,calculated in accordance with the Company's bylaws.

The partners' Meeting has the power to approve the distribution of dividends; therefore, the amountrelating to the distribution of dividends proposed by management, which exceeds 25% of the profitfor the year, will be maintained in equity as "special reserve for dividends".

The partners' Meeting elected not to distribute dividends out of the profit for 2012 and reverse thepreviously recorded dividend provision and the dividend recorded in the special reserve fordividends against the investment reserve, as per resolution passed at the Annual General Meeting onApril 29, 2013.



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(c) Revenue reserves

The investment reserve refers to the remaining balance of retained earnings, maintained to fundprojected business growth, as established in the Company's investment plan, according to the capitalbudget approved and proposed by management and submitted for approval at the GeneralStockholders' Meeting, in conformity with article 196 of the Brazilian Corporation Law.

The legal reserve is credited annually with 5% of the profit for the year and cannot exceed 20% of thecapital. The purpose of the legal reserve is to protect capital, and it can only be used to offset lossesand increase capital. In 2013, no portion of the profit was transferred to the legal reserve because thebalance of such reserve has reached the limit of 20% of the capital.

(d) Allocation of the profit for the year

Management proposed to the stockholders, based on the Brazilian Corporation Law, the followingallocation of the profit:

2013 2012

SourcesProfit for the year 24,702 32,272

Total sources 24,702 32,272

AllocationsProposed dividends 6,176 8,068Special reserve for dividends 6,176 8,068Investment reserve 12,350 16,136

Total allocations 24,702 32,272

15 ICMS tax credits

In May 2008, the Company sold part of the ICMS tax credits to its stockholder Vale, with a discountof approximately 30%. The Company recognized a provision for loss on the non-realization of thesetax credits, without any tax effect, due to the low expectation of fully recovering the tax credits.At December 31, 2013, there was no reversal of provision corresponding to the realization of creditsdue to the sale to Vale. In 2012, the reversal was R$ 892.

The sale of these ICMS credits to Vale is supported by the law of the State of Espírito Santo and by anagreement entered into by the parties.

Furthermore, at December 31, 2013, the Company has R$ 1,065 (2012 - R$ 1,324) of ICMS creditsthat have not yet been negotiated and that are fully provided for because the Company cannotestimate the recovery of this balance.



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16 Operating lease

Itabrasco's factory was leased by Vale under an operating lease agreement for the period fromOctober 1, 2008 to December 31, 2018, for which Vale shall pay the following amounts: (i) a fixedannual installment of R$ 26,263 in 2013 (2012 - R$ 24,360) and (ii) a variable installment resultingfrom the performance of the Pellet Factory. The total amounts involved in 2013 and 2012 were asfollows:

2013 2012

Fixed installment 26,263 24,360Variable installment 32,679 44,644

58,942 69,004

On February 23, 2011, the 3rd amendment to the operating lease agreement was signed, modifyingas from 2012 the calculation of the fixed installment, which shall be calculated based on the averagedepreciation recorded in the previous three years plus 12% and PIS and COFINS. Previously, thefixed installment corresponded to R$ 47,400 annually adjusted according to the variation of theGeneral Market Price Index (IGP-M) published by Fundação Getúlio Vargas (FGV).

Revenue

The reconciliation between lease revenue and net revenue is as follows:

2013 2012

Lease revenue 58,942 69,004Taxes on lease (5,503 ) (6,383 )

Net revenue 53,439 62,621

17 Other operating income (expenses)

2013 2012

Reversal of (provision for) contingencies 242 96Principal of tax assessment noticeReversal of other provisions (*) 939 6,495Reversal of provision for ICMS loss 1,745Research and development expenses (2,767 ) (2,762)Other income (expenses) 276 291

(1,310) 5,865

(*) At December 31, 2012, this refers to the reversal of the provision for contingencies for PIS andCOFINS on finance income.



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18 Finance income and costs

Finance income and costs are as follows:

2013 2012

Monetary and exchange variations, net 6,661 3,075Income on financial investment 4,700 5,186Other 6

11,361 8,267

Monetary and exchange variations, net (5,250 ) (2,302)Interest and fines (1,758)Tax on Financial Operations (IOF) (3) (4)Discounts granted (268)Other (374) (347)

(7,385 ) (2,921 )

3,976 5,346

19 Insurance

The Company has a risk management program to mitigate risks, contracting in the market insurancecoverage compatible with its size and operations. The insurance amounts are considered sufficientby management to cover possible losses, taking into account the nature of the activities, the risksinvolved in the operations and the advice of its insurance consultants.

At December 31, 2013, the Company had an insurance policy contracted with third parties to providecover for all risks related to material damage, including machinery breakdown and productioninterruption and the consequential loss of revenue. The amount of the coverage corresponds toR$ 1,900,635 (R$ 2,204,330 in 2012).

20 Supplementary pension plan

Pension fund - Valia

Fundação Vale do Rio Doce de Seguridade Social - Valia is a non-profit closed private pension entity,incorporated in 1973 to supplement the social security benefits granted to the employees of Vale andits associated companies and other companies participating in the plans managed by Valia.

The Company, together with Vale and its associated companies, sponsor the Valia DefinedContribution plan.



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The sponsors' contributions to the Valia plan are as follows:

Ordinary contribution - this contribution is for accumulating funds necessary for granting incomebenefits. It is identical to the participants' contribution and is limited to 9% of the participants'salary.

Extraordinary contribution - this contribution can be made at any time, at the sponsors'discretion.

General contribution - this contribution is to cover the risk plan and administrative expenses, asdetermined by the actuary based on the actuarial appraisals.

Special contribution - this contribution is to cover any special commitment.

During 2013 and 2012, the Company made contributions to the Valia plan in the amounts ofR$ 396 and R$ 342.

* * *

Documents

Companhia Ítalo-Brasileira de Pelotização - Itabrasco · 2.2 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of