Q4 2019 Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to Volleys conference call.
Joe discussed for acute 19 wage outs.
At this time all parties been sign that listen only mode. Later, well conduct a question answer session and instructions will be given at that time.
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A reminder, this conference is being recorded and the recording will be available on the company's website at <unk> Violet Dot com and think that there's link.
This conference call with a combined buys like presentation also available at the investors link at the company's website and he's just made it even that as well.
The broadcasting via Internet, both the out you'll end the slides changes has a few seconds delay in relation Judy I'll do a transmitted via phone.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor ought to secure C. D. Gayshill Reform Act of 1996.
Actual performance could differ materially from that anticipated in any forward looking comments as a result of macroeconomic conditions market tweaks and other factors.
With that should they armies stated wired to decide is backed alone mail Chief Executive Officer.
Mr. Luciano Siani Bds CFO.
Mr. Marcelo Spinelli Executive officer for ferrous minerals.
Mr market drivers executive officer far base metals.
Mr., Mike It sorry, Mr., Carlos <unk>, Datas safety and operational Excellence Executive Officer.
Mr. Luisa do our goals audio executive officer for sustainability and institutional relations.
Mr Alisha and that had been data executive officer far business support.
I'm establish under them, but all your general counsel.
First mr. Eduardo but the low mail. We'll proceed to the presentation on valets far to 19 performance and after that he will be available for questions and answers.
It is now my pleasure to turn the call over to Mr., Eduardo but below meal. Sir you may now begin.
Okay. Thank you.
Good morning, everyone.
Yes. This is the them you one Roger.
I want to express my respect for the families or the victim. They all have dedicated efforts to bring sport and Gulf would do.
We closed the year.
Or purposes fully repair and remodeling.
During the safety of all of the book.
In stabilizing our production.
Safety.
People in refrigeration.
His words remain our priorities.
Please.
I'd like to start our call today by talking about the preparation of the machine.
Bali is well recognized for its agility in his accusing capacity.
It is how we have been working on the reparation.
The date, you eat them litigations to the families and communities, we have already allocated 3.2 billion realities.
In civil and Labor indemnification, specifically, we have entered into agreements which include about 6000 people and over 1.9 billion rice beads <unk>.
Important to notice the families of 96% of the this is workers have signed agreements, which have benefited a thousand 570 people so far.
On the environment the recovery.
We launched the ground zero project in January this year. It pilots for the recovery audit bought all have a receiver and this they'll come on stream, which shows how those areas. We will look like in the future.
In another highlight is that the containment structures that we did last year.
He is doing the heavy rains of January Mueller said ice, which the good sign of the effectiveness of our actions.
Finally, we have opened a dialogue with authorities and we are looking for a definitive agreement with beer and compensate the environmental damage equal level in collective once.
I believe that will reach a broad understanding.
In summary.
Our work of caring for the people and environment. The week Robert has evolved as expected.
These next month.
Well going about safety, but is becoming more safe and reliable each day, our board of directors is intensively overseeing the company with the support of specialized technical communities.
Executive Directors have also be supported by is active communities of different areas of expertise dedicated to recent management.
What means is that our decisions have relied on more robust and conservative risk assessments from now.
Regarding our damn management systems, we opened the second geotechnical one voice centre, which are now allows us to cover about 100 structures 24 hours a day seven days, a week, which is an important redundancy to ensure the safety of our dams in.
And most importantly, we are revising any booby arc daily management systems with the support of renowned international specialists. A good example of improvement is the implementation of the engineered record of our dams in January this year.
On debt.
With the characterize the first upstream them 80, you December.
And the second you be eliminated this year.
We also completed the construction of the first redundant.
Damon structure at the superior them.
Two more we view delivered in the first south of 2020.
I'm going to point to knows it to notice is that our safety and operational excellence Executive office created in 2018 is moving forward with very large not vps, which is our management model and the rigorous assessment of other operational risks.
But most importantly, we are accelerating the cultural transformation at value with the new safety and operational excellence governance in mainly with the Haber models that must be followed by entire company.
With actions like this where you'll just from valley. It one of the safest in most reliable mining conference in new World.
Keith.
But our new back this society goes beyond safety, starting this year our performance we'd be measured against them dishes source jobs do in of environmental goals for example, achieving carbon neutrality by 2050.
And with Walgreens or protecting 500000 hectares of floors, as we announced that validate.
In our long term compensation.
Our board of directors approved a 20% stake linked to east D.E.S.G. metrics.
Another key point is the treatment of our main yes gifts.
It's a very bold worked to leverage our practice in those areas.
One of those go gaps has also become a goal to double the female participation in valleys workforce by 23.
Finally, with the recent changes announced the structure of our board of directors are already reflects valleys progress involvements with a greater number of independent directors an increase in gender diversity.
In an extensive experience in corporate governance in mining.
Well I'm confident Derica best of music you shouldn't read breed would result in those days nations very soon as well.
The next one.
Well, we are working as I said on all this France.
And at the same time, we remain focused on safely resuming instead of lies the ore production.
We closed 2090 sales inline with our guidance thanks to our operational flexibility.
When it whaling, we'll keep seating the resumption of operations under safer conditions. However.
We are monitoring in assessing the uncertainties related to this resumption like the approvals by the Brazilian authorities and also the back of the Corona virus in the Chinese in the World economy.
Marcellus didn't add will come and later in detail our plan to resumed the harder the iron ore production in Venezuela.
Well going about base metals, we had a very good performance in the Canadian mines in 2018 special in Serbia and also better results in our refineries in this fourth quarter.
Indicator vmc.
We have set a short term solution with the halting of the refinery active it's by April those starting to reduce the cash consumption of that operation in parallel we are in negotiations when theres the bodies and I'm confident that we will have a definite if solution this year.
Your next one with relation to our financial results in 2019, our cash flow generation was significant a strong evidence of values recover capacity.
And.
We have had discipline in allocating our resources.
We have prioritized the this imbursement for aberration and actions towards safety and we have fairly reduce our that levels in have not search new acquisitions.
One. Good example is the redemption and constellation of the MB Our shares were irrelevant movie to diffusion get the location into the plant cash outflows since we will no longer be enter dividends of around a $160 million.
Finally, we are working to have the necessary conditions to resume our dividend policy.
We will inform you as soon as we have any developments in this matters.
Oh includes.
I complete my first year, leading value the certainty that the company has proved its resilience and its powered with fusion.
I believe.
That we're building a safer path with operational excellence and that sustainable results will seem start to be noticed.
When it when it will be a year of continuity in stabilization as we execute the actions we blend in started last year.
We have they present and vigilant senior leadership committed to the implementation of this plans.
And more important each day.
More than 70000 employees have shown great strength to overcome the strategy imbued a better value for everyone.
Thanks for your time today ill now pass Louisiana for further comments. Thank you.
Welcome everyone have a number of hot topics to address even before the Q and they want to start by talking about this potential agreement with the authorities and the provision.
Well theres been any will lead.
With our Corona vehicles, and the resumption of production and finally, our general counsel.
His thoughts about the independent investigation report that was issued yesterday.
So you saw that we've included a.
The footnote to the financial statements.
Well that regarding a possible additional provision of one to 2 billion us dollars.
Connected to a possible agreement with the authorities.
Well some clarification on this.
This provision will only be recognized in our balance sheet, if the agreement yields the suspension of the civil lawsuits.
And assure and if the agreement assures that there is a framework.
From a legal standpoint and to give speed in the preparation.
So that's our goal suspension of the civil lawsuits in a stable legal framework for the reparation.
If the if the lawsuits are not suspended.
The company would naturally keep on the current path.
Which is to sign specific agreements for specific demands of the law suits, which so far has been producing good results.
Our estimates of environmental reparation and compensation numbers.
Our being confirmed when the talk with the authorities however, the social economic.
A question has a more subjective matter.
And the list of projects that were presented to us by the authorities so mainly the social economic projects as a condition for the suspension of the lawsuits.
Is it more extended than we initially thought.
Importantly at an agreement has to be good for both parties. If we only one hand, we'll get that suspension of the lawsuits. It's natural that the authorities they want something beyond what would be normally expected in order to grant us this, especially so we have a longer list of projects.
And you remember that invalidate in December we presented the new pack, but society as a new strategic pillar for lobby.
So our assessment is that to establish this new packed with society in Brazil, and especially in the state of miniaturized.
Lever legacy to those people affected.
To suspend the lawsuits and to have a stable legal framework for the reparation.
Then it's worth.
Causing this agreement, which May then result in additional provisions.
Why do we have this uncertainty between wanted to beating US dollars for additional provisions we explain the earnings release that the list of compensation collaboration products, mainly the social economic ones is still being assessed the estimates for each of the project it's still being.
Analyze what is the overlap with the provisions and initiatives that we have provisioned for.
And also the timing of those projects is uncertain. So therefore, the net present value of the of the disbursements is also uncertain. So there's a lot of uncertainty in the numbers.
Why are we not provisioning now we're not provisioning.
Because although an agreement is possible.
The necessary conditions for us to approve this agreement.
Or not here yet.
So therefore from an accounting perspective, we're treating.
This potential agreement as we treat other contingencies. So we for example tax contingencies or labor continues as a civil continues and so we are describing it in a in a footnote.
Well the bottom line is that we.
Yeah administration.
Evaluation is that it is worthwhile to make these additional effort in relation to our initial estimates in order to get the suspension of the civil lawsuits in.
In order to have.
Legal stability around the reparation.
In order to.
Reestablish the pack with the Brazilian Society, which is fundamental for our long term plans are in a country.
Now moving to myself spinelli with.
A couple of years impact on the valley business.
Yep.
Let's start with the.
Resumption of operations would have a chart too.
Yeah, let's let's follow the numbers walked through the numbers, it's easy to understand the guidance that we have a 340 million tons and 355 million pounds.
Okay from a less tier 202 million tons, that's a that number we close.
This year in all consistent with.
We have the ramp up after 11 D. A number is 210, so we add 21 million tons.
The run rate of Allegheny a in also equal a mine that that came back on the left and the last year and end of last year. The run rate is another 12 million tons. So for those two let's see the week is a little more.
From now.
And the right we have.
<unk> operations that we need to have a optimizations from a the agency little money agency also the prosecutors in other we need to assess some for the information about safety the dams.
So we start with T mobile anymore, but we already have the opposition for maintenance.
And we are waiting for the the operation Oh position in the end of March so for second half second quarter.
Accounts Announceable payable.
Fabrica is just horrible second half almost you in the beginning of the process testing the impact of Corporation. The mine operation. The dam, so remember that we have.
Step by step test to check the impact of our operations or processors or the DAP. So your rating for the second half Washington gas energy the wet process since we don't add volumes, but we add quality.
Oh wait into resumed operations on the second half of the pellet plant.
There will.
Only have.
And the test.
To get the pool.
We'll go to mine.
The end of last year remember that we stop the laryngitis them to have.
A better view about the shape of the them to downstream Dan just a reminder.
But.
The base case is to count legit as all the second half. So we'll go to the operating now with 40% of the capacity.
And then considering in this.
Planning liquid to coming back in the second half.
If we get your.
During the assessment of the of blood and just if you have the end of March millennials, who can return the second quarter.
And they add another 3 million tons or there's a projection and the the other 2 million tons is regarding the.
The possibility to have some gains in the operation all the mines. So that's the way you are right from the left to the right more uncertainty lesson certainty.
Our numbers for the guidance.
Now, let's talk about the qualify as.
Well.
I'll start with the some numbers of all the cases.
It's.
Important up you're tracking this every every day probably want to say.
Less day, we had a belt 900, new cases.
We are leading this analysis in who Bay area. That's the center of the probably next who be Bay represents only 4% of the China GDP and also we don't have many clients in that region.
The next Koubei in two days ago, we only had 45 Kazan. This decline just some very important information yesterday, there was a spike the based on new information from a Jay you mentioned one.
The main information here now that the Q case now.
More than 2000 cases, a day better a higher than a the keys that we have infection. So that's a.
A possibility to have.
Better positioned for for for the source of the problem.
Few weeks.
Well the consequence of the economy is huge so a once you shed some.
Unfurnished some final indicator of a leading indicator like the conception coal to be at the start at this moment after the the Chinese new year at the level. The 19, 95%, we only have 60% of the consumption of cool.
Another interesting information about the the transit up people based on the Daily railway a passenger.
We have already have.
100 billion people to go back to their houses.
Taxes.
In the workforce is it's really a clear now.
The same time the government tone is really.
To achieve the economy target.
Based on a double double the GDP per capita.
And they need to grow this year, 5.7%.
And that the way they are going to do this help us a lot because it's based on infrastructure and also manufacturing.
And and helps the consumption of iron ore in the end of the chain, but moving in the chain. The steel demand now is really on the pressure construction didn't go back.
The automotive.
Is the yes, you have news that they are coming but if you come if you check the consumption of tires.
The only 20%.
And and according to my last year, there's another information here My she was a inside agency for information.
For our business was to you I don't want.
They are the daily service.
Checking when.
The industry the downstream industry will go back and a in the expectation for all the marches in averaged 70.
75% of the the industrial will come back somewhat optimistic flooded the white goods some less like the construction what well what was 100% we'll go back come back and construction only a 53%. So it's just the scenario that we have this have varied.
Slow, but rather will return of Oh of the economy and they backed off the.
Of the.
Do you.
Hi Records do eventually now based on the lack of sales logistics can swing a lot of logistics will swing and a lack of workforce.
Awesome.
Well the impact on why or on iron ore our clients in the end of the days the blast furnace. So.
The decision to quit a stop the best for US is the last one to two things so.
Firstly, they can just shut down the E. After it was more than 40% more expensive than the blues plans. They can reduce the scrap the during ventures or cut some rolling output, but oh, we don't see that the today if you compare.
The blast furnace kids compare with the what happened in the.
The bottom into cuts last year double last year.
You still less than that feared so that's a good news.
From our main client that is the bless pause.
Oh, the at the Port side. The this talks now inventories is about 123 million tons. This is a very low.
A level of inventory.
And is a good news, we have operations and all the parts in China are running.
Very very good.
Some.
Very important information, we'll have a the domestic concentrate.
Our struggling with the logistics on strength, there a part of their out of the market.
There's another buffer for our Ardmore.
And the industry explains a lot of a phenomenal that's going on but the our premiums Oh, the RB App you can kind of jobs.
Really high.
For the average comparing full for over the the less water.
As we have a lack of low alumina proud, but based on the and the restrictions of the mass concentrate.
So what we have Oh, Oh operations are running now a we already have book with.
For the next the 30 30 days.
We have some noise coming from some credit some letter of credit.
From our clients does I'm, just not the big noise, but we are we have some concern about the no but the healthy of the of our clients, but so far so would we are running but you know very.
You would have time that we must take care the daily basis to check what will be the consequence, and the return of the criminal buyers.
Now lets them goals.
Thank you my fellow thinks the Selman This is Alex numbers on the General Counsel Bobby.
To address specifically the reports that the independent committee a release yesterday, we received as reported immediately published at.
TV M. sites, the summary executive summary.
And we've been since reviewing the four report.
I think it's very important to stress that the report was based upon the same inventory of information that we made available to the public prosecutors identical information source.
And the same facts.
For that reason the report does not really bring anything new to the investigation, but it does have its own interpretation of the facts and of the information that's there.
The committee I reviewed information and reached its own conclusions and interpretation.
We do not see any.
Return or any reason to believe that this report would change or influence prosecutors conclusions because the prosecutors themselves, which their own findings based on their inform the views of the evidenced that they reviewed so in that sense. The report bring some conclusions and.
Recommendations the recommendations from actually in our view as an endorsement of the many practices and actions that the company has been taking over the past years as a.
Recommendations that relate to cultural changes and improvements in governance things that have been already in the works for the past years, we see those as an endorsement and as far as the conclusions though.
They are conclusions reached by the independent committee and they are in parallel but not in conflict with any of the conclusions, which by the comp by the prosecutors.
Okay.
Thank you.
Thank you, ladies and gentlemen, well now begin the question answer session you'll have a question. Please.
Keith followed by the one key I touched on how now.
At any time, you would like to remove yes Africa question in queue Brass Star Chill.
Please restrict your questions should kill at a time.
Our first question comes from and that bucket, how Vulcan how's that you'll be yes.
Oh, Yeah, just two questions from me one clarification.
No on the on the provisioning when you mentioned, obviously do you know obviously suspension of any loss.
What specifically is that referring to are we talking about any law suits that could be brought forward five.
Central government or the state government I mean, there's your eyes. So if you could give a little bit of color on that that would be great. Thank you and the second question.
Relates to shipments obviously, you obviously gave us show iron ore production guidance for the year 340, 355 million tons, which is on change how should we think about sales or shipments or maybe Austin a different way you know what are you targeting in terms of building inventories for blending in China and elsewhere.
There wasn't much you questions. Thank you very much.
Yes. Thank you all the for to Alex or General Counsel on the first question.
Thank you Melissa thank Andreas for the question.
The agreement that we are trying to put together is with the state authorities indeed.
And the federal prosecutors will also participating agreement, it's not as direct beneficiaries of the agreement they will be involved in the governance of this agreement what I mean by that is that the lawsuits that we are looking to settle our losses that were brought by the state authorities the state prosecutors.
Have a and the state attorneys have filed.
One last about state attorneys into by state prosecutors there are no our civil actions by the federal prosecutors at this point.
And undress just a as complement.
There are yet no provisions recognized because we do not have yet the conditions for such an agreement, but we are indication he indicated as a possibility that we'll do so.
And the existing provisions will be complemented by the.
Additional if any provisions in that case of one to 2 billion.
Dollars.
Whereas as Marcello Spinelli. Thank you for your question about the shipments those in sales.
We expect the a two to have in parallel the sales and the volumes or a production.
But youre right, we have some inventories to built in China, and we wish we have.
Hello last year.
To consume part of our stocks in China for the RBS. So Europe, we have a attribute up again part of the that stuff that we lost last year.
Our next question comes from Alex hacking seeking.
Hi, Good morning, good afternoon, and thank you for the question I two questions. The first one is maybe you could.
Discuss a little better production outlook for the nor than range encourage us I'm, obviously that declined last year, which was something that we were not expecting.
And I guess is 230 million tons still the long term target for production out of the whole carriage our system and a would you anticipate getting there in 2021.
And then second question just on V and fee.
I think if I heard correctly, you mentioned, you're still kind of exploring sale options there.
My question is what happens if none of us sale options workout. Thank you very much.
[noise], Alex or there's been alley.
Well the Norton system.
The nation, we forecast for this years 210.
Oh, yes, we have capacity for 230.
We rely on.
Not only in the ramp up of S 11, D., but Oh, we have you haven't we had the late this year.
Six methods late choose Todd and new product and the mine that is coal <unk> you already started but the the told him that the full volume it will come on at the beginning of next year.
In the mid to long term, we have other promising in the North branch.
But for next year waiting for the return of sell less cheap and also the LNG project.
That can so again.
Under 30 is subject to long term goal.
Based on your pits and two and three four for the North branch.
And so say how last year and village project, we can reach again the 230.
On a global multi and see I think a as I mentioned in the game. We are already redesigning the operation for a full should the we believe it's more suitable to the reality of the planned after we we learnt but for sure. We are extremely focused on finding.
A single solution as a solution that that's a new partner or not so I'm not butter and we operated that can execute the data, but I would like a will like to mark to elaborate a little bit more.
Thank you Alex.
What I would say instead as Eduardo indicated we do have.
Our interest in in the the project, which is encouraging and we're hoping that well we'll know relatively short order how that is proceeding of course, we announced in valet day that we would have to make a decision by the end at 2020 has to our course of action and we had indicated a desire to leave.
New Caledonia, so of course by the end of 2020, if we do not have a solution. We have to we have to find another way to deal with this.
Actually exit.
Okay.
The next question comes from Carlos de Alba Morgan Stanley.
Thank you very much. Good afternoon. So first question is that maybe spinelli that you can give us even more color on on the actual situation on the blended being on the company's facing given not only the constraint. After the bridge. There there were many new accident, but also with the range that you are experiencing a and potential.
We started that they spent some some height.
Hi, impurities in some of the.
The mines that accompany easy.
So bringing right now that may be affecting the blending. So if you could give us any more color as to what the situation is right now and when do you expect.
Any challenges any company facing to normalize and then maybe Alex if I could just to pick your brain.
Brain on there on that on the challenges or on the M.
The new investigation or they report from the investigation of the Board Committee.
Yes.
If these guys can kind of prosigna unfair prosecutors still percent charges.
Against the company I'm, even after you guys reach an agreement.
We just stay prosecutors.
Or it will be independent.
To the process that you elaborated other companies trying to Oh.
To conclude we just say prosecutors.
Then if I might add to that last point.
The the potential agreement with the state prosecutors is that.
Mostly focused on CV, the actions and an environmental Char, yes, or you would also include prima now and or potential corruption charges.
Thank you.
Carlos Spinelli, Yeah. Thank you for a question.
Regarding the blend or we expect a new record in China. This year actually and we don't have any problem with while it directly in the Atlanta will have a week our levels of inventory, our though so we would call that.
But regarding the shipments.
And the North is important to say as I mentioned the last question.
We we had a delay into the license of <unk>. So we decided to have a as moves that production.
The first quarter.
Dissipating some some maintenance.
Do you have a the the total.
Volume for for the production the South as I mentioned, we Oh, we covering the production with the the dry process since all four for the part of the blend with Oh, Hi, silica product. We don't have problem actually a reserve a lack of a high quality problems in the south.
There are readily will go into recover as a nation to the end of the year the dry processing step by step so for blending again don't have any and problem and the like Red will production and the beginning of the year.
Regarding the war.
Our next question comes from Christian Charnaux, Nancy I haven't answered Carlos de Alba sorry.
'cause outside Brazil also like to answer Carlos de Alba question.
No Carlos let me start I think in reverse order.
The agreements that we are trying to close with a prosecutor state prosecutors they will address.
Civil and environmental and.
Social obligations. So it's our base the ideas to suspend the civil actions and the environmental actions that are brought by the state and there are now as I mentioned before there are three.
Now it does not address criminal criminals completely independent in fact in Brazil, you cannot make this type of agreement like to like as we would in United States to end the criminal prosecution by agreement. So what we're focusing here isn't the civil and the compensation and Indemnifications and reparations.
And the answer is no no new actions would be able to be brought by the state.
Adverse to a reversed about these topics. So once we close the use the idea is that we will have a section in the agreement that precludes the state and bringing new actions related to those items that we have addressed in the agreement.
Okay answered your question.
Okay.
Oh, sorry question, but they're not as far as our that's completely effort to Carlos de Alba, because I was reminded that there's a question about anticorruption.
Our first make clear that valley has never endorse any actions that are illegal unethical and that pilot our code of ethics. So.
We are very confident that if any actions were to be brought on these france or we will defend them in the process in the proper channels. So we do not anticipate at this point that we could be oh charged with any action on that front.
And then we again reminding that the report by the Special Committee of Independent Committee will not bring and in fact and does not point out any new liabilities, none that we're not yet already known by the prosecutor. So that's why we don't anticipate that it would change any of the charges.
Already bought.
Your next question comes from question charge Societe Generale.
Thank you in a good afternoon or go for puts percentages are question one on Mozambique.
You should give us some indication of what you're targeting in term of a production there on for more than a quick incurred this year and what kind of running rate.
Sure we are.
Looking at for for both type of corn HM.
Second question on copper.
Okay, we understand in China for pushing some of the speaker for shipment.
It's something you have experience already or that's something we should impacting you. Thank you.
Okay.
Okay folk for Mozambique, there's a clear distinction about the production rates we expect after.
The.
Shock that you described in December which is a three to four months stoppage in your operations to change the flowsheet into correct. All the maintenance issues. So we expect a run rate. We continue to expect a run rate of 50 million tons per year after that.
But until then.
Honestly, there's no expectations that we will have any step change or substantial improvement in the current conditions because the many problems that we have identified the really require the stoppage a four four correction. So I'd say, we're completely focused on establish.
Just the 50 million tonne run rate after the large stoppage.
Whatever happens until then.
I.
I don't think it's relevant for the overall case for Mozambique as the operations not in a good condition.
The calendar year production will depend then on the effectiveness and the the speed in which we can fix the situation was that stoppage.
So for women team the stoppage.
For the beginning of the second quarter. However, we're monitoring very closely the impacts on Corona virus on the arrival of parts.
For the changes that need to be made so there their initial indications of some delays.
But we still expect that or by the second quarter, we'll be able to initiate the stoppage and we're still targeting the second half were going to get to the 50 million time a run rate.
On copper Christian I would say that two things first of all copper most of our copper concentrate is contracted for 2020 and secondly.
Relatively middle of at Johnston, China. So there is certainly an impact consensus shipments that are coming up but we are monitoring they may be delayed and we need to look at logistical concerns, but overall it should be relatively minor in base metals Division.
Your next question comes from and I brought that RBC.
Great. Thanks, very much for the call. My first question just to the family operations report to you mentioned about a 340 to 55 million tonne.
Guidance for the year.
You also mentioned as Damon there that the with the achievement of higher into the production range continues be possible on several upside.
Being explored if you could provide some color on that and then secondly, just in terms of some of the other costs coming through the stoppage expenses.
Research development somebody other costs so within the piano just some of them are up this quarter, how should we look at those going forward into our next year. Thank you.
In Qatar the for the questions Marcellus Spinelli well some.
You mentioned, we are recovering the production and we actually we rely on some localization so.
I can say that in that figure that you saw a really cover operations.
What the noise in the left there's more risky in the right sorry into lapses less.
Upsides I think Oh, we have some some initiatives in liquid cooled to anticipate some want some ideas from a using other them that says a lot of Mahajan show This show them.
Using some some addition of products that we can use the them that is almost.
We have other is initiatives you need the leader, but I can say that the small initiatives that you can some and have some some number like I mentioned, some joe meeting or to 5 million tons, but.
Mainly we are focused on the return of the operations.
And the assessment of the safety.
As regards the expenses you did you notice probably that R&D expenditures were higher in 19 million 18.
That relates to some of the projects, we are developing engineering studies and the catch up in really.
But it should remain at the same level of Nineteentwo of throughout a 2020 so no.
So prices on that.
We are operating in stoppage expenses were very large.
29 team a total of 882 million for the entire company.
Oh, which not surprisingly 823 were related to provide you the our business.
The iron ore pre operating and stop it expenses should be directly proportional to the amount of production, which is stopped. So you can do a linear extrapolation, if we resumed the volumes throughout the year.
The stoppage expenses should should reduce proportionately.
So what some stoppage expenses recorded in base metals, but we believe they will pretty much vanished this year.
As a as the operations likes to say ago also Puma and others that will stop there they're coming back online successfully.
Okay.
The next question comes from Edward Stack Anyhow.
So I also need good afternoon, just a couple of questions for me the first one on the topic of provisions.
If we cost almost back to the half your results when the first provisions were announced.
I think at the time they were they were.
Described as being.
Full provisions to the best managements ability knowledge of the time, we've seen further increase since then now there's obviously potentially once $2 billion more or the other any other actions outstanding and smaller that could result in further provisions. That's my first question second one is I'm afraid this rather naive one I'm not familiar with Brazilian Lou.
On the topic of criminal charges can maybe brought against Varli itself as an institution or just against individuals I'm sorry for the rather.
Crude nature that question as well.
So Edward on the provisions.
We made it clear throughout the year enough in the first quarter.
We mostly provision.
For our estimate saga individual indemnification socioeconomic liabilities down the second quarter and ended the commissioning of them.
On the second quarter, we came out with the environmental provisions.
We have complemented some of the indemnification provisions given the extension for example of the emergency.
Monthly stepans for a very large population.
And in the fourth quarter, we did the provisions for two new dams to be the correct arise following a reclassification in September by the National Mining agency.
Those were obviously all to the best extent of our knowledge as management.
The.
I can tell that for the commissioning for example, the our knowledge has evolved substantially throughout the year.
To the characterize very large dams and to make an estimate as we did in the first quarter was quite a challenge.
Actually that portion was reduced but across the year, we had because of laws that were enacted we had to the commission also smaller dyax and we added provisions for that.
And these two large names that we are adding about 600 million U.S.
The basically came from a rig as I said, there's a reclassification from the agency that happened in September there was no more such reclassification going forward because the agency already did what it needs to be done.
Which means that the upstream dams that need to be the commission now they're all accounted for.
When it comes to the environmental liabilities the conversations that we're happy with the all parties you are confirming our initial estimates.
So.
Again in this regard there's no nothing to expect in addition to that to the conversations ongoing they relate to sanitation measures to a water supply security for the city of billings on T. Some a works in a water new water pipelines with the state utility company. So no surprises.
Yeah.
When it comes to the social economic provisions.
That's.
Where the.
What I called an additional effort is being requested from us.
By the state authorities in order to grant us this very large benefit which would be the suspension of the actions and and the no and the shielding against potential new lawsuits regarding social economic and environmental and right now what we're doing is we are assessing this.
These requests we are crossing them with the existing programs that we when we made our provisions we thought they would be the ones necessary to address the social economic issues.
But from a conceptual standpoint, we agreed that we believe that there's value in doing this additional effort in order to suspend the lawsuits that's kind of a tit for tat where were good get receive a very large benefit and we on the other hand, we'll give.
An additional a legacy for for the state with all these projects are being asked for.
The beneficial for the company, we believe we need to read.
Connect.
With the Brazilian Society, and the society in a state of materialize, so putting all in context, we're willing to.
Enter into such an agreement.
But we haven't provision yet because the conditions are not yet here.
Very important so we're treating is from an accounting perspective, as a contingency rather than as a done deal with something that we will do.
So as listed company, we need to bring those things forward. So we're bringing it to you.
This is Alex.
Well typically under visiting a lot of criminal charges are against natural persons or personal individuals there are some a.
Fuel statutes that will present, the possibilities of incremental charges against the institution of against the company, but then the prosecutors would have to two dozen institutional intent to our practice sort of the crime. Another five specifically to environmental their strict liability environmental.
Prosecution, yes.
There could be antitrust and in some instances anticorruption, but as I said for these last two particularly you have to prove that theres, an institutional intent that ranges from the entire organization. So typically even in these issues of anti corruption anti trust.
The.
Individual natural persons have to be the center of sums type of Lightminer accusation.
The next question comes from Timna Tanners Bank of America Merrill Lynch.
Yeah, Hey, thanks for all the great detail I just wanted to have two specific question. If one on the iron ore market. If you could add some perspective, clearly a weaker demand outlook for steel in China, and then matched by less supply whether it be stuck on a rainy related and find your perspective on how much of that sorry, fine supply with weather really.
And then in your view work style related and how much is intentional tenets of our demand and if it.
Jeff Katrin or whether it's Eric do you think willingness snack lower demand at that that manifest and then the second question is on the dividend I just want to be really clear on you know is there a checklist here and steps that need to be Matt add before you consider resumption or is it really more qualitative and if he can provide a little more color on that thanks.
I came up I think we have a market before a core vials in after quarter buyer. So that's all.
That's the main want now as many times now difficult you want to understand the consequence of.
Of the Carnival, but.
I think I have some some color for you first as I mentioned.
I think China will try to reach the growth. This year. So what we think that demand in China that will be around 1 billion.
Tons of production of steel.
We'll be.
Addressed it in last month than during the year. So we can have a boosted the consumer of other more after the quarter wire. So that's the.
That's a common sense for for the market in China.
I think ex China, we already have a some some good news we expect to go.
More than the 3%.
Part of that some some.
Yeah, we cover for a from.
Situations like in Japan that we had a problem last year in with the typhoons or or like you up that have a technical will.
Better than the last year, but again all these.
Numbers now can be.
Adjusted a with the impact of Corona virus in all the.
World War with a center coming from China and from the supply side I think we we are really close to to the demand.
And valleys returns operation a man in second half.
We had some lack of production else rather this is picking up the year, but do we see the that supply demand will be pipe a fall for the whole year.
Yeah. He said Wow I think a answering very objective me. There's no checklist point is a qualitative assessment for sure but by as it on the advancement of the work that will be three here on the reparation fraud that we believe we are advancing very well as I mentioned before so.
So it's a it's a system that will find the right timing, but we need to as I always been saying focus on the reparation and improving the performance of the company, but all I will Oh, we ask you didn't ask but we ask a the sell to elaborate as well on the return of the policy. Because this has to be off course done when does matter.
I don't think is timing they of course, the board things the time and there are some doubts about that I think that needs to be clarified as well.
Yeah, Tim that there was a question on the Portuguese call and I.
Im repeating it here about what how do we think about a framework in terms of indebtedness and the it's relation to the to the dividend.
Well first of all the intent when the dividend policy is we established is to do exactly as we did before same formula EBITDA less 30%.
And and so the discussion here is how how are you going to think to pay dividends beyond above and beyond whatever the formula yields because there's no doubt that wants the dividend is reestablished at the minimum dividend. According the policy will be will be met but what about above and beyond.
So some people only to let a strange and what was intent when the valley put in the release a demonstration of expanded that and then expanded that and committed and commitments that went up to 17 billion U.S. dollar.
They intent was simply to show.
That some people start to speculate values going to go towards a a net cash position.
And this is a narrow view because we do have yes lots of commitments beyond headline that they need to be considered when looking at.
The liability side of the balance sheet.
Well, but does that mean that Youre 10 billion dollar leverage target is not there anymore.
Well the 10 billion dollar was established when it was established most of these expanded the and the other liabilities were already there. So we already had other samarco and blue and or when all the liabilities. We already had hit fees, we already had a the leases so in that respect nothing changed.
On the other hands, we might do you came and this is a big change.
So although.
We're now below the headline 10 billion you asked by 5 billion U.S.
It is also true that we have an additional 5 billion U.S. dollar provision recognized on the balance sheet problem I do expenses, so net net where about where we wanted to be.
If you think about the framework as before.
We're not a 10, we are at five and headline that however, we do have five additional more.
Commitments to match.
So the consequence of this is if the dividend policy was reenacted today.
Every cash flow that the company generated from now wall would potentially be available for discussion with a border directions for distribution for shareholders. So that's that's the consequence, but there's as of now there will not be sort of a catch up dividend extraordinary $5 billion dividend to to come back to the 10 billion U.S.
Having said that those additional commitments they tend to decrease over time, so as we spend the money in order to do the operational but my view. The 5 billion dollar will decrease and then overtime, we'll be able to re lever the company the headline that back towards 10 billion U.S. and in that process.
Also we will consider this to pay additional dividends above and beyond the minimal dividend policy. So that's the thinking right now.
Your next question comes from John Thomas Jonsson, junk imagines very independent.
Thank you very much.
Could you.
Brian the large drop and.
Pellet price realization almost $18.
Let's turn to the German research.
Office and the Atlantic market.
Secondly concerning the.
Dry processing of.
Lower grade southern southeastern orders.
The shipment of the lower grade material.
In Malaysia, and China for blending as a big predicts bigger freight expense for blending takes effort.
Hi, great or that is blinded loses its price premium.
It gets to China.
Just going to be more slack.
After they make the on from the material was never won an tailings dam to begin with why not just simply shot.
The lower grade mines, where.
You can use the tailings dams anymore.
Try processing seems I want to disadvantages.
Well John Spinelli here regarding the pellet premium. Thank you the numbers is higher than that.
It's about 30 30.
I'm not 18 and the.
On the drop okay.
And the I think that the market is will reduce the production.
Oh pellet feed a that all the problems in book would do and.
We see the market today, very tight and the and we expect some some that are printing for next quarter.
But this is a skew a very good brain.
The good news in the premium side is a in China for pellets, Oh, we we've seen that some premiums now coming to spot market around 40, a just a few developing audiences market, but is now we you're considering to see what will be.
And as much of the disease.
And regarding the dry processing them blending and a high silicom or Oh color jobs finds a few of our job kind of that's fine.
That being assessment is a decision for for some time on the news skew competed that we have the best solution blended in China.
We're struggling a now to recover the production, but mid to long term.
Premiums from the RPF is much better than the discount of or the faisel pagan shutting down.
The prediction was do you have margins selling the RBS and better than selling kinda, just finds war or being out of all of the producer high Silicon. So again, it's a good business.
John on the other hand is also true that.
We had a plan an initial plan for this year of going up to 370 275.
Accelerating the dry processing of the operations, where now we can you can do it.
However, the silica discounts was so large and the costs. All were also prohibitive because we're not blasted we're using mechanical dismantling of the rocks.
What we said, okay, where we're not going to produce it.
So we're very mindful of those trade offs.
We consciously removed.
About 20 million tons from the production plant in order to get to this threeforty to 355 precisely on the grounds of optimization. So.
We have all the information we have dynamic optimization, we're very mindful, we're on top of things and we do.
What's best for the overall profitability of the company.
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This concludes today's question and answer session.
Extended lateral Macrilen mail at this time you May proceed with your closing statements.
Okay. Thank you.
Well, thanks, everyone for your time and attention questions.
Definitely not 2018 was one of the is the hardest a year, we ever faced what I believe that.
The basket we choose.
You operational excellence to a safer company will bring sustainable results and we will start to be notice. So as I mentioned in the beginning 2020 will be in Europe continuity in stabilization.
But for sure.
We'll be out of the strategies in a much better shape in a much better comp okay. Thank you and soon in the next call.
That does conclude valleys conference call for today. Thank you very much higher participation you may now disconnect.
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