Q1 2020 Earnings Call

Debated any forward-looking comments as a result of macroeconomic conditions Market risks and other factors.

Was that should they are Mr. Eduardo bartolomeo chief executive officer mister, mister. Mom has been executive officer for various minerals. Mr. Mark Traverse exactly of executive officer for base Metals Mister Carlos Medeiros safe place and operational excellence exact script doctor. Mr. Luis, Eduardo Rosario executive officer for sustainability and international relations, mr. Executive officer of our business support from yesterday, Alessandra Ambrosio general counsel and mrs. Marina director of people, Mr. Eduardo bartolomeo. We proceeded to the presentation on Valley's first quarter 2020 performance, and after that will be available for questions and answers. It is now my pleasure to turn the call log.

Fortune Mr. Eduardo bartolomeo sir, you may not begin.

Okay. Thank you. Have a good morning everyone. First of all, I hope that you and your family is are well in able to maintain social distance.

This will be a very different call as our management team is also apart from each other each one with house or office.

First thing that would like to point out is that bodies facing is some precedent scenario drop by the covid-19 with responsibility discipline and sense of urgency month.

It's March 30th.

We have the managing the company we both just to give you an idea. We went from $600 to $20,000 remote access and we continue to operate our assets.

Definitely we are in a war scenario. We think common enemy or this reason why he joins forces in communities where our furnace in Arvada chain with a humble attitude to win this war.

Make message that we have been communicating to our employees Partners our resilience and overcome resilience because this war will not be overcoming cuz I'm sure that will succeed and come out much better as a company and that's a sight.

I will soon want to emphasize there are efforts with the full reparation of regime remains fir.

Finally reparation safety remain of priorities and are very up-to-date in the face of this crisis.

Please pass the slides.

Well, we have a very solid plan to phase it in January. We started to monitor the scenario and to structure and Implement preventive and safety actions. Our plan is ongoing and there's updates constantly have 5 phones with prioritize first the continuously of the reparation of regime and our them saved actions off the health and safety of our employees in our neighboring communities.

Disappoint and fighting that endemic owner e r new practice Society the support to evaluate chain and finally stability of our business.

Can you please stop the next slide?

As I said earlier are able to fully peppermint movements firm and goes together with our actions during the pandemic.

We remain committed to the reparation and so far almost seven thousand people are part of the Civil or labor agreements already signed which total about 4.6 billion reais with emergency eight-by-ten so far as well regarding safety, the democratization plan remains on track in art am interested in improving. We have implemented the function of engineer record as an additional step in assets in a restriction Brazil interviewer record is external to the operations office is directly linked to values line of defense plus our commitments to put my jeans and safety continue.

Go to the next slide.

Both of our plan addresses the health and safety of our people which is our top priority in all of our operations. We have implemented world-class safety standards to Faith and we believe we were the one of the first companies in Brazil to adopt the home office of regime of March 13th on the slide, you can see we mentioned the main managers, but the what words are safety and discipline at home in our operations at all times.

So far besides have adopted more restrictive measures as we already disclosed in Malaysia, Canada and Mozambique.

Although the taxes will be the current contained advance in the pandemic may lead to more restrictive measures in this or other operations.

You please go to the next slide.

Yes fully aware of our responsibility Society in our essential role in the economy at the same time that we took our operational actions in a listening process. We offer support.

We have already completed five hundred million reais to fight the pandemic in Brazil of which 363 million were already spent.

What is not just about financial resource we made use of our Logistics of structure in China where we have been present for almost fifty years to purchase and bring to Brazil over thirty million personal affection medical equipment and 5 million rapid test to detect the new coronavirus in total 15 cargo planes will bring this bottoms.

In addition, we are providing resources to expand the capacity of existing hospitals and to Butte field hospitals in territories that we operate.

In other countries where we operate we have also made important donations to the healthcare system for example in Malaysia more than link and Indonesia.

On the on the front of our bedroom chain, we are committed to keep it very healthy in preserving the jobs.

At a time when we are experiencing great uncertainty. We are using our presence at the base of the production chain to help our suppliers face that in the end. We have anticipated payments to around 3,000 small and medium-sized suppliers in Brazil injecting over $900 realize into the local economy to date.

We have also provided financial support to the contractors and projects suspended by us. So far. We believe that with his actions. We are helping Society covid-19 together the challenges of this class.

next

Finally, we continue to stabilize our production the first quarter impacts aquavit in our business were limited but there are still many uncertainties there for stubble. No production. It remains a challenge. We started to see fruits of our work in other planted with a solid Depot production in the first quarter this year in the last quarter of nineteen as a consequence am going to access to stabilize the better Chang that we do question. Not a war.

Water was very difficult on the positive side.

We hope to resume people bab activities as early as next week. This is another important step to resume and stabilize our our iron ore production in the father and Saturdays off.

That's like please.

Well, as would be same in addition to the unlimited plan, which also address is the reparation of human gene the Improvement of our safety and the stabilization of a production off caps of discipline is fundamental to the response.

That'd be reinforcing this point in other opportunities in this regard. I would like to point out they withdraw a five billion dollars from a revolving credit you continuously for a pack of prudence reinforcing a balance sheet to face an environment of great uncertainty. It was an insurance at an interesting cost increasing our margin of safety.

Finally, I would like to reinforce as I said that we keep working quickly and with quality in the reparation of the Emoji and to reduce the uncertainties regarding the covid-19 events use that I believe that we would have better conditions to restore our dividend funds.

It's like please.

Concludes you need this context. I'm sure that values in a solid position to face this critical scenario. I don't know is one of the least affected 4matic to date on a market China is already recovering although we can stack reduction in Europe or in some other functions as well moreover body has already proven that it's Capo resisting recall the four movements of the septic board in our broader directors is to continue to do everything in our power to ensure the safety of our employees in our operations team. Finally. I want to take very much our employees and partners for their efforts over the past weeks.

I'm out that the fault solution so that he came into the results of the first quarter of 2020 and thank you all for your attention. He'll be back for the community Thank You song. Good morning. Good afternoon.

I'm going to address five items here today.

First item costs as you saw costs were high and I don't worry in the first quarter 16.2 dollars were done. It seasonally High because of volumes, but we had even lower volumes this quarter.

And we also had some additional impacts like the marriage in the north the lineup of vessels like waiting for it to be charged because of problems with moisture and and for the Augusta brings in the north and we had also problems with maintenance.

We had a fatal accident in Mozambique in one of our conveyor belts in January. So we stopped and did extra work in Norwalk conveyors around the world including the artwork conveyors. And so we took a little more on maintenance. We had a little upset for the exchange rate. But the final result was the 16.2 you saw the outlook for next quarter is of a slight off line, but very marginal because we still have some important effects that will wait on costs. The first one is the carryover part of what we produced has gone off to even torrie's at a higher cost. So it will it will impact next quarter some Coheed added expenses. For example, we're providing additional benefits for our employees which may wait Thirty to forty cents on the costs next next quarter.

And because we are resuming operations in T-Mobile, for example, Which is higher costs.

Cuz it's not going to be uh, a blasting operation. We're not going to use explosives. We're going to use mechanical dismantling of the or so it's it's going to be high cost and also off because of the mix we're going to have more or being sold from the south in the south east. We're also undergoing the scheduled maintenance of the long conveyor belt in s eleven d as we speak.

So many also small effects that will add up and will not allow us to see the major impact of the currency devaluation on cost on the on the second quarter. However on the 3rd, we're very confident that with cost solution with no maintenance. We're going to run certainly below $14 per ton. And if the exchange rate continue that current life certainly maybe even at $13 per ton

The second topic is Freight. You also saw sharp declines in spot Freight rates and in the oil price. So how is the outlook for Freight within Valley game at the decline was was very small this quarter. Just just a dollar per ton to $17 per ton.

Well, the spot Freight rates will not influence also Freight in the second quarter because value uses mostly the spot Market when it produces more.

So because the production in the second quarter is not as high as in the third and fourth quarter the use of the spot afraid minutes will will will be a smaller. So we will use more of our own Fleet but in the third and fourth quarter, if the spot rates continue to be lower we're also going to go more to the spot market and will take advantage of that.

But the oil prices you will see a significant impact already in the second quarter vessels are refueling. Actually we even had a small increase in fuel costs money order because of the IMO regulations and the uh, because we feel we feel part of our Fleet with the low. So for oil which is more expensive but starting from next quarter, you will see the impact and we are forecasting a decrease of at least $3 per ton and Freight rates next quarter.

The third aspect is foreign exchange. We had a 29% devaluation of the Brazilian real very in the quarter end-to-end very unusual. There's only two what happened in the third quarter of the 15 and as the balance sheet of value officially everything is measured in Brazilian reais. There are all sorts of impacts from such a devaluation in our in our accounts and I would like you to pass on to the to the first slide after it was presentation.

where we show a number of

balance sheet accounts that are were heavily impacted by the devaluation this quarter. So on the right hand side, you've seen blue commitments of value for my name if he's some acquaintance over in our gross debt and the numbers you see already translated in US dollars or the declines in those liabilities given the situation. So those liabilities are originally measured in realize but when you translate them back to US dollars to present the accounts for you, they have as much smaller value. So almost three billion US of deadlines in the value of commitments, which is very good for Valley. But on the asset side, we do hold balances in cash in Brazilian reais. Actually. We we were holding a lot of Brazilians eyes. When did the evaluation came

so those same balances when translated to

14 million in in value and then you have the losses on the swaps because we have so many commitments in in Brazilian reais, and we see ourselves as a company manage the company in US Dollars. We had part of those commitments in Brazilian reais back into u.s. Dollars and the this a billion US is the offsetting effects some of the declines you see in blue. So some of the declines were actually not naked they were hatched and this is the offsetting effect and that flows through our balance to our income statement because this is a director of instrument so that flows into the the financial results, but net-net as you can see there's a positive game and and also because Valley has paid amounts related to my Jean to release the expanded net that when you add on top of values net that all those commitments has reduced substantially over the quarter being a major shift in our home.

bottle sheet position

The fourth item is scheduled generation. You saw that the cash flow generation in the quarter was relatively small compared to past first quarters. It's it's naturally also seasonally lower.

And the biggest impacts were from inventories and working capital accounts payable.

Even tourists were part decision of value. For example, we decided not to sell nickel at those depressed prices. We also sold less copper than we produced we sold slightly but I'm less I don't work than we produce so we have a two hundred million u.s. Build-up in inventories most expanded playing in base metals on the accounts payable. We had some important payments on the quarter. The first one is the take-or-pay in the South system of Mrs. So because we're not transporting enough or through the railway, which is jointly owned with other companies.

We had to pay the top up for the take-or-pay in this quarter of a hundred and twenty million dollars. You should not expect this obviously to repeat itself in the second third and fourth. That's that's a yearly expenses. And we also had a 200 million payment of profit sharing for our front-line employees. So a number of of a one-off expenditures some of them unique some not so one off like the the profit-sharing but that affected cash flow generation in a quarter but looking forward, we expect a restful generation to again be robust as the working capital accounts, they recovered themselves. So to boost cash flow finally covid-19.

Some highlights on the financial impacts. I'm not going to discuss volumes because volumes were already considered on the guidance that we made public last week on the the report not going to discuss prices this we may we may speculate here in the Q&A session, but I'm focusing here just some costs and expenses out-of-pocket expenses because of covid-19.

Stoppage of projects in Brazil is costing about fifty million per month and this will not flow through every dollar or income statement. This will accrue to the the project costs but it's it's it is economic impact. We will spend about a hundred million in the humanitarian 8. We have also Capital injections in our subsidiary in the north of Brazil needs to be made. We have some benefits for employees about fifty million each of those accounts. So when you put this all together, the estimate is about five hundred million of Auto pocket additional costs and expenses for value. And and finally if you think about or other impacts on cash flow, you're seeing that we're supporting or value chain your support Flyers with Advanced payments. We met support clients.

to US dollars they lost nine hundred.

But this will be mostly offset by the savings the temporary savings on topics because the stoppage of projects although they're costing us economically more spending less than if they were at Full Steam and The Works were were ongoing. So therefore as you saw topics guidance was revised downwards and should basically be the offsetting would be upsetting the the working capital deterioration because of the support of the value chain.

With this we can open for questions and answers.

Thank you. Ladies and gentlemen will now begin the question-and-answer session. If you have a question, please press the star key followed by 1 if at anytime you would like to remove yourself from the questioning queue off for us start you please restrict your questions to chew at a time. Our first question comes from Morgan Stanley. Good morning every month. Hopefully you and your families are doing well. Just a question. We have starting on dividends. I understand the difficulty of the situation clearly not only brumadinho bath covid-19 pandemic and the pressures are these puts in in the company's different stakeholders and how the company responding very responsible. But can you may be a virtual mail or give us a roadmap or what needs to happen for the company to to resume the dividends like

It has strong balance sheet generates, very strong cash flows and and at some point I think it you know, the company wants to resume dividend, but I want to understand how do you see the roadmap ahead and then are there any other potential uses of cash like you buy back the the wage here is that we're sold you a few years back or other use of cash that could improve the cash regeneration going forward. Thank you very much.

Thank you.

I was um are cameras are doing well. Thank you. I think dance is a thing that the roadmap as we've been saying since the beginning is the reparation quality the speed of the reparation. We believe that is under going pretty well by the facts, by the way, we prepared environment that is the level of indemnities. So I think this is on this this roadmap is pretty Dead online one way. We think you should be what happened is that you mentioned the level of uncertainty that brought to us is it called it made us, Um, I'm going to say that bring some extra cushion to our balance sheet. So that's why we

Just the revolver why we did that we have to look that in a timely basis was the beginning of the price that when impacted us on the beginning of March and we had like a month.

He was raised that we couldn't see at the time one is a second wave of contamination in China. That's still not done but not not very often now, but it's still on the table and secondly any other kind of stopping in operation. I think to answer a question objectively the as long as we we are able to get back the revolver. I think we are able to do what I meant about cap to this is to allocate to the shareholders their part. So I think deep then come back after the uncertainty of the code. It's out of the equation because we believe that we know that the the size of the damages of that we've created in blue medine. We are repairing with that. Mind. I think after paying the revolver we put resume dividends, of course propose that to the board of directors and resume our policy.

Or the use of cash would like to ask Lucy on elaborate a little bit.

Carlos we we used eight hundred million on the last quarter of last year to buy back the preferred shares and there's already a benefit this year. So there will be not too hung out flow towards those preferred shares cuz we bought them back and we do not anticipate any other major alternative uses of cash. So the cash will be rejected towards the shareholders once we repay back the revolver.

Our next question comes from John Brent HSBC.

I good afternoon. Thanks for taking my questions kind of a follow-up to Carlos this question. I know you've talked a lot about the ten billion in that debt. But if you look at your home liabilities, including brumadinho and San Marco and the roofies Etc total liabilities is closer to 15 billion. So I guess sort of a two-part question or are you on a super comfortable at that 15 billion level or would you look to potentially especially given the the week DRL? Would you look to to maybe pre-pay a portion of the the the sort of non-debt liabilities? And then if you could just sort of explain, you know, once you're cleared for dividends, you know, given the the weakness in a share price. You know, how do you look at sort of the cash dividends for a spy box at this point? Thank you.

Seneca go ahead.

John the the reason why we talked about those 15 billion and expanded liabilities is is to call your attention that when we think about our location we have in mind those additional commitments that that's the purpose the ten billion net debt Target.

Was established in a situation before the Blue Martini of them wrapped her in which we already had part of those additional liabilities. So we already had a what time we already had some aquanova liabilities and we we established the $10 billion US debt considering those those commitments already.

What's today? We stand at 5, right the the headline that that without those additional commitments. So you may say okay. So now you're five billion below your original Target wage, which you established one those additional commitments were already there. However, there's one additional commitment that was not there when we established the ten billion Target which is itself which today stands at four billion in our balance sheet. So you may you may say you are five billion below your original Target, but you have an additional commitment that did not exist or four billion when you establish that Target. So today we are slightly better. So to speak then the target we set which means that we bought don't intend to make additional users of of money in order to pay back any of those that headline that or or of those commitments. In fact, we cannot pay cuz they have a scam.

Which is not controlled by by us. He sees and and Wilma Jean with Hanover. It's as we as we execute on our programs. So therefore the money generated will be available fully 4 to return to to shareholders. We frankly do not believe that in a post covid-19 in a world where we repay back the the revolver that the share price will continue to trade at today's levels and not saying because I have a strong opinion on Valley share price. I'm just saying that all share prices all actually prices across the world are affected by covid-19 and valleys no difference. So we'll need to make that decision of dividends against BuyBacks. Once we see what the new normal level for the body shop price will be after we repay the revolver. But if you if you asked me what my bias is, obviously we did the last time we did a buyback wage.

Prices which were above today's prices. So, uh the the buyback option if it was today would be strongly considered as an additional option for Capital wage allocation at today share prices.

Great. Thank you very clear.

Our next question comes from Alex hacking City.

Yeah, good. Good morning. I guess good afternoon and Rio and thanks for the call. So a couple of questions firstly could you give us any update on how long is outside of China? I guess in April. Is it possible to quantify, you know demand from Europe, you know, Japan Korea elsewhere. That would be helpful and then the second question.

On your final or operations in Brazil and operations in Brazil in general. You know, how how are the logistics there? I think you know you gave us an update about a month ago Luciano and I thought you said there was some challenges but things were basically going okay has it gotten I guess Federal would since then and are there any, you know concerns that you have around your ability to kind of keep the operations going in Brazil. Thank you very much.

Go ahead.

Thank you, Alex. I think for a question. Well update about X China demand is is a challenge so it depends on the how how will be the duration of the month off the The Crisis but we have some Futures about this Europe. We see the they were really fast to Downstream and Upstream decisions shutting down operations. The main impact was the the automotive production and and also the steel different from the Middle East Middle East is we have an additional crisis as the oil crisis the basic for for the growth Thursday, the you're struggling with the same problem with the man's but they're trying to keep the price in the still have a break even with the compared with these Chrome.

The the compete with the process of production in in in in Midwest. So you see a problem different from Europe and Japan. We are off a little bit delayed comparing to Europe. But now they are now you slowing down Productions Automotive even construction. We have some some problems coming from here. But now how late the will be the crisis is the back to the question what we see that part of the the the man will all the supply will go to China. But even with this reply is being a fact in many regions in the world. So we have you all set this extra. I don't know what that builds of China China is is is back off.

the in regarding the Iraq War

Operations obviously, we we have really we are learning with the Cobra. Really. So we've been doing a lot of effort for our social distance charges. We reduced a lot of workers in our plant almost a 60% to guarantee that we have people, you know with less people only contains or even inside the buses you're scanning a body temperature. We start now the test of our team and also contractors it is very important to understand that this is a daily process that to control the absenteeism. So we have a daily checklist that people can be defined if they have any symptoms of they have a problem after that we can track the people and put them and and quarantine. So the main thing here is to guarantee the health of birth.

People and also the the other people that had contact with the death that people show this is a daily process that we we need to keep the operation. So so far we did not have a problem Logistics in even operations, but we are just in the middle of this crisis, but we we think that we were seeing that there will be the new normal. We need to be good to guarantee that we have a great control and also using technology GPS technology to track people to guarantee that they are Health wage to keep the operation. So this is the the problem that we're facing now.

Our next question comes from Bank of America Merrill Lynch. Yeah. Hey, good afternoon, and thanks for the detail. Hope of rims healthy. Wanted to follow up with a lacrosse question just to get a little more on the timing of the European recovery and how we think about the translation to pellet premiums and then if you wouldn't mind giving us an update on on the cake operations and your progress there and and what what governs the decision to stay offline and how that could proceed going forward. Thanks.

15. I'm going to answer your second question. I asked to elaborate a little bit more about your your recovery about Marty's Thursday. We still on track to do the plant overhaul at the plant because of the lockdown that happened in South Africa and Mozambique. We had to post office so due to that we're going to have to reschedule the side on it because we can plan better do it in a better way, but we don't know time frame for that wage watching is that the fact by the way Mozambique and Cole with the operation that has been more mostly heated by the by the cold feet on the fact that I just mentioned about the intervention of Maintenance and secondly about the demand India was is our main customer and was locked down as well. So it created a problem we were.

Well in March, that's a great.

An optimism about when we come back we come back with overhaul with the Improvement that we see, but of course we need Market as well, but it helped in a nutshell. I think we need to do the overhaul. We need to prove we need to correct that asset put to run at a 50 million ton rate and then decide what we're going to do not the way not not long at all the way around, you know going to discuss about selling JV anything before we correct the asset, but to collect the asset, we're going to need and window after Cody's.

Whether it be a recovery steady, I think is as I mentioned they are really fast through it should say that but see we have many scenarios to you know, to to see this definitely there will be a double-digit reduction depends on again the duration of the page over we don't if you consider six months to to go back and even know to to the same level will be something between a 10 or even 30% of reduction of production this year. So this is really there are a lot of uncertainties. We are tracking the package some leading indicators. We have some some information from satellite that you can see people now going back to to Auto factors try paging.

Who established we see some announcements during May that some government or returning to their operations again? There'll be a new normal. If the the fact that the Thursday will be in fact definitely will be double-digit, but we need to track how how it's going to happen the the the valve of the of the disease.

Team that just Luciano just a complement on on on call it it's disappointing that the month that we had the very good production March which was almost at a 11 million month was followed by a monthly wage demand collapsed. So in April, we're going to produce about seven hundred thousand and maybe less than may not because we're not able to produce but because we don't have wage storage to store more cold. We cannot sell calling to China because of aspects of our call. So we unfortunately we have that that situation but um, just to give you some color cuz although the operations run really well the next month are going to be severely impacted.

Hello.

Are you the next question comes from question?

For holding disco the two questions the first one on the parrots again, you know, assuming that we can see a relatively high-risk that wage European demand is going to be a seriously affected your typical went to you know, we stopped in the first quarter. I mean, would you be considering not restarting them in coming weeks and at a side question also that it makes sense to maybe slow down the restart at Marco or or are you adding on San Marco as as you age between the first place and my second question is on the New Caledonia and saw some headlines that maybe finding a solution to divest operation. I mean, he's he's very stick or something closer or more likely outcome. Thank you.

Thank you for let me begin with and then I'll testamark to elaborate a little bit because I think we have some.

By the way, follow-up that what we said to you and in the past and good follow-up, by the way, because we're closing the refinery and I believe that we are on a good approach to life exit the business Health needs so over that's marked to answer and then it's been adequate elaborate on the ballot as well as a marker. I can come back to the

Okay. Thanks Christian for the question Edward was already addressed the the closure of the refinery which is progressing. Well, then we should see the last of the material running through a circuit bye-bye in the coming Days by next week. It's so just so that brings us to the to the exit strategy for Valley New Caledonia, which we announced back in December of June 2019 as you'll recall from prior analyst calls. We mentioned that the process with Rothschilds searching for an investor was progressing. Well, we did not have non-binding offers received at the end of February and we are progressing fairly well with the a couple of potential investors, of course, the crisis may come in March and but we don't think that will impact the process too much. So we we have a a good level of confidence that we should be finding a potential investor in the next month.

To 2 so we would say that.

That's the the route that's higher likelihood than a than a closure this point in time.

Okay, and what about the balance system and then I go back to a question. Thank you for the question regarding the pallets off the first we we decide to change the guidance from 44 to 35 to 40. But this decision was related to the production side that the lifeflight we are limited with pellet feed coming from Brooklyn to you. You may show that we we are struggling with the return of the the Flopper off waiting for for new assessment in the latter years damn, but now after school with we are checking if you have the menfolk those pallets. So again, the the main thing is is is value of your volume. We we are not going to to to to produce more than that. We need money.

Our Market Natural Market is Europe. And and also Middle East the problem now is is is off the temporary problem is not related to price but with the demand so we checked this decision every every day actually so we can we we are flexible to shut down some some plant and and sell directly pallet fee to China or even a bland in brbf. So we are taking a decision every day. If you don't have short-term demand we can switch the the program and and keep the the the best margins.

In question about someone I think he's on his back right and send these are some markets. But the rhythm of rum pop and the commitment to come back with some article is not changed.

But if if you want a laboratory tomorrow, can you

I don't think we sent it all I think just answering a question. We're coming back on.

I think I'm out.

our next question comes from

Like good afternoon two questions for me, please. First one on iron overflows. Just if you could give us some indication even in Broad terms of how much more business and you did with with China or Asia in general in April versus March. So we get a sense of your ability to change address and redirect flows there and my second question is a bit more on the modeling side, maybe Food Channel as a way to help us with Samsung GT around hedging if there is any rule of thumb that would help us through the the p&l with the with the with the impact of the month. Thank you.

Okay, you can take the the first one.

Well Chinese back, actually, they're really putting a lot of effort came of those to you know, to put the economy back many indicators more than ninety percent of of the infrastructure project for back and we have a very interesting information from from corporate properties. They they sold more than hundred and 30% in April. So March and am in this tool we had a a record-high record last week in price in in sales. Sorry for rebar so dead China is trying to to make the the best effort to to to fight against, you know, the the the the worst scenario that they they fake so we are sold out in

China actually and in from the since last year after blooming onion our market share Cedar the whole sale in Europe was wage, uh, not level lower level than than in the past so our exposure in that region X China was not really high. So I don't we don't have any problem to to sell more product in China and we need to remind probably you remember the the last call. We we said that we may have to have to to to to make a a better inventory of of b r b f for the blending and we sold all the the the full stocks and the end of that year last year. And and now we are we're rebuilding the The Venture so we have inventory as our source of birth.

Of the men but actually we are selling the whole BRB after we have and also Carriage House Finance.

Okay. So the Seattle before I answered this is just back on the Christians question on some article hot commissioning will start in July off. The filters are being installed. So we are on track for December. Although we had a little bit of buffer and we're eating up on this buffer. But December 2012 is our best. Guess still for some awkward. We start on the Hedge as you saw we had a approximately 1.1 billion US Dollars wage, uh change lost in the value of derivatives currency derivatives. This is an accounting economic loss cuz we do not pay this month will those derivatives they match the profile of the debt. So if the real stands where it is for the next seven to ten years, that's how we're going to realize Thursday.

Boston's in terms of a cash flow

But I I show the the slightest shows in my introduction. It shows that the the value of the real denominated debt decreased by 500 million month approximately $500 US so part of this hatch is actually the offset of the decrease in the real denominated that adviser so long in other words when we took those liabilities, we immediately swapped them back into u.s. Dollars cuz it was convenient that the car is a policy of Allah to try to put these comedians as much as possible wage. So the value of that that decline about five hundred million were losing five hundred meters or out of the one point 1 billion in the in the derivatives, but still there's another $600 of life and those six hundred and actually they were entered into in order to hedge the commitments of plumage in your hand over his face, but only a partial Hedge

So as you saw also on the slide that I showed the those other liabilities significantly declined in value in the Brazilian regards to the point that they are are expanding wage. That's so to speak the way we Define the release has decreased by by more than two billion us. So all-in-all even in the balance sheets situation is extremely backed up for favorable for Bobby's the devaluation of the the person real he happens that the only thing that goes through the balance sheet and all those things and didn't realize is the change in the value of the financial derivatives derivative instrument. The other changes are not flow into the income statement because originally the income statement is prepared numbers in realize so in Brazil in reality, there's no change if there's no impacts. It is only translated into u.s. Dollars to to show to you so that that's the logic behind the Hedge.

Thank you.

Our next question comes from all phones.

Thank you. Most of my questions about I don't know have an answer. But I have one about the basement as tradition and it specifically you have them to Mystic about demand increasing from the electric vehicles Revolution. But without the industry breaking very challenging and they probably things have changed jobs and electric vehicles investment. Invest in electric vehicles is not a priority at this point. So if you can provide a an update on the short-term and longer-term the Memphis for me telling review and how you plan to adapt to market conditions. So you can maximize the value of your nickel reserves and perhaps you can leave out the page at this point the DMC and focus on the other assets that you are. Thank you.

I think of a phone I think you pointed out better for you very clearly. We we are exiting GMC to focus in our world-class Assets in both Canada and Indonesia off. So, but you

You won't say we also raised a very interesting point about the change in in helping to say they respected stick stations about the electric vehicle. I believe this is a long-term problem, but I'll ask marks to elaborate because I'm not running based mails anymore. So Mark must have more view on that but we still positive on the TV for sure.

Yes, that's right Eduardo. Thanks Alfonso for the question. And I I would I would Echo would have to set it in the short-term. There there definitely is an impact in particular the the market in China and the first two months obviously significant drop. We don't see as much of an impact in Europe this year. But in terms of the exposure in the short term, it's not that significant and especially as we are excluding the DNC results from our guidance cetera, but in fact the the product that we do so from GMC into the market with the NHC Michael hydroxide cake is actually doing fairly. Well, then we've had some good contract recently. So in the short-term it certainly is impacting the overall growth of the electric vehicle demand wage or nickel and we will see we will see a decrease demand overall in the market for that material as we would see if we think in the stainless steel Market over also wage.

Overall view of the short-term including electric vehicles is that we we will move from what we expect it to be a deficit this year to a surplus of Nicholson in the supply-demand equation that said we we are a strong believer in the growth of electric vehicles in the coming years, and we remain committed to that.

Our next question comes from Andreas booking house or UPS.

Thank you very much. Just just one question for me. And I'm not not sure whether that's one that's easy to answer really but how do you think about your choice of long term Break Even cost to China given the new situation wherein I can definitely see how your cash costs will come down when you ramp up volumes again wage because it'll dilute the fixed cost space and I can definitely see also see how the currently lower oil price benefit you on the freight side. But if we kind of look beyond that, once you start putting more volume back into the market and assuming that oil prices kind of recover from here, you know, I would expect Freight rates to call back up again and and maybe even cobbled with you know, some banks which you know, I I see I could end up offsetting some of the cost savings you would be getting by ramping up production. So when I kind of look at your break-even cost to China it's gone including with, you know, sustaining wage.

Topics and then palette adjustment and so on we've seen that, you know, we've seen that that break even cost to China go from, you know, early forties or early 30s per ton. So now basically $49 a ton.

How do you think about that 49, you know going forward? Is that is that something we we're going to see go back into the thirties? Are we going to stay in the forties? And and again, I realized a lot of this is going to depend on freight rates and off and b r l and a bunch of other things that are very hard to to to kind of to look at but just to get your kind of broad view on it. Where do you think we kind of like even out in the longer-term here?

Okay under that your stock question really because it's so fluid. Everything is so for related when you talk to audio and talk to iron ore price and it's a very short-term problem. But I think we bought some some exercise as well here. Ya Andreas. The last time we had more stability in our production was in 2018, and we were very firm very close to $30 per tonne all-in costs without sustaining capital and at the end of 18 with the increasing premiums. We went actually below we got to $28,000 for John and that would normalize higher oil prices higher spot rates and and so on and at the time we were discussing how we could do some internal self helping work off with digital transformation with efficiency in order to try to get this down to 225. I would say that in a normal situation. We would be naturally back to that $30 off.

For Tom sustaining Capital, perhaps a little lower cuz at that time after that when he was not fully ramped up and we would be in a more stable steady June 8th. We will be targeting again goals and try to to aim at the $25 per ton. So the logic of value Precor was pretty much like, okay, that's $60 long-term. I don't know the price. I'm going to shoot for $25 per terms $35 margin times four hundred million tons. It's a 14 billion dollar business office as the baseball for the cash flow generation of body. And we also have the other business to improve into the to fix that was kind of the long-term View and I think we're going to get back to pretty much something around this after everything normalizes. Just Chuchu add. Another point is I think part of that is is is we're building the the fleet Valley Max's and waiver Max's birth.

And long term we're going to have the benefits of that. So this is a long-term appeal to to stabilize the lower Freight. And also what installation of this phone numbers we can offset. In fact of the low software bunker Souls another component to guarantee that we are on the right track for for the thirties.

This concludes today's question-and-answer session Mister bartolomeo at this time. You may proceed with your closing statement.

Okay, thank you. Thank you all for your questions and interested in our results now would like to reinforce that will keep facing this unprecedented crisis with humbleness responsibility sense of urgency and discipline and more important with leasing. I think it's a new way to see that body and I would like to invite you to read our sustainability report. It's a loss that could be shared with you that of course, you don't have the time to do this, Okay. Have a good day. Thank you again and see when the next time.

That does go.

Includes by this conference call for today. Thank you very much for your participation. You may not connect your line. Thank you.

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