Q2 2020 Vale SA Earnings Call
[music].
Good morning, ladies and gentlemen.
Welcome to buy this conference call to discuss second quarter 2020 <unk> results.
This time all participants are not least then only most later, we'll conduct a question answer session and instructions will be given at that time.
They should require assistance during the call. Please press the star Keith followed by Zero as a reminder, this conference is being recorded in the recording will be available in the company's website at <unk> Dot Com I think I started link.
This conference call was accompanied by a slide presentation also available I think vectors link at the company's website and it's just made it to be anchor that that's well the broadcasting gene kinda, both the audio and things like chains have a few seconds to lane relationship they ought to transmitted via phone.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor off the <unk>.
[laughter] Litigation Reform Act up 19, I think actual performance could differ materially from that the dissipated in any forward looking comments as a result of macroeconomic conditions could risks and other factors.
With us today are Mr. Eduardo just I, just thought to lumpy <unk> Chief Executive Officer.
Mr. Luciano Siani TD CFO.
Let me step myself, the Spinelli executive officer for ferrous minerals.
Mr., Mike Trevor Executive Officer for base metals.
Mr Congressmen data safety and operational excellence.
Officer.
Just a outage and the beta executive officer core business sports.
Third follow quotas director coal.
Mr. Additionally, the dog dual gender I'll call. So.
He says I didn't I can tell director people.
First Mr. Eduardo Bancolombia will proceed to the presentation volleys shook ustwenty for from US and after that you would be available for questions answered.
It is now my pleasure to tend to covert amused. These Eduardo Bancolombias, Sir you may now begin.
Okay. Thank you.
Good morning to everyone first of all hope you in your families are doing well and work I mean just unprecedented.
Well I feel like to highlight that body continues to face difficult midnight eastern dammit, humbleness discipline and sense of words.
Almost five mile.
I'd be managing the company remotely and then if demand as oppose to make important source, but those are planning for the best.
We are learning a lot through this process not just the planning they fall in these situations there'll be things.
That said into less water. This war will not be as well so we'll keep Argus downside.
Finally, our priorities continue that.
They are safety.
People in the food preparation of too much.
Next slide please.
Well I'll do we see plan continues in our response to defend them. It has been incorporated funded.
Let me remind you that our reserves.
As we focus has four pool, we prioritize.
First the reparation over to my view.
Second the sale of our employees are dams.
Work for a qualities communities.
Third the stability of operations and left the disciplined capital allocation.
I would do a little bit each of this for fall through the next lives.
The next one.
Starting with the refrigeration our commitment to provide you remain steady.
It's been dammit, we are there helping to be sure resources necessary for the health care of the effective communities.
The indications continue remotely with more than 7600 people Colbert by agreements, which totals about 3.9 billion. We I, we've done that and we're discussing.
Also we have already answered before a fair number of agreements with L. Farkas focused on reparation products from professional fall in Florida to water security in the region. So far we have invested 11.5 beanery eyes in the refrigeration through my view and access with them.
That is to state that we have already done a lot and we'll continue to do so aware of our commitments the rep.
With that the next slides.
Well I have been saying repeatedly.
Top priority safety.
Speaking of our people.
All operations, we have implemented world class standards and then.
In Brazil, they need them use it we have implemented meth testing in the operational areas and we have already that's it I worked for more than once.
It's important to see that's the heaviest typically follow did not meet show protocol for test track entries, we continue to keep our daily checklists any really to our employees that into our operations.
I wasn't Congress has recently and it was very important to see how we are applying what we learned when dealing with is absolutely new situations, where as well as was the case, we did the Buda for example.
When another strong we continue people amid the hero our EBIT indication in recent weakness program. You 20 planning we have already completed its limitations at 11 sites. We have another 47 planned by the end of the year.
We are sold supplementing here for them safety study now in August.
Speaking in them safety, we continue to make progress on our de characterization plan. We are advancing the work for the completion of the furnace view them in the construction of the containment structures Finally, Asia and Europe record mentioned in the last fall continues to support group.
In the states standards of our dams.
For the please go for the Maxwell.
Safety of full evolves the care for our communities. We continued support society aware of this visual role we have unit volume in the city of out there, but for example in a partnership with the City Hall, we hadn't made mass death available to the population, but our babbitt's was the first municipality in Brazil.
To mess that the with the bid yard to them.
By the second.
The quarter, we had already disbursed 470 million reality matches to find different dynamics in operations around the world I would like to stress that it's not just about financial resources. We are working together with communities in retail partners as anybody out there but.
With the expansion of the capacity of the hospital there in the construction of one feud Costco reach we constructed in operators.
As you can see our obsession with safety continues with grapes. It came from our teams in collaboration with communities and all parties.
If you go for the next please.
Well within our new back to society, we continue to evolve in are you. Jim recently, we took important steps with the creation of the nomination committee, which aims and the evolution of our governance model in which we will work already for the election of the board is when if anyone Indiana.
One of our Chief compliance officer responsible for manage our third line of defense is strengthening our governance.
Also released from easier gaps closure plan, we have a target of close to 10 gaps this year of which you already closed treat the formation of the audit committee the disclosure of management compensation in the release today of our tax strengthen report.
On the environmental fraud, our ambition regarding climate change is even more up to date.
We announced last quarter that we work to reduce 32% of our emissions the scope one into inline with the pairs agreement.
And is very important we have an unbelievable masked what youve distribution schools.
Already looking at spoke three recently announced a nonbinding agreements with scopes view with Mitsui establish a new company targeting more supply low carbon matters to the still leaves his new company, we lose existing and new technologies, such as our technical rat and Didnt Darex process.
And why is prioritizing SG sector. So important because we believed that the integration of messaging in our routine we would be essential for validus leasing.
The next slide.
As it their point of our the reason we continue to stabilize our production.
Amid the restrictions that we both by the authorities.
Due to defend dynamic in our own safety measures this brought us being very challenging.
An example of this is that we operated before steps into use them to protect our employees as a result of what explainable testing tracking in treating people, even those who did not that's positive what have contacted positive gazes work credits that are efficient was impacted so that we could maintain a safe.
Work environment and continue to operate.
The good news that since June we have been able to play in our production and maintenance without any restrictions.
Also we had ordered achievements in the resumption of our production in iron ore, we had the restart of people babble and dispute off of the production space. In June July we have moved onto a very strong second half aiming to meet the guidance for the year.
We will still have some steps to follow in the resumption plan. It's been every week, we will more details about them.
Base metals, we continue to bear the fruits of the good work carry out enough of them.
With rubber legal production since the fourth quarter my team, while they mine operations presume safely. One month ahead of schedule at the three mountain care and maintenance as a preventive measures of four Cobiz 19 in relation to Vinci, we continue to negotiate that it definitive a sale of that asset to new sensing unit transaction.
That guarantees the continually have introduced by this new operator for deals we have indicated a commitment of $500 million into financing package for that this is continued.
The goal we face the challenge water highly impacted by demand we see certain tax is our production.
We continue to be prepared to start the revamping our they assets as soon as possible as we can guarantee as soon as we can guarantee the logistics for Entolimod witness in materials on this side.
Looking a little bit further to conclude with discipline and highest safety standards, we will resume our production capacity of 400 million tones of iron ore by 2022.
Bruce that's an excellent.
Lastly.
Capital discipline is fundamental to the due east come up it points that we have reinforced on several occasions looking at our capital allocation mainly serves two purposes first our commitments for example, when my genes in our own financial debt as I said, we're making progress on all those instruments.
Corporate Medina, specifically, we have provisioned $3.4 billion, having already spent $2.6 billion into reparation, which has been progressing consistently quickly image quality. The next is safety and operational continuity import visa specs, we have any that moves around 4.5 to <unk>.
$5 billion for the next years of course includes replacement projects and some growth initiatives and fine they remuneration of our shareholders. Therefore, we believe that bodies views in the necessary conditions, which means the payment of dividends our commitment as our ongoing our financial position is robust to me this commitments.
For this result values board of director with the support of our Executive Board restored the shareholder remuneration falls.
Well. He concludes our commitment is to continue to do everything we can to should assist of our people in our operations. Finally, I would like to thank all of our employees and partners for their efforts in recent months.
I'll now pass the floor to spin and we'll give more details with mobile is resumption plant and afterwards, we'll Seattle will give some details about our results in the second quarter.
Thank you very material stations and let's get back to you on that winning please manny.
Thank you I'd rather.
Well.
We know that you have some questions about iron ore production I want to address the answer.
Three.
Blocks of information so firstly.
It's important to to emphasize that we have a plan to resume faster to 400 million tons by Chinese 22, we are seeking to the plan and we know what to do but you have to do.
Secondly.
We have obviously, we had an additional challenge or after Colgate so.
We had to change many many things that are I want to remind you that ER for.
Many issues that that's we've faced in.
Nicole So first one.
Was related Schweppes empties. So now we are in one third.
Of the peak that that's happening in April a.
We are dealing really well.
The north season, now or in the softness so discerning shelter.
System to the problem is growing but we've so far so good.
We had the stoppage of BW, Yeah, we lost for medium term with this and it will learn a lot and improve our our controls after dues are just case.
Those impacts it is true sure ones a represent 3.5 made on touch.
So last flexibility and our production going over will any any but for now we need to delever.
Just to give an example, we moved one maintenance from the wet season. So the dry season, So we lost more.
We are planning to lost more production to the second half because of that was already planet.
And just remind do you already said that we choose to keep our operations running rather than some constructions chewing prove capacity so.
All those impacts represents a 10 million tons part of that is already done part of that is already in our plan.
Well.
The third.
Information that third block of information I'll I'll try view on this slide line by line.
Yeah. It is important to show that we have a different road map for each system that we we have seen in Brazil. So.
But.
Support do you see I want to drag your attention about this we have.
Some options real options are not only a return of so you have more efficient. So the system would have new assets steps we can.
Give more confidence to return operations.
In this year next year.
Seltzer system.
[noise] kind of challenge we have that we are more exposed to the upstream damps. So oh, we have the sequence that too we already told you many times that we need to protect testing back their operations in the dam a return to drive the operations the wet operations and the blast.
So in the first half.
We improved our operations you've actually got to we are now back in our full capacity in the mine site, but do you have restrictions or chew delever this or to the pipeline.
Because we have some but part of the conveyor belt is close to one or one of the dams.
Second half would have to man.
Improvements here the first the.
Point is we need to move go back to.
Sure resumed operations Fabrica, we didn't do this yet we have the plan we need a cemeteries. So theres a from a they see and the prosecutors your <unk> or <unk> already have displaying with them.
We're not counting on this production for this year, but we'll be back in the next year.
The second point here is about might have we just raising it again the once you.
Draeger attention about this this is a new asset.
That will give a the possibility to return to try production for watching gradually and weekend.
I have the full operation in 2021.
Second line is about southeastern system.
If you look a little bit different problem. That's we have here the challenges.
The problem with upstream Damsio now behind so you were right it already resuming operations in the tunable payable we all are running their operations in wet AMD processing.
Yeah, we had some problems Colby.
What does step the main points or that was can you touch Ras into second half for next year.
I went to remind you that we are moving from a comment operations that use dams to an operation that we need to future detailing and.
Trice Tech the tailings after that but that there is the construction for that implementation that will be ready only 22.
Well there.
We used attempt that we have been lost capacity.
When we assume or as we are assessing two main dams and there's a into this corridor.
One is it a beautiful true and all other into Buda into all the reseller later, she does and Brookwood too.
We <unk>, we have a we are really.
Almost dawn and you're talking to show a in some and a few weeks, we're gonna have before assessment and probably Irach return the operation and actually returned a construction of the <unk> capacity. So we need to play in these are running gonna have a there the the full report of the of the depth.
And ladies yet as this is a little behind we still have to improve our assessment that we are trailing some some some task and as soon as you have information we are going up we're gonna have the plan to ER should resume these operations, but it's important to say we also.
I have another option for operationally brookwood tool that isn't a new down call thoughtful there's other construction, we're not counting on this capacity for this year remember that we had some delays where the coal with but a waiting to have and that they have a high expectation to have the cooperation of a brook tool that.
Last year, so there's up after that we'll have the breach, but the capacity after them and the 2022, we'll move to to try stack and operations.
The third one is the north them system and this is totally different game. The name of the game here is new Pete and ramp up off the S. 11, D., we had a problem in the first half with a very heavy rainy season.
We had some problems at Cobiz.
And the and the delay of more hormone, that's a new piece in north branch, but having the second half.
Well operationally off not French.
Yeah. The S 11 D is running amazingly well, we yesterday, we had we had a daily records or 300.
Hundred Seventys Teligent Toms and one day.
It's a it's an amazing record we're running the run rate of that's 11 D is 100, 1100 10 million pounds for the last 20 days.
We and we also have another.
And that is called say how last years, just east range at the risk having a gap. So we quit this operation. It's in the beginning of 2019 and now we already have the the first permits for for the there was a resumption and the final permits is expected to August.
So you're running two or two but you have the 200.
Medium terms or in the next few years.
Just to conclude or.
That's true actually <unk>, Joe Montana half, what you're planning, where the lever in our production or that problem, we have many challenges or after coal with.
Yeah, but that from from the last 20 days almost 30 days, we're delivering more than one made him.
A day.
So we are committed to to de lever our guidance or in the lower level of the guidance. We have many a challenge but have a great assets would make it happen and the right people, so I want to bestial, Louisiana.
Thank you must sell them.
So a few highlights on the financials, starting by iron ore performance and cost switch or was the negative highlight of the quarter.
Costs increase from 16.2 to 17.1.
And the major corporate here is low production.
Well production has several consequences so it reduces the cost dilution.
And it because of the production below plan, we had many ships are waiting at the port to being.
A loaded.
Andy Demurrage costs skyrocketed, we had.
One of the worst quarters ever in terms of demurrage, we paid 81 million U.S. dollars.
For the weighting of of those ships, an increase of about 28 million from the prior quarter.
Which in itself is a an increase of 50 cents per Tom in terms of costs.
So we expect for the second half that this will all revert so cost dilution will take off about $2 for Tong from costs and the fall of the mortgage towards normalized levels will take another.
90 cents off costs, that's why we're guiding to.
Towards 14, and a half for the second half, which is slightly above the 14, we said the quarter before and the reason is because of those delays on the resumption of for the fourth quarter, which would further to dilute costs now the or into 21. So we will not get the full benefit.
The but the FX the devaluation already had positive effects in some other parts of the iron ore business. For example, stoppage expenses emotion noticed they fell from $3 for talking to 2.2 dollars per ton.
Mostly on FX.
The pellet margin expanded substantially $22 per tone in the quarter.
Okay, we had $5 per ton and price, we had $7 per ton in dividends that.
Only come every other quarter.
But half of this margin expansion for example about $8 per ton.
Oh, I can be attributed to FX and lower cost performance of our palletizing plants. So.
Once we normalized the iron ore fine situation, we should also see important boosting our competitiveness from from from FX.
In base metals. The results are self explanatory great performance production wise for the assets, but lost sales because of low demand.
I wonder highlight for opportunities for Q3, and after thereafter for improvement up results.
First one sales will be about production.
This is our because we've been building inventories substantially and now we intend according to market conditions to offload those inventories.
Second thing gold is going up substantially average price 1700 for the second quarter now approaching $2000 Brouse.
Every hundred dollars per ounce means an additional 11 million U.S. dollars in a quarterly.
EBITDA.
So it's a it's a boost.
Also puma.
Just coming back.
After finally, we were able to do though the comprehensive maintenance in July.
Should come back at a rate of 25000 tons of nickel per year.
And generate EBITDA because today tomorrow operation. So this will boost results as well and last but not least voice E Bay ramp up it was stopped generating expenses now we will come back and copper production will increase in expenses are going to come down. So watch out for these factors are going forward.
[noise] cash flows they were modest.
Very leveraged on volumes the performance only started to improve on volumes by June.
As a result, we finalized the quarter with lots of outstanding sales to be collected these sales work collected in July already and just to give an example in 15 days in July the Cashel generational body was as large as in the entire first half.
So the pace of cash flow generation.
He is very different now in the second half than it was in the first half.
About the revolver and as we were resuming the dividend policy. We also said that we would repay first the revolver.
Already gave notice to the banks, but we're discussing a few small amendments to the contract before we repaid and that process should be concluded in August.
Finally, I want to highlight an important accomplishment yesterday towards the risking ore body, which is the approval by the President Controllership Court.
Of the renewal of the concession agreements on our railways both from the north and in the South. This is very very important those concessions were due to expire in 27. They now have another 30 years beyond 27.
Extension.
It's still not the final milestone we still have some minor adjustments that will be made by the agency on the Ministry.
But this bodes well was the the final major roadblock towards the approval and now were very positive that we may signed the agreement.
This year.
There are some associated investments.
Those investments are known by valley since the proposal was crafted two years ago. So no surprise here and it's already incorporated in our long term planning, both the sustaining investments and some capital investments to build assets for the federal government.
That was my summary, and now let's move to questions and answers.
Thank you ladies and gentlemen, then I'll begin the question answer session. If you have a question. Please perhaps they start Keith followed by one.
If at any time actually moved yourself from the question in queue breast start chills. Please restrict your question the questions to chew at a time.
Our first question comes from Timna Tanners Bank of America Merrill Lynch.
Yeah, Hi, great. Thanks for that opportunity and and good morning, everyone is doing well. Good afternoon. There wanted to just after a little bit more about the production out outlook and clearly the 400 million. It's a medium term goal and he laid out some challenges in a short time I just wonder.
You know how that how if you're concerned about that short fall having added to that.
The ability of your customers to find I'll kind of just or can produce their own you know mines her to add to their on mining plans such as I'm, you know encouraging seem and do you have you could just talk about that in your concerns about the high on our price there or that shortfall in supply and then I was just wondering if you could lay out a little bit more in terms of timing for when we could expect.
Further updates on your Divesture plans in call and B and C. Thanks.
Okay. So in a thankful for your questions I think its medication and daily iron ore.
Perspective of course, I think prices a text.
In a sense and where they shouldn't be so attractive or investment that wouldn't be.
I believe that the supply demand balances Keith what we see some some medium term.
Losses in the supply as well, but it's noticeable speed to to answer that then I come back with the divestitures it.
Hi, Tim enough. Thank you for your question Firstleap volley is the only a company that can.
Bring back almost to have the medium Thompson. The next two years so.
As I mentioned or if you have some problems I'm talking about delays off some month, but ER will be back. So this is a.
Very important information will have any and a restriction or to the high risk Fisher too to come back.
Secondly, we I think we are we have if we need to.
To supply more if you have a demand.
But that we have a very yeah policy that we are really stick that that is the value.
If you need more capacity are definitely we have the the best projects to.
True true, Japan or to happen, a we are developing or another possibility to share. Some another trend team last 11 D.
There are under in finalizing the the.
The the the project and but that's the submit this to a as soon as possible to to our board.
Again, or you're right that are that the price or east is high we don't see a support for the price Sims and the short to midterm actually.
Remember that we are now bringing in more than 50 meter tons for the marker then to the second half.
You're right that that the the demand in China is yours is amazing they they have a managed stimulus for either for second half.
Related to infrastructure, but we see that the all those information that theres no support to to keep so high the price.
Right.
Yeah. Thanks, Nick I think just to add them. It's been at this point I think we are the growth option that is the August one in the cheapest one that's why we're gonna mouse or would those would be by the way to our board expansion of the S. 11, the will to use our cooked languages in the past is not leave and of course, we have to remember a month.
Value over volume Lucky we've stopped disease. So we've got to be able to doesn't really.
On a on the <unk> glow monkeys are the same there's no updates there is only the unfortunately, we weren't able to.
Starting to revamp because of movies I think by the way coal was the most impacted by completing all that music on demand production, but not because we have no local be problem there, but the fact that the weaker we were not able to answer the asset to fix it or we will take alive. So our first strategy as we'd be thing its fixed assets, then we're going to decide what to do.
With it.
They see a we have good news I think we just added more it'd be more time to use entry to go over some do you get some some papers and but we're very confident that we're going to be able to close the transaction. That's why we did to the relevant fact yesterday, but I think I would like add mark to to add some color just to give play.
I see because it's very important to understand that we want a women's solution for me.
Well, we want to catch that.
Yes in this Tina I believe your question was was around the timing and as as and water was saying we feel that were.
In very good position to sign documentation with the.
With new century is lost a French state before the expiring exclusivity in early September we feel like are there any position to do so and then we will go through a period of.
Primarily the conditions around financing concluding the financing and we expect that the closing would occur before well before year end. So that's the timing and in terms of its maybe some additional color.
The financing package is I was I would say is quite well defined in terms of our current discussions and.
The CNO is already set out some of the parameters of the financing packages set out in our press release it totaled 900 million.
200 million euros from the French stayed 200 million for mid century 500 from US just as important note about our costs our contribution is that it.
It is.
Starting as of July 1st So there are expenditures that were already incurring and we'll incur until closing which would be deducted from that 500 million.
There's also a deferred compensation component in the discussions where we could earn money back based on price in future years and other than I think it's shaping up quite well in new century is coming to the table with a very robust package to to continue the handoff.
This asset to them with us handing it off other than the contribution to the financing we would pass off the obligations and liabilities to me to the owners going forward after closing.
Our next question comes from Carlos de Alba Morgan Stanley.
So now hopefully everyone is doing fine. So my question is maybe the why do they have you can comment on any updates on the on the potential comprehensive agreement.
We do authorities in Brasil regarding the brought many new particularly the legal exposure and any order provisions or.
[noise] money that the company you may need to pay on that front and then a fully either <unk> or maybe the c. I know I'm just wanted to confirm that dividend situation. So.
The way I understand is that the company will pay novoseven. They just something that would show this equity announced in December flaws then in September I subject to board approval. They may be another dividend on the back over the first half performance and then next March another dividend on the back of the second half a 2020.
Performance, if you could come from the that'd be great plus any comments that you may have on a upside or potential, especially on dividends and share buybacks. Thank you.
Because thank you I'll address quickly the first one and then a systemic and give some more color levied against that you're almost there I.
I think though we are engaged yes with the all the all the stakeholders that or you know we are actually there's I mean, even today so.
Just to be clear, but it's a convergence right is that many stakeholders, who not the government of yunos super acid vitamins arrested by everybody congrats and getting to a.
More broader agreement does remain the liquidity, Joe just to get a that legal certainty the government and the scope correct and I think we are but how can I say that we are advancing on that sense because as I mentioned, the there's interest from the government. There's interest from the prosecutor there. So it's just a matter of of trying to meet those.
Those stake holders needs because of course, each one has its own a priority than we need to go over.
So I cannot give you an or die that I'm going to their timeline for that because it depends on them on August convergence, it, but one thing I want to highlight and maybe get to your point to that idea that we are doing the reparation because as a as we speak a is obligation and we are as we are progressing well on that for all.
We didn't cases, we believe the reparation that the environment of ER.
This is that ration, but how do.
Solution for the hybrid problem that they have there. So I think these are advancing well and of course as desirable that we can go verge inflows. This ER to give like a cap and and the and the fact that a U.S. I think it's important information that we already within a footnote in our balance that we expect an arrangement.
I think it from seven to help me here it's a.
Change the dollar right around what we do not provision Sevenseven hundred authority over 1.5, it's on the footnotes Andres.
Footnotes, because we believe those numbers are they talk to the projects that we leased that with the government. So we would do we see a any other provisions coming from that discussions okay. So in it and silicon I was going to give some more color on that specifically about dividends I think it's important that we resumed.
The policy because we we are confident if our visas and I think given the recipe. So I don't need to go over that it is that we are going to pay now in August the.
The press on on the one that we announced in December there's a second that's the first half in September in Denim go and then follows on the the water for the predictability that we want to have a default we haven't discussed yet or any extraordinary dividends because its young we'll give you more clarity on long haul mindset to our but.
Of course, there we need to know what though how the world Arby's isn't he September how much you're going to be much in et cetera. I think you can help me on that.
Okay first on the provisions.
Why do we separate on the footnote that amount of money and why don't we incorporate in the existing provisions.
The list of initiatives and programs and projects being discussed with the government is very adherence to the provisions that we already have in the balance sheet. So no change here.
The thing is the icing into cake like the the major gift for example for the people of miniaturize with such an agreement would be some major infrastructure works already in the identify that have no relationship to put a margin.
And then if and when we get to legal certainty all the conditions that we want we wouldn't be willing to do those extra up an above infrastructural works in order to have closure on all of this but if you look strictly on the preparation of one of my view the estimates both about the ones we have on the balance sheet and the ones that being discussed with the government there.
Very very very similar.
On the dividends.
Yes the.
Interest on capital that was declared in 19.
And it's due to the shareholders back then in December 19 will be paid in a week.
Next week.
And in addition to that the minimum dividends related to the first half performance will be paid in September.
And it will be deciding September because the board has always the prerogative to increase and pay a an extraordinary dividend and again as you said in March there will come another dividend relating to the second half performance Ah.
When September comps, we will look into our cash position trajectory of the markets. We will have a better idea of the performance on the second half and therefore of how much we will need to pay in March.
Remember that first quarter of is usually a weaker quarter in terms of cash flow. So you need to look at your balance sheet already considering probably the commitment to pay another dividend the March.
Well look at the share price for example in order to make a decision about buybacks. So all those variables will be considered and towards the decision if any on on extraordinary dividends or buybacks, but let's remind us remember guys. As we're seeing today in the headlines. This is a very uncertain world so little bit of caution as the new.
Of the game here.
Mm Hmm.
[noise] [noise].
Our next question comes from Alex hacking teaching.
Yeah good morning.
Everyone I hope, you're doing well, let's see ought to just a follow up.
On on the on the dividend question could you remind us what your balance sheet targets are in terms of not that you know I remember a one point, you're kinda targeting that out of 10 billion, but that feels like a lifetime ago and obviously a lot has changed since then.
From just try to remind myself about how you're kind of thinking about that through the cycle at this point.
And then the second question would be I guess, two or Marcello.
On the 400 million iron ore target you know kind of mid term is there any flexibility or late and see you know in Europe in volleys ability to achieve that 400 million tons.
Or effectively you know does every single thing have to go correct I'm supposed to be my two questions. Thank you.
Okay, Alex Thanks.
We said 10 been U.S., we continue to stick to it as the targets absolutes, Matt that's.
Perhaps and maybe in a circumstance like the one we're living right now you could be a little more conservative.
But the way to make the correspondence with the situation where arena right. Now is our net that is 4.7 today.
So it's well below 10 billion. However, we still have 3.4 in one of my Geo related liabilities that we didn't have when we established that target. So in comparable in terms of would be at eight for example, 4.7, plus 3.4 and that would compare to 10 and that would say, okay. We are where we want to be.
Perhaps even a little better which means that pretty much all the accident extra cash flows should be.
Returned back to shareholders.
And and this is it that's the way we think about it and through the cycle again, I would say the only circumstance, which is different right now, it's called <unk>, which may warrant a little bit more caution.
But nevertheless, we are where we want it to be.
Yeah.
Alex.
Thank you for a question.
But talking about flexibility that that's a midterm plan, but let me remind you some new app and fastest that worked here.
Before machine. So yeah, we have you should allow though that is coming in there not preparation.
The plus 10, the expansion of S 11 de 200 million thumbs.
Ah we also have as I mentioned, the two dams that will give flexibility in our operations into south eastern system.
We also have you pizza coming into North branch small piece that can stabilize the operation depth and say how last years, it's the east ranch that wasn't here before imagined so all those are assets and and improvements.
Our.
Yeah, no that weren't even considering that the operations before.
But obviously you have a challenges and then if you consider the Kovich a day or sometimes we have some bumps truth to make it happen, but submit term well have also there's a.
New capacity that can give us some flexibility.
Right of.
The wait for the return of the come on the operational that used to have the fast [laughter].
And my fellow and just reiterate the 20 million tons that we will submit to the board would add to that package of a flexibility as well.
And then I'm, assuming just remind us that would go time for good old time, but this is used to be a one you de bottleneck. So there's nothing more than that so we can go up on the not need to middle it'd be more lower to 16 on the north because if we needed right. So there's a there's a lot in there.
Two to three years time horizon, but for sure we'd have a huge but because it's on the although the soc to both on the solved and anymore. We just got at least get back the mine with the microphone, some though and the dams and the Salafism.
Let me explain on the immediate term and all the medium term. So I think we used to have even more than 400 million pounds of available capacity. So we do have flexibility.
Our next question comes from John Bryant HSBC.
Hi, good afternoon. Thanks for the opportunity I'm, just kind of my first wanted to ask you about a working capital I know, there's about a billion dollars and working capital increase in Idaho, a big part of that was because of the production in this house.
June plus a higher percentage going to China.
Should we it sounds like a lot of that was reversed out in the first 15 days, but I guess Im wondering should we expect a complete reversal of that billion dollars.
And in the third quarter, even as production continues to increase in into the second half.
And then my second question is just related to the.
560 million dollar provision that you took four samarco and Hanover could you just maybe give me a little bit of clarity as to what what's driving that wasn't just sort of a broad based or increase across a variety of different things and then if I could just confirmed the 400 million tons and production that you're expecting in 2022.
He is that for the year or do you expect them to reach a run rate of 400 million tons by by the end of 2022. Thanks.
Okay.
Just some color on working capital. So we had sales outstanding [noise] about 5 million tons at the end of the first quarter and then we have at the end of the second quarter about 11 million tons.
So 6 million tons times. The current price just just that we have a over 600 million of a buildup in working capital in terms of accounts receivable.
Then you have the provisional price, which is very strong.
So it adds a little bit to that so it's basically explained by the.
The better rate of production and sales in June compared to March a which is the close over the prior quarter.
So these collections are already happening so as I mentioned most of these sales were already collected in the into muscle July and the cash flow generation in July is already we're approaching the out of the mom is already substantially higher than for the full first semester of of this year.
And when they look at the.
Third quarter end to end.
It is expected that there will be outstanding sales also at the end of the third quarter. So therefore.
I would say what we're seeing here is a kind of a normalization of working capital at a higher level because it's it's normal times you would have more sales outstanding then what we ended up being the first quarter right. So this you will not recovered at that working capital, but collections will be much much much much higher fourth quarter will be the same.
We will start to quarter of a lot of collections, but we'll win the quarter also with many collections maybe only on the first quarter of.
Oh 2021.
When usually because of seasonality you produce less then you collect a lot of money in generosity. However in March then you have lesser sales, but hopefully still better than than than this year. So that's the.
On working capital in terms of <unk>, another provisions or the agreement, which was signed with the prosecutors so in in after after from don't depend on tragedy, there wasn't agreements fine.
With all of the all parties shortly thereafter, though that the damn breach, but the prosecutors early came into the to the agreement in June 2018, and there were many changes in the agreement, including a provision for a re scoping out the agreement two years down the road, which is doing 20 to 22, So a review of the pro.
Grams of the amounts on everything else.
That review that amendment to the June 2018 agreement.
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Wasn't done because of Covitz, so the the dynamics, but but it's.
Early stages.
Maybe it's gonna be certainly a work stream for the second how the entire second half.
But we already have.
Oh, good color about some of the changes, which which are coming so we already have color about the results of some studies what Phil the programs will look like when we make this amendment.
<unk> number of affect the people in so long. So this is kind of in anticipation of that re scoping that he is already provisioned for the agreement signed in June 2018.
And in Ah you don't get me May jump directly here, the 400 million will be run rates at some point in in and 2022, we'll get to run rate of over 400 million, but not to full calendar year will be 400 and.
More importantly, though.
Which I will use it if needed right. So there's not so we need gives us flexibility. There was asked prior solely neither we're not saying that we're going to shift or sell where else behind that we're not giving guidance. We're just saying that we are going to put our assets back to a 4 million run rates that we even had large numbers, but we believe that is a real.
Novel target to being a run rate for 20 million to them.
Our next question comes from Andreas Bokkenheuser, you'll be yes.
Thank you very much just to effectively incoming investor questions can you provide a little bit more clarity on how the negotiations with the state of manager ice is going about any liabilities relating to bring would be new also in terms of timing and where do you stand.
Versus you know what the other part is asking for at this point in time to just giving a little little bit clarity around that and secondly, if you would just in terms of.
Credit buybacks or bond buybacks any thoughts as to whether you would think about buying back some optical buttons, given where the trading at this point in time.
Those are the two questions. Thank you very much.
Okay. Thanks to address.
We will be pointed out that are we are on the table with the people say that agreement between the person who is not as with more people anyway. So is there. The state of you know that I haven't done agreement the public defender there's supposed security there as well so we stand exactly when the discussions of how we create a right.
God knows how we create gaps in how we created the scope to be executed because most importantly, we want to how can I say that.
Get the responsibility to execute the that can be executed. So that's the one of those Ah report that the matters in a whatsapp legal certainty about the civil actual there are other undergoing now so those are the key issues that are that we own the table converging. The four main stakeholders are discussing.
No actually I've mentioned, there's even a meeting to be above that so.
There's no timeline because the of course, there are divergence, but not necessarily on badly because I think you're asking more concerned about what we perceive as provisions and I think you see automation that before the last question that we're very comfortable what was hit what has been provision and not in the foot knows that we put in our I know.
Now lets because it's got better with the government with everybody on the on the lease the progress and not only those compensatory projects both on the repairs toward as well. So we believed that the numbers that we are working either in our provisions and in the footnote or more than comfortable to to strike an agreement.
That's not what these daily Yeah. Our agreement now are more is much more on the gobbling up and much more on how we create illegal certainty to be sure and we'll be able to execute what is supposed to do so I think this is a and I think it was young can can add a little bit more on that part and then go back to the buy back I think is the same.
As mentioned before it will be of course, something that we need to a assessed all the time standards not now because our fourth we just we Uma policy in September we can take a look again and not the will of course, we tend to be the board, but I think there. So so many variables writes a little that Ah, but I think to Louisiana can explain again.
How we see it is always our mindset around but.
And why they're not nothing to add on the and the provisions you were comprehensive on the on the credit buybacks.
That andrus asked a bond buybacks.
They will.
Valley, They will come back to the table.
At at and at the moment in time when we.
Oh look make many most companies are going through that crisis with.
A greater cash barrels and or.
Even if we're not talking about net debt levels here the amount of gross that and the amount of cash that you want to hold.
I would say, it's higher now than pre pandemic. So therefore, we need to no we're not in a hurry to continue to buyback.
Bonds or data because of that we would prefer at least for the next couple of quarters to have greater cash balances.
Now on Somar call I'm, sorry, but I cannot do any any any comment on this because of the ongoing legal arrangements for the.
Where the credit or so I cannot comment on credit buybacks.
Im sorry, and rather confuse the question I thought we were talking about the buyback from huh fight for sorry for that.
[noise] excuse me. This concludes today's question and answer fashion meet their into I'd like to let me deal. At this time you May proceed for closing thank Mike.
Okay.
Thank you very much for your attention for the questions I think you need the we had to a more comprehensive explanation the beginning.
But what's necessary to to give you a clarity on how we see the one separate things into two then to two lance's uptime. One is the most immediate what people expect about second semester and I think we reduce very strong basically even ethical needs to be ready to delever in our guidance in our commitment.
But I like to stress that or we're not a nice breeds involved we are in America. You are looking to deal with this company for family and you need to see those five those four elements that I mentioned my initial comments as either related they are not separate Nazi though look like nobody they didn't so no no no different just showed that.
ER volume management has bumped down today in our business them and we see that weekend, we had robust put financial position to face our commitments, we need first of all as I want to do it in different size, we need to if they have them. I mean, we are advancing we need to do much more than we had to do we.
We need to improve our safety, we are doing that we need to effectively turn around the safety perspective, the company and we are trying and we will do that and we had a name to be one of the safest and maybe even obligation to be able to cities mining company. The world third is the reason for market basket the question where around that so how much can do in.
Metal, but what is our goal in a in the we didn't there we need to get there with consistency, but they're not just go and set a target we need to be delivering a quarter by quarter consistency and we'll do that the safety. That's what I tried to say one way or what we my initial comments, if we need one we'll do it but we're pretty confident that we'd have the asset.
We have the people with we have the logistics for that then we will resume as as safe as possible or Sep.
Finally, as the dividends because they're going into the all the capital location I think it's very important to bear in mind that body. It's extremely conservative. So we are extremely focused of course on on our own on their who nation of our shareholders, but we need to look at the end toward more broadly so in this world adjustable boots.
New World and a new world that exactly we don't know a lot about them. So we need to keep our balance sheet extremely strong and of course, if there is in excess we will get back to the shareholders, but our communities all as we see animation upper your high.
I'm not show a again I'd like to thank you for your station in a in remember that we have to spoil elements to do is valid and we are working with our team horribly together there. Okay. Thank you with you in the next call.
That does conclude by this conference call for today. Thank you very much for participation you may now disconnect your lines.
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