Q3 2020 Vale SA Earnings Call
Ladies and gentlemen, welcome to valleys conference call to discuss streak, you'll do any read out at this time all participants are in a leasing only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call. Please press.
Star Zero as a reminder, this corporation is being recorded and the recording will be available on the company's website at <unk> Dot com at the investors link.
This conference call is accompanied by he liked presentation also available that they you bastards link at the company's website and its transmitted via Internet as well they wrote a casting via Internet both they all do and the lights changes has that you feel secondly, your relationship there all just told me that yes.
Before proceeding let me mention that forward looking statements are being made owned or disabled Harbor off the Securities Litigation Reform Act of 1996 actual performance could differ materially from that anticipated any forward looking comments as a result of macroeconomic.
<unk> market risks and other factors with US today are Mr. Eduardo decided is battling meal Chief Executive Officer, Mr. <unk> CFO Mr. My salary Spinelli Executive officer for ferrous minerals, Mr., Mark Traverse Executive officer for.
These medals Mr., Carlos Nato's safety and operational Excellence Executive Officer, Mr. Luiz Eduardo those Addeo executive officer for sustainability and institutional relations Mr. Ali shipping data Executive officer for a global business Suport Mr. Pablo go to direct.
Tariff call me steadily Shandy, Dombrowski, <unk> General counsel, and Mr., Marty Mckenna Dol director off people.
First Mr. Eduardo Bancolombia, we will proceed to the presentation on valleys streak Eutwenty performance and after that he will be available for questions and answers. It is now my pleasure to turn the call over to Mr. Eduardo back to somebody else. Sir you may now begin.
Okay. Thank you.
Good morning, everyone first of all.
I hope everybody safe himself.
Well, it's been more than seven months since.
Since we've started managing body not remotely.
And one thing has not changed.
The safety of our employees come first.
Body continued.
Hey, Dick will be like deep than damning with this building and sense of urgency.
We maintain our guards Jerry Pi.
And our priorities remain intact.
The people.
The reparation of room I mean.
Well had been learning a lot sees real Medina, and transforming our culture and practice or a better volume.
With that in mind I'm pleased to share that our process and results continue to improve.
Together, we bought de risking process.
The next one.
Finally, the reparation.
Our commitment to bring about do you remain steady.
We are already using birth $2.6 billion on the repurchase.
The indemnification process continues we've got about 8002 hundred people covered by agreements for moral material damage.
600 people more since our last call.
It works for infrastructure any viral mental report a progressing as well.
We completed the watered man, but I don't mean this to ensure the supply of water to a CD, we subpopulations close to 100000 people.
As well we have concluded that daily containment structures, but all Bebber Reaper sees me they really has no longer received said.
And most importantly, we continue open for dialogue into active listening to all the preparation process.
This call a quarter, we delivered the integra separation plan for Blue Monday, which was Butte older communities perspective, instead be mid September to diminish.
We are certain that we do we have a solid plan in our hands with bad to damage and support the development might be.
Finally, we are having quality conversations with the state of Minnesota eyes, and mothers day quotas.
To get a framework agreement collected emits indemnification and compensation for the society and the bar.
With that we continue to pursue our goal of reaching a stable agreement or reparation and compensation.
The next one.
Yes, well we.
We continue to enhance our state and their management.
Danger near record is already implemented for 100% of our dams in the iron ore business, we've been improved continuous monitoring.
The risk management.
Risky distribution program heat up content.
Continues now including our dams.
He denied operational units worth asking is 1940.
40 to evolve in 2020 in modest wealth side, we'd be assessed and through the end of this year.
This program is being applied to our dams as well with pilots underway inside the <unk> and long car there.
He either will be fully implemented by 2022 in Bob.
Finally, our new building management system is done an implementation and we're doing that by also complying with the I see him in standard launch in August.
Our initial sassaman indicate.
Close to 60% of adherence to the IC a member recommendations, we want to be fully compliant by 2020.
So our ambition is clear.
Be world class and have effected standardizing processes in place with the safety driven culture I can assure you that body is on a journey to becoming safer and more reliable.
Next slide please.
From a geo required us to become better listeners.
Listening to the community and society and building, a strong and consistent relationship with all of our stakeholders.
Based on their demands we have mapped 52, yes to guess, which have already closed 31 of them.
2020, we already addressed five gaps and five more must be close by the end of this year around.
Our ambition is to transform body into a benchmark. He asked you practice.
You do the agenda I'm.
Another important subject is the protection of damage.
Let me be forced to do is.
We have been operating in the Amazon for more than 30 years.
During this time, we've had helped to protect close to 800000 hectares of rate for us.
Five times the size of greed alone in fact, we already protect about 1 million hectares of force globally.
With those actions I believe that will contribute for sustainable mining and that our quarterly we far new pack that society.
Next one please.
Well.
Talking about the operational performance of our business, we continued with our plan to stabilize our production a bath that was detailed in great Lam doing very best of two in September.
And I'm glad to share that the iron ore production results for this quarter was very strong and increase of 21 million tons versus the second quarter, a 31% rule.
We had an all time production record in cottage.
That indicates that we are making progress with our plans for production stability it'd be initiatives for operational excellence. We naturally you come shortly to explain the dynamics between production and sales for the core.
In base metals as anticipated this quarter. Some maintenance was born month, what's the strategic before different than we have normalized that routine and expect better results for the fourth quarter.
Do you believe it will be in seed we are taking steps to place it in care and maintenance in 2021.
We also have a new group of potential investors interested in the asset however, all possible solutions contemplate valleys.
Equal deals was also another check or highly impacted by weak demand, which put unit wait till more production.
But on a positive note with respect to finally start the plant revamp in the coming weeks after that we should reach a run rate of 50 million tons per year.
That's one please.
Besides that.
We are focused on recovering our production.
But we.
We are also taking.
Boredom actions to make up production cutbacks and more flexible.
The launching of Hsas to 120 broad and got ourselves is one of them.
Cites creating and he bought a buffer of production capacity should be operational flexibility, we allow growth of 20 minutes on the long term, we do logistics.
Also we launch it project West three to explain the children, who port capacity 20 million tons per year, bringing it to a total capacity of 40 million songs securing strategic or capacity for bodies. The RBS can chime in summary.
Yet taking the necessary actions to ensure the stability, we need to operate with efficiency and the growth options required by the market.
Police next one.
Well.
Finalize we.
We are de risking volume two Butte, a better bottom line.
Let me walk you through the most important steps on this journey.
Of course.
You have a baby boomer deal in a fast way and we squalamine.
Recently, engaging with the families and communities.
Second we.
We are becoming a separate company with discipline, we continue to make solid progress with our daily management system, and our operational save process as well.
Third we have resumed production under safer conditions I'm sure. They are we would achieve the phenomena don't run rate doing 2022.
We have a clear understanding of what we must do and we are fully capable of the LIBOR.
And finally, we are building the could beaches for a long term stable business keeping focus on capital discipline with that in mind, we resumed our dividend policy and paid a solid dividend last September.
Well to conclude.
Damn to continue creating and sharing value for all stakeholders, but most importantly, I assure you that we are doing everything we can to guarantee the safety of our employees in our operations in our communities not best must haves been Andy who will give some detail.
About a result in iron ore. Thank you very much for your decision you ever get back at the company.
Hey, good luck.
Well have some some information to share about iron ore production in sales I think you have a lot of questions about sales.
So let's start with that.
Production, so the best way to light.
Uh huh.
Some weeks ago, we had a chance to the deal as it rather said Oh.
The road map to reach it.
Great. So 400 million tones in 2022 so.
Today, I think we have a checklist dressbarn checklist. It have some deviation part of a quarter, but definitely now we can follow together.
Evolution of Saratoga up production.
So in Q3.
First information as I've said a.
Huge.
Production in North Sea, just didn't meet him thumbs.
Record.
On track and the production also.
All the.
Progress around.
The north.
And in the south and the southeast so far so good on track projects production and.
The initiative, but the dams.
For Q4, we are to be ready rate is running the production.
Around 1 billion tonnes a day, it's a good news so far so good.
Our target you know, we earned a lower level of the.
The guidance around 310 million tons.
It's very important to say that at this time of the year, we don't have any more.
The capacity to offset some deviations you faced some problems. So we must deliver exactly what to Kevin our plan.
What kind of risk you have ahead, so I can see too.
First one is related to the license of each range situated the license we earned a less my hope that.
No more information to the regulators, but we need to see these two stock this operation.
As we are waiting for that.
And we all show we've been hearing about the rumor Oh lagging effect.
Well, let me effect in Brazil.
This huge understand it.
Comes with a more rainfall in the north.
This base. This is processing the nor have a dry she is in the very south of Brazil, though so many.
Second our operations. So we have to track this trend day by day <unk> I, let you know if you have any any change in our guidance. So let's focus on the sales now think is the most important information to the end of the year can bested slightly.
Well.
I have.
Rationale here choose to share with you three steps, so and stuck to the number one.
You know that we've been growing our production our our blending process in China.
It's a very successful strategy.
Varied over volume, bringing the.
The high silica product for the south of Brazil today haven't scaled the $30 for that and it needs, but the the ice I also Jay I guess I.
You can see the growth in this this slide for war.
245.
So we have a stable product.
DRO into market, our class a very well so it's flat.
Second information here is about our exposure to China, we are yeah, China.
China analyses are now reaching almost 70% of ourselves.
Why this is due to coal you know.
Following the Chinese and a V shape.
Rest of the world are struggling to recover the math.
Man so.
So what does it mean, we have 45 days of transit time.
Just stress that shipping par.
And after that it would have a discharge the blending of timing and also the retreat of Europe.
And remember that the last quarter, China suffered with a lot of lazier.
Charts I'm addressing.
Yes.
So the lead time too.
To close the sales is not the same as you have in April will be or CFR traditional CFR. When you are more exposed to China, you're selling more PR.
We had some questions about this in the last call.
And it's very important should understand the difference between shipping no. The fob sales this year plus shares and the blended sales in China, because we sometimes being fob you can find price.
In the right.
You do sell but they are have the CFR you can sell during the shipping but.
But the price to be only went to the truck arrived in decline and also the PRB after spend more time she lands you'll have the draw that to Blair.
All the information here to just extend the whole picture we have inventors.
Note that we did last year up to pretty much you have to reduce sort of interest to keep the supply chain all of our plants. So oh, we reached the minimal level. The end of last year. So this quarter last quarter. If we have the first chance to choose a gap in our position to increase our production.
And we need to to have this time too.
This is probably in China. So we're not talking about stimulating ventures that I heard about some some some ideas about this this about operation of ventures, we need is to make it happen and we have no more focus on China. The two main informations year data once you have to say to you for Q4.
First information we have we don't have.
Any add bench and we don't have any planning the gap.
The interest on debt for protection, you know euphoria and our forecast for Q4 no production. So we don't see any necessity to have another kind of gap like we had in this quarter is.
Second information, we don't feel at many aviation yeah.
In between the Q4.
The Q4 production Q3 production so.
As we are moving our venture too.
Our most major most in China.
We have probably numbers.
Closed sales and and the ventures as we are just moving this isn't venture to the sales after a lot of time to TD. So if you have further questions. They can can help into Q and a session knowledge best children Sam's yet.
Okay, a few selective remarks here starting on iron ore in.
On the cost side, you saw we reduce costs from 17.2 to 14.9 dollars per ton.
We have guided for 14.5 for the second half, we will not achieve that and the reason is because of the price increase on the third party or data we purchase.
Although the volume is small.
We we have a a C. One for third party purchases of around $50 per ton and the $25, increasing the 62% index.
Impact that those those purchases.
The point that we decided to include information in our release.
About what the C. One for value looks like without those third party purchases and we have 12.5 dollars per ton for the quarter. You also showed the numbers for past quarters.
And that's the best measure of valleys competitiveness.
Because it shows how the operations are performing not the ore that we purchased from third parties. So something for you to track going forward.
If we didnt have that price increase we wouldn't have gotten two or 14.5 got us but.
We're not going to for good reason price increase.
Q4 costs tend to trend down.
Because we had some maintenance, especially in July and the northern system that we will not repeat.
This fourth quarter.
For yeah, that's all in assuming stable exchange rates right, because they've been fluctuating a lot. So.
And they are a tailwind for us.
21 costs tend to stay flat compared to 20.
Counterintuitive, but the reason is.
Although costs will be diluted by bringing more volumes.
The volumes will come from the less competitive operations in the south and the southeast So the mix effect will offset the cost dilution effect.
My remark on base metals goes to copper.
All time record for copper EBITDA.
And also all the byproduct revenues just a reminder for you in 19.
We have collected one point 25 billion us all on by products other than nickel and copper I'm talking about gold palladium platinum cobalt and rhodium.
That amount had will increase this year to approximately 1.4 billion U.S., so something too.
To track because these byproduct specialty palladium had been has been they have been increasing price and there was a 150 million U.S. both in our EBITDA compared to last year, just for better byproduct crisis.
And finally, the fourth quarter will be strong because we don't have any planned maintenance in our nickel operations and we're going to have also pulled back on full steam.
And opinion prices, we expect all supposed to start generating between 40 to 50 million U.S.
Every quarter in EBITDA.
Uh huh.
Moving through the P. and L. you saw financial expenditures some one offs.
These were fundamentally why we missed the consensus on on earnings per share.
We had a 550 million U.S. expense on the debentures the participation debentures.
The these debentures there were issued at the privatization of volume more than 20 years ago, and the work like a royalty and they therefore on iron ore sales will be there for a mark to market every time iron ore prices go up they are mark to market. This is not a cash expense and they flow through our bottom.
Sheets and the news here is that.
The most important holders of these debentures, our national Treasury and the Brazilian development Bank, the announced intention to sell those debentures.
That poses an opportunity to volume because those debentures are are.
A variety or leakage to our shareholders. This year alone, we're paying 200 million on those U.S. on those royalties.
So we have the fiduciary duty to work to look at this opportunity and eventually Bobby.
Body, if we decide to repurchase those debentures that would entail a tender offer for repurchase and that would happen in the first quarter of 20 wants him something that we are analyzing.
Oh, we had also increases in the value of guarantees provided by valley to some of its affiliate companies.
That relates to the depreciation of the Brazilian real all those those indebtedness are in us dollars. So therefore, the increasing value.
When translated to proceed in realizing this flows through the balance sheet to the PNM.
Other important I think we have a great oh updated the guidance for capital expenditures for this year, we have guided on valley. They 5 billion you asked for this year the exchange rate depreciation would bring that number down to 4.5, but with Cove. It delays, we're now into 4.2 territory.
And those covert delays they won't necessarily impact capital expenditures for next year, because the work needs to be done and you just shifted from 20 to 21.
Finally on cash generation you saw robust cash generation this quarter, although working capital were still negative, though the change in working capital for two reasons spin that he talked about inventory buildup steel.
And secondly, because the sales that were mark to market at the end of the quarter were marked to a higher price than the sales marked at the end of the second quarter. So that increased accounts receivable. So again.
Those all those two effects should revert next quarter and you're going to have a better conversion from EBITDA to cash no on the fourth quarter.
Financial net debt decreased despite the substantial dividend distribution and expanded not that also decreased.
And I assure you that and that wasn't and they expand that that is a 14.5, which is still far from the target of 10 being in U.S.
Martin here is that the 10 billion U.S. dollar target for expanded net debt is a long term goal is not something to be reached on the short term and it will not prevent us from keep paying extraordinary David on the path, which is our goal.
Now onto acuity.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you have a question. Please press star one if at any time, you do like to remove yourself from the questioner Q Press Star two please restrict your questions to two.
At a time.
Our first question comes from Carlos de Alba Morgan Stanley.
Yes. Good morning, everyone. Thank you very much I hope you are doing fine and my first question is regarding the potential agreement or negotiation discussions that you are currently having with the authorities on everybody know.
And Ah if could you could you explain those maybe what are the next steps.
And on road map on this process to the extent that the new habit and second I'm on the same topic.
Yes. It is my understanding that are up for <unk>.
Big blocks of potential payments one is their collective damage yes.
To this fisher economical damages.
Three individuals so she economical damages and for environmental damages are all these four if I am correct, including in their ongoing discussions that you're having or not only some of them are part of the discussions.
And then if I may ask is just very briefly maybe an update on on some article and also.
Given that as you spoke about potential.
Opportunity for me to buy back the shareholders the ventures.
What about the.
Potential sale or divestment of shares owned by the steel I guess controlling shareholders that nice expiring in November are there might be some regulation I think prevent you or may prevent you from buying those shares in the market, but I'm. One of these directly you might be able to bite into my comment if you could help us understand that situation will be great. Thank you think.
Pretty much.
Okay Cobblers.
We are fine thank you.
The agreement I mean, I'll give you a brief.
Rather picture in Alaska lacked number was already going also to do I think as everybody is great.
Question. So I think it's better to tackle everything so we don't leave any any room for adults.
First of all we've been discussing with you during the last calls and meetings that we have that we were having discussions with all the stakeholders wouldn't even stakeholders is.
State.
Prosecutors the defendant the.
Even though he is you with the Brazilian entities.
Federal level.
So what what what is different now deepen that now we are making up process of mediation that was brought to the court of justice and that improved in a way the convergence.
Of the framework because one thing that we have we have been consistently saying that we want to be stable.
With legal certainty that we can execute on the compensation and they reparation of the strategy.
So the new is that now we are under a different environment on a different approach in Dan.
I think you come to your question about a road map. There are there steps does that did that have to be taken in.
And I think the lags we can copper you.
To explain to you for a little bit more t. all those type of steps that are necessary to achieve this framework agreement and secondly, it's in golf and everything, but I think Alex in Medicare and Medicaid managed as well because you know we have three civil actions that refers to those out.
Let me answer that you mentioned there would there of course, there will have to be copper on this.
Okay more.
Holistic or whole agreement anyway.
Can you help me with that the likes of course. Thank you are there are the Hello, Carlos well I've had to our though a thing there's been a.
Very positive evolution as of last week since the conversations have now moved.
Through the mediation chamber of the court of Appeals of Miniaturize gives us a formal mediation chamber they call it the officials.
As a result of this the negotiations will now take place in a more structured environment.
With the support of mediators, who are judges themselves of the court of appeals in.
And indeed, the press the president of the court of Appeals himself is participating and this mediation process since he wants to see the agreement succeed.
Now if we reached an agreement in this environment will have a much more legal certainty of that would be sanctioned by the court of appeals itself. So that's so that's why we think it's positive.
All the plaintiffs are invited to this mediation and ER. So it's it's a collective for large group of people and conversation is mediated by the judges as I mentioned and so the idea that it would be encompassing for all the parties involved.
Our conversations are indeed involving or they're in a very constructive but.
As you can expect there are many challenges to overcome and the main one is to draft. The document that would be acceptable for the many parties involved or that would and that would offer legal certainty. So.
We certainly we need legal certainty that's been stated from the outset, we need governance, a that ensures speed of recreation.
And.
They're stoned still no definition of values, okay be discussed after we have this framework.
The second part of your question what will discover well we have.
I think I have just had four basic blocks, one which is not in this agreement is the individual indemnification. So people are coming to discuss with Varli directly and that's Eduardo mentioned 8200 people as of.
The state of approximately have already been indemnified, what we expect is that the agreement would sanction the individual discussions with these people. So that's been a already agreed and concept that that would be part of it there's environmental preparation that would be in disagreement.
Although environmental reparation is and it's an obligation that we would undertake to deliver we don't have a value well who may have estimates, but that's not something that we will pay off we would actually continue to pursue the reparation.
Theres a collective damages part that would be captive that would be paid off and there's what we call. The social compensation part, which would also be captive that would be paid off so I think I covered before and that's that's what we are proposing that's what we are discussing at this time I.
I Hope I answered your question. Thank you.
Okay Samarco continues to be on track for a restart in December.
It will produce to.
To the capacity of 8 million tons, and there will be a ramp up in 21, so probably by 21, the production will be somehow smaller than 8 million, but it will reach definitely reach.
That production capacity somewhere in 21.
As regards the potential sale from shareholders. After the the the end of the shareholders' agreement.
Obviously that is a decision that pretends to two to them.
But should it happen.
Volley can eventually that would be a public offer of like a follow on offer a secondary offering in the capital markets.
There will be a book building process demand could be X times higher than the supply.
And yes volume could theoretically.
Put a bid on those shares however, according to Brazilian legislation if demand is.
Higher than the supply of shares from any selling shareholder.
Body would be the first one to be cut because it is considered a a related party in this process. So.
If he wants to buy shares in the market.
The the most.
Obvious way would be to launch a buyback program rather than go into such a fallback 'cause. It it's very unlikely that we will be able to to buy those shares in such a process.
<unk>.
Thank you before proceed please restrict your questions to two at a time.
Our next question comes from CIMB not partners Bank of America.
Hi, and hope everyone is doing well.
Ask a bit more about your market outlook.
If you could.
The comments on the pellet premium outlet can I premiums for higher iron ore grade. So along those lines, just asking I guess about the better demand outlook for Europe that would support her opinions.
And you know with the announcements recently had some additional supply coming on how are you thinking about the outlook for supply and demand in the next year or two thanks.
Well has added.
Okay Hi.
Hi, Tim Thank you for the question well.
Stuff for the bailout.
Pellet.
Well its premium.
Well, what we see as you you know what we have.
Think too.
Mean markets here in this in this case the direct to reduction.
Alice it's more.
Related to the Middle East.
And in the U.S., we see a cobra and as markets or who they're all all the problems. The Ur cobot that they can have further problems, but we see this ER markets for stable and.
Recurring FFO for next year.
And in case of direct traditionally have a theme that we must track.
At a Chinese is again opening the portal scripts.
These can weather the this crappy market the seaborne spread mark Mark would be that that is.
Around Turkey, and U.S. East.
These kind of move the price of Oh.
This crap and bringing more margins to is middle east market. So most striking that we see that trends for short term is we.
Just she is stable price was different premium, but it can have some gap between the blast furnace.
And the and the direct production pellets for next year when most threat that.
On the other hand the.
The west from let's furnace or.
Balanced we is despite a same is happening the market, Oh, Europe or you or Japan.
So we are struggling with this new walk downs and albeit we are.
Number four this year, that's we would have Oh ex China.
A decrease of around 12%. This adult most developed countries, we see 19%, but depends on the the new coal is oh great.
And we see every quarter for the next year around 9%. So this is true of the seem to mark.
The supply demand balance.
Balance I see that today and there is this quarter and the next water more balanced.
We are returning around 60 million tons only valley.
With the market or we see some some newer products, it's upticks or producers there are coming to China like India.
Or or other other regions like you're going to China I think they will.
Probably will go back to do their original markets.
Just the tendency to see in yeah.
In India.
And but we see a supply demand well balanced Oh numbers are married now the supply them into 1% to 2% so but the forecast for next year.
Our next question comes from John Brad HSBC.
Hi, Good morning, good afternoon, thanks for taking my questions.
Got it all right I first wanted to ask you about the C. One cash cost. So I certainly appreciate the disclosure around sort of your own see what cash costs.
50, if I'm not mistaken that the target and the guidance that you've historically talked about has been sort of total Q1 cash crop cost, including third party purchases.
I'm wondering.
If you can give some more guidance or target.
As it relates to your own see one cash costs as you know in the next three to four years as you ramp up.
Production cost at about 400 million times.
How much further should we expect that your own Q1 cash cost to fall.
My second question I guess is more related to the nickel and the E B battery theme.
It's something that you're potentially looking to move for the upstream and the battery supply chain, given your exposure to nickel and cobalt.
Yeah, especially considering that the government of Indonesia has ambitions to become a E b sort of battery death.
Destination in your relationship with the government could could we see sort of more investments further upstream here. Thank you.
Okay, Jonathan Oh, given numbers the full numbers, okay, including the third party purchases.
The best quarter, we had was 12.84th quarter was 18.
When we were producing at a rate of 385 million tons.
So that gives you an idea of where we can get.
With the adjustment for the new FX rates that 12.8 would be perhaps between 10 and $11 per ton.
Yes, we have had some.
Some depletion, which means transportation distances have increased so.
But if we have the license is for example in the open up new mines.
At the rate that we would like to then.
Then we could reasonably get when we get to 400 million tones to 10 to $11 per ton at existing.
FX rates.
Mark.
Yeah, No I won't answer this question first John Thanks for the question because I.
I still have my boots on the base metals so.
First of all there is a lot of interest on the Oems and.
The times to talk about that.
A lot of players are coming to talk to us, but we have no intention whatsoever to go upstream I mean, we really focus on using our assets.
In our in our mining assets, that's a very important point as well. So there are initiatives that are looking to different mining assets that would require that kind.
That termination around governments and are helping like specific name in Canada. We are having this kind of discussions with deep well know and where we are good at is at the mine site.
Hey, Mark who is doing the line you could guess Lynn please.
Oh, Yeah, that's absolutely the case and I would say that we already have some options yeah.
For some participation for example, we do have the Pamela project in Indonesia, where the product would do would be suitable and wouldn't be directed towards the Oh electric vehicle batteries. So that those kinds of things and there is also we are some of our products for example, coming out to Sudbury and UK refineries are soon.
<unk> for for electric vehicles.
But as it Marta said if.
If we see the kind of growth that we're anticipating in the electric vehicle market.
The supply chain is going to look for some tremendous amount of supply. The typical react typical source people are talking about are h. Pal.
Technologies out of Indonesia, but we would think that we're going to need more mines develops in the coming years to to meet that supply and obviously, that's our interest is trying to find the right ways to get those mines up and running to support the electric vehicle industry.
Meeting the returns that we need to see.
Our next question comes from one day as the Buckeyes Hauser UBI ass.
Thank you very much I hope you are all well I was just a quick question on the on freight how has it been kinda so far over the past year in terms of your freight, especially China has that mostly been on on.
Valemaxes that'd be locks and equally as important as you kind of progressed was 2022, an aim to get close to 400 million tons production back you know what is your vessel capacity that you still have new vessels coming into the shape of Valemax, you locks or you're going to be more dependent on death.
Paci vessels or possibly in the spot market that scenario. Thank you very much.
I can address so now that you have.
I think your question.
Regarding free.
Thank you we.
We have a smaller fleet firstly.
We we are improving our Weibo Max fleet.
It's true that the stride age too to have.
Vessels to be vessels are on track.
So our trend one year two years is to reach a level of what we consider the optimal level to 400 million I'm. So that's a that's.
It's a truck is going on so in short term.
We are we have some exposure to the spot markets not not so high we had some reflections into freight this this quarter and have some next quarter, but.
Probably oh, the fluctuation in the bunker price there will be some some upside in this this trend. So we see a stable free fall over the next short term for sure.
The bulk of the.
ER scrubbers and the the council the free.
Well, that's the you have.
The.
We have a disturbing submissions, although some threshold they the gap between the super low sulfur slower than before now 60, but.
Most of our freight will be.
We'll be using easier comps.
Uh huh.
Next year's East is higher than 90%. So that's the trend keep this strategy is to grow the fleet, but in the level that we can manage the this was part of the.
Flexibility this possible.
In the in our own best.
Our next question comes from Chris Terry Deutsche Bank [noise].
[noise] Oh, the water in Louisiana must cielo and team two questions from me just on.
The sales versus production far understand it correctly are you, saying sales should be close to production in full Q and as we focus on 21 and 22 as you ramp up to 400 million tons can you just give us some color on what you expect the inventory build today is you add.
Additional blending thoughts over that period and my second question is on coal. After you do that the three month revamp how long will it take you to get to the 15 million ton run rate. Thank you.
Thank you Chris for questions finale.
Again the.
It's important to understand that the the situation a a related.
Tightened up.
You should not compare the production that big order in the sale in the quarter. So those are the best comparisons between the the escape Q4 sales in Q3 production. So.
You can see there all the time, so ER and transit and lead time is the best cumbersome today.
Yeah, we can have some gaps or approve entry or in case of a gift for production like we have so as you view.
We've been viewed in for a long time lost in the venture last year now we are going to return. This this in Ventura or you didn't because it is that is that the quantity we need to make sure we see.
Few gaps or propylene <unk> Jude.
Lunchroom years every time, you have a difference between production line or.
Water, but as we have the inventory in China, we have more flexibility so that we don't have significant.
Rents between between sales and production during the period. So this was the first time, we have this gap after the trees. So that's but that's not what could be short long term, we're going to increase gradually these inventory and we have some differences, but not seeking.
All going to go ahead.
Yes. Thanks for the question I asked her doing maintenance program.
We will have us model you.
Hubert and we expect to return to a $15 million for the year run rate starting from the second half of the year up 2021.
Excuse me are you ready for the next question.
Yes, we'll have nothing he answered the question from from agrees yet our our next question comes from Alfonso Salazar You Scotia Bank. Please proceed.
Well. Thank you I. Thank you for taking my questions I have two the first one is regarding iron ore and on vacations, Oh victories restrictions. So met coal imports on your right on operations and I don't know if you can explain if you expect it they use of different calls to change their needs. So Glenn.
I mean, I, just a marketing strategy off your books and the second question is regarding.
Your base metals Division and in particular on copper and then I'll, let the fleet that has done on good performing corporate assets, but apparently they want that you own Luca booking it in your I don't know that nickel portfolio. So just wondering anything you can share his thoughts on how to unlock value of those assets.
But equally corporate assets and the expansion, but you said you haven't copel and if it's possible to look back and copper by you'll be Fourq oneq.
I have two questions on top.
Good social disconnect here.
Hey, if I understand your question. So Oh product is still very stable quality to be rvs can shine.
As we can have some demand regarding the.
Problems now they are increasing due to the cost of coal.
In the we do or if they have a better margin can save some some cost of energy they can prove to better quality. So we can support build with iron ore I used to shake off at the kind of just five all of the.
Our be RBS every time, we discuss about quality indicator just this but.
We've been working very stable operation, a or B I've asked is very important for us.
The choice that is to make it can take.
Take indeed, the once you change a bit less for us.
Product, so we must take the quality of the stable way.
Okay.
Of course, if I got your question clear.
I agree with you that we have to unlock value and quality.
Good.
Gershon undergoing barley now around exploring our car jobs province, we are we have a tremendous province, there there are some synergies with ardmore.
I'm walking so we are talking about other mall, we are talking about even subtle before if we can revise reserves.
We can talk about Paula also a series of assets that we have there so.
So I think Theres a report.
Recall here copper dream, everybody wants copper, it's obvious that the the commodity I think iron ore incorporated into our the no brainers.
And we do have exceptional assets in copper is out there needs to be developed.
And why why don't you talk about unlocking value I think that the more.
A complex question because as since the beginning and we started the turnaround of the of the whole base metals business and that we believe is undergoing really well.
As nickel being proven.
We need to fix the house as well so that I think double double.
I would say.
Faith story here one is to.
The assets that you have.
And the second is to grow the assets that you have on the on the ground. So we remain optimistic that we can enable initial devon volumes. They buy the lid on our expectations about copper, we're very upbeat on that so in the end. It if we come back to the famous 30 per se.
I don't have a relevance of base metals inside value, we couldn't walk on that way when people start to perceived value on the base metals business. Besides iron ore our notice to big steel relation in relation to the base metals, we won't we won't get that goes into call what kind of options we have.
But one for shoes to to do the right thing with the right assets and that's something that the market's how could I say that is it but I'd like to ask mark as well because mark is very passionate about it.
As well.
No you're right I I'm very passionate about the the copper business and base metals. It say it's in it.
An excellent business it generates a tremendous amount of free cash flow and it's got tremendous opportunities going forward. We spent a lot of time stabilizing the business. We're seeing some good stability coming this year Salobo is performing very well, we're now saying goes performed extremely well this year and staying on budget.
Sure I think we're moving more into a a productivity type agenda to increase the the returns of the base that we have right now and as Eduardo mentioned the growth opportunities are there and not only the ones. We've talked about in terms of Crystal you know and Alomar, which are honor our agenda, but also.
Oh unleashing through synergies of iron ore in the railroad system that are there can can bring us even further and finally I will note that we have a very oh good.
Good World Class a project in project, who in Indonesia.
We've been releasing drill results. This is a world class copper project in the making as well so very excited about the copper business as well as the nickel business. Thank you.
Our next question comes from Sylvain moving there. It is then BNP Paribas. Please proceed.
Good afternoon, gentlemen, so two questions. The first one are not you know just to maybe get some sense of the demurrage costs, you would guide us a two for Q4.
You should assume some continue.
Continued at Dk continued decline there and my second question is on Vivian <unk> should we assume zero production in Q4, as you're ramping down and what do you do that you left on your books off to the superintendents <unk>. Thank you.
Okay. The U.S.C.
Those who vanda costs, our cost will continue to come down on the fourth quarter, because we don't have any major maintenances and we're going to spend less.
And dilute the production.
On the books VNC has a zero value. We just wrote down the rest of the value that it had this this quarter.
Mark Yeah, and we'll see how it just in terms of production at GNC the way the way.
The care and maintenance process works is we do need to prepare for consultation with the workers Council and we continue to operate at a I would say is sort of a stabilized rate.
And while we go through that so you will see production off the nickel hydroxide in Q4, let's say roughly what you would have seen in Q3.
Our next question comes from Christian Georges just cities Anyhow.
Yes, thank you very much.
Okay can you just go.
Good food getting your cash costs for fulfil study I know operation you mentioned 10 11.
With your best performance and folks who 18, though.
The the there was a view at a fixed rate of today understand under your thing that you can achieve again 10 11 into true is that sort of food for but it doesn't include the potential. That's my first question and the second question is on those.
Onto the ventures that you may be considering purchasing or bidding pool.
I knew you were kind of Orville <unk> dredging magnitude should we take.
Take into consideration.
Thank you.
Okay.
Yes, the 12.8 of fourth quarter of 18 at today's exchange rate would be between 10 and 11.
And yes, we we may get to there.
But also you should normalize by the price of iron ore if the price of our more was the same price of the fourth quarter. The 18.
The third party purchases cost would be lower and the overall.
Aggregate see one off today as we speak.
Would be perhaps another $2 below what it is so instead of 14.9, it would be already be a 12.9 and we would be targeting.
10 to 11, so those are important.
I think on the last question I had mistaken the my answer the question was about the merger costs. So.
There's there's no meaningful decline of the March costs from the third to the to the fourth quarter.
And ER and I think the next question is for for myself spin any right.
But it's also fortunate or we don't have a lot of source of purchasing.
Purchasing in Brazil, So we must be stable number compared to this year.
Thank you. Our next question comes from Tyler Broda RBC.
Great. Thanks, very much for the for the presentation I'm sure my questions have been answered, but I just have two quick follow up ones I guess I would project West if all goes to plan when should we expect that shot inventory to start building for that extra 20 million subs and then secondly, I guess just on VNC in terms of in in terms of its Steve.
Peter is back on the table if a if nothing is able to be a to be agreed how how what should we look at in terms of the shape of the other closure costs. Thank you.
Thanks to others, it's been out here.
Well the west traditionally that's Oh, we have this ER factoring.
Dr. In China's Shula, who bore we already operate there it's.
It's in the Delta of the yellow reroute, yes, a reinsurer. So a it's a very important position for our blending and distribution in China. So when you you're proving that.
We are we done.
Not not say that were then she used is cristiano inventory considering the whole beach robots. So we that's our main market in that area. So we want to evolve there sometimes it can offset with other wars.
Porch, and we're expecting to run this operation to two and a half years. So.
If you'll give more flexibility rather than through or increase our interest.
Hey, Tyler just on on New Caledonia, and as you mentioned.
We there are some vendors that are looking at the asset. There's one group that is I would say put forward there.
There are other fulsome offer that's that's a an offer by management working together with the employees and supported by traffic or a well known in the next you know and becoming weaker so how that's panning out.
But we haven't stopped on the the planning for care and maintenance and just in terms of estimates are what we're planning for his care and maintenance rather than full closure and just in terms of how that looks in it is quite a detailed process that's underway and we're preparing for it and it does require us to sit down with the Workers' Council and talk about.
What that looks like so at this point, we don't we don't have an estimate we can release.
What we can say that is if you look at the the requirements to fund New Caledonia, if we were to operate for the full year next year, we would we would estimate that the care and maintenance or funding requirements severe at roughly the same next year and then the Karen Karen maintenance funding requirements for the following year would be a free.
Action of those operating costs. So primarily next year, so roughly equal to what we would require to fund their operations.
[noise]. This concludes today's question and answer session Mr. did lot of Debartolo meal. At this time you May proceed with your closing statements.
Okay. Thank you.
Thank you again for your questions attention and the opportunity to share with you.
Our story.
I think as you as you perceive the quarter was a really positive one.
Encourages us that we are the right track, but being.
Repetitive on this we are not in a sprint we are in a marathon and.
And I think we we've been making strides in my view.
We repairing as I mentioned before with quality with empathy.
Safety is a priority we'd be proving we are very happy with the results in caught us. This month this quarter because it shows the potential that we have in that province, and night or more and we are on track to recover production.
And as everybody knows body reacts really conservative on capital, we are going to return capital to shareholders to all stakeholders in a place we'd be extremely disciplined so.
Well I think what we want to convey to you that we are striving to de risk the company, but that will make us a better comp and again. Thanks, a lot for your attention and lets see you in the next call have a good day and Stacy.
That does conclude isn't valleys conference call for today. Thank you very much for your participation.
[music].