Q1 2021 Vale SA Earnings Call
Good morning, ladies and gentlemen, well.
Welcome to value conference call, just because the first quarter 2001 was the.
At this time all participants are in a listen only mode.
Later, well conduct a question and answer station and the strict shows will be giving at the time.
If you should require assistance during the call. Please press the star followed by Europe.
As a reminder, this conference is being recorded and the recording of will be available on the company's website at Vale Dodge call as investors link.
This conference call is accompanied by a slide presentation also available at the investors link at the company's website and the transmitted via Internet as well.
The broadcasting the Internet both of the audio and the slides change has a few seconds delay in relation to the audio transmitted via phone.
Before proceeding let me mention the first looking statements are being made under Safe Harbor up the Securities Litigation Reform Act of the 90 296.
Actual per farms could differ materially from that anticipated in any forward looking statements as a result of macroeconomic conditions market risks and the other factors.
With us today Army set of Dwyer to just sort of looked like the old of mail Chief Executive Officer, Mr. Lucien Who's here in the PD is that accretive.
Vice President Finance and Investor Relations.
Mr. Marcello Spinelli executive Vice President of our missed the Mark Travers is that could even vice president of base Meadows.
Mr. Carlos in the Data's Executive Vice President of safety and operational excellence and he said I'm ashamed of gun Bros. You Executive Vice President legal index.
First let me state of Eduardo Bartolomeo will proceed to the presentation of the wireless first quarter of 2020 per pharmacy and after that he'll be available for questions and answers.
It's now my pleasure to turn the call over to Mr. Dibartolomeo, Sir you may now begin.
Thank you.
Everyone.
First of all of I hope you're all fine.
The first quarter of 2021 recap of our guard Sop in our operations as the COVID-19 pandemic accelerated the Brazil.
Yes.
All safety measures and validation procedures of Norbert.
Yeah.
Now I want to reinforce the only essential professionals are allowed in our sites.
In April we.
Completed 13 months since the start of restrictive measures against the current debt.
And the over 25% of our workforce.
Working remotely.
Safety the.
Apple and reparation.
The three words have been operating at the CES 2019 and the.
The continued to make more sense now in this very critical moment for all of us.
Well.
The core items of this dimension requires the urgency to do what's the word.
Within our reach.
And the best way.
And is affecting the best possible.
We have been collaborating with governments and communities.
The the gaming and we continue to focus our efforts on.
The most critical items in the slides for this reason Vale and other companies have losses to buy.
And donate three for me the medicines for intubation.
The contribution for the National Immunization plan.
Volume allocated resources for the extension of the vaccine production of the.
Book at the Institute, we finished the made the production capacity of up to 100 million doses per year and for the the nation of 50 minutes of reach to the Ministry of health of Brazil.
We are attentive so that our support is accurate and effective.
And that sort of helped directly reach the people you need this.
This is part of our new pack the society.
Yes, I had the same at each of our meetings.
<unk> is determined.
The fully repair the damage caused by the bloom of deal strategy.
A major step in the direction was the signing of the global settlement in February the.
The decision the ratified the agreement became final at the end of March bringing another layer of legal certainty for the reparation.
One of the Franck debt progresses consistently is debt of water secured it.
We are working on the commissioning of the construction works for a new water pipeline to supply the metropolitan region of the Lotus launch with the around 6 million people.
At the same time, the reparation of individual damage has progressed.
Since 2019 more than 10000 people have been part of civil or labor indemnities agreements with volume with some up to almost $2 5 billion reais.
We remain committed to a fair and prompt reparation for Bloom of D and the effect of the region.
Talking about them safety.
At the works to improve the stability, we have already removed the emergency level of for structures. This year, we hope to reduce or remove the emergence level of another force structures the steel in 2021.
With stabilization works and the actions and respecting the safety of the process by the end of 2020 five we hope to achieve satisfactory as conditions for all 29 structures, which are debt the emotional level to date as can be seen in the growth.
We remain firm in progressing the cultural transformation the work.
A safer model.
Last April 15th we launch of our integrated report with the main information on bodies economic environmental and social impacts.
This is another delivery from value as a result of listening to our stakeholders. This document.
In addition to presenting our ESG performance and the tail helps to demonstrate how strongly our ESG strategy is connected to our business.
Another point.
But the point is that it provides the detailed information about our risk management, including our assessment of emerging long term risks with that with closed Walmart yesterday of GAAP planned for 2021 totaling 39 GAAP since 2019.
As can be seen our ambition is to transform vale into of reference and ESG practices.
Well now talking about our operational results. We started 2020 work we are performing as expected.
With the good improvement compared to the first quarter of last year, our adjusted EBITDA was $8 $5 billion the highest in our history for the first quarter, which is seasonally weaker volumes in iron ore we made progress.
<unk> live in production.
Assuming the rest of the capacity of halted at the T book, There of a site and at the barring brand the Pelletizing plant.
Our beginning of the year was stronger than 20, Duane we produce in the sports the quarter, which is seasonally weaker the same as we produce in the second quarter of 2020.
This gives us a lot of confidence in reaching our production guidance for this year.
The Spinelli will give more details on debt later.
In nickel, we also performed as planned.
For the stable operations and also of Puma ending of the North Atlantic refiners with long harbour, reaching a record production levels in the first quarter the.
Copper, however, we underperformed with the drop of 20% to 30% the volumes of Sul wins of Sue this.
This is because we are reviewing salobo processes aiming to improve the safety of our operations at the debt side. There are important factors in mind moving Mitchell.
Mr. Simple, we had a longer maintenance due to the difficulty of mobilizing contractors because of COVID-19.
On another front in terms of addressing our cash drain the sale of UNC operations was an important step in the commitment to transform our business. This commitment was made to our shareholders in the end of 2019, and the Levered and a very responsible way.
With the creation of the local solution that meets the demands of all the stakeholders.
We also signed the agreement for the acquisition of Mitsui state in the coal and logistical operations and most of them.
An important step towards our divestment in that business and non.
Other commitments made for our shareholders.
In the sense of another relevant step was the conclusion of the revamp of the more of these processing plants, which will allow us to achieve a production rate of 50 million tons per year in the second half of 2020 well in.
In summary.
We continue to take the necessary actions.
Stabilize our production.
The short growth of options and allocate capital in the discipline with.
And speaking of discipline in capital allocation represented one more evidence of our commitment to returning value to our shareholders with the announcement of the share buyback program. This month.
We are confident of our ability to deliver our de risking and maximize value creation for our shareholders in the long term.
We believe the buyback is one of the best investments for the company and one debt does not compromise the continuity of dividends higher than the minimum SaaS barcodes.
With that to concludes.
Summarized it for you.
We are making progress with the reparation of Roma deal quickly and fairly well.
We continue on the path to build a culture of safety of Pos.
We are working hard to make our operations more stable and predictable.
Our ESG commitments and the strategy, adding grizzly linked with our business and finally, our capital discipline remains unchanged.
Most importantly, I assure you that we are doing everything we can to ensure the safety of the people in our operations in our communities.
I would like to think of.
Our 70000 employees or contractors.
<unk> and customers for their resilience and the high guard during this critical moment through the COVID-19 of them now.
Now I pass the floor with Spinelli will give more details of the performance of iron ore. Thank you very much.
Thank you Eduardo good afternoon wall.
We've been updating about the resumption plan to reach for 400 million tons.
The next year I'm going to use the same slide.
<unk> facilitates our explanation.
And the start.
In my left hand side, so you'll see.
The bar today.
Today, the remember that the concept of the.
Evolved from now.
That's the capacity we have for the year.
We came from a number of the three trenches the last quarter now we have the treat trench of seven.
We had of the additional capacity and chip will pay up of 7 million tons.
Remember that we were running with three lines we.
Hello.
The the startup of the other three lines. So we have the full capacity of Chipotle of it now.
But should be sort of how the 25, so we have a minus true.
The debt we already are.
The the forecast of the beta it debuted at the last call we said.
Well reach of minus nine.
You have this might of seven that's the book for forbid debuted at the beta we have of temporary problems.
Problem, there with the <unk>.
<unk> of capacity for the disposal of the total.
As we evolve during the year of Kinder update this minus seven but we already put here the mindless true so that's the.
The the number of capacity of today.
I want to highlight also are in the right hand side of the bottom of the information that very encouraging now we now have the start up of the daily at the torrential plant youre not adding yet the capacity here to be important for the second half when you have the whole picture of Washington, and the growing but it seemed.
For the milestone.
That's the first plan off of.
A sequence of of plants coming from book of tool and eat the beta and it's.
Important milestones to highlight.
I want to emphasize debt, we are really committed to deliver the product production guidance for this year.
Uh huh of a range from between 315 to 335 million tons.
What's the Portuguese affirmation well there for.
First firstly, we start the D C and the various.
Better the way the way comparing to the Q1 last year.
As at the other said, we added 8 million tonnes. This.
This year compared to you soon.
Seasonally the second quarter.
It's better than the first quarter do you know if they're well debt Duke till the end of the rainy season in the south of the southeast of Brazil.
Even in the North we used you have the rainy season of there, but the June is usually drier than the than the other of mountain dew. The rainy season. So we're counting on a debt to improve our production.
And the kind of.
Affirms that we have our guidance in perspective.
The other the other said instead of other information the last Q true Q2 last year was the same one last year. So that's another information that's growing.
To achieve the guidance and also we have many actions that Oh, the follow up with you and the next slide.
And our road map.
To achieve the 400 million tons.
The first of all information and the Cellphones Houston, Washington Region next week.
We are advancing our tests.
Yeah with the curve.
Real belt are the steps as a vibration test we must check the impact in our upstream dam in that site.
<unk> fabric is already testing of the wet processing.
We expect to have the final permit for.
From a N M. The the national agents of mining to keep the operations, we expect to do the since the end of this quarter.
And the steel in the cell phone system in Washington, COVID-19 energy we.
Bringing online matter of each of three dam.
This is a very important asset for second half are we have some civil works there to finish and in the fourth of an information we already have all of the permits to start up of these assets are all the leasing the declaration of the stability of deaths.
Only in the end of the construction we can get.
I also want you to a drag of rotation to the southeastern system and.
It's important the information the good deals here in at the beta we are anticipating a partial of for operation of the the filtration plant.
This will allow us to offset.
That book for the risk of capacity that we haven't hit the EBITDA of minus seven that I mentioned the first day.
Keep in here, but we are trying to anticipate and now already having the our plan the dissipation of tube.
To bring the Jeep to use the filtration and dry stack the the tailings.
Tailings and I want to update you all show about broker to site.
The an important asset that also are also coming online. The there is torture dam.
We are Julien you know the middle of the construction, we expect to finalize this construction towards the year, but.
Differently from a bout of heaters three we don't have the final permit just you have to apply and the.
The process of one months for two months.
Both processes construction and permits we intent to have.
Have oh completed this year.
If you have any delay it's unfortunate to say that we have of pickup position.
With the startup of the filtration improved book to Bill.
Remember that we have filtration kind of in Washington.
And it appears the answer is expected to start up in the first quarter of next year.
I'll be here for further questions.
In the Q&A session at Festival show.
Good morning, good afternoon, some highlights from the financial results.
Starting by cash flows as you saw the we're very strong in the quarter.
Working capital had a positive contribution of $550 million.
It may have been surprised but actually of the very strong sales of the fourth quarter of last year were collected this quarter.
More than one for $1 4 billion and reduction in accounts receivable and.
And remember that prices spike at the end of December remained strong in January so that was the reason why working capital evolves positively. Despite also the first quarter of being very heavy on the other payments like payment to suppliers.
The inventory build a profit share with employees, but still working capital moved positively.
Still on working capital you may have noticed that the price realization.
Didn't actually moving in parallel with the with the Platts price and why was that if you look at the fourth quarter.
For the average iron ore price of 62% for the quarter was 134.
Whereas the provisional price at the end of the quarter was $1 58.
Because of the increase in December.
So there wasn't very strong recording of EBITDA in the fourth quarter on the back of the provisional sales.
Whereas in the first quarter.
What happened was the opposite the average price for the quarter was 167 and the provision of price at the end of the quarter was still $1 50 859 actually.
The opposite like the provisional prices drag down the average price realization for the quarter, even the more so compared to the fourth quarter and we stay pulled up.
And so something to notice is that those sales that were recorded.
159.
This quarter, they will be repriced at today's prices once ships arrive at ports. So therefore, you could expect the carryover of EBITDA of.
Maybe about 300 million U S from sales from the first quarter towards the second quarter cash and EBITDA.
Talking about costs.
C. One cost before third party purchases, we need to look before third party purchases because of the prices have been going up sequentially.
They were in line.
The $14 $8 per ton compared to $15 per ton in the same quarter of last year.
However, despite the depreciated Brazilian real.
And we now can see that for the for the ear 2021, the costs are going to stay like I said in the last call slightly higher about of dollar higher than last year on average and why is that.
We have about 70 cents of impact from diesel prices, which increased substantially.
In the in dollar terms from last year and there's another 30 that will come from a shift in the mix because of the very high prices that we're experiencing we're doing some opportunistic production and sales of especially from the Midwestern system, which is very high cross has cost around $40 $50 per ton.
We're increasing sales from there.
And although by a small proportion it doesn't impact us.
Route 30.
The mix as a whole and see one before third party purchases.
Also on our competitiveness.
Some words on freight you saw the recent spike in freight rates towards spot freight rates toward 'twenty of $8 per ton.
Under this backdrop actually the freight rates with invalidate they did not increase much from just two to $57 per ton.
But if things stayed this way and as we use more spot freight in the second half because of our higher production. We should expect about a dollar in the half increase on average freight for value in the second half because of the.
That spike in spot freight rates.
Finally, a word on new Caledonia and base metals.
As a reminder from now on you will not record under the base metals EBITDA.
The losses on new kind of daughter, which were running at around $50 million to $60 million per quarter.
And remember also bought a year ago, you didn't have all support also operating.
So today as compared to one year ago, we have also puma generating around $50 million per quarter.
The new Caledonia out saving another $50 million per quarter, so a net $100 million per quarter.
The improvement in results.
At the same conditions of of process compared to last year. So this things start to make a difference as time goes up.
Finally on capital location. This is no doubt the big questioning what what are you going to do with the money.
These higher prices.
I want all of them called your attention of we have had a lot of consistency and and things are evolving quite quickly.
Just a year ago, we were with the dividend policy of suspended we weren't in the middle of the first wave of COVID-19, a lot of uncertainty markets diving.
The reparation of Blue Margarine and not consolidated.
And then in the second half of last year. Once the first wave ended and reparation of advanced we resumed the dividend policy and we paid over $3 billion.
Then in November of <unk>.
This started to actually early December prices started to increase from the the.
The level of $120 towards higher prices.
Still but for my Genie of agreement was still in discussion. So we didn't know what to expect but finally in February once the the we reached the agreement.
And prices kind of.
Situated at the higher level than the $120, we decided to to pay another $4 billion of in dividend. Despite the burden.
From the Blue Mountain of agreement with <unk>.
Prices then we're still fluctuating from book picked out of 100, and Saturday then down to 145.
But after their stabilize at 160 in April that we announced earlier this month.
The $5 billion buyback and now here, we are again running after prices, which are now at over $190 and naturally it will create more options for cash flow allocation. So.
And as you can see the recent story hasn't been enough progress within Vale and up for surprises in the market. So what what will be our response theres nothing new in our response as we have been doing we will make decisions. We will announce those decisions that we'll prioritize returns for shareholders. The story of remains the same we're going to be consistent.
It can be an acceleration of the buyback we can finish the buyback earlier there could be another increase in dividends above the minimum you could do it could be both of them. So you should.
Expect that we will continue to follow this track record of returning consistently money to shareholders.
For the next question on the balance sheet is it inefficient the lot of people start to ask this.
Of note here with low interest rates, so about 3% one of the 10 year bond for value.
The value of of the tax shoot if you increase the leverage is relatively small. So for example, if you had $10 billion on debt.
At 3% rates youre going to save approximately $90 million per year income tax payments for $10 billion of additional debt.
So if you're one of them a meaningful repositioning of the balance sheet in order to really take advantage of of tax Shields, you should add 30, 40 bps $40 billion in debt to the balance sheet, which obviously in a cyclical industry you wouldn't do that right.
So these.
These tax savings they they should be weighted against the opportunities that the financial flexibility that today, we have that the may bring in the future and that's the calculation of we're making.
However, I also note that these 10 billion of an expanded net debt targets. We've established that are.
Two of three years ago, when prices were around about $80 per ton.
And with the expectation of stronger for longer prices.
We obviously could could increase leverage and we are evaluating that and.
And most importantly, if we have the opportunity to deploy the additional capital in a smart way so that that's how we're thinking now about the balance sheet.
Now, let's hand over to Q&A.
Yes.
Thank you ladies and gentlemen, we will now begin the question and the NASA session. If you'll have the question. Please for all of the Starkey of followed by the one key on our coach Com for now.
That's any tiny you would like to remove yourself from the question in queue.
Press Star two.
Please restrict your questions to two at the time.
Our first question comes from Alex hacking from Citi.
Yeah. Good morning, everyone and thanks for the time I guess I wanted to ask about the potential for of base metals spinoff, that's creating some headlines this morning.
If you could just give us some color on.
Where you are in your thought process there.
What kind of transaction you would potential transaction you would be considering.
What kind of assets you would be considering putting in it and then what would be.
The thought of logic behind any potential transaction. Thank you very much.
Okay. Thanks, Alex.
Well, let me the clear here with the obviously, we are always analyzing the opportunities. Okay. That's the main the main.
How can I see driver behind us what is really pushing us to debt situation I think it's twofold. One is debt we are in the midst of the.
The foundation of recovering the business and we believe we are in the right track.
And secondly, we are the values both of you on the value as a whole in the base metals story. So it's the clear way to unlock value.
And the base of the multiples so what we said in the.
And I would be clear now to me to give you of where our minds are is in the exactly of the conceptual phase of analyzing what does that mean.
First of all let's put it this way we have assets as you know and got a job there I am too intertwined with the.
With the iron ore assets, we need to find out of way to how we deal with that that's one issue that we are that we have to deal with.
We organize ourselves inside so there are several aspects.
Aspects within the health of this at the precondition to do the business day, we are studying.
That said analyzing.
What is important and then I might because of Maui in the English Vale I can ask mark to Mark to help you on debt.
First of all as I mentioned before to work on the foundations.
And of the narrative.
The foundations are very clear since the beginning we need to get the north Atlantic operations for adoptive.
And the operating.
The adequately.
We need to replace capacity so boys as the base a little bit three copper belief of mine.
And the sales of the industry one of the things that trigger for us as well as U S about our minds, where they are with the sales of the N C. Alicia for us to think differently about the business.
But I'll ask mark because as head of the abuses in our cladding beforehand as well.
What is the narrative I think Bobby has a unique narrative here that we might be able to exploit but not to be overly repetitive. We are on the phase of studies analyzing the possibility.
Could you help me with debt Mark sure.
Alex I think Eduardo set out very well for like you know the <unk>.
Path really is is to make sure that we get the optimal value for base metals and he spoke about the need to build the foundation.
Maybe the the narrative or maybe the strategic direction to optimize value I can spend a minute or two on it. So I think more and more we're focusing in on copper nickel and our business as a key for participation of the decarbonization of the economy, but we clearly have.
Lots of opportunities, which we've described in previous calls the non dollar day around copper.
Where we have a current pipeline of projects that should bring us to about 500000 tons of copper per year and in the next few years with Salobo three Crystal Lino L of MAU.
We also have a number of projects around the carriage has area, which can optimize through synergies with the iron ore of business in the current infrastructure in the area plus some other options for example, Victoria project in Canada and parts of two who can that can get us up to 900000 tons. So clearly even within.
The internal pipeline, we have significant opportunities for growth on the nickel side. We spent a lot of time of recently talking about the dynamic of electric vehicles, and what it's bringing to the industry and clearly we are going down that path of the electric vehicle pent.
Tracing in the auto industry and the inclusion of nickel in the batteries for the for those vehicles.
Our our approach is is that we have the products. We have the products that have diversity and quality in form to go into the electric vehicle battery and we have the ESG credentials and we continued to try and build those and those credentials relate to the the low carbon intensity of our product coming for well regulated.
Regulated respected regimes, such as Canada, So really what we're going to really focus in on is seeing that that narrative or opportunity to build in this area of currently just just by just to give a little bit of an update we have buyers who are very interest in interest in the products that we the debt.
We produce right now in the electric vehicle space. We currently we recently signed a significant multi year contract with them OEM.
It will it represents about 5% of our class one nickel and we see further opportunities to grow the sale of our class one nickel into the space. We have some other opportunities there in terms of.
Moving our customer of our products around we have some opportunities with maybe some relatively smaller investments to repurpose some of our production lines to get a little bit more out and then we have other opportunities for growth with which we look at and we have of we have a lot of government interest talking to us to try and tease some of the side of it. So in the end, we're looking to build up to about.
30% of 40% of our class one nickel going into the <unk> space. So Eduardo I think that's probably the narrative that I would I would give in terms of how we increase value within the base metals business.
Yeah.
Alex just to conclude.
Is the process that the as you asked there are several questions that have to be answered. We are in the initial phase of going back to the view that we had in the 2041 of them much deepened. The way now we think we have a better foundation. We are still work to do and the foundation, we have a better narrative now and of course, there are several questions of debt.
Has to be answered as you asked how would be the potential transaction, we didn't get to debt. The yet we're just in the beginning phase.
Sales of analyzing the possibility to unlock of it.
I hope I have answered the question.
Yeah.
Ladies and gentlemen, as a reminder, if you would like to pose the question. Please press the star key followed by the one key on your Touchtone phone now.
Any time, you would like to remove yourself from the questioning queue press the star chip.
Our next question comes from Tim.
To the nurse with bank of America.
Yeah, Hey, good afternoon, and thanks for the color.
Wanted to get your perspective on the situation in China.
Been interesting to watch iron ore prices rise, even as China talks about cutting production and yet very little production actually cut as you point out in your release in the first quarter. So just wanted a little bit more of your perspective on what's happening there and what you see happening as the year progresses, and then if I could of a second question is just on any of them.
Packed that we should think about of prepare for with regard to the <unk> bankruptcy filing thanks guys.
Go ahead, Mr Chinese finale.
Hi, Timna. Thank you for the question well.
China, We as you said we are now have two to 2.2 main questions actually Oh, we have a solid demand you know the based on the team of losing and basically all of trade War problem, that's sort of some some time ago, China Ace ER.
It's going really well.
All the indicators you can see are coming from properties seven pumped eight growth rate, considering we years, our manufacturing and.
And the infrastructure a lot of sports news stars last year there are other.
Actual these for yourself.
Of the scenario of the.
It's a fantastic the demand coming.
The point at the the question that we we have opened here for how long we were gonna have the Siemens in our perspective, we don't see a huge the you know processed.
Processed a true true.
Just stop this we see as the spools, perhaps at the process coming out of the second half we don't see this in this half.
Going to face of the <unk>.
Hunger to demand the next the next water, but for the rest of the year, we can see.
Something going wrong municipal through way.
On the other hand the.
The two supply has just said.
The China.
After the true sessions.
With the party of.
Meeting the Cam true to the to the world.
As a country of depth definitely are going after the the kept organization they are really.
You know being really strong about this.
With charter and share the.
As you see.
The second question is how would be the rollout of these kits, we see our market intelligence, we can see that the or kill me really.
Seriously at this time, we can see sees a try to control of this process. We there are three.
The actions that they see the tree of at the two which we don't do they say that if you want your kit kit the guys debt didn't dare do their homework and the swap production or did you didn't.
The net debt.
The followed the permit the Choo Choo Choo Choo to catch something the in two years three years ago or the or not.
The compliance to the altra the emissions low emissions debt the chute comply them.
And all the dish they see that if you are comply to the ultra emission.
Part of the predictions are going really well. These in these area you should shoot the allows show again, but you can see.
The.
The event for is declining.
Furnace in the very high utilization so the scenario of achieving up for instance is to have high high prices you can declined for the second half.
And mostly high premiums you can see.
Our support for the previous for the whole year. If you consider that the the virtualization of blast furnace will be high price of steel will be high margin side. So the scenario for our forecast is to have a the premiums interest.
At this level for the whole year.
Our first true Luciana for some article.
Timna.
While he is gonna be and BHP as well, we're gonna be expectation.
In the there's some aqua J R.
Bankruptcy filings. So the company has started to operate the creditors have got some sentences in their favor left the company no alternative but the file for J R.
Process will take of leased 240 days by law of likely more.
The company is generating operational cash flows those cash flows will be available for distribution to the creditors. This is gonna be done through an organized process in court.
And we don't have any expectation to have residual equity value from some article and also there's no expectation of whatsoever of any additional capital.
Capital injections to support the operations at some uncle given debt the debt has no recourse to the Valeant BHP. So.
We're going to be at the at the stance watching what's the what's going on.
Yeah.
Alright, CIT bank, who has already pressed if Taiwan. Please press the star one again.
Our next question comes from Mr. David Gagliano with BMO.
Hi, Thanks for taking my questions I, just wanted to drill down a little bit more on the you know the capital allocation questions on issues.
Yeah first of all have has the only bought back any of the you know the 270 million shares associated with the buyback that was announced in April.
Okay David.
Yes, we have youre going to see the monthly reports will be required to file with the securities regulator in Brazil, So it's going to be available for everyone.
However, just notice that we had.
Blackout period because of these these results you should yesterday and therefore in the 15 days prior to the issue of the results we were not able to.
Buy back any shares by regulation.
Okay.
Okay, and then just just.
Going forward obviously.
You mentioned that obviously after the regular dividends total capex for them with you know of payments are still a lot of cash here and so the question.
In terms of a little more detail in terms of the how you.
How we should expect for.
From a cadence from a timing perspective and in what form should we expect these these incremental shareholder returns over and above the regular dividend.
Something we should be expecting before say for example, the next regular dividend payment.
Well, we haven't discussed that so as you said the the regular payments Oh Court just in March of September.
So the the motto of the more obvious way to.
Allocated return cash to shareholders and in between is through an acceleration of the buyback.
But this could be discussed with the upcoming board, which will be elected if we should or not.
Do something entering.
The stay on the just to add on debt I think the word keyword here.
David its consistency right, we don't want to be stuck to the September March date, but of course, we need to all of us to gauge the market that we are in sometimes over the optimistic sometimes wonder over pessimistic like last year of March so we.
We did the bulk of the buyback between call. It was clear that we had to do it the.
But normally we would be willing to do consistently but it looks the automation we have to talk to the board.
And you should expect of course dividends above the minimum payment.
Yeah.
Our next question comes from Mr. Carlos de Alba with Morgan Stanley.
Thank you very much good afternoon.
Yes on the same topic.
There's a lot of those you know are there any I mean, clearly the company generates a lot of cash flow. So that it was surprisingly strong.
On that regard as you mentioned prices are higher.
Are there any.
Caps or limits to the amount of dividends, especially of dividends that the debt you would propose the company or the board for the company to pay them.
I guess the go the the spec of the regular dividends are very clearly defined by a formula.
And we can probably look at the.
Growth Capex.
The growth potential growth projects, when the base metals, but other than that is there.
Any kind of a cap or limit to the amount of dividends of the company would consider paying back to shareholders and my second question of if I may use the owned them what the divestiture process.
And how can we what are the expectations in terms of timing of next steps that we should that we should expect from from that process and also Louisiana, maybe if you can walk us through how the.
Yeah, the process of of incorporation of of what.
So in the Carolina into Vale.
Books would look like I guess, you have to increase your debt.
And you are of interest payments.
In the coming quarters. Thank you.
Okay.
And most of them just me get the first one I think there there was no GAAP.
Theres always the balance of course, we need to and again, we need to assess market conditions that structure of caps disruptor and again as I think you pointed out of correctly, our capex is really well behaved as audiences all of all around.
Other forms of growth. So you don't you shouldn't expect.
<unk> Capex.
So theres nothing in our radar like debt and secondly, the.
The question that a lot of people make so I'll take the opportunity to to make it clear there's no transformation of the name in the in our radar as well so with that said and Luciano mentioned at the beginning of of just.
Paraphrasing Luciano the.
Don is going to go to the shareholders ride with them.
Yeah.
On a more Ts so we just finalize the the revamp.
We started to ramp up we hope it will be quick we.
We hope by the beginning of the second half will be already producing at 15 million tonnes.
By the end of the year, we should receive the equipment on.
On site in order to.
Great the production to 18 million tonnes.
If you consider today's thermal coal prices in met coal prices, a little higher than that.
Maybe 131 40 the.
The business can turn EBITDA positive quite soon one of them to be cash flow positive at the beginning of next year.
Without the burden of the project financing that goes to your following question.
The burden of the project Finance was always felt within valley's financial results through the EBITDA of coal. So coal EBITDA is penalized today, because the mind pays of tariff for the corridor.
Which is the punitive because it needs to be so in order to repay the project finance. So when you watch a less of 150 million for example.
EBITDA for for coal about 100 million negative is just the service of the project for an S funded through the tariff.
Once you purchase of Mitsui, what's going to happen is that everything is going to be consolidated and therefore, the project finance will become valleys debt.
And those 400 million a year of three or 400 million they will be seen at the at the financial statements.
Part of it as interest and part of it is just a debt repayment, but on the other hand, the coal EBITDA will immediately improve by the same amount.
So that's why I'm, saying that you don't need much in order to turn coal EBITDA as a business positive, we just need to produce and prices slightly better than what you're you're you're seeing today.
So in that.
Or as to the next stage, which will be given though I do have a project for an AST, which bears mozambican risk and a higher interest rates I, there's obviously the opportunity to refinance at much lower value corporate rates and save save money with that that's what we're going to do in terms of time your timing for the diverse.
Stitcher.
We already have over 20, NDA signed with interested parties.
Obviously, there's a way to go between people wanting to look at the asset and end of offering of firm intention to bid. We hope that we're starting to go to have those intentions.
Again by beginning of of the second half, obviously people were going to do a lot of diligence on that.
If if we succeed.
Hopefully the the target would be to to try to find a deal before before year end.
Some variables put some risk on that so obviously.
There's this.
Dispute between China, and Australia, which is waiting on the met coal prices now you have all day of the COVID-19 situation in India, which is a big importer of thermal coal and also could wait on the international thermal coal prices.
So let's see if we if we were the little Lucky I believe we can we can sign a.
The deal still.
By the end of the year.
Yeah.
Yeah.
Our next question comes from the stage Alfonso Salazar with Scotiabank.
Yeah.
And the update and good morning, everyone.
I want the to ask about the outlook of the pellet market and if you can provide some guidance regarding a production for the rest of the year on any of the common use and if you can give us some other index.
Okay of fossil Spinetta he of thinking for your question.
Well the pellet market Ah, let's talk about the the demand side.
It's in.
The split is in blast furnace pellets and direct reduction pallet.
But thus far enough pellets is it's quite the same as iron ore.
We are not in China, the Chinese going real well, it's it's related to <unk>.
The true to the problem of the necessity to improve the the use of the of the blast furnaces there, but at the same pattern you see in ex China depths are our market.
A very good prices steel prices from margins and assessed the to improve.
The production so from this perspective.
You can see a room.
For our sales and premiums.
The the supply side and on the other hand is is the limitation of Theres a limitation today in Vale is the the key the producer and the key opportunity today.
We expect the production this year slightly better than than the of before.
The limitations of the pellets feed production.
We have temporary restrictions too.
The disposal of our tailings in the main sites so book to eight at the beta.
So we don't expect to produce more than this year, but we are targeting to go.
Go back to the 60 million tons of capacity for next year, I'm, not saying that the 60 million tonnes, but we want to be ready to do debt.
Some of the.
The demand perspective, the market perspective.
True to define debt so.
As a conclusion, we see the market that the premiums with double the premiums in the first quarter compared to the last quarter of last year.
This current quarter, we again have another base in the the premiums and we expect that there's room for some of another increase in the premiums that you have the demand is really tie of supply them. Instead of just an update about the direct reduction market.
That's quite the same at I meant the dimension for blast furnace.
We have some true more ingredients here.
The USA coming really fast and there are the.
Economy, and all of the oldest stimulus the come in the they are.
They produce the use of lot of the scrap but they need pellets to improve their prediction the.
The wreck a reduction.
And the mid of waste is out of main market.
Because of the U S. The the increase of the the use of the scraps the presto for scrap in Turkey's really high debt.
That make our where our clients are the.
But can they can they can charge higher price to have a good margins now and.
And the deck the definitely there is room again to improve the margins improve the premiums in the smart so the outlook for this year.
Of demand.
The the supply is limited.
And we can see good premiums are the.
Because of the demand that has strong in place.
Our next question comes from Mr. Ginger Orange with the hits H anyhow.
Thank you very much in the Oh, we're done with your mid day.
For a few cents.
Very good indeed.
I have two questions for you of what one of them is the <unk>.
You just said newer transformative M&A you've earned in the Sundar you of them.
How are you of prices for longer and that's cash flow.
Does it exclude those for some small M&A on copper ore because youre in your statement you seem to be a very positive and you have two of them in long term on copper out who care for.
The scenario, where you may consider putting some cash.
In the large cash availability of scenario and on the side of that would you consider in the investment.
In the you know hydrogen in the.
The context of your customers instead of the sector and the trying to.
Move the Greens to Decarbonize tend to be part of debt or is that something which you just looking at from a distance and the.
Second question is on the Nicola or you're out.
The UK Danielle you'll see the riskier in the Indonesia, well, what's the situation with cliffs to Nikkei loans. There are moving two of them being able to the sort of faith and so of the battery.
The market you did come from your field looking at down there or is it something you're looking at some of the of.
Doing from Canada, and Brazil. Thank you.
The increase in the.
First of all thank you for the knowledge of the medical assistance. The thanks very much.
We've got the team.
Yeah, So you're right. There's no transformative M&A, we are always looking for copper very hard as you might understand.
But.
We could we shouldn't of stop so that obviously is one area of interest and other area of interest is energy.
You know you'll have a we have a very bold.
The goal too to eliminate our clean energy to.
Non eliminate.
We should do it at all.
All of them on all of matrix for clean so might happen to have some very small acquisition of them that.
Current and hydrogen of specifically it brings us to another subject that is very dear to our hard because of just announced the the scope three.
Targets one of the few that did debt by the way in the.
And we are following up some players that are doing that but necessary I think more on the watching.
How can I say debt.
The seat.
We are actually working very close to our customers. The medical go but the team because of time post range. We wouldnt. We wouldnt go there thus far but we're looking to help our clients with high quality iron ore in the high quality metallics debt will be needed if hydrogen and we believe hydrogen is the best together with the carbon capture the best alternatives for the students.
Steel industry, but we are watching closely one of the hydrogen.
It's happening, but no investments on debt, okay and.
And I think for nickel I think it's better to Mark the answer you'll be more for it the more objective okay sure Christian in terms of a class of sorry, the the sulfate youre right. The the primary area of focus would be the Canadian nickel.
But there are opportunities in Indonesia, the the most prominent of which is the home of La H power project that is being studied in being discussed with sumitomo metals that would be a clear.
That product will clearly go into the the sulfate market so that one's right in front of us as the <unk>.
Other ones are I would say aspirational or early there are opportunities, but nothing really of significance at that point in time. For example, there are <unk> projects that are on the books by others in Indonesia and there are parties that are interested in are our alignment I for example, but there is nothing significant at this.
Point in time.
Our next question comes from Mr. Andreas <unk> with UBS.
Well. Thank you very much for taking my question I hope, you're all safe and well.
Well two questions of volume question and then the freight question.
But the volume question is kind of two parts and you talked about it a little bit already but what Vale, obviously has the number of licenses.
That all kind of required to reach ore production goal of 400 million tons down the line.
Is any of kind of comfort of clarity that you can give us on these licenses I mean are the other really of formality to you you obviously expect to get them, but is there any kind of visibility you can go get that they're not going to be you know significantly delayed at this point in time, either conversations with the with the state of federal government on this.
That's the first part of the first question and within that.
You you, obviously, you've always had a focus on value over volume as high School you know Australia is.
And one of the things I'm thinking about there is you know your additional capacity I should kind of materializes out of the northern system in particular, but what bothers consolidated capacity could be 450 million tons.
You know, we're sitting at almost $200 phone on iron ore and if there was the what's the time to kind of monetize that additional capacity I would think it would be now and basically you know add additional volumes beyond the 400 million tons with with iron ore 200. So so how do you think about that that strategy value of a volume given where prices are in <unk>.
Given that you could have additional capacity throughout the funeral policies going forward. So that's kind of the first sorry slightly long volume question and then the the second question of Snow of freight Luciano you talked about a bit afraid of inflation, obviously and how it impacts your second half of the year.
How does that if we look beyond the second half of the year. If we look into 'twenty 'twenty two 'twenty 'twenty three nobody is obviously going to be putting more volume into the market that could keep freight rates high like it if we're still sitting at $28 a ton by the end of next year. You know, it's the additional freight inflation that kind of flow through your P&L or are you still are well protected.
On your freight contracts.
So that's just the longer term view on the freight costs. So those are my two questions sorry, if they were a little bit loans.
No no problems Rais Spinelli speaking thank you for a question.
Regarding the the risks are to achieve the volumes of.
Obviously as licensees ore authorizations are always in our no.
Our track and then we try to plan with some extra GLA true too.
To keep the.
Our planning.
Okay. So.
What do you see the few.
The split the.
The challenge is in three of the North we need to keep the the license.
As a rolling process the.
Just the got the license of us of Pete in the South shore and that's 11 day. So it's business as usual is going well, we don't we don't see any delay.
In the southeastern system, yes, we.
We are really close to bridge the gap of the lack of <unk> of.
The capacity in the amps capacity to install the filtration. So it's an hour of hands actually they have final.
The license is yes, we have but we don't see.
And the big deal.
And.
Playing the about the the total dam that we used to have to do this but if you have delay we have a fallback position for debt.
Hum.
The size and that we are trying to bring in our planning process at.
But for a contingency is true to be reliable and the end of the day.
The jump into your second part of the second part of your question.
The other for Ravi is that mantra, so we're ready to bring back the 400 million tons and we are building the the extra 50 million tons of stuff.
As for how the 50 million tons.
Why we want to be.
Uh huh.
Okay with that we want to be a reliable with our target of 400 millions of tons and we can use and the extra 15 of the.
The market demands that so that's a that's our mantra we are going to decide these as we evolve.
In the market so the again, but definitely we need to be ready for AR and the extra capacity.
And the above the freight will share I think it can start you can finalize the.
The freight side, we can say that.
We are less exposed to this quarter of this first half of Luciana said, the second half of its.
Seasonally more exposure to the true.
The spot freight, but the Don are you must have in mind that you're bringing an additional 18 wave of Max's for this year depth of meal a match for the demands of a 400 million tons and the next trust six new Castle Max's.
For our fleet, we were talking about 170 the.
The vessels in our fleet today so we.
We are growing this he's a natural hedge for for the the the spot market.
Mark of freight and the <unk>.
Definitely we considered the inflation today.
The the last of the problem was really related to two small vessels two panamax as debt.
Just came to the the the.
The soybean seasons debt make.
Make this happen and contaminated the the the vessels market. So again, we need to live. This a we're not forecasting any any big inflation for for the spot market and we are working hard to have our own fleet to offset any any problem in the market and of the additional point.
Is oh total fleet today.
We have installed all of the scrubbers that's the.
The other point that we're not.
Yeah.
Being affected to the GAAP between the high school for the whole show for also so the the shipping business for US is very important to be stable.
So that at all.
Okay.
Thanks.
Okay.
This concludes today's question and answer session. Let me sort of do I have the battle of meal. At this time you may proceed to be for closing statements.
Okay. Thank you.
Thank you very much for your attention and questions and interest.
Talk to us.
I think we've been repeating given the play for them.
One it's the.
The marathon that we're going through I think in the valley. David made we said the risking reshaping the rating the risking advancing breed of well still of a lot of money.
<unk>.
Example, the battle of safety be more of sort of them.
Duction buoyed the strides very goods on the by being.
Capital discipline. This is zero doubt that we are on debt reshaping VNC.
The demand is good examples of how to do it with respect with communities most of them big is going to be another one and where ratings gonna what's it's going to be a final mark. So are we going to be a more reliable and more safe in a more of a human the organization that will be priced correctly. So thanks, a lot of thanks, a lot for your questions because of that moves us to.
For the right direction and hope to see you in the next call.
That does conclude wireless conference call for today. Thank you very much for your participation you may now disconnect your lines.