Q2 2021 Vale SA Earnings Call
Good morning, ladies and gentlemen.
Welcome to Valley's conference call to discuss the second quarter of 2021 of his debt.
At this time all participants are in a listen only mode.
Later, we'll conduct a question and answer session and instructions will be given at the time.
Just sort of re crises this during the call.
Price the star followed by zero.
As a reminder, this conference is being recorded and debit card income will be available on the company's website at Vale Dodge concept investors day.
Conference call is accompanied by a slide presentation also available at Investor day at the company's website.
And just towards the music via Internet as well.
Red casting via Internet, both the audio and slides changed has it seems that cause delays in relation to the audio transmitted via phone.
Before proceeding let me mention the force looking statements I think made under the safe Harbor off the securities.
He shouldn't reform Act both 1996.
Actual performance could differ materially from that anticipated in <unk>.
Any forward looking comments as a result of macroeconomic conditions market risks and other factors.
With us today are Mr. Do I have to decide.
Sadly, Mike Dolan Miele, Chief Executive Officer missed it we'll see I don't see any BD does that couldn't vice President finance and Investor Relations.
Missed it my family's per namely executive Vice President Iron ore.
Mark Trevor is that could've Vice president.
In base metals.
Mr. Carlos mid data is that could've, Vice President safety and operational excellence and he said I'll, let somebody jump Rogers executive Vice President legal of index.
First let me say there do I have to back fill the mill with the seats to the presentation on line recycled.
1021 for farmers.
And after that he'll be available for questions and answers.
It's now my pleasure to turn the call over to misstated lives by colonial Sir you may now begin.
Okay. Thank you.
Good morning, everyone first of all I hope you're all.
Quarter Joe.
As we have done since the beginning of the pandemic with GAAP or got up in the second quarter of 2021 with all the safety and prevention procedures for COVID-19.
Safety.
People and reparation.
Words have been a priority since 2019.
Continues to inspire actions.
We have made progress your bedroom boumediene.
We are working with the authorities to implement the $37.7 billion Reais integral reparation agreement signed in February this year.
While the authorities are structured to.
The work fronts.
Vale continue its actions for socially viral manto is social economic reparation.
In the second quarter of 2021 among other initiatives, we launched at the social selling think program internment topologies and along with the Pyrope elbow River.
And we are completing.
A new pipeline.
Line to supply the Metropolitan region abilities launching these de lever is a major step forward in ensuring water safety for nearly 6 million people.
The reparation of the mutual damages also continues to advance.
<unk> 2019.
More than 10700 people.
Centered in civil or labor compensation agreements with Vale totaling nearly $2.7 billion reais.
As you can see we are repairing boumediene you in a quick fare and the Jai away.
We have advanced in the safety of our dams.
Heavy oil.
And the first day Master, we removed the emergence level of force structures and reduced the emergence level of another 2.
In the upstream dam Decadic designation program. We completed the works are definitive modem a division of <unk> complex.
So.
Since 2019, 6 upstream structures have been eliminated.
We also completed the works of the containment structures downstream of 4 keyless and group of dams finally.
We are also advancing with the works for a beat 3 before.
MS Shull Shapiro dams earlier this month, we started activities to remove the tailings with and manned equipment.
In addition, our.
Our debt Mandarin model also continues to improve we have appointed an interdependent Tailing review board the I T. R. B.
Each of our iron ore corridors. This practice is.
He is in line with the global industry standards for tailings management. The G. I S. T M by the way we are in line to a deal to deal.
I S T M in due time.
So.
We continue to make progress.
Be cultural transformation towards a safer volume.
We have also made progress on alright, yes, your commitments day.
This quarter, we detailed our strategy to achieve a 33% reduction.
<unk> for scope, 1 and 2 emissions with.
And the debate that investment between $4 billion to $6 billion.
As I said at the last valid day.
Vale is uniquely positioned to lead the transition to a low carbon mining.
We have a high quality portfolio to support decarbonization.
We are a leader in renewable and <unk>.
And if I round, 90% of our global consumption from clean sources.
And we operate sustainably protecting 1 million hectares of forest about 80% of which in the Amazon rainforest.
As for our ESG GAAP action plan, we closed another GAAP with this.
Establishment of a formal due diligence methodology for human rights this process as assets and other assets to human rights risks and impact it will be implemented across all of our operations and critical projects, starting with 14 operations in Brazil in 'twenty.
'twenty 1.
As you can see.
We remain firm with our ambition to transform Vale into a ESG benchmark.
Yes.
Well now talking about the operational performance of our business or adjust to beat in the second quarter was at all.
Bracket at $11.2 billion, given the increased sales volume of iron ore and good market conditions, we completed another quarter of increased iron ore production growing 9 million tons compared to the same period of last year.
In the first half we were sixth.
60 million tons higher than the first half of the last year.
We have reach it as well an annual capacity of 335 million tonnes and we expect to operate with an average production of 1 million tonnes per day in the second half of the year.
We remain confident debt.
Time, we will achieve our production guidance for 'twenty 'twenty 1.
Spinelli, we will give more color on debt.
In April our performance was mainly impacted by stoppage of the Sudbury operations in June we continue to negotiate a collective labor agreement for the next 5 years.
Debt, where we.
We recovered part of the performance compared to the first quarter by accelerating the implementation of a new safety and maintenance process in <unk> towards a stronger second half.
Part of this our portfolio of nickel projects has made.
And quad rides to ensure they continue deliver of quality responsibly sourced materials the day market in June.
We had the first production of the ore from Reed Brueck underground mine at the Voices Bay Mine expansion project. We also signed an agreement for the buyer the RP nickel processing facility.
See with Indonesia with discipline in Shanghai and the final investment decision is expected in the in the next 6 months finally in Thompson, Manitoba. We are also evaluating investments to extend the mine's activity for 10 years.
In relation to our cash strength, we concluded the acquisition of.
Mitsui stake in the coal and logistics operation in Mozambique. This is an important step for our device meant.
And the other is the conclusion of the ramp up of them. What these operations, we expect to reach a run rate of 50 million tons per year in the second half and.
And we continue to seek alternatives.
Irresponsible divestment in that business.
Talking about capital location.
We provided further evidence of our commitment to return value to our shareholders with the distribution of store ordinary dividends of close to $2.2 billion.
In June.
Summing up March dividends value returned around $6.2 billion to shareholders in the first half of 'twenty or 'twenty 1.
In September.
We will distribute at least another $5.3 billion according to our policy and base.
These are the results of the first half the final number including extraordinary dividends will be defined as usual in September.
And as I said in the last quarter without compromising the continuity of dividends above the.
The minimum policy, we continued with the share buyback program announced in April so far.
The program has disbursed $2.6 billion dollar and is 45% complete.
So disciplined capital location is part of other risky and I'm confident that.
Base to lever on our commitment to maximize returns for our shareholders in the long term.
To conclude I, just want to emphasize that we still guided by Derisking reshaping and reiterating volume.
We have effectively advance into the risking.
We are repairing blue Medina fairly and quickly.
We are building a culture of safety and operational excellence, we continue to stabilize of operations. Our ESG commitments are fundamental to our strategy.
And we'll continue with an extract capital discipline.
Well just on the return to our shareholders.
Ian reshaping, we establish a good case with the V N C exit and we are also looking for a responsible exit in Mozambique.
And the re rating will happen as we evolve in our deliveries, which brings us closer to our ambition.
Of being a safer company with more stable and reliable operations, increasing our investors' perception of value.
To make that happen, we are working very hard.
And I want to thank our 70000 employees or contractors suppliers and customers.
Vocal or their resilience high guard and commitment to our cultural transformation.
Now hand over to Spinelli, who will give more details about the performance in iron ore. Thank you very much.
Thank you Eduardo.
Good afternoon, everyone.
So let's start.
Bringing an outlook about the production of this year.
We want the rain force our production guidance is a range of between 315 and 335.
We increased as Eduardo said 60 million tons in the first half comparing to last year.
Our sense of protection.
Production, if you don't add any more volume to second half you can see that we are in the lower range of the guidance.
But what can make us believe that we can deliver more in the second half my right hand side have some folks that want to share with you.
Firstly.
We are in the dry season now.
Now you know our seasonality we've been running operations 1 million tonnes a day.
Second.
East branch, we anticipated the ramp up of each range.
It was the previous plan was true for our third quarter now we are in full capacity niche range.
<unk> third.
Despite a limitation to produce more with.
With wet processing glucose tool.
Our team in a team work, we could add additional volume was for high silica there.
Mutual day market conditions that would have nowadays force.
Watkins back that's a news from from last week.
And here are not only volume, but we can now reduce the risk and have the full capacity.
And last but not the least we have a very brand new asset now Mara we just free.
Yes.
It seems the last Tuesday is right. So we can now bring the wet process since in full.
Rajeev, good LNG and you're waiting for an additional capacity in a couple of weeks.
With the.
The resume of the conveyor belt, the long distance conveyor belt.
That is over the if I can get engine down.
So let's move to next slide.
Now I will turn it can give you an update about the resumption plan.
Well since the last conference call, we had several achievements.
I want to reconcile the numbers with you.
Lastly.
Last quarter with 327 million tons of capacity.
There, we added with East Ranch plus too high.
<unk> silica buccal 2 plus 5 fabric a full capacity since last week plus 4.
Model 3.
List 4.
342, but we need 2 degrees.
The capacity that we lost in.
You need the beta we start this year seeing that.
The capacity of <unk> this year should be -9.
And after a hard work.
Looking at our beta handling the materials we could.
Reduced this in fact sheet -2 and as I said in the last conference call.
Several small delays in other pits, we have a -5 so the net number is 335% of capacity today.
Next slide please.
So what we expect towards the second half so as I mentioned, Washington, LNG, we want to unlock the kick up the capacity through the end of this quarter.
6 million tons and also net of <unk>, we have the.
The Abel.
<unk> pressure.
<unk> already installed 1 will have on other.
The second 1 this year and we'll have the.
The other 2 for next year.
And about brutal do in total them, we announced the production report that we are.
We have now and other startup for total second half of next year.
<unk> is under construction is going well, but we decided to have some extra works.
To guarantee all the safety standard.
For that debt.
I want to remind you debt.
We need some extra time.
Time.
To have the final permit from Mara we just read that already have the permit so.
So thats, our new forecast.
Again for that site and broker tool. We also have more 2 initiatives.
Cover capacity.
Filtration sales.
Is under construction.
In awful lot of a few of them.
We're not using today, but we have a plan to bring back next year.
So.
This delay in total we partially offset the day capacity of short term.
Bringing more 5 million tonnes with.
High silica and broker and also 5 billion loans in it appear as I mentioned that we reduced.
The problem since the beginning of the year.
To conclude in our roadmap to 400 million tons.
It's important to say debt we are also.
Approaches.
Projects on line, we have the filtration into beta in broker tool.
In the North we have July, though and that's 11 E plus standard slip a few hundred million tonnes.
That is expect to add capex capacity in the end of 2022.
Now I hand over to sales Sharon.
Thank you Marcella a few remarks on each of the businesses.
You saw the performance of cost there was.
An important increase.
On cost before third party purchases towards $17.8 per ton.
We're now expecting to.
To end the year between 16 of.
<unk> a half.
There was there were 1 offs in this quarter. Most importantly, demurrage cost increased a lot because of the repairs and the ship loader in the north and the queue of vessels increased.
However, we're now feeling some inflationary pressures diesel cost.
<unk> increased a lot mining parts, we're starting to see some service inflation.
But still with the dilution of our fixed cost. We expect this decline over the next quarters reminder, that Q3 will still be impacted by the carryover of the production higher cost production.
Q2 through inventories.
But in Q4, you should see the full at.
At least 1 and a half a dollar decline comp.
Compared to current levels.
The opportunities going forward to reduce cost.
First and foremost is to unwind all the Covid expenditures, if we continue to progress in controlling the pandemic.
From today iron ore spans about $150 million a year on cost and expenses just on the pandemic measures.
On cost alone is about 30 cents per ton, we expect to start unwinding their soon.
We have the normalization of operations.
Bamba fabric or those who already reached full capacity should start to post.
Better cost performance in the coming quarters as well in.
And finally, we did have an increase in maintenance expenses related to the catch up that we're doing.
We are implementing the Vps valley production system model.
Tim will require systematic maintenance to go from the prior levels of 20% to 30% of total maintenance activities towards 70, 80%.
We're getting very close to that once we have most of the maintenance being done systematically we should normalize maintenance cost as well.
Pellets side, just call your attention to the substantial increase in realized prices from $192 to 255.
A reminder, debt this 255.
Includes a mix between CFR sales on the F O b sales, which deduct the freight rates.
And also that inquiries should have been even higher.
If it wasn't for the fact that an.
An important fraction of the pellet sales they have it's a prior quarter.
Rice's net debt command those those sales. So therefore, the price increases in the second quarter have not yet.
Going through the pricing systems for pellets.
Actually.
On a per premiums are at around $60 for blast furnace pellets and $70 on top of the 65% for direct reduction pellets.
So the premise increased substantially in the quarter. We're now also selling more of a direct reduction pellets, which command a higher premium so that explains that very healthy increase in pellet premiums.
And also that highlights the opportunity that we have ahead because 2 of our major operations at our beer and vertical too which are performing well below potential.
In our filtration works.
And the tailings dams works. These are the ones, who produce pellet feed to supply our pellet plants. So therefore once they come back hopefully we will start to normalize our.
Pellet production and <unk>.
Take advantage of this very high premiums.
In base metals.
I think we missed consensus by maybe 12, 15% on base metals EBITDA.
Perhaps that was because of the assessment that the market made about the impact of.
Pre strike.
Just a reminder, Sudbury is a poly metallic.
Producer not only nickel production suffered but also copper production byproduct production. So somebody does have a very large impact on our operations.
Even if we resolve quickly the strike.
Uh huh.
The study will still have.
Many weeks until the normalize.
And also we have some major maintenance program and the regular <unk>.
18 month scheduled maintenance has to be done over the next few weeks as well.
The surface facilities in Sudbury.
Finally on call.
We are.
In June we started to consolidate the.
The results of the business in the corridor.
<unk> logistics corridor as a result, EBITDA for the month of June was minus $12 million a significant improvement to the prior months in April and May.
We were -60 minus $50 million every month so already.
The benefits for for the core performance are kicking in and therefore with the ramp up and the.
Current pricing environment, we do expect to reach positive EBITDA.
In the second half of this.
So, let's now move straight to Q&A.
Okay.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
If you have a question. Please press the star key followed by the 1.
Year on your Touchtone phone now.
If at any time, you would like to remove yourself from the question queue price is starting to play.
Please restrict your questions to 2 at a time.
Okay.
Our first question comes from Carlos de Alba with Morgan Stanley.
So good afternoon for you guys can Brasil.
And you are doing well and so the question I have first is on money and returns to our shareholders.
Why do you see with the potential increase in dividend taxes.
The combination going forward.
[noise] of dividends and share buybacks and also if you can provide any color on the on the caps to future dividends at least in the second half of the year based on their balance sheet accounts and other capital account and the net profit.
Our retained earnings account and that would that would be.
Very useful and then if I may ask just on what piece.
See I know that the 12.
1 million negative EBITDA in June versus the 50.50 and in prior months does that already reflect the benefit of them.
Remove all over the other financial bore than a burden on the on the Brave and finance and the only thing that is then left to capture is the are the better economics as they ramp up progressive or Theres still some some part of their brain finance a benefits or elimination of the of those cost that should be reflected on top.
It improved to -12, thank you very much.
Thank you Carl.
Did that mean begin it will stay on adjusted than any other day from you okay.
I think I think the.
As I mentioned in the beginning remarks causally, we're being extremely.
Top of the plane and the capital location right.
Both are in buybacks and the dividend payment with you the next ordinary March.
Of course, we sign other debt we have at least 5 points 2.5 points to repeat them to be paid on September this is at least because.
But you're going to see market conditions.
And else to define what is the level of debt extraordinary extraordinary dividends.
As the specifics about the tax reform, we were crashing debt to know all of the previous call. When we answered. The following is that the skus on the on the make buy the league.
Is something that should be neutral that is the the bleed from both government that legislators that would either increase in the AR if theres an.
In line.
Hello can I say debt factor of a taxation of dividends would be a reduction on the other.
On the.
Above the line so it would be neutral, but anyhow, we won't change our dividend policy because of debt because our dividend policy and in the.
The philosophy is to.
The surplus of.
Maintaining our business health and running is going to go as soon as possible to the shareholders. So.
With that I think there is there's not a specific question about the reserves and I think Luciano can explore debt as well and give us some more color or I've just explained okay. Lucie on identical to what is please okay.
So Carlos at current levels of cash flow generation, there's no competition between.
Buybacks, an extraordinary dividend so we've been doing both and we'll continue to do both.
A different shareholder base is spread all around the world so different shareholders they have different tax regimes.
So it is even possible debt for some of them already.
[noise] taxing their dividends at the current proposal even could could even be beneficial.
We at least hope that its going to be neutral as Eduardo said for the Brazilian shareholders, but for some foreign shareholders could even be beneficial.
So because of this.
He took virginity.
If the share holder base, we would rather be.
Not take.
Besides here and continue to do both.
Thinking about.
The because.
Because we can do both from Theres clearly appetite for both also in the in the shareholder base.
As regards the reserves.
Ah the.
This is gonna be a if any if any this is gonna be a temporary effect because as you see we are building reserves so very quickly.
And there will naturally come a point for example, perhaps in the first quarter debt the cash.
Flows will be less than.
And then non-profits generated for example, because in January we'd have to pay.
The annual.
Income taxes, and it's natural that the free cash flow generated in the first quarter will be.
Well below <unk>.
Profit so any any.
If there is any restriction it should be.
Correct.
Quickly.
The other thing that we might do is that we did before is to pace the dividends into quarters instead of just doing it in a.
In a lump sum so we're certainly going to pay.
Pay more than the minimum in September, but we cannot rule out additional dividends in December.
Paul.
Based on the profit generated in the third third quarter.
Oh more Ts, yes, the benefits of the removal of the project finance have fully kicked in.
Into the -12, so now what we have to pursue going forward is the.
Better economics, as you mentioned of the ramp up and higher sales to a to go into positive territory.
Our next question comes from News Corp.
Jason Fairclough with strength.
Bank of America.
Yep, our bones year, everybody a good day from London, just a couple quick ones from me first can we just talk about some marco at.
It appears that some of the involved parties want to renegotiate some of the amounts that had already been agreed so any.
Any color you can provide.
It would be really helpful and if there's any implications for the broom Medina of settlement.
Secondly, just on your guidance could we just talk about the guidance to return to 400 million tons by the end of 'twenty 2.
I'm trying to understand what benefit you take from guiding for <unk> from such an aggressive return to names.
Blake capacity when the market basically is not rewarding for me rewarding you for it.
Any thoughts there.
Oh go ahead answer Michael.
It's been that and I can talk about the guidance.
Why it's so important to come back to the nameplate.
Plate capacity.
Hello.
Okay, I'm, sorry, I wasn't mute.
Just a reminder, here to give some part of the history Marianna in 2016.
In 2016, there wasn't agreement between the state governments adjusted institution in some market.
With support of the shareholders.
And we're 42 programs were defined to ensure full reparation and compensation amounts were also define.
In 2018, there was another agreement in which the public prosecutors joined in.
And there was a review of the governance of their hand novel Foundation, Okay too.
To improve the participation of those affected.
And this agreement is doesn't mean 18.
It had already a provision that 2 years after each signing the parties would sit together again to evaluate the affection day, the effectiveness and the functioning of the programs.
Not of the entire.
<unk> of each of the 442 programs.
What is the market is doing right now is precisely debt. It's renegotiating the programs. The 42 programs as provided by the 2018 agreement. It is not negotiating a new agreement for Marianna.
In fact many.
Many of the programs of the agreement are quite advanced.
It would make no sense to discard the work already done by their hand, all the foundation.
So.
And importantly completely different from Blue My gene were where we were building an agreement from scratch the mediation underway in the Supreme.
Agreement worked right now it's aimed at improving execution and governance respecting the parameters of the valid agreement, which was signed by everyone.
And the.
The comping.
Compensation amounts have already been defined and fix there are no discussions about values in this mediation because.
The programs have already been defined the cost of the programs are provision for N. The compensation amounts have already been defined and everyone agrees on this theres a lateral principles, which is public that was signed in June at the beginning of the renegotiation progress at which states exactly that we're reviewing the programs and we're not talking.
Supreme quite as we're not talking about compensation advisers, which had already been fixed.
Yeah.
Now.
<unk>.
400 million and while the guidance yet yeah, I want to I think Jason hesitant and excellent question, because it's very important to understand why we are focusing on the coming back to the nameplate capacity.
When you look at the numbers and you drill down on the 3 systems.
Big numbers are coming where from from at a beta.
From broker to.
And from the North so we are talking about commodity here.
And then comes to our value over volume, we are not going to put volume on the market.
As you are right. If you will be rewarded for that but at the same time, we are functioning and efficiently operating half of roku capacity not a total capacity of the beta and having opportunities to increase our operations in the north of Brazil. So we're not saying that we're going to produce 400 million tons.
So we are going to say that we have the conditions to swing capacity to blend of debt.
And adequate for them. So that's that's sort of behind the building up back the capacity and then we use it as as we should do in our value over volume in our commercial strategy and I think it's.
And that again reread day rate debt, but that's I think a very very good question, Jason Thanks for debt.
Sure.
Perfect.
Just to complement I think.
They're different.
Operational more so a safer mode are using dry processing.
And have the capacity to use if you would need.
That's the available capacity will be used with our minds from March.
Overwhelming.
Yes.
Our next question comes from Mr. Alex hacking with Citi.
Yes. Thank you.
Good good morning.
So first question is spinelli just too.
Follow up on the iron ore capacity.
How much when I look at the.
Figure 12, what.
<unk> and <unk> in there are on the on the northern system.
Because that was always designed with I think you know 230 million tons of capacity.
You know we look at production today, it still seems like it's operating below 200.
So what you know what are you assuming on the ramp up there of the.
So with them.
And then just to follow up on your previous comments. So you know again, you're talking there about getting to 450 million tons of capacity in the future.
Are you, saying that you would be willing to build up to that capacity level, but operate very significantly below that at 3.
Northern from 50 million tons of ore or something like that.
And then just 1.1 quick question I'm Mot a cheese, what's the what's the mix of met and thermal in that 50 million tons.
Thank you Alex for your question well.
Yes.
300, and talking about the figures and the North system. Yeah. We are designed to deliver the 230 million tons. We do you have.
Some some.
Construction that the plus 10 net <unk>.
And also.
To deliver visual other products.
Yeah, we have a.
We have the ramp up of <unk>.
We have it.
But we learned a lot last years to run a non flexible system or less flexible system, but very <unk>.
Youre seeing in terms of environment.
Man and an official in terms of cost, but we don't have the same flexibility and open piece operation. So that's just 1 related to the ramp up with 2 adjusting.
The the crushers and it's important to say that we learn this and last quarter.
When do we have a lot of projects we have the time.
So we can have some some oh.
Cash temporary in fact, when we are adding some new capacity and we learned to this and we're going to have in our plan for the.
In the near future.
I'm talking about the 400.
<unk> again.
It is about our pipeline.
Projects to offset some some setback net who can have.
In our in our mining business, you know very well we can have a difficulty is like we have now with total.
Related to our construction or a permit.
You know some small delays in 6 months or even 1 year, we had a pipeline do you have a reliability due to the libra loans.
If you don't see the necessity in the future. We don't just don't 3 your debt.
Projects in this pipeline, but we must have the.
Kind of a 150 to guarantee that we won't you can have we can have the optionality to deliver the 400 million. So that's the idea of 450.
Is that an average volume.
And so that just to add on you and I think Alex other point 450.
More medium term shots and then comes to.
Swing capacity ability that you just mentioned okay.
That's why we need to abuse buffers for debt and to shrink capacity, because we have very expensive minds as well so that's behind it and there's a medium term it's not that we're going to use 550 next year or next 2 years or what else even neither next year for the 400, we'd need to establish.
Pipeline vector.
As it was before and then we define as you said margin over volume as.
As we always do.
And Luciano could answer about them what is.
It's about 55%, Matt Cole, 45% thermal.
All right.
Churn comes from Mr. Andreas booking Hauser.
Yes.
Thank you very much just a quick question from me on freight I know, we've talked a little bit about this before we're obviously seeing a bit of freight cost inflation.
But over the last few months, it's obviously been talk about.
I M O.
Rules on freight on carbon emissions and so on and so forth can you just remind us how does the freight contract reset work for you guys. I mean, I know you have long term freight contracts and obviously freight rates are right now hovering around 27 to $28 a ton. So I guess the question is.
If freight stays at this level.
Should we just expect even your medium to long term freight contracts to be reset at that level or do you have any kind of fixed freight contracts with some of your ship providers.
That is my question. Thank you very much.
He can address spinelli here well.
New.
2 points here to address the first line is above the market the spot market today, you're right. It's a surprisingly robust.
In this first half I can say surprising because we can see the small smaller vessels.
Panamax is.
<unk> they were really under pressure with high demand whether the same.
Monitoring of the Cape size business.
But the ore.
But the whole market was really robust.
This first half and we still see.
Well market.
Now a higher level than we expect we don't see these are long term trends considering the supply demand in this market.
The other part the other question that you made related to I am all regulations.
This is an important point I am always is it finding the regulation for some time at the set a goal for 2034, a reduction of 40% of emissions.
It was related only to new vessels. After 2015 now they are extending.
This will be assisting.
Vessels.
What we see in our fleet, we don't we don't have any impact in terms of cost only the first generation of.
Our Vale Max as you can considering maximum speed.
Reduction of 2%, but is very.
Small loans back.
<unk> 2 we don't see an average any problem in our fleet, but the spot market we can have.
It's only for a 2023 and after that we'll have another.
Other regulation debt do you need to keep.
The the efficiency to per se.
Sales a year.
In the rank that they will be.
Finally <unk> E.
In terms of efficiency of the vessels so.
In this case, if you don't.
Apply on that target you're going to have a reduction of your power.
And the.
No again.
So this can be something that we must track.
But at the same time the business will react to this bringing in <unk>.
Technology and I want to emphasize is rail.
We have our.
Projects our set.
Set of product that is called Echo shipping.
We brought a.
The growth of our ceiling.
New vessel and we're bringing now the Arab bubble Liberty vacation. That's another initiative both of them can help a lot.
Vessel to reduce the emissions and.
And we have a set of projects.
Make this.
Evolution.
And we need to definitely talk to our ship owners choose to implement these initiatives, but we are really a wearable debt.
If I may add.
Andreas.
We will never ever converge towards spot rates.
More than 80% of our fleet has 30 year contracts, which is a cost operating cost and a pass through for fuel.
So for example, our second generation volume ex us today are running at rates.
<unk> $15 per ton at these bunker prices at lower prices. They can go as low as $10.9 per ton and that's it.
The reason why we suffer with a higher spot rates is because in the second half we usually use spot.
To transport the excess production from the second half to the first half, but this is not.
So flat ever going to flow through the existing contracts for 85% of our fleet.
Detroit and other information.
Our fleet today is 270 ships.
You're also bringing more.
<unk> is in 6 new castle Max's this year, so we'll be really.
Uh huh.
Well protected for this fluctuations.
Yes.
Question comes from Paul.
<unk> flagship with Barclays.
Yes, good morning.
Good afternoon, gentlemen, thanks for taking my question first question was just on the Sudbury strike how long should we assume this takes to get resolved.
And then I wanted to also ask about financial leverage I mean, if we look at your pure financial leverage you were in a net cash position.
The business delivering very.
Morning, with Doe prospectively.
Could it be possible to take on a bit of modest levels of financial leverage to improve returns to shareholders even more.
Very much.
Go ahead mark Okay.
We've been back at the table in discussions with the USW for.
<unk> hundred 11 days now and those talks continue today.
That that is a that is a good news to this the story of the factors that we're at the table and engage very in a very heavy manner with the USW to try and resolve this.
Discussions are going well, we feel positive but of course, we can't count on anything until it's concluded.
About remain positive that we can hopefully conclude the deal while we're at the table.
The name is in terms of financial leverage the answer is yes, we intend to increase our leverage.
We had this target of $10 billion of expanded net debt we raised it after discussion with our board of directors to 15.
<unk>, we're going to do this over time and obviously in the short term, we're playing catch up right given the very strong cash flow generation just to stand still where we are we're having to distribute to them.
Everything that we generate as we promised before.
And but in order to deleverage, yes, we will need to distribute.
More than the free cash flow and we.
But we do so in the next few quarters.
Okay.
Our next question comes from these pits.
Tyler Brown debt with R&D.
Great. Thank you.
I guess I just had a question on on the third.
We will be a third party volume. So you had quite a jump in the second quarter about 2 million tonnes. It doesn't sound like much but obviously has a big impact on your cost could you could you just run through where those volumes come from and sort of where we should be looking at for those going forward. Thank.
Thank you.
Thank.
Third partner and other here.
We see to the purchase of third party as an opportunity a way.
Depends on the.
The impact depends on the index, but it can make money and we do it in this what.
What happened in the second quarter net.
The first half actually we have spare capacity in our system, so till the rainy season and the lower production in the mine.
Ah shall we koos.
Improve and increase our our purchase in and take a dimension on.
Second half I see that it is.
More related to debt.
Well, what we do usually you can compare to the last year are we a pool in our operations now with.
I'll come back and also we have the.
Martin you can Angie operation.
Operations are we don't see so.
So much.
No increase in this purchase coke batteries last year, so that would be stable stable profit.
Yes.
Our next question.
<unk> channel comes from Keith Jim Jibe with perfect day is anyhow.
Okay.
Thank you very much.
Just real quickly on what you were saying about the freight cost and I think you were saying that the unit seeing the current third as being sustainable.
To them I mean whats your take on what's your idea of when we should see the current elevated cost reverse and then he said because there's more capacity coming to market or more because you're seeing them.
Less activity on the shifting.
Thank you Christian.
I think we.
We have a balanced market.
Capesize business.
The effect of commodities are like soybeans is more related to small vessels not Cape sizes. This year, they had a boon day.
Sometimes use the Cape size for the business does not have the usual.
The usual use of the Cape size. So that's that's our view of this market with our even with our return to the market you see some.
Some markets like.
Like India, or <unk> or using Capesize suite to feed China, you'll go back to the domestic markets always about a balance rebalance in this.
Something coming from Brazil, but reducing for other parts of the world.
It's our view about this the capesize market is now but.
Again, it depends other on other points like the other part of the of the total market in other kind of vessels.
But the trend is not a sustained long term to slab of small free.
Our quest from comes from me sorry.
Good day.
Okay.
Hi, gentlemen.
2 questions from me please first on iron ore.
Sequential cost increases.
Maybe luciano as you into debt.
Some.
Pedro various ex what should we expect into Q3 your guidance I guess towards the later part of the year, but what about freight and fuel cost lag effects, we should expect from Q3.
And my second question is on.
Youll nickel business context, where NPI production keeps creeping in Alberta.
Where if you're 2% of her.
Global production, you should take China, and Indonesia together.
Does that concern you and would you consider streamlining your portfolio too to favor plus 1 exposure.
And maybe a streamline.
The non class 1 exporter. Thanks.
Okay. So.
Hum.
On iron ore cost so we guided for what other half dollar reduction on C..1 to the end of the year.
And also as I mentioned.
Q3 will be a middle point from today and end of the year.
Because.
<unk>.
Of the effects on inventory that Theres, a theres a pass through it takes another 1 or 2 months in order to unwind the inventory produced at a higher cost.
So there's no structural change in the next 6 months, but.
For eventually.
If we can unwind COVID-19 quicker.
Due to more progress in the reduction of the number of cases, maybe we can have a positive surprise here.
In terms of freight and fuel for it.
<unk>.
For today's spot prices and oil prices.
The freight should stay.
Stay pretty much the same.
Maybe a slight increase because when we sell more we have to resort more to to spot freight which is going to be definitely the case on the on the third quarter and fourth quarter.
But again this is at the margin because most of the freight is contracted.
In our fleet.
So you should not spec expect significant changes in this variable for Q through in Q4, some upward tick, but but marginal.
Yes.
So oh I'll address the question around NPI production class 1.
Pivoting.
So clearly the the supply of N P I coming out of Indonesia is a is increasing dramatically.
Dramatically.
Right now what we are seeing is that the demand for nickel is quite strong and in fact, we're seeing the market I would say.
More or less in deficit rather than surplus.
Where we also see and expect a Chinese NPI production 2 to continue to decrease although it is fair to say that the NPI production coming out of Indonesia will continue to lead to increased overall supply in the coming years as well as some strong but we do also.
Very strong demand in the stainless steel industry. There are I think it's something that we do need to watch in the future years, but overall in the coming years, we do expect debt and not to be an oversupplied market and as as.
You may have seen Indonesia is looking at potential Paul.
How some of the moves to limit ex further expansion of N P. I.
To protect the sustainability of the saprolite in the coming decades.
In valet base metals, we do have are in a position to play to all 3 segments in the nickel industry a high purity are the <unk>.
Policies as well as the chemical to provide to the EV side, we are clearly focusing quite heavily on the high purity and the playing into the energy transition and electric vehicles in particular, our Canadian associate it's important to note also that even our Indonesian.
Operations although per.
Dane letting a a nickel mat we are flowing that through to make it cost 1 product out of our our whales refinery.
It's also finally I will note that our our answer Puma, Sir nickel operation is a very is quite a profitable operation and it provides us with a long life and continued flexibility even to convert.
Revived.
At match and sulfur dies, it's for use in a class 1 products. So I think we have lots of options to play the market the way, we would like to under our strategy.
Okay.
This concludes today's question and answer session.
<unk> at this time you May proceed with your closing statements.
Okay. Thank you.
Well. Thank you again for your interest and your questions and interest in our in our business our results and as we said all the quarters.
It's a it's a really a marathon not a sprint and.
And as marathon requires discipline and persistence and I think we've been there.
I believe with the narrative of the risking reshaping and re rating. We are we're doing our job in Derisking. The company Boumediene you into safety and operations in ESG and of course in the capital discipline that you are seeing that is extremely.
Rigid reshaping is being done but of course the rerating as the final is the 42 kilometers is when we are really reliable and and safe and then when we'd be rewarded with your confidence again and I think that's the word that we're doing.
With our team at our 7000 employees. So thank you again and hope to see you in the next call.
Oh.
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Net.
Okay.
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Okay.
Net.
Yes.
Okay.
<unk>.
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Okay.
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Yes.
Sure.
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