Q1 2022 Vale SA Earnings Call

April 28, 2022

Good morning, ladies and gentlemen, welcome to wireless.

Calls to discuss the first quarter of 2022 result.

At this time all participants are in a listen only mode.

Later, well conduct a question and answer session and instructions will be given at that time.

This call is being simultaneously translated to Portuguese.

Is this should require assistance during the call. Please press the star followed by zero as a reminder, this conference is being recorded and the recording will be available on the company's website at valley at article I think investors link.

This conference call is accompanied by slide presentation also available at investors link at the company's website and is transmitted filter knits as well.

The broadcasting via Internet, both the audio and the slides change has a few seconds delay in relation to the audio transmitted via phone.

Before proceeding let me mention before looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1990 to fix.

Actual performance could differ materially from that anticipated in any forward looking comments as a result of macroeconomic conditions market risks and other factors.

With us today are restated lots of just filed its Bartolomeo Chief Executive Officer, Mr. Gustavo Pimenta is equities, Vice President Finance and Investor Relations.

Mr. Marcello Spinelli executive Vice President IR.

And the Mrs version in Baidu is liquidity device expressed as base matters.

First Mr to drive the virtual mill, we will proceed to the presentation of a wireless first quarter of 2022 performance and after that he'll be available for questions and answers.

It's now my pleasure to turn the call over to me said, it though I do backfill O'neill, Sir you may now begin.

Thank you.

Good morning, everyone I hope you're all well.

Let me start our conversation is it for me to slide to you and reinforce that we remain focused on reshaping volume might these risky and reshaping our company.

The reported.

Prompt.

Actual provided repetition agreement are progressing well.

Payment obligations are you full suite.

And we have now the savings social economic projects would be my view.

25 pilots in the bundled payment base.

These projects were selected based on popular consultation.

Colbert health, social development infrastructure, and agriculture, we redeem a fast responses package.

<unk> safety, we begun characterization optical CD off one of the five upstream structures to be eliminated in 2022, which will total 12 by the end of this year.

The characterization program has its schedule agreed with the Brazilian authorities in February this year.

Through a thermal commitments.

It's more legal and technical certainty to the elimination of R 23 remaining upstream dams in Brazil.

All production resumption. Despite a few challenges we are on plan to deliver the two most important milestones for this year.

Both of them and EW suite there.

Yes, we have been saying we are building a better volume with capital discipline at creating value for all of our stakeholders.

This first quarter is seasonally the lowest and production.

<unk>, we have further operational challenge.

Despite that we managed to reach some important milestones towards increased production stability and value creation.

In iron ore.

We achieved a solid premium.

$9 per ton the highest since the second quarter of 19.

That's the evidence of our high quality portfolio.

Tight market for high quality products.

On the other hand production was down year on year.

Salt of operational cost strengths, which will be covered in detail by <unk> later.

We are overcoming those obstacles in the southern use of system performance increased by 11% year on year. Despite the strong ranked quality January with depth, a golf depth that production levels will increase that's planned in the coming quarters to meet our annual production guidance.

In base metals, we gave another important step reinforcing <unk> position as a supplier of choice by the EV market.

Move to your agreement with North volt to supply low carbon vehicle products for batteries on production stability. The suitability mines achieved police strike run rates supportive of a cooperative production for the upcoming quarters.

<unk> will provide more details later.

Finally in capital location, we paid $3 $5 billion in dividend and at the best very well with the execution of our buyback program.

Talking about the integration between business and ESG strategy as you know.

<unk> portfolio is shaped to foster the development and diffusion of environmentally friendly technology by our clients. One example of that.

Start of construction of techno rats first commercial plant in the state of par.

Second RF Tech knowledge. These innovative enabling the production of re pig iron from distribution tuition of metallurgical coal by biomass. This means up to 100% reduction in fuel to admission and 10% to 15% lower operating costs and capex intensity.

This is in line with our strategy to provide steel makers with viable solutions for their decarbonization investments.

So contributing to <unk> III emissions reduction target of 50% by 2035.

This is one of the initiatives that people in sheets bodies portfolio any strategically positioned this company to face the climate challenge.

On our roadmap to build a better body reshaping means optimizing portfolio solving cash swings and focusing on our core businesses in the sales.

<unk> made substantial progress this quarter by completing the divestment from our coal business.

We also closed the sale of our stake at CSI.

Finally, we reached a binding agreement for the sale all of our western system for $150 million. In addition to transferring take quickly obligations, which Bryce do transaction at $1.2 billion in enterprise bad.

Those were major steps that creates value for the company and drive us towards a much more focused and leaner portfolio of assets.

Speaking of creating and sharing value.

Based on the successful progress of our two share buyback programs, we announced the launch of a third one for up to 500 million shares to be repurchased within 18 months.

Bind the two first programs comprised almost 10% of outstanding shares.

After the completion of the third buyback program, we will have repurchased almost 80% of the company's outstanding shares. This means that for our shareholders with positions since before our first program without expanding any additional dollar their participation in <unk>.

Future of our new <unk> would have increased by almost 25% when we have completed this program.

This is one of the results of our commitment to create value and share it with our shareholders I'll now turn the floor over to Daphne for her remarks on the quarter results for base metals. Thank you.

Thank you Eduardo good morning, everyone I would like to start by talking about the progress we have made towards our strategic agenda. During this quarter, we signed a multiyear agreement to supply our low carbon nickel to not vote.

<unk>, who values producing batteries from low carbon sources.

We have also successfully added further carbon certification with some of our other Nicole.

Products in Sudbury in clinic as well as for our copper concentrates produced in Salobo.

This is in addition to the certification we have previously received for a long harbour nickel rounds. This is an important achievement that reinforces all position to supply and low carbon products to support energy tons.

<unk>.

Specially for the growing EV market.

Secondly, we have just announced locally in Indonesia, the signing of a framework agreement with why you cobalt to jointly develop our formula H pulp project to produce up to 120000 tonnes of nickel and image P.

Why use technical experience expertise and track record is a perfect complement to our world class pulp mill lead deposit and our multi decade operation experience in Indonesia.

This is a significant milestone that reflects our long standing commitment to developing this world class resource and Indonesia to further deliver into a growing nickel demand.

Next slide.

In nickel a year on year lower volumes were largely explained by the pace of the ramp up of Sudbury mines and the ramp up of the <unk> project.

The Sudbury mines, but at the end of quarter, one achieved pre labor disruption mining rates and answer Puma operation had a stable production performance.

Copper, we have planned for a lower production quarter.

As a result of a scheduled single SaaS maintenance and the lower mine grades come to logo in each one.

We were impacted by the decision we took to extend the Segal planned maintenance to bring forward the replacement of the Moe discharge trinian due to the extensive way we uncovered when we commenced with the maintenance.

We are on track to restocked, the forsaken plant by mid May.

We were also impacted by the increased seismicity at all Coleman mining Sudbury, which impacted mining.

High grade copper section in the quarter this can still be accessed.

We have several initiatives underway that will continue to derisk, our copper production going forward.

So take a mining performance for the quarter slightly ahead of plan, which enabled the plant to run at maximum capacity after the restart.

We achieved 25000 tons run rate in quarter, three and quarter four last year.

And I am certain that we can achieve similar if not slightly higher run rate once the maintenance is completed.

The local mining is on plan.

As we have seen the benefit of the mine maintenance work from last year and are on track to deliver 30% more mind movement. This year.

The Salobo plant has just completed a planned intend.

The Institute and will assist with improved reliability. The Salobo plant has previously achieved the required 48 to 50000 ton quarterly run rate.

Finally in North Atlantic with the increasing production rates and the additional opportunities being worked on and we are confident that we can offset some of the losses from quarter one.

The next slide.

Finally, moving to the nickel prices, which has attracted a lot of attention recently.

Our nickel price realization was up 16% in the quarter.

This price realization can be split into three main factors.

First the aggregate premium and discount for nickel.

That is taking into account our entire product portfolio.

In this quarter, we've achieved strong price realization from our class one products.

However, the product mix was impacted by the highest sales of the intermediate.

Mostly nickel mat, which is typically sold at a 20% to 25% discount to the enemy.

The second factor is the market pricing that is how sales are distributed along the quarter and the quotation of price for the contracts.

So despite the high let me price in March and in the quarter, the lower previous period prices affected the quarter's price.

Our typical monthly Q P is split about half and the current month and half in the past month.

This explains the $2000 difference between me and the realized price.

And lastly, we have some fixed pricing.

Typically hedge a smaller portion of our sales.

<unk> contracts are not subject to margin calls.

As we apply hedge accounting to those contracts the only effect, we see is the equivalent to a fixed price sales at.

At about $20000 with no issues and liquidity mark to market for those contracts given the soaring prices in the quarter, we have had a negative impact on our hedge results.

I now hand over to Marcel him to take us through the iron ore performance.

Thank you D C well in our last conference call I finish my presentation talking about the flight to quality trend.

We highlighted that came from that.

Amortization path.

<unk> of the blast furnace in the short term and the marquee views of director reduction immediate future, we don't support it.

Strong demand for high quality ores.

On the other hand, there is a limited supply of the highest Utica ores, and we said that.

We have many signs that this trend is becoming a reality. So we can see this chart that we have a gap.

Between this 58 index into 65 index.

Now over $70.

That's the last one iron ore that we've been talking about.

Volley performer at a great price realization in the first quarter driven by four main reasons. The first one the cost of cost of the Coke.

We need a necessity chop Tim do you have any faster to optimize the cost of energy in the blast furnace.

The lack of quality.

Coming from our competitors, we have high speed aluminum.

Hi aluminum.

Let's concentrate coming from Cif and even the domestic market, we have a lower production production for the concentrate.

Third.

<unk> premiums.

And finally.

We are taking advantage of our portfolio, we've been improving the quality.

Through the Bell.

Some plants there'd be RBS.

Reducing the high silica or.

Also concentrated in China.

Moving to next slides.

Let's talk about the production plan for 2022, I want to reinforce our production guidance for this year.

A range between 323 5 million tons as we mentioned in our production report comparing to last year, we have some one off events due to the heavy rainy season into solve any into north.

Almost offset it by the full operation.

Upcoming.

From the asset that we were ramping up last year coming from the salted coming from just the smelting system. We are also facing the reflect of the delays of what we call. The rolling license process in the North Ranch.

That made our strip ratio is.

Kris neither north range.

Despite the many challenges we can say that we have some good deals here.

We approved more than 12% the waste movement in the North branch.

And we plan and execute the major maintenance.

Activity in Latam and <unk> in the first quarter.

Our orders in the second quarter. So on the first half we can see you definitely have lagged in facts and their production annual production due to the seasonality as an example, we are installing the Eva crushers the first half.

And we already are.

Good place to the conveyor belt, they're very important Colbert Belton last 11.

In April we are adding more than 2 million tons compared to last year.

You see that we prepared did.

Did north ranch for more availability in the second half.

And we will have this same effect after you annualize at production coming from the south and southeastern system that we've resumed last year.

Finally, gonna have a visual other projects and the and the.

And in the second half.

And we are expecting.

License for small piece in the North ranch.

Now moving to the third slide.

We want to track our plan to bring over the 50 million tonnes in midterm.

To support to supply the market if the market needs. So fall one system by system.

North Ranch.

We want to also track did you already bought is there are under license cheap the pantry and end to end one at.

S 11 D keep the evolution of the learning curve of the Ob K we have also.

To install in two years, the new waste crusher.

But we also have the bluffton and the plus 20.

<unk> big projects that are coming into future N E. W. E. W will shortly have a good news for you.

Yes, we have we resumed.

The raising works.

We expect.

The first phase for this year and the second phase for it for next year or so and they end up a year. We are we will be able to improve their capacity needs are beautiful.

And finally broken tool.

Door to them works are concluded we aren't the last phase.

Going after the final permits to operate this asset and we need to keep.

On track.

The license process for the stock violence for failing.

I'll be here for further questions and I will hand over to Gustavo.

Thanks, Marcel and good morning, everyone.

Like to start with a review of the main drivers for EBITDA performance in the quarter.

As you can see our first quarter EBITDA was about $6 $4 billion.

$480 million lower than Q4 to anyone.

This decline was caused mainly by the 33 million tonnes decline in sales of iron ore fines and pallets, given our normal seasonality with lower sales in the beginning of the year.

This was mostly offset by better realized prices for iron ore, reflecting the $32 per ton higher reference price and higher quality premiums in Q1.

Now on to our cost performance.

As discussed it seems valid day. This is one of our strategic priorities, which we see even more relevant today given the very high inflationary environment. We are all living in.

Just as a reminder, our goldford eight years to keep our fixed costs plus sustaining you look at Paris in line with the 2021 levels.

For that we have been working on a series of initiatives over the last several months with real benefits being already captured in our financials.

In a very limited fixed cost variation on a quarter over quarter basis.

Now how does that translate into our C. One and all in costs for the quarter and full year forecast.

As you can see in the next slide our Q1 ex third party purchase for the first quarter 2022 was $18 $7 per ton.

Higher than our Q4 by 2.2 dollars per ton.

Mostly driven by lower volume and the effect of fuel prices and FX with all the inflationary pressure being offset by the initiatives I just highlighted.

Looking to our full year forecast for C. One X third party purchases. If we weren't you assume average Brent for the year at around $100 per barrel and a fixed rate at five reais per dollar.

Be around 18, five to $19 per ton versus last year.

We're at $16 $5 per ton.

In terms of all in cost and assuming similar parameters, including average bunker at $600 per ton.

Would be Ronnie 2022 at a pace similar to 2021 with premium upsetting the effect of inflationary pressures.

Just note that all of this numbers already exclude the Midwestern system for which the state was recently announced.

Now turning to cash generation on the Max is light.

David That's your cash conversion for this quarter was mainly affected by greater tax payment for.

For our tax regime, our monthly income tax payments are calculated based on revenues generated and then the necessary adjustment is made in the first quarter of the following year.

So what do you see here is seasonally higher disbursement for the first quarter given better results last year.

On working capital, we have the usual impact of increasing accounts payable in Q1, following the higher investments in Q4.

So there wasn't any effect of the profit sharing distributions at the beginning of the year.

Finally, and most important on the capital allocation front, we returned $5 $3 billion in dividends and share buyback.

We remain committed and reverting and important share of our cash generation to our shareholders supported by our strong balance sheet.

These outflows were slightly offset by the inflows of around $500 million from the sale of our stake in California still.

Now, let me turn to our expanded net debt evolution in the next slide.

We ended up Q1, with an expanded net debt of $19 $4 billion compared with a $15 $1 billion for Q4.

Part of this increase is a result of the outflows presented in the probably was light and we're very much in line with our expectation for the quarter as I had anticipated in our last call.

Another driver is the effect of FX rates on the BRL denominated obligations that compose our expanded net debt commitments.

In the quarter, the Brazilian real appreciated by around 15%, which caused our commitments denominated in reais to increase in dollar terms by around $2.2 billion.

This was partially offset by the market to market of our hedge positions with a positive impact of $813 million.

We expect our expanded net debt benefit in the next quarters from higher sales and lower onetime cash outflows such as tax payments.

During this quarter. We also reviewed with our board to change in our optimal leverage from $15 billion to a range of $10 million to $20 million under the same expended in that that concept.

This provide us with greater flexibility and it's a reflection of our proactive liability management performed in the last several months with no relevant finish of Amortizations due by 2020 for a sustainable increase in our production capacity.

In a very disciplined cost and Capex management.

So before opening up for Q&A I would like to reinforce the key takeaways from today's call.

We remain laser focused on delivering on our strategic and financial objectives.

Our uniquely positioned portfolio of assets will benefit substantially from the energy transition.

In prediction, we are confident in delivering the volumes within the previously disclosed guidance range and finally, we continue to maintain a very disciplined capital allocation process as evidenced by our announcement today of a new share repurchase program of 500 million shares.

With that I'd like to open the call for questions.

Thank you ladies and gentlemen.

I will begin the question and answer session.

We have devised that the question should be asking English.

Has a question. Please press the Star T followed by the one key on your adult coloring phone, though.

If at any time, you would like to remove yourself from the question queue.

Press the Star Kit. Please restrict your question just two at a time.

Our first question comes from Leonardo Correa with medical business, you've got to go out.

Yeah, Oh do we have available.

Yes can you hear me.

Hello, Yes, yes, yes.

Yeah.

Okay perfect guys. So good morning to everyone.

<unk>.

My first question to Gustavo yourself on the cash returns right I think the big the Big news of the day was the buyback I think no one was really expecting to.

The level of increase that you guys announced right from 200 to 500 million shares on a similar time frame right.

The question for Us.

Two of them over the past ours has been on this or.

Okay.

Hmm.

Dividends and more particularly this changes the way you treat the extraordinary dividends right because if we look at volumes cash returns over the past couple of years, it's been mainly focused on dividends. The bulk of cash flows have been returned via dividends. So now.

With this much higher level of buybacks I think the question is will you potentially leave the extra ordinary dividends aside and just focus on the minimum plus this buyback where you think you can do.

The three together so that's my first question.

Second one I'm supposed to be 90, it's been Eddie if I may of course.

It's a very volatile and very difficult environment to try to understand in China right.

We're seeing all the Lockdowns were seeing all the logistics bottlenecks were seeing some ports are locked down shut down we don't know exactly how this can evolve going forward.

My question to you is whether the order books right that Youre seeing over April and May in China are you seeing any weakness I mean any temporary issues on selling you iron ore into China have how can you report on that front I mean, our sales normal to China are using.

Experiencing any delays or any.

Potential shipments that could be rolled over into the third quarter that would be my.

That's all my questions guys. Thank you very much.

Yeah.

Well I'm going to use the new world to the new the new normal to answer your question, Dan Loeb established them in front of me here. So you add up because I think it's a very important.

The question that you're poised because is just as you understand the car we've always talked about the buckets right.

We generate cash last year, we returned 95% of free cash flow.

First of all we need to keep our commitments are obliged to that that's why we did the extent of that concept.

And obligations to execute them, our girl for safety and what's coming after first first as our policy our dividend policy. That's sacred we want to keep this call stepped in you look five years from now and look back body has been consistently predictably display its policy okay.

What is above that that's your question, where you're going to treat it in a very specific way for the moment W. We are undergoing.

Obviously, we prefer buybacks because they are permanent.

Okay.

Mhm.

The next question comes from Neil.

Cai you have made with bank of America.

Yeah, I'll do always available.

But they come us as it not like that in those buckets at least more or less.

Safety growth.

The policy.

Buy backs extraordinary so I think we can do the three.

And they'll sorry, because I had to jump over it stopped but so dear to my heart.

The stop in order to really explain it.

Yeah.

Yeah that I think are the cover it well right. So we've given where the stocks are trading we continue to believe.

This is probably the one of the best if not the best investment that we have is to buy back our own share we've been very active as as we've seen in our prep remarks, we've purchased almost upper Central Valley.

Last 12 months, so that that would take us to another almost 20%. So this is certainly very accretive for our shareholders and we will continue to chew.

<unk> put a lot of effort on that as you saw in our announcement last year. It doesn't mean, we cannot do is extraordinary dividends I think we will we will assess and it's due time of course it all depends on our cash flow for the year, we have a very constructive for the year by some of the challenges that we are all seen we continue to be very constructive and our ability to generate strong.

Cash for the year, So I think you know and and and on top of that we do have already a very well established dividend policy with a payout of 50%. So tried to art's point I think we can do both.

But certainly at today's valuation.

Buying back our own shares is highly accretive from a perspective.

And long term.

Yeah.

Oh well. Thank you for your question well. This is I think it's the.

One of the most important questions for for today rental China.

Is dealing with the with the Covid and the housing back full four hour well.

Our goal for this year so.

In short term just answering your question directly we don't see any problem with our clients.

I think it's the opposite we the liquidity in the market is getting higher and higher last week. This week, they have a now and weekend and holiday, but the liquidity is really high.

Our adventures is declining and also the whole inventory is declining.

And and there's a strong support and you can see the numbers to support that Oh, the there'll be there'll be a blow to the use of the blast furnace.

As a whole increased this week to 280, 80, 384%, 86% compared to 85% last week.

So all the signs we see that there is a some 444 downstream demand.

Definitely they they they seem to be committed to their goal Oh 5.5 to GDP growth.

And we have all the deployment after debt infrastructure very heated seat it if he either.

The eight 8% grow in a new projects.

Project Ark I mean, so everything is as you can see in the numbers, but the sentiment.

At the same time, we see they are struggling in Shanghai.

The information for you we don't we don't.

Have any problem in our supply chain.

All of our lineups are are the same in the same level that you.

You used to be in the same period.

The ear.

The operations are flowing very well so what we are happy to.

She did the numbers going on.

The next question comes from these pits.

In beta with Bank of America.

Tayo, Yeah, Oh, there he is available.

Alright. Good morning, all thank you for the opportunity. So my first question is on divestments I just wanted to ask you know after he and see more cheesy the Midwestern system.

Which other assets are still candidates for it for the divestments.

And then my second question.

Company has been talking a lot about the several value unlocking avenues for the base metals Division.

All of them is setting up a potential partnership I just wanted to ask if you do choose to go down This road what would be the main angles that youre looking to exploit.

One lock this value you know whether it is through synergies via logistics SG&A or if it is consolidated the nickel class one market further or anything else that you see as a potential here. Thank you.

Hey, Kyle.

Good morning, Gustavo here, so I'll get started with the divestments and then I'll pass to the largest corporate based model. So yeah. We've done we've done a lot to cleaned up most of the noncore assets out of our portfolio and we've been saying that there is two other candidates in the last C. S. P. N M. R. M M. R N.

Both processes are ongoing we've said that publicly.

And you know who will give the market update it once you have any news on that but that those would be.

The final ones in our released today, so with that I'll pass to Eduardo.

Thanks Guy.

It's a very.

Good question and a complex Duane so I'll try to be objective, okay, but we need to start because of obvious reasons Theres no decision taken that direction. Okay. What we have I think this brings to your question is the massive that nobody else has it okay.

And Nick of fundamentally speaking, we're talking about a method that is we'll see D based in Canada.

Yes G.

Italy aligned in Indonesia, because we have operating there for more than 50 years and the best resorts in the world. So nobody has it so we need to extract value from it. So that's the main angle. If you ask me what is the angle. It's uncovering value from this extremely high quality asset that has one of the best resource.

Loved in the world. So that's the first angle that we need to be mindful I think we have that's in your first question a track record of delivering what we say that we're gonna do we said that we are going to exit the b and C. We exited we said that we are gonna you exited our exit to what T as responsibly.

And we did.

And I think we with that track record, we are going to incorporate the value that we have that base metals.

It's unique as I already mentioned, what kind of options given we have that's a.

Again going through the book.

Reminding you again about my first comment Theres no decision taken whatsoever there are several.

There are several avenues that we can choose to go you can partner.

Can spin you can you can keep that as it is because if we execute well because that's the part I jumped we need to execute well why wouldn't you didn't ask can I ask you to comment a little bit because she is here with us in Brazil as well today.

And I think she hadn't we go into more of it was a little bit by the way. So there are huge our efforts to transform more to transform the business as of Q2 I always saw first quarter.

Not a very good one so we need to prove that we are a reliable operator are.

Predictable operator, we can do that we did that in the railways and value. We are doing that in iron ore and we are going to do that in base metals as well so the path to get to choose and to uncover this value.

<unk> fastest first of all in the beauty reliability building.

Credible business.

Keeping our our growth projects online like D b.

Our sustaining and growth projects like VP of me or CCA, I mean, nickel and not let them. All for instance, like in copper and obviously if its option a is.

Extracting disbanded beside value is not enough we're going to have my lives other options Oh some of some of those I just mentioned.

Before but the angle if I can be our objective to do is.

Is to uncover value and we have been doing that with the other assets that we should reshape and I agree with you with this is the last to reshape their the body has to do.

Thank you Eduardo exactly all parts to unlocking value for base metals starts off with a solid execution I have mentioned this in the previous call yeah, but four work streams at the base metal schemes and I are working on starting off with the mines Kodak.

The T and linking to that to safety, we have plans for every asset across the business and it's good to see some of these quick wins coming to as is reflected by the 22% increase you've seen from January until launch in <unk> and in our daily production rates at EM Sadly the focus of course.

The increase in our South Atlantic, which is very much. The downstream are focused on making sure that the assets are better maintained and that we can improve reliability, but we know to be successful. It's not just about getting to safe reliable production or we have to get down the cost curve and that is why the mix initiative. We have is.

Focusing on our third party spend and and that we are hoping to at least offset the inflation for this year, but start to look for structural changes there.

But it all comes together, making sure that we are improving our engagement with all stakeholders.

And that's where the third piece of work.

So Eduardo we are focusing in base metals on the execution and whatever that path full value unlocked will come it'll be awful far more efficient space.

And the company. Thank you.

Yeah.

The next question comes from knee cartilage down with Morgan Stanley .

Mr. Carlos here.

Yeah.

Oh.

Alright, great. Thank you very much good morning, everyone.

My questions are one is.

On Salobo I can can you comment a little bit more on how salobo III that is a little bit more on how the project is unfolding after.

Situation that we faced in January and also it called my attention that the Capex.

Yeah.

Around one 1 billion dollar total capex, despite the setback and so.

If you could elaborate a little bit more even if you are seeing efficiency somewhere else am or if Dave the cost overall cost of the incident. It's just not that that ran events and then the other maybe Marcelo if you could elaborate a little bit on the pellet.

Our eyes are on the premium we were expecting a little bit bigger multiple.

And obviously, we were we were I'm mistaken, but it could be just a lagging effect.

Maybe the the increase in metallic prices on high higher value I, Idaho products.

The increase in prices that we saw recently happened. After you had signed new contracts for the quarter. So if you can elaborate a little bit more about the first quarter.

Better price premium and what would you expect in the second quarter I am going forward that that'd be very useful. Thank you very much.

Thank you part of the question regarding our celebrity so just so that we are all aligned snowboard team will deliver at least 30 to 40000 tonnes cellphone metal am.

And in terms of the way we all on our progress that project is almost 70% complete so as we previously guided we are on track to start our cluster of production at <unk>.

And al side November of this year.

In terms of the capital that's still holding on to the $1 $1 billion off on a capital of the Pope in fact in terms of the progress on our physical then I think Eduardo mentioned at the start of the call and we will be on site over the next day to actually talk to Oregon to team on that in terms of the work that the team and I are doing that.

It's making sure that Theyre de risking the operational readiness in terms of commissioning as well as the ramp up so salobo III as it stands we are maintaining the guidance from the beginning of the yeah. We're still on track for the end of the year style.

And that's about the officials that you'll ask others more wheel.

We're really benefited by the exchange rate in this case. They had there were some COVID-19 impacts in the accident was minor was not relevant but there's going to be on track for the for the dollar wise $1.1 billion.

Hi, Carlos.

Thank you for your question well.

We have a shortfall in the <unk> and the market is very tight.

We mentioned in last conference call the impact coming from from the conflict in Russia and Ukraine.

Hum for blast furnace, and a direct reduction there's a pressure coming from the demand side.

In in Middle West show in.

In Q2, we eat.

Settled the premiums before the conflict. So are the numbers now a full blast furnaces 66 65.844 direct reduction.

And we see an upside risk for for next quarter.

The next question comes from the state of Chagal will see it go with their school debate.

This channel is available.

Thank you gentlemen, two questions here the first one to Gustavo Gustavo about the expanded net debt guidance range.

That's a that's a big range right. So can you give us more color on maybe at least for now what number should we should we be working with.

In terms of the expanded and that that is it may be closer to the top of the range. We're now I'm asking because there's obviously makes a big difference for you know dividend calculations on the extraordinary side.

The second question about the Midwestern system sale.

Could the counterparties of the take or pay agreements block the deal at all or that's not a possibility.

But if it is what would be volleys options here. Thank you.

Thanks, Thiago, so unexpected and that that look I think what we were able to do and the revision that we just conducted with our board is true.

Essentially have more flexibility throughout the year, because we do have some seasonality in our cash flow right. We have tax payments as we just saw in the first SKU dividend payments given our sales have some seasonality. So that gave us I think this new range gives us some flexibility throughout the year to operate around that $15 billion that we have.

Before but eventually like we did in Q1 being able to operate the bulls that that debt level. So that was the main the main reason for it and we think now it's it provides again more flexibility and it's a better way to communicate those those leverage ratios to the market.

Regarding the transaction that we just.

Aside to sell the Midwestern no. We don't think it's going to be.

An issue I mean, we we have ways to accommodate any potential discussion with the counterparty.

So I think we're feeling very good about alternatives to be able to conclude that transaction.

Okay.

Next question.

It's from me.

Brad what can hold there with UBS.

Mr. Andrea Yeah, I'd always available now.

Thank you very much just a couple of questions on the iron ore production, maybe just kind of looking at this year. Obviously your range is $3 20 to 335 is is it too early to say, whether you think we're going to end up in the high or low end of that range. Obviously, it was a bit of a wet first first quarter of the year.

But do you have to have the crushers coming online. So it's it's the high end of the range still in place that's still a realistic or should we be thinking more low end of the range at this point in time.

That's the first question and related to that the second question. When you think of it a little bit more medium longer term, obviously, you're still looking to get licenses to ramp up production further though can you give us an update about what what regulators are really looking for those licenses and any progress that's been made there to get those.

That is my second question. Thank you very much.

He can't dress for first question I think it's early to say, but what happens what can I say is that we prepare the systems to work with more availability into the in the dry season. That's the that's the main message here and read it.

We're going to have the full operations.

From the southeastern system. That's another important get so if you compare to last year. These are too big.

Very important components to consider it in the.

And the the ballroom for the whole year.

Midterm I can see that we have two main actions here. The first one in the north as I mentioned in the presentation, we will rely on our on the permits.

We have some delay for for this what we call the what they call the rolling license.

Related to two small piece that we can add five to.

10 million tons that you replace and keep the volumes on the North Ranch, we had some some delays, but we expect will happen in the second quarter in the second half.

And permit or are we we rely on the expansion, Florida North ranch.

And three in 'twenty, one and even the the 11th hour you sold it.

If you have.

Any problem in the systems that can be a headwind for to reach 204.

204, 440 million tons, we have a backup.

Backup.

Fallback position in the southern system with the other.

Projects that are coming online like cup on their mom and.

And the the recover off the full production at our beta definitely will come after it W. Shaw.

We we have a set of initiatives to bring more volumes, but all of this remember that we have that monitored mantra is the value over volume. So we're going to bring this if we see that the market needs. So we are going to see and talk about our.

So next year only at the end of the year.

Okay.

The next question comes from the pit.

Angel it with <unk>.

J P Morgan.

Oh, Yeah, Oh do we have available now.

Okay. Thanks.

Good morning, everyone. Good afternoon for those in Europe .

My my two questions are quite simple first one that we're seeing.

In the industry cost pressures all around.

So I just wanted to ask.

You if there is a renewed focus.

On this.

If there's any opportunity or anything you can.

Expect so basically just a few thoughts on the plans.

My second question is more about.

How should we think about volume in the medium to long term.

Think you.

The fact that you're announcing a large.

Buy back its a very important very well received by investors.

But could we assume that there is also an implicit message that valley is going to be.

You know aside from focusing on the recovery of the volumes in iron ore.

And getting the you know the expansions that we discuss here such as some of the tree.

Ronnie.

Should we think about trial anymore as a cash cow towards the future or is there are all sorts theater a discussion on our growth agenda.

Oh, good morning, Gustavo here, so on the cost as you've been seeing pretty much across all industries right everybody is having challenges we are all facing.

Very high inflationary pressure.

Pressure I think the good thing in our case as we've been working on this since last year you may recall invalidate we came to announce a program to reduce our cost base a series of initiatives across the board that we are taking to optimize our cost base and what we're seeing see once a day.

Just talk specific about C. One is the fact that we are having is basically FX and fuel cost right visual.

So we've been able in Q1 already to offset all of the inflationary pressures in labor services and so one with initiatives that would have been working on it since last year.

I think the other right side here is the on the oily side given.

The premium better premiums this year that we're expecting.

We are seeing our I'll leave for the very much in line with last year, which we think it's a big win given again all the inflationary.

We are having so Joe.

To your point I think we've been able to accommodate and manage and offset offset all of the pressure on the cost on the fixed costs in local currency and what we are left with is the effects, which we gave you some sensitivity today and a few price.

But with where we are excited with the opportunities we're seeing to optimize our cost base with.

With that I'll pass the second question to Eduardo.

Okay.

Thanks, we'll go for them.

Maybe the answer is a growing cash go big Big cash call because I think nobody has the opportunity so groups that body has right.

Won't go back to the rationale about the share buybacks because we believe that's permanent.

That's the best investment that we can have so we are buying back body that iron ore prices off seeks to whatever you have your price, but where are we at today. So we are buying iron ore company of about $60. So that's the restaurant all about the buyback, but when you look at iron ore itself when its OCA high quality, we don't we don't buy this story that the iron ore.

Ours are mature di business, we are a growing classroom iron ore business is we can grow up to 400 million times with high quality nobody can do that so we're going to need cash we're going to use the cash for that so number one use of cash is to grow in quality with the in iron ore.

Goes back to us.

Previous question around the the difficult soft license gets said that they would have to overcome as well. So first one is grow grow grow iron ore. We haven't we have to grow copper you'll know that we have to grow crops or like we have with the cottage us.

Since we did not allow explored it's a homework that we'd have to do we have to look at it with more and reach more careful now that we are focused 100% of our efforts on base metals. So we need to grow corporate debt, we have huge opportunities there that will demand cash we can grow corporate you know and we can grow newco that's.

The very important message here, we can go with Nikko, we can leave it there.

With a lot of discipline thinking something around his sulfates by the way, but we that's the part I think was the first question. The second question about the angles of base metals fundamentally theyre talking about an equal rights and Nico has an optionality to grow to $300 million to $400 million 400000 tonnes.

When you look at the gap, that's going to happen in the market and there's the uses of cash for that as well, but the student body is going to generate a.

Huge amount of cash so.

I think it's fair to say, we can see that it is like a chicago, but a.

Our cash grew a lot.

So it's a there's a growth.

Oh can I say.

It's a girl called I don't know how to answer your specific but I don't see conflict on that I think that we are going to generate cash we're going to shrink or our share base and the ones that are that buying the story now we will be very happy if five years from now.

The next question comes from MS. Danielle So so with maybe a niche Danielle yeah, Oh, there he is available.

Thank you gentlemen, thank you everyone. Most of my questions have been answered I was just wondering if you have any expectation that next steps up.

Hum.

Christa.

Hum.

Who can claim.

Cleaning with.

Mhm formation that they provided about the conditions of the tailing dams are the dams are prior to the January plan.

If you could comment on the expected timeline for you know these investigation to continue to move forward.

I know that you have already disclosed that you you do not agree with those findings, but if you could give us more color that would be great.

And my second question in regards to you just talked a bit about the costs I remember that a few years ago, you used to say that your.

Expectations for long term prices in this industry, where around $70 per ton, which was a level that you would generate decent return ascend with not stimulate new supply coming to the market with cost inflation has been you know significantly over the past few quarters.

Probably we will continue this way over the quarters to come.

Did you have do you have any you expect these expectations in regards to the long term prices that you work with maybe even to consider approving new growth projects as citywide convention.

That would be that would be great. Thank you.

Yeah.

Thanks, Daniela Gustavo here I'll get started and then spinello cohort.

A quick question so look regarding the FCC the suite was expected following.

Last year's what I'll notice, we certainly disagree and and but we are reviewing would just we just received at the.

The email and information around it and it will certainly contest.

The allegation so it's going to take its own time, and we will certainly keep the market updated.

Because then you're all well.

Good question that the the.

The first number 70 is not 17 anymore right. So that's.

Even if you don't consider the supply demand trend in the future the seventh seven anymore, but when you're when you're putting inflation and all the all the impacted the that'll be to stay.

A second point that the it.

Transition to a greener world.

That will be quite different that we would expect that some years ago. So yes price.

Price of energy will will stay higher than expected in the 70.

The number here so we are.

A third component to your supply demand so supply demand will be tighter.

Then before.

From the supply side are the all.

All in all the projects and the possibilities to come to the market are a much more difficult than than before and finally, we need to.

Educate ourselves.

To talk about what we call. The this glass one iron ore our number Ah is from the seventh up but we need to add in all the authority or or or six or eight when you talk about the b R. B F or we need to to add another.

Premium for pellets or breakage, so we.

We are working hard to have a kind of number that we would call. This glass one iron ore depth is decoupled from the standard that you mentioned about the seventh it show up and will be a white gap when you consider the class one iron law.

Uh huh.

The next question comes from Liam Fitzpatrick with Deutsche Bank.

Yeah Aldo is available.

Good morning, good afternoon, everyone I'll stick to the two questions.

First of all just on the on all sides in terms of the value over volume.

I guess, we all hope the Chinese steel output will recover into H, two but if it doesn't you know what's more important kind of getting to your guidance range will you continue this approach to supplying the market tomorrow.

I'll, just say that because.

Looking at the chart in the pack.

You are guiding to a pretty steep.

Pick up in volumes into Q2 and into Q3.

My second question I appreciate it's probably not much you can say, but.

C C.

C. A S E. T charges have you got any color in terms of how long this could go on for.

Yeah. So the timing that we could be looking at like one that thank you.

Yep.

Thank you Liam for your question, it's been out of the year. So yep relative volume that's the name of the game.

And we expect the dialogue downstream demand in China, our numbers is a bold 1 billion.

Songs for for crude steel production.

And and wheel you know go to the market.

And supply the market with this this trend we are we see this there.

The stability in the eye.

The economy in China is.

A key trend for this year so.

And we see a tight market that supply demand balance.

For the first time of the year after the first quarter.

We can see as a whole onto your shortfall of competitive supply demand.

And a small one but it's just the shortfall and and that'll be a tight market for Q2, and Q3 better more balance into the end of last quarter.

And language double here in the FCC look as I said before we strongly disagree with the <unk>.

With the claim and with the suite will certainly context contest all the allegations, but it will take some time, so who will make sure that the market is update it but.

It will take it will take its time.

The next question comes from Tyler Broda RBC.

Tyler Yeah, Aldo is available now.

Great. Thanks, Thanks, very much for the call today.

Most of my questions have been asked I. Just was curious you didn't change the guidance that was given at Vale day for the 2023.

Cost between $15 50 to $16 a ton is that is that still a realistic target assuming that we are to stay in this in this current higher energy cost.

Our base level of inflationary.

Environment and then my second question would be is that you seem to have built up a lot of inventory over the last six months in the value chain within 2021 .

And it's sort of did nothing really came out during our during early 2022, I guess, how do you expect to see that evolve over the course of the year just thinking in terms of sales versus production. Thanks very much.

Hey, Tyler let me cover the first one so yeah on cost certainly.

There is if you were to maintain the current FX rate for example.

And the pressure on our fuel prices, we could have an effect in 2023 on our Q1, but.

But I think it's early to say I think we'll have to see that's why we haven't revealed and provided any incremental data point, because I think it's already to say, we'll have to see where the energy prices saddles, where affect saddle. So once we have more clarity. We will then update the market on 'twenty three but I think based on the variance we seem to anyone our journey.

The first Q 'twenty Chu.

Kind of have a sense of the.

The Delta that we could see in 'twenty three for those two variables.

Hi, Tyler Spinelli here so.

You you're right we had some gaps new battery in 2021 , but remember that we were recovering our supply chain are after.

2019, after Beaumont GM that we.

We use dollar venturi Churchill should keep the sales into Q2 keep the op.

<unk> in our in our plants in <unk>, mostly in China. So we did this ah in 2020 , one to keep the supply chain and operational for blending. So what do we expect for these years the same parts of last year.

With an additional and a small part that we are concentrating.

Some are high silica wars in China, that's small gaps that.

You can consider that in 10 million tons for this material.

We have a mass recover of Oh, 70%, 65% to 70%. So that's the only.

Difference between last year and this year.

The next question comes from John Tumazos, with John Tumazos Independent research, Mr. John you're or whatever is available now.

Thank you for taking my questions first.

Why not build five or more of a tuck in or are clients since theres so much better.

Second.

Could you describe the <unk>.

Second quarter and third quarter rebounds in the northern system in the southern system.

The first quarter.

<unk> only weather et cetera.

Thank you John Spinelli here, so techno rather you're right. That's a that's a great solution, but we need to.

Through the technology with our industrial scale. So that's what we're doing now.

It's a it's a technology that we can.

U N is small.

Affording us we can use our biomass and that that would be.

And it can be used as a smelter also in the.

And our in our clients. So we can co locate and our clients for use as a as a industrial plant for pig iron.

We are developing ALS, but we need to prove this we are really confident we already have a small plant.

Working and but we want to prove this firstly.

And and about a balance in Q2 and Q3.

The North ranch.

That was the is the wet season, so we used to have a lower.

Sure.

As expected in this in this quarter, the second quarter, but they they come with more than 70% are when they they returned to to the second half. So that's our that's what to expect and as I mentioned in the first quarter was so for more with.

But some are.

Delays, but we are preparing the the north rash, that's the most important site for us to be more available in the second half.

The next question comes from Mr. Jones branded leaves HSBC, Mr. Jos Your audio is available.

Hi, Good morning, good afternoon, and thanks for taking my questions Spinelli I first wanted to ask you about demand in Europe .

Just given the challenges that they face with higher energy costs and taking down some.

<unk> what are you seeing in terms of iron ore demand there.

And then my second question was on nickel so.

Definitely you you mentioned a lot of the low carbon nickel products that you have and obviously, there's there's value in that but I'm just wondering how does that.

Does that translate into higher realized prices or is that something that could potentially translate into higher realized prices in the future. Thank you.

Thank you Jonathan well.

So its a tough answer about the bolt here about what we have some numbers are we are not counting the full operational foresee a yes, we see a decline.

Between 20% to 25% this year.

In Europe .

We have a forecast for four minus one.

Or minus three if you expand the view for for for the whole Europe , but.

The main thing, but when you were talking about this with our clients. There are food now you know the the Nazi I guess, but.

The other part of Europe . They are full they are buying but they are in a in a kind of short term and mode. So are they expect to have some impact coming from energy and the end of the year that could have some restrictions.

Well the use of of coal sold.

They they have concerns, but they don't have answers.

Now for the whole thing so they are in the short term mode. We are selling the same actually there's a lot of pressure coming from from the the pellet side.

But we expect that it'll be some of the decline for for the whole year as I mentioned.

Thank you John I'll be very very quick and keeping with our strategy to try and politically 25% to 30% off all of our production into I E. We know that in order for us to be ready for transition knuckles and what's happening on the a quick window side, we have to show the world that we do have one of the lowest cost.

And our intent to separate the product and that's the reason that was thought to be a certification now.

Process, but simply as you said I think for now it's just to show definitely our low carbon bolt on the footprint side as well as on NAND intensity, but going forward as Eduardo mentioned the world is going to need a lot more nickel. We believe we can more than double our production for the right time and incentives so I agree.

I think green nickel was destined to be a product that the market needs to incentivize them to waterfall. Thank you John .

This concludes today's question and answer session do I have them by telling them. At this time you May proceed with your closing statement.

Yeah. Thank you again.

Again, thanks, a lot for your interest and attention and questions are they are very helpful to even took either our focus here just as a conclusion I will reiterate or repeat what Gustavo said.

And at the end of his his introduction we are laser focused on our objectives.

I think we are uniquely positioned to the ESG world.

But we see a climate challenge, we see our business opportunity our iron ore.

One vehicle as we just just fashion you just mentioned copper so I don't I don't think there is no other company in the world that has what we do have a extremely confident about the targets Spinelli you didn't say, but we are not on the lower end for sure guidance is guidance with the only one that.

We are lowering the guidance toward the lower end is copper because of the challenge ended up being realistic, but we are extremely confident that we're going to do.

When I get to do up to our guidance.

And lastly, we are showing with actions we are putting our money where our mouth is our capital discipline is extremely disciplined and we're not letting by any opportunities to grow. So we are going to keep as much as needed cash inside the company with discipline.

To grow our business that again I don't believe any other mining company in the world has such a suite of opportunities side. So again.

Again, thanks, a lot for your attention I hope to see you see or listen to you in the next call and and again the ones that are in this marathon with us will truly benefit thanks, a lot and keep safe.

That does conclude <unk> conference call for today. Thank you very much for your participation and have a nice day.

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Q1 2022 Vale SA Earnings Call

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