Q4 2021 Vale SA Earnings Call
Good morning, ladies and gentlemen, welcome to Valley's conference call to discuss the fourth quarter of 2021 reserve.
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 that time.
He says showed a requires assistance during the call. Please press 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 touch call at the investors link.
This conference call is accompanied by a slide presentation also available at investors link at the company's website and is transmitted via internet as well.
The French casting 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 the forward looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 90 to 96.
Actual performance could differ materially from that anticipated in any forward looking comments as a result of macroeconomic conditions market risks and other factors.
Today Army stood into it it drives such a stylist bechtold Miele Chief Executive Officer, Mr. Gustavo Pimenta is equities, Vice President finance and investors relations.
Mr. Marcello Spinelli Executive Vice President IR, Laura and me says this neat neither is the accretive Vice President base metals first Mr. Dwight Bartolo mill. We appreciate your presentation all of valleys fourth quarter, 2021%.
After that you'll see us.
Available for questions and answers, it's now my pleasure to turn the call over to Mr. Eduardo Bartolomeo, Sir you may now begin.
Good morning, everyone I Hope you are fine.
Keeping people safe.
Safety and reparation that's priority.
We performed well be 2021 .
In safety in.
In the Blue Monday, you would operation in an hour.
Sustainability agenda.
We are glad about the progress.
I'll step in delivering increasingly consistent results.
I would like to start a conversation by reinforcing our road map.
<unk> block.
We are reducing risks associated with our operational and resizing, our company focusing on key businesses cost optimization and organic growth.
We have updated our roadmap moving our ESG agenda from values Derisking to re rating.
We understand that this is an important lever to push our ambitions.
We remain committed to making bug.
Safer and more reliable company, a benchmark value creation and sharing.
Supported by our robust cash generation and disciplined capital location.
The year.
Of 2021 was very important to increase the stability of our company.
Leading to speak of this good operational and financial results.
Starting with iron ore.
Reach it's a production capacity of around 340 billion tons per year by the end of 2021.
Duction resumption in stabilization and Sally asked you Jimbo Pampa and <unk>.
We increased production of iron ore by 5% and balanced by around 7%.
To the previous years, we had the highest sales volume of iron ore for a fee.
Fourth quarter in our history with 82.
<unk> medium thoughts.
As well, we have advanced with the actions to reduce the use of dams, starting operations of tailings filtration plants and advisors and EW.
Base metals, even with big challenges ahead, we have started 2022 with good prospects with the conclusion of old Tigris operations ramp up after this sudbury stoppage and with the resumption of activity at the top of mine earlier this month.
As you know we want to make body each day safer.
And our cultural transformation continues to advance.
We have increased the maturity of implementation of our management model the vps with a good improvement in our operational stability.
That help us to prevent the next steps.
We added 2021 with the lowest recordable injury rate in our history.
Finally, we have made significant progress in optimizing our portfolio.
The disciplined capital allocation.
I'll talk a little bit more about this later, but first I would like to update you on the progress of the boom of the resolution.
We ended 2021 with disbursements of one $3 billion, including the full payment of the transfer program for 2022, we estimate a disbursement of around $1 billion. The reparation settlement. We have also advanced in the compensation of individual damage in them.
Litigation agreements for around 12800 people totaling around 3 billion reais.
As already said, we will never forget Boumediene red.
Very little about deal with active listening in are fair.
Fast and agile way in their management.
Other wins and important tests earlier this year with rates much higher than expected immunogen is about 30% of ranked forecast for the year, We're seeing just 12 days.
It is very difficult scenario, our dams in operations showed resilience in a very good performance keep measure.
To reduce valleys risks are.
Our program to eliminate upstream dams in Brazil out of 30 structures, we have already eliminated seven.
In 2022, where you eliminate five more by.
By 2025, we will have eliminate two thirds of our upstream structures, whose products are complex and in some cases pioneering so we adjusted our provisions after some technical reviews will stop Damietta will address this later.
In conclusion, I reaffirm our commitment to the implementation of the global industry standard on tailings management the past year.
Speaking now about our ESG agenda, we have made both commitments since 2019 in line with the Great Challenge of Society.
Delivering what we promised and disclosing our results with greater transparency on.
On this slide you can see the deliveries in each of these dimensions, we have a goal of viewing accidents with high potential injuries by 20 to 25 in 2021, we have seen an important reduction in the injury rate as I have already mentioned.
I draw your attention to our climate agenda towards carbon neutrality by 2020.
2021, we announced investments between $4 billion to $6 billion for actions in scope, one and two until 'twenty two.
Scope three emissions, we are engaging with customers, who already represent 40% of our emissions for partnerships Decarbonization solutions.
So launch at the Greenberg, Catherine 'twenty, 'twenty, one which is essential for reducing.
Two emissions in the steel industry.
More importantly, <unk>.
While it is strategically positioned to face the climate challenge, we think depreciated portfolio.
High quality iron ore.
Which we will start now calling classroom coffee, the nicobar concept and our differentiated reserves of nickel and copper.
Still on the ESG agenda.
So to strengthen our social performance the last holiday, we launched our social ambition with clear targets, which included.
<unk> 500000 people out of strength poverty, helping to develop it resilient communities.
We have also performed well in our commitment to double the female share you know workforce from 13% to 26% to the point that we have anticipate its completion forecast to 2025 from 2030 since we have already increased that's yet to around 19%.
And to expand our activity racial diversity, we have made a commitment to achieve a 40% stake of black leadership by 2026 as you can see with that we are seeking a secretive Kurt.
Steve long term impact on society and building a more diverse and inclusive company.
And portfolio optimization, we have made substantial progress we have entered into a binding agreement for the sale of the coal business with closing expected for the first half.
We also completed the sale of the stake in CSI for over $400 million. This month.
What volatilization solved cash drains and monetize non strategic assets such as for example, VNC mosaic and the manganese Ferro alloys operation.
We continue to work on divestments to focus on assets and initiatives that actually create value for the company and push us towards leadership and sustainable mining.
To conclude.
Picking up creating and sharing value, we distributed 95% of our 2021 cash generation for our shareholders between dividends and buyback and yesterday, we announced the distribution of $3 $5 billion in dividends with our buyback program. We have also increased by 6%.
All of our shareholders in our future earnings.
In other words with good operational performance and capital discipline. We are returning the good results to our shareholders and allowing us to build a value sharing agenda <unk>.
<unk> as a whole.
2021 was a year of good delivers.
I would like to thank our employees partners customers and suppliers for their resilience and strong commitment to the various work fronts.
Now I would like to turn the floor over to our new Vice President of base metals dashing than I do.
We wish her much success in her challenge.
Mark travelers for his contributions while at the helm of the business. Thank you.
Thank you Eduardo good morning, everyone. It is a pleasure to be talking to you today as the head of the base metals business.
This is truly an exciting time for base metals nickel copper and cobalt a stocking of the Renaissance due to the global low carbon energy transition.
Increased demand coupled with the lack of supply.
Significant interest across the industry.
Nickel demand growth is forecast to double over the next decade, driven by EV demand plus.
Plus one nickel demand remained strong over the long term.
Copper demand is forecast to increase kind of thought by 2030 benefiting from bulk growing EV demand as well as the broader energy transition.
As we know renewable energy generation consumes more copper than the traditional energy supply.
The next slide.
We have the right assets and an unmatched resource space and strong jurisdictions technical expertise.
Unlock the value chain to deliver into this demand growth.
The fundamentals of the class one market remaining strong our north Atlantic operations are very well positioned to respond and meet the quiet demand.
Our Canadian nickel resources are high quality and poly metallic.
Well established downstream facilities that are capable to supply not only premium nickel products, but also cobalt and copper that are so important to the energy transition.
And South Atlantic, we have a platform to grow in copper encourage us and unparalleled mineral province that falling nose and operates well in.
We have an advanced projects pipeline with Alamo, which will allow us to grow in copper and the extension of the cycle plant life to the development of the South hop mines, starting with Crystal Lino.
Also we have advanced drilling campaigns on the north hubs deposits and studies to potentially expand the salobo capacity.
Our fourth line processing plant.
Additionally, we are also studying the expansion capacity in answer Puma with the construction of the second furnace.
In Indonesia, we have a long history of operating over several decades.
And our project portfolio by Adobe is advancing well and we are close to any decision that we will take in the first half of yeah.
Pamela development the partnership discussions are progressing well and.
And we hope to announce something shortly.
And we continued the development of a world class asset who.
This project is a tier one asset with a large resource base of greater than 2 billion tonnes at a 0.83% copper and a point <unk> eight gram per tonne gold.
And with a very high <unk>.
Production potential.
Possibly around 350000 tons of copper and 220000 ounces of gold. This is a game changer.
The next slide.
So our focus is clear.
We need to continue towards zero harm.
We have decreased our cure rate by 20% to point between nine over the last three years, we will continue to focus on our control effectiveness.
Part of our hero program.
We will look to continue to advance our resource potential and increase our reserves and resources to support the future replacement and growth plans we have.
In 2021 alone we drilled over 440000 meters more than we've executed over the last 25 years and we are planning to increase that by another 20% in 2022 to 550000 meters.
We need to deliver the north Atlantic minds productivity program to arrest the geological inflation Youre seeing.
Mining gifts to date span between one four kilometers to over two and a half kilometers deep and our trailing distances over the last decade have more than doubled in some mines.
We have a disciplined program to improve our mining cycle times across all mines to increase productivity.
We are pivoting our products into EV supply risk.
We signed last year and long term contract with a global OEM for 5% of our nickel powders and we are in discussions with several other EV supply chain participants.
<unk>, our resource base to further add value to business and to society.
Along those lines, we take our commitment to society seriously.
Starting with the progress on our low carbon agenda.
This has included the third party verification upon long harbour Nikko rounds, which supports our commitment to transparency and.
Our ambition to be a leader in low carbon.
The next slide.
Admittedly a waiver 2021 was not a good year in terms of our plan compliance primarily as a result of the Sudbury strike the mine maintenance and the long distance conveyor belts fire and Salobo.
We all have a closed the fourth quarter on a more positive note and hence our confidence that we are better set up to deliver 2022.
Sudbury operations largely concluded the ramp up following the strike toxin.
<unk> activities earlier this month as we have started to hoist Paul.
Harbour refinery achieved the best to date and your production of 38000 tons Matt.
Matt the soccer refinery and answer Puma had a strong fourth quarter after a significant maintenance.
Copper Salobo mine movement had achieved.
Run rate of 11% to 12 million tons in the fourth quarter and in fact in December achieving close to 12 million tons.
That we have increased our nickel production by almost 60% in the fourth quarter and 12% of our copper production I now hand over to Marcelo to take us through the <unk> performance.
Good morning. Thank you. Additionally, it's a pleasure to have you here for the first time.
Conference call.
No.
Or is it too just see our framework to track the resumption plan. So my last update was in the valley they let.
Let me remind you of some information that we have in this slide.
Firstly, we lapped 'twenty, two which one with 340 million tons of capacity in.
And we expect to add another 30 million tonnes GCU, but mainly by the end of this year with door to them and.
And it'll be just true dominant one.
Secondly, information here during the year, we expect to bring more quality with the penetration.
Replacing.
The high silica or two transforming to high grade ores.
<unk> are coming in line and so we expect fewer impacting volumes and more inequality.
Finally, some information about the north system.
Unless it and yes 11 D.
Our deal in better with the order board and all of the orebody knowledge addressing the capacity to crush just for life with the installation of the remaining able crushers.
We will have a baeza ear.
In the north system with all the projects.
On the construction remember that we have.
Less 11, plus 10, plus 20 have allowed to in North ranch.
All of them will be really important to bring capacity to 'twenty two 'twenty three.
Well I want to reinforce our production guidance for 'twenty to 'twenty two it's a range between 323 32 5 million tons.
And despite the heavy rainy season that we face in this Q1 and the losses that we had in January we are confident that we can compensate during the year and deliver our guidance.
Now moving forward.
But once you bring your attention to the flight to quality trend you. We we all know about this.
<unk> strategy with having folly, but now with some actual examples.
Well, we've been talking about the energy transition did the carbonization process in many times you would talk about.
The transition metals Nico in corporate that we have in our portfolio.
But we should consider chew information here to put this to you and this thoughtful eased off.
The met those that really will be really important for the transition in the energy.
Firstly information steel is fundamental to all the infrastructure that we would need for the energy transition who have a lot of examples in this slide.
Coming from the energy sector.
The second.
We have a clear.
Pathway clear Tech roadmap.
For this tool, making transition that will support the competitiveness of this two business in a greener world.
Well.
All the information there's a common sense as we mentioned in to validate that the best way to Decarbonize the steelmaking.
Come from the reduction of the the the use of the blast furnace and the increase of the direct reduction of Roche.
And the first moment to using more natural gas and later the hydrogen for all of these.
We would need.
More and more high grade ores.
At the beginning to reduce the use of the coke.
And in the second moment, you need more pallet for director reduction or Briquettes.
And just to remind you there is a limited supply for the high grade ores that can make volley.
In a very competitive level.
So all of this together I want to summarize showing the last slide that we have.
Uh huh.
The graph with the premiums.
The high grade ores, the lower alumina and the gap when you compare with the the low grade ores.
We are the coupling more and more from the traditional competitors for iron ore, we have growth and better price.
With that we are competing into high grade ores.
To talk a lot about this during the year, we are in the market that we can call the class one iron ore.
Now I hand over to boost double-team anthem.
Thanks, Marcelo I would like to start with a review of the main drivers for our EBITDA performance on slide 23.
As you can see.
Our fourth quarter EBIT that was very much in line with our Q3 performance at about $7 billion.
The main negative effect was caused by realize its prices in iron ore as the 62% reference price drop at $53 in the quarter.
This was mostly offset by record sales volume for fourth quarter of 82 million tons combined with better pricing and volume based models as we resumed operations at Sudbury.
Now turning to our cash flow generation on the next slide our EBITDA to cash conversion. This quarter was impacted by working capital effects payment of Blue Medina obligations and seasonally higher capex.
On working capital. The main drivers were first about one $5 billion of cash returned to clients for volumes collected in Q3.
But effectively deliver in Q4 at lower reference prices.
So as per the agreement with clients. We had just a final pricing. Once this cargo has delivered as we have talked about in our previous call. The second effect about $1 billion is related to higher accrual sales volume in the quarter when compare to the prior quarter, which increases the accounts receivable balance.
Disney Voices will be collected in Q1 this year.
Also in the fourth quarter of last year, we accelerated payments related to the integral reparation.
Boumediene include.
Including the implementation of the income transfer program all in line with our expectations.
Finally, the $780 million you see on the right Green bar on many of the proceeds from the sale of our mosaic shares offset by the use of cash to the share buyback program.
Now turning to net income on the next slide.
The main drivers reconciling our EBITDA to net income in the quarter.
As you can see we added about $1 7 billion in new provisions for the characterization of our upstream dams.
The adjustment was necessary. After we concluded a thorough review of the engineering and just technical solutions needed to perform the bigger authorization plan with.
With this revision we now expect associated cash disbursement to move from about $300 million to $450 million per year on average for 2022 until 2026.
It is important to highlight that we have not changed any of the characterization goes presented invalid day and continue to expect to have no dense classified at emergence level III by 2025.
Second our equity results were $1 $1 billion lower as we complement that additional provision related to from there some run off of.
This was done after Newport the seasons on the compensation to residents of impacted cities that changed and expanded the concept of damage categories indemnify amounts and affected municipalities.
Lastly, during the quarter, we returned $3 billion of capital from a few of our subsidiaries and as a result recognized the gain for cumulated FX translation on those investments now turning to our cost efficiency initiatives on the next slide.
As we have laid out doing valid day. This is one of our key strategic priorities, which we see even more relevant today, given the continuous acceleration of global inflation, which is affecting everyone, including us our key objective for 2020 choose to keep our total fixed cost and sustaining capex flat implementing niche.
Is that a rough set all of the inflation pressure in there.
As you can see on the left hand side of the slide we have already identified a series of initiatives to deliver on this goal such as the redesign of the organization structure improvements and strategic sourcing overhead optimization and implementation of technology to drive field productivity.
This initiatives and our continued focus on increasing the level of efficiency and productivity across valley without jeopardizing. The resilience of our operations will set the stage for us to deliver the 1 billion dollar goal for 'twenty 'twenty three onwards.
Another important driver is the inflation on variable costs and are interested in most directly impact comes from oil prices currently under pressure due to the latest geopolitical developments as you can see on the right hand side of these light. This has any impact on our bunker and diesel costs and we provide some sensitivity related to risk.
Q1, and all the impacts.
On the other hand, as just an unexplained we're seeing higher quality premiums in 2022 which are expected to have a positive effect in our all in cash cost offsetting the negative impact of oil prices to.
To conclude and of course, we remain focused on delivering a long term C. One cost X third party purchase of 14 to $15 per ton.
With the water he presented invalidate and an all in cost of 30 to $35 per ton.
So in summary, we are very confident about delivering on our strategic and financial objectives.
Obsessed with safety why we're working hard to recover our production capacity in iron ore and base metals, we are leading the transformation to a low carbon emission industry in iron ore and we will leverage our well positioned portfolio of assets in nickel and copper to support the energy transition.
Finally, and that's Eduardo highlighted we remain committed to delivering superior returns to our shareholders with that I would like to open up the call for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Mr has a question. Please press the star key followed by the one key on your coach Count for now.
Any time, you would like to remove yourself from the questioning queue press is third chip. Please restrict your questions to two at a time.
Our first question comes from Carlos de Alba with Morgan Stanley .
Yes, good morning, everyone.
Yeah.
Sure.
Thank you very much everyone.
Okay.
First question, maybe I'll continue the discussion on our own cost on cost pressures.
So if I understood correct, how should I understand the comments on cost for iron ore So basically.
Do you expect to offset the pressure on fixed cost, but valuable will increase and therefore, it is possibly that costs will increase in the coming quarters.
And then over time get back to that target that was mentioned about 14 to $15 per ton. Excluding third party purchases is that a right way to to understand the.
The progression towards that that'd be my first question, maybe for Andy If I may ask the second question has to do with we them with an increase in provisions.
And then extended net debt now at around 15 billion, what does that mean for future payments of dividends and share buybacks. Thank you.
Thanks Carlos.
So let me walk you through both the two questions that you raised so in terms of cost what we've laid out is that we.
We expect to have fixed cost plus sustaining capex flattened despite the inflation rates. So we talked about that in a valley day.
We saw this coming and we've taken a series of actions over the last couple of months to make sure that.
We can deliver fixed cost plus sustaining flat now we do realize that both on this island bunker, having pressure right Brent is above $100, which is going to impact, especially the all in cost, but what do we said during the presentation. That's been Andy highlighted that premiums are better than last year, so our expectations that premium.
You offset the impact that you're going to have from few costs. This year. So.
At a high level, then there's fixed costs flat.
The impact from a few being offset by framing right. So in terms of the provision yes, we are at.
The target of $15 billion target at the expanded net debt.
But what I'd like to clarify here. This is not a quarterly goal right. What do we want to achieve is by year end should be within that framework within the limit of $15 billion, but we may have some fluctuations throughout the year.
So at least a motto given at very conservative prices for iron ore. If you model our cash projection for the year, you're going to see you have a lot of space within that.
Hold to perform on the program execute the buyback and eventually even do more. So we are we are feeling very good about it.
Again, it's not a quarterly target.
Very focused on that we expect that you get within the 15 by year end, but during the quarters, we may fluctuate around that.
The next question comes from Jonathan printed list.
HSBC.
Mr. Jonathan Your auto is available.
Hi, Good morning, good afternoon. Thanks for the opportunity I first I just wanted to follow up on Carlos his question.
As it relates to provisions.
So Marco has has made.
Uh huh.
They've made a.
Thing two I'm sure.
Creditors, asking or stating that they would propose a cap of $2 4 billion of payments for for their dam disaster.
And that they would ask you for UN BHP for an additional $3 1 billion I'm just wondering if if that's in the provisions if that is a potential additional liability that that you could be facing at some point and sort of what your views are on that and then my second.
Question.
Is that on the base metal side, I guess, given the robust scenario that you laid out for demand is there anything you can do to speed up some of these projects are there any obstacles that are in your way and sort of what you.
You spoke about your your quality of base metal assets.
I understand how you can monetize that from class, one nickel et cetera, but how do you monetize that and given the lower jurisdictional risks.
Assets are in.
Is there anything you can do from from that side of things.
So Jonathan I'll get started and then they'll send that.
The second question traditionally.
So no no no impact.
Regarding the conversations and discussions with the creditors and the reason being from an accounting perspective, we have provision 100% from the sponsor side. So there is no.
Write backs.
S.
As the conversation evolves with the credits are so hopefully we'll be able to reach a constructive outcome. There, but the result is not necessarily affecting the level of provisions that we have.
Thank you Jonathan I have to say in the last couple of weeks. This question has been preoccupied my mind.
You know, there's two ways of creating a value, especially in the short to medium term you have to focus on volume and margin on volume and turning to our local you know the.
Team and I are looking at how do we increase the mines are productivity aligns our production more reliable because the good news about Canada is that we have downstream.
So the upgrader and the team they are really looking at that what he said, but like you said it is about the margin and what Ron looking at with one scheme is how do we pivot some of that the current toss one into.
Foster currently as he said, we've got 5% directly tied we're talking to quite a few of the EV supply chain producers right now to look at how we can pull it back further but on copper we have a beautiful ore body in the Salobo are the job there is to try and get some consistency out of Salobo, one and two.
And also to look at how do we create the stock for the Salobo III plant, which will give us another 30 to 40.
You know in the short term focus on the current portfolio looked at the Onboarding of the projects that we have and then in the medium term try and accelerate some of that study work. Yeah. So today, we are bold enough to show you just how much of R&R rehab, but also in the last two years, we've increased our R&D expenditure by over 50%.
Yeah and that is to accelerate the study work that's sitting in the pipeline of power one and power two <unk>.
Jonathan I'm, hoping you know in the next few months, we'll have some good news for you in terms of progress on some of that fast tracking.
Just to add Jonathan about monetizing because you bring a very important question around the jurisdiction ripe geopolitically speaking now as we ceased ethical V that now with the Ukraine issue.
I think being placed in Canada being able to use to supply Europe and North America on D. V. We are as I think is what is behind your question is the discussion about spinning off carving out it's.
As we said Theres no decision taken Theres no action all actions we will proceed.
Need necessarily what the that you just mentioned about doing the homework, but they are on the table. Obviously there we are.
Always thinking about ways.
And who knows but theres, an optionality that we want you to take a patient who is the most important reshaping the Bod will do now after we almost finished Ah <unk>.
<unk> of the assets that were destroying fat at all we are we are now.
To put the assets that has huge values are the best way to the market the pricing.
Thank you for your question.
The next question comes from Trey.
Okay.
Yes.
Mr to enjoy it.
Do we have available.
Well. Thank you very much hope, you're all safe and well just two questions from me following up on Jonathan's question.
Can you give us a quick update on how conversations with creditors are going.
In particular, one question investors are asking at the moment is kind of whether that's a viable risk here that the asset would be transferred to credit Suisse is that something we should be.
Worried about in any shape or form.
Could give us an update there on some article that'd be great.
And secondly.
Wonder if you just touch upon something you've been talking about in the past as well I mean, I think you've been mentioning that you feel that BIOLASE shares.
Two inexpensive too cheap versus some of your peers. So can you talk a little bit around what management strategy.
<unk> auto basically rewrite the shirts and narrow that discount going forward.
My two questions. Thank you very much.
Thanks, Andrea I'll take a shot at both and eventual Eduardo can complement on the second one so with the creditors.
We are in the process right. So there is still uncertain in terms of what is the what is the final outcome.
What I can tell you is that you know.
So Marco has potential it is generating cash flow so our expectation and hope is to find a constructive outcome that works for everyone right for some Michael for the creditors and for the sponsors so you've seen in the press and some of the religious with ideas that were.
Resent that by some article.
Of course, there's just a process that we will have to go through and hopefully at the end.
You'll find a constructive outcome that it's good for everyone.
And especially because as I said, so Marco has potential to continue to generate strong cash flow right.
In terms of re rating I think it's the overall.
Story of value right, though we clearly understand that.
There was a perception of a higher risk, but a lot of for them, especially post two tragedies.
Been working hard on this assets performed extremely out early this year. Despite all the heavy rains. So they started around de risking and making sure that the market perceives as we do perceive that somebody today substantially less risky than where three years ago is fundamental.
There is clearly an element of reshaping the portfolio, which are the words you talked about with.
Just to put in perspective at some point in time those the assets that we've sold were costing us $2 billion of cash. They are all gone right. So that is also fundamental.
And then the third one is our position in terms of ESG being able to bring the volume both in iron ore.
And based models is as we've said I think sometimes we see the market doesn't appreciate all the growth potential we have at value with limited equity needs right. So just bringing volumes back to where we were it is the fundamental opportunity for us to create EBITDA, we are working hard to get there and one of them.
Now for you guys to see how we feel about it as our action in terms of buying back our own shares we've been very active and we expect it to continue to be active.
Given our value or our view that the company is not.
We will reflect in terms of its share price.
New supply with my my comment.
Oh, it's exactly that why don't we really don't get the right price and there's no better investment than to buy value. So we will continue to do that as quick as we can we already gave 6% back to our shareholders.
If the market still.
Appreciate because they're out of risk there I reshape the perception from portfolio managers and that's natural we've completely understand we're gonna buyback value. That's the that's the that's the rule of the game and then of course trying to close that gap, but until they have to get but it hasn't been closed we're going to buyback the shares.
The next question comes from Tina Fey, and theirs with Wolfe research.
Yeah, Hey, good day happy Friday, everyone.
I just wanted to start out by at following up on the comments around working capital because it took a big bite out of free cash flow and I just want to make sure I understood how much of that too.
Reversing into the first quarter and then for my second question you know, there's a lot of noise. Since the last time, we spoke to you about upstream dams that were supposed to have been eliminated them with I guess the debate about the deadline or a difference of view there and has valley applied for an extension or is there risk of any.
Action against the company, giving us on a.
Delayed in terms of the timing of closures of upstream dams relative to expectations. Thanks a lot.
Hey, Timna.
It started with the working capital so what happened in Q2, the main effect was.
But believe we highlighted in Q3.
We've monetized some of the the cargos and as per the agreements with the clients at once the cargo has effectively delivered we have to get you know fight the settlement based on that price right. So as we had in Q4 some reduction on pricing we were in.
In fact, it through net working capital standpoint, what's going to drive better cash flow.
In Q2. This year is the fact that we ended up with higher accruals.
10 million tons into the math.
Of higher accruals in Q4, which you effectively monetize them.
Got paid in Q2 and Q1 this year, so you'll see likely a strong Q1 as a result of this higher accrual has not yet received.
With that I'll I'll ask.
Eduardo to cover the second one.
Hi team good Friday for you too.
The upstream dams were supposed to be eliminated by the law that was created just to have to put my D. V. Two years, obviously is not possible and we export distinction, but fortunately all the constituencies.
<unk> come together they came together since the beginning of the month the prosecutors the government agents of the state ages. The federal agents are the national agents of mining and we came up with.
D C how to translate that.
That agreement that will allow us to to exert the.
That is needed to do the works.
There are some rules for that so it's a more.
Comprehensive agreement, but there'll be how can I say no penalty there we'd be a funds to that would be created to help us sustain some environmental actions, but nothing material.
There's going to be in the priming of the.
More or less following the time of the characterization of the beach dams as I mentioned in my speech around 25 20 of these dams are gonna be eliminated, but there are some there are a bit more so I think we found a good solution with all the concern between Susan we are we are good to go.
The next question comes from Alex hacking with fake.
You're always available.
Thanks, and thanks for the call.
First question any any guidance on C. One costs for a nickel and copper.
In 2022.
And then secondly on answer Puma with the second furnace.
The amount of Capex, there and then what.
Driving the decision to revisit the second thing is if I remember correctly was originally built with coupons ethical sale you reveal one but not the other is this just a function of the higher nickel price, that's driving that decision or it's something else changed that answer Puma I thought youre revisiting that second sentence. Thank you very much.
Thank you for the thank you for the questions Alex So firstly on the cost guidance, we typically don't give the cost guidance, but I mean look at it and tell you how I see the margins in the business.
If I look at an all in number Paul when nickel you know excluding suspending our capital if I look at the <unk>.
And over the last two years that number again full value should be in the order of magnitude of around $18000 per ton, we add back some of the sustaining capital with a capital B seven seven to seven point $4000 per ton.
I think that's a good enough guidance and tons of current volumes and so they've got caught on price I mean, that's still a pretty healthy situation. The excitement of course for us is in copper.
If I look at the Salobo lobster, we were slightly positive in previous years of course, Salobo cost way local time, so the way to look at a couple of costing total when I include a single as part of the copper operations just under you know too.
$2000 per ton before our sustaining capital if I add back maybe just under $3000 per ton. So that's the guidance for both cost and all in basis for both copper and nickel.
Answer Puma, yes, the answer Puma wasn't as little of both but the two are two classes.
We have been doing work to study the second scientists so a lot of change in terms of the operation in terms of how we now maxing I'll kill our capacity through the furnace capacity et cetera. So the second furnace now has the scope is actually creep to but because we have of course done from operating the cluster.
Furnace.
And the order of magnitude on the the capital day is just under $400 million to $415 million, but of course, we are working on refining that to estimate in order to approve the project sooner.
A positive point of view as well answer Puma will not be a fun as to will not add as much as fun as one because of how the furnaces are configured for Qantas wants to give us as much as 25000 tons minus two will add maybe another 12 to 15000 oftentimes I hope that all so Alex.
Yeah.
The next question comes from Alfonso Salazar with Scotia Bank.
Your audio is available.
Thank you.
I found the one question that Scott.
Got it.
It's actually I want to sleep.
So the first one is on the on the short end.
Uh huh.
So all of them slots from clients or if it's perhaps shortages in China. So I'm just wondering if you can pull out some back some color on what's happening and why.
I think the cases in the short term.
I don't know the month.
And welcome to expectations at 19 scrap supply.
The sudden try now we're talking to you about end of life.
And what is going to change.
The dynamics of the market, how do you see them.
In time for example developed markets use mortgage graphical man.
Definitely yes.
To export to other countries, but then you have to find them.
Domestic supply.
Welcome to the data that you see or how did you see the balance.
They either did nothing.
I dunno seaborne microbes item.
Monte Carlo.
I would like to call on some thoughts on how we can see.
I think our phosphorous is spinelli here well.
The short term.
What we see the supply demand balance definitely have more demand.
Comparing to supply.
The supply side is a we have some disruptions in Brazil. If we you all know about the losses that we had relating to the rainy season in the south of Brazil.
Is it seasonal Ah Ah moment, but as usual, but we had some extra.
Problems with a higher a higher ready season.
And also some some news coming from Australia with lower shipments.
On the other hand, the device to the demand side, we have a China.
Send him a strong message that they have.
They want a.
GDP growth rate.
Between five to five 5% debt.
Applying to the steel demand we see.
Reduction CSP production of a billion it's in the billions 20.
Median tons.
That is after all the the the Olympics and the holidays in China is increasing the demand. So that's the scenario for short term, we see an imbalanced market type market in this first half.
And more balanced in the second half going moving forward Q2 to the future what I said.
In the beginning of the presentation.
We are the coupling are the markets, we need to educate ourselves.
Did you do these as Bali and show you children.
Show to you that we have a deeper market. When we are talking now about the high grade ores.
We need to deploy those as demand for direct reduction roads. There are a lot of announcements coming from every place.
That will support and inquiries are for for the pellets direct reduction pellets and also Briquettes, that's a new market that is coming now.
Also we have the necessity during this next decade to Ah Ah Ah.
The increase the efficiency of the blast furnace, and bringing more and more high grade ore to the blast furnace show.
But we need to educate ourselves to understand that as part of the demand we are going to have growth.
And higher price.
Compared to the average that you can see despite the the increase of the scrap in China.
We see a strong demand for high grade was that the reason why we are going to educate ourselves during this year.
The next question comes from Tyler Broda RBC your auto is available.
Great. Thanks, very much for the call today are definitely welcome to to Valley.
My first question is for you there's been a few Ceos all excuse Eduardo for his brief tenure as our kind of base metals, but few Ceos, who had been sort of struggling with the same issues and sort of the underperformance of the assets you mentioned Europe . They are older.
A lot of sort of challenge as you went through this year. How are you approaching this job differently than maybe your predecessor was half and then the second question Spinelli, I guess theres, some discussions about Anglo American and potential for some form of JV around minutes, Rio or some form of <unk>.
Our partnership there I was just wondering if you could provide any color on that at all if possible and thanks very much.
Paula Thank you so much for the easy question.
And I've been in the business now for over a year tie in I think you know wearing my previous hat as our CFO has definitely given me the opportunity to try and understand the value Nevis a bottom up.
In looking at the business that way and in the diagnostics I've done I don't think my predecessor is wrong with the plans I think there's something that's gone wrong in terms of the execution of the plans. So one of the things I've done as a CEO is to look at but he was a pea on care, how do I better structured a pool to deliver the critical priorities.
Half that I've already outlined in the presentation, but I'm a firm believer pilot that you know what gets measured gets done and one of the second things I did in the business. What's the set up an activist PMO office that actually is just focused on four pillars.
Mines are performance as pillar one pillar two to really look at the overhead structure on the operational efficiency and effectiveness point of view.
And the third the third pillar was around reducing third party spend of the business had and the last pillar was all around people.
Engagement that we need stakeholders are probably the reason why we've not been as a successful because it does not need to take for everyone around the loftiest strike as it was mentioned in the previous call one of the reasons that perhaps have not been as a successful.
Very hard at work for the last few weeks actively listening to the various stakeholder groups and setting up workshops to try to understand how we can both collaborate together and try to have a ship vision for the business.
Todd I know ways underestimate the challenge, but I remain so positive about the quality of the assets we have the quality of the resources, we have in the ground.
All easily bring the rest of these four pillars together with it really makes the magic happen that they sent us. Thank you Oh with Houston.
Thank you traditionally.
So Tyler we always evaluate the opportunities and strategic alternatives for our business. So we have a and iron ore resource are they're just cold sipping Gena, it's close to.
You mean, those real operations from our envelope.
And we can.
Leverage from the existing processing and logistics logistics that they have there.
Is this asset that we have sold that that was the main idea and we.
We don't have any news about this that's a very.
Preliminary discussions and the and we don't have any commitment to this to this idea.
The next question comes from Christian Georges.
So decision house.
Thank you very much for real time.
Two questions on the industry.
Just to clarify on the on the <unk> since you say that you expect to put it as an impact on the on the premium from the situation in Ukraine and Russia.
If both of them because we invest in the Fedex 400 were to have to export.
If you think that maybe it program of shortage of credits for some of the Europeans Ketamine do something which we should be taking into account two over and above the potential impact on prices and my second question is on the on your can you or are they seeing.
The market to Davoudi like food the caito food I seem to remember last time, you were explaining that to Canada on like 5% or the production group just one goes through the trees and medium term.
Do you expect to the 20% I mean in general do you think we are.
If shortage with just one kinder justifying to coincide with your prices or do you think there is sufficient supply in the market for something.
Christian Thank you for your question well, we talk about this this question in the Portuguese conference call well we.
Just to figure out is the the pellet market is about 100 million.
Mm 120 million tons.
The blast furnace is 80 million tons in Russia and Ukraine.
Our responsible for 25 million tons of almost 30% of the market.
We are you all know that we have shortages in the supply for direct reduction in blast furnace.
And depends on the how long the conflicts are less we can have some impact coming from the suppliers are in this this region. So.
My first reaction is that we don't have extra supply to support a shortage in the coming from from from this region.
And the first impact will probably will be in the pellet premiums we've been hearing and receiving calls from our clients in Europe and the eastern Europe .
To support them, but we are trying to arrange our supply chain to help them, but there's a limit to action for for these short term in the short term.
Thank you Christine maybe just the the short answer is that I don't think it's gonna be enough. So although we've seen you know probably a nickel increase oh double over the next decade, 30% of that growth, we see is coming from the EV space.
And basically 70% of all our production is class one so what we think is gonna be neither does not just political our 70% into more costs into more E V growth what should be around 25% to 35% as we've guided previously but this sector continues to surprise.
So as we saw last year on the doubling of I E.
I think it's I know, it's not going to be enough. So this is something that the industry needs to than the industry needs to think about is how do we accelerate supply.
To make sure that we do keep up with evolving growing.
Mhm sector demand crystal Thank you.
The next question comes from John Tumazos, with John Tumazos Independent research.
Oh no he says.
Oh.
Thank you very much.
Concerning the Indians.
Indonesian copper gold deposit.
Has the tailings disposal method.
Been determined to be on land.
Where all the other projects.
Projects in that part of the World.
Deep in the sea.
And concerning valleys board how could your board.
Do a project with the ocean dumping.
Please describe what the Capex and design could be.
With and without the ocean dumping.
Thank you John I'll start and then they'd water might want to add.
Something that very quickly.
That was the start of the project and fell one with like with the some of the other producers to look at deep Sea tailings dumping that is definitely not the design as part of the fault to a study work that we are in now and if you look at you know we've been very conservative in our ramp up to concluding these fell two felt the studies over there.
The next four to five years for exactly this reason and John to look at how do we balance cause you know some of the the geothermal walk that we see in the ore body as well as the the tailings the.
The tailings dam thing as well as possible tailings treatment.
And the team are that are basically driving the parties on the ground I really looking at this.
Early for me to commit to the exact a processing route but I can categorically tell you that that will not be the route that we will be looking for.
Looking at across this project given the you'll notice in the book that's not the whole body different ways of using our technology to extract the safer and better.
This concludes today's question and answer session misstated glad to backfill them out at this time you may proceed to Czech clothing statement.
Okay. Thank you. Thank you all for for your Brazos attention interest in Bali.
As we mentioned.
We had the.
We had a good year and.
And I would say some some people would say an exception of what we see like here, we'd like to say, it's a good because we think we could do much better as we always say this is.
The marathon, it's not a sprint as David mentioned, the risk is ongoing and we're much much safer comp today reshaping, we have to strike value from base metals.
Dan did re rating will come.
And more importantly, I think from the robust.
So the results that we had just you to have an idea we're not only talking about our shareholders as a matter of fact, we contributed to society with 40 billion Reais more exactly 42 billion reais in royalties and taxes its obligation for sure.
But as a way to contribute to the development in countries like Brazil, Indonesia, and even Canada. So with that I believe that we are on the right track and thanks again, a lot for your attention and interest in arc.
The company and I hope to see you in the next call.
That does conclude the conference call for today. Thank you very much for your participation you may now disconnect your lines.
Thank you.
Okay.
[music] distributions.
Okay.
Okay.
Okay.
Great.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
[music].
At the beach.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
And.
[music].
Thank you.
Okay.
[music].
Got it.
[music].
At the beach.
Thank you.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
Uh huh.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
Thank you.
Okay.
[music].
Yes.
[music].
Right.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
At the beach.
Okay.
[music].
Thanks Scott.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].