Q2 2022 Vale SA Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to violence conference call to discuss <unk> second quarter 2022 results. 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.
He says 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 valid ought to call at the investors link.
This conference call is accompanied by a slide presentation also available at the investors link at the company's website and just tells me that we anchor niches both.
The broadcasting via Internet, both the audio and slides change has a few seconds delay in relation to the audio transmitted via phone.
Before proceeding let me mention that forward to looking statements are being made under the safe Harbor of the Securities Litigation Reform Act of 90 to 92 six.
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 Mr did lots of just sided bottle of mail. She says it could have officer, Mr. Gustavo Pimenta is equity for Vice President Finance and Investor Relations.
Marcellus Spinelli Executive Vice President IR, Mrs version, and I do is equity revised suppressed and base metals.
First Mr. Eduardo Bartolomeo Sir proceed to the presentation, although valleys second quarter 2020 cheaper farmers and after that he'll be available for questions and answers. It's now my pleasure to turn the call over to Mr. Eduardo Bartolomeo, Sir you may now begin.
Thank you very much.
Everyone I hope you're all well.
We just celebrated 80 years of operating in Brazil.
It was an opportunity to reflect on our journey challenge and a bit looser.
But as you know we remain focused upon rereading, Bob Baidu risky.
Nicole.
That'd be guide you through our main accomplishments.
Though the first quarter, we remain firmly committed to the room.
We just burst close to $320 million in the second quarter.
Agreement simulations.
In the environmental Salt.
This daily.
These are projects to the affected communities.
The compensation of individual damage.
The mitigation agreements have been reducing as the deadline for extra legal claims closed in January 2022 Court most territories.
Thanks, Duane and 19.
Have indemnified more than 13000 people totally around three points.
On safety we concluded.
<unk>.
Two of the five upstream dams truckers to be eliminated in 2022.
Give you more details on that.
Finally.
While the reshaping this month.
The sale of our Midwestern system.
Also signed a binding agreement with Arcelormittal for the sale of CSP I always do joint venture.
That said I speak.
To give you a full perspective of how much we progress since 2019, we sold nine business in five different countries that in the worst moments cost us up to $2 billion.
Of course right.
We remain committed to making Vale is safer and more reliable company supported by robust cash generation and disciplined capital allocation.
BARDA or a social ambition evolves strengthening relations with communities neighboring operations. This month, we celebrated 40 years of relationship between body should we look at it the indigenous people stayed up on this.
Mr. Green's people supported wireless professionals, when we started exploring cottage us yeah.
Our closed volume contribution units into Amazon and we have also helped to protect their indigenous territory is steel a relationship with the screen had controversies.
Have now begun a new stage in this relationship.
After 18 months of negotiations with closed an agreement with the <unk> community and a 15 years' dispute.
Our relationship with visits the village of discipline and it was a moment of mutual respect and trust I want to thank the shagreen people for welcoming us in their home. It is also important to emphasize that while it does not carry out any mineral research our mining activities only indigenous lands.
In Brazil, we also believe that all activity that may directly interfere in these territories must strictly respect free.
<unk> informed consent.
The key measure the risk value is our program to eliminate upstream dams in Brazil, and we advanced with important milestones in July .
We concluded the characterization of two structures boxes won't be at eight of them and dig for where the first clubs of the five dams to be eliminated this year.
<unk> 2019, we have eliminated.
Nine structures.
And by the end of 2022, we really relate to see more reaching 40% of the program.
The projects are complex and in some cases pioneering this is the case will be three before them currently at the emergency level III.
Using only remotely operated equipment, we have already removed close to 40% of the things much faster than our plan.
He has led us to anticipate this conclusion to 2025 my damn we expect volume to have node them the critical safety conditions.
We had an operationally challenging second quarter, which made us revise our iron ore and corporate guidance for the year.
Iron ore, while our systems into solve had a solid performance in the northern system, we were impacted by one off moisture issues and the ongoing with <unk> licensing spinel will talk more about that in may the battles essential maintenance works effected Nico and corporate operations and bashing, who will give you more details.
In our climate change agenda, we reached important milestones towards meeting our targets.
Part of our bar ship program, we received our second 100% electric locomotives.
It will initially operate at both of them are data port.
In April we signed an Mou with Nippon Steel Corporation to pursue iron, making solutions, including the usage of Green Briquettes is in line with our commitment to reducing 15% of that scope three emissions by 2025 since 2021, we engaged with clients representing almost <unk>.
2% of our scope three emissions.
And portfolio optimization, we have progress with those two divestments that I have already mentioned.
Finally capital location, we remain committed to returning cash to our shareholders and I will give you more details and the last one.
Yesterday, we announced the distribution of $3 billion in dividends in line with our policy.
Last quarter, we announced third buyback program for up to 500 meters shares.
We executed close to 22% of this program and a little more than two months.
After the completion of the third buyback program, we will have repurchased almost 20% of the company's outstanding shares.
Means that we are concentrating future earnings.
Per share basis by 25%.
We viewed this as a form of growth without progression in the supply side and carrying a lower execution risk.
Now I'll turn the floor over to our vice President of base metals. Daphne final remarks, Thank you and I'll get back to you in the Q&A.
Thank you Eduardo and good morning, everyone I'd like to start this call by highlighting that our February mines that were impacted by the strike last year and Ashok incident is top in mind and that has been in ramp up since quarter four are now running as planned.
<unk> said in the quarter, our overall base metals production was impacted by a major maintenance works both planned and unplanned most of the planned maintenance related to tobacco, we are catching up on following the two years of deferrals as a result of the COVID-19 pandemic restrictions and critical.
In nickel, we have planned major maintenance in our refineries and smelters across Canada, the U K and Indonesia, and our sales for the quarter were covered by inventories we booked in quarter one in anticipation of this in copper we completed the extended major maintenance.
As the cycle. This was originally planned for 45 days, but extended to replace other key components to mitigate future operations with the plant is now operating at a slight run rate.
The local additional plant maintenance work was performed during the quarter with additional preventative maintenance being scheduled in the second half to address poorer than expected asset condition discovered after key maintenance activities performed in the quarter. This can also be attribute.
It's to the maintenance deferrals during the COVID-19 restrictions. It is for these reasons, we have revised our copper guidance to the 270 to 285000 tons.
I'd like to mention however that maintenance work at the local one and sell over two plans do not change the plans for Salobo III, which is still schedule for commissioning by the end of this year. So quarter three we continue with our planned major mining mode maintenance programs across.
Ananda Wildstar nickel refineries will be running with nickel concentrate inventories.
Largely bolt up already we are at the downstream run rates required to meet on nickel guidance Canadian copper production should be temporarily affected though as we produce and sell concentrates in a much shorter cycle than Nicole next slide.
Looking at our financial performance in particular price you will see that despite relatively flat sales volumes quarter over quarter, our price realization lagged market.
Especially in copper as you can see in the graph in the left side copper price realization was largely impacted by provisional pricing.
As a result of the couple of forward curve price falling in the quarter by the end of quarter. One we had some 44000 tons of copper marked at $10400 per ton at the end of quarter. Two we had just under 32000 tonnes of copper.
At $8300 per ton. This represents a negative effect of about $3000 per ton.
In April we had a positive balance of premium from product mix with a strong price realization achieved for a class one products and a positive effect.
From our quotation period, the nickel price lag was primarily due to fixed pricing specifically our hedging program in the fourth quarter. We started the implementation of the nickel revenue hedging program for 2023, while the nickel realized price for the second quarter.
Was impacted by the strike price of circa $20200 per ton, which reflected in the quarter's results.
Average price for the complete hedge position was increased from <unk> 1400 to just over $23000 per ton, reflecting the higher price fixed for the new position.
Added on quarter, two now, let's turn to the future. This quarter. We have made good progress in our strategic agenda. We concluded the feasibility study for the proposed nickel sulphate project in Quebec.
Expected annual production of 25000 tons of contained nickel to produce over 110000 tonnes of nickel profit. This offers us both.
Supply sales and an accelerated entry points into North America budgeting electric vehicle supply chain as we are seeing from the growing demand of battery production across the continent.
Also we continue to advance our agenda in Indonesia, We have just approved at our board meeting the development of the <unk> project in Indonesia, together with Tesco and Zing high we expect to start up to 73000 ton Ferronickel facility in <unk>.
2025, and in line with our overall <unk> strategy, we have signed last week, two key and we'll use it forward one.
For the three way partnership with <unk> and why you in the polling our project in Indonesia, and the other to explore opportunities with body.
Cross the EV value chain.
<unk> adds to the previously announced Mou with Tesco, we look forward to working with these like minded partners, what EOG focused to supply low carbon nickel into the EV market I'll now hand over to Marcel to take us through the iron ore performance.
Thank you Steve good to hear you all good morning.
Start my presentation give you an update about our recovery plan.
I'd like to remind you our journey of <unk>.
Remember that we lost 25% of our capacity.
Always talk about capacity volume, but I want to emphasize the word flexibility here to date.
The main actions to review the flexibility where based on the.
The resumption of itself the new licenses.
Distribution of projects.
<unk> and what are the main challenges that we are considering in these actions so regarding the resumption plan Dan.
Safety was the key issue remember all this saga.
<unk> passed the blasting backlog is coming from the stoppage. So we've been overcoming month by month.
We brought back all sites not at full capacity, yet, but all operations on first liens back came with the upstream dams.
But the main impact came neither southeastern system with the downstream dams.
We temporarily lost capacity of the damage they need a beta and brutal regarding licenses, while all the child and you May ask is this dual challenge.
Answer is no and DFS. The license process is getting more sophisticated we have higher level of detail and itself and the north of Brazil.
Personally engage it and this process with the best team to provide analysis and working close to the agencies to close the gaps.
Finally regarding projects, we have impacts due to COVID-19 and the macro conditions as we are anticipating some project. We may have some adjustments during the limitation shop. The combination all of these three factors is bringing symbol you need to do our forecast we were sometimes.
Optimists and we are not happy with this plan. So in summary, we evolved with a lot of reducing the first impact of Roma.
Risking the dams and the impact of the production.
On the other hand.
We still have to deal with the license process. So we are strengthening their relationship with the agents agencies to bring reliability to our plant so update system by system and the North July the project is.
Most accomplished.
We expect to start up for Q4, new ore bodies.
<unk> came an important milestone for <unk> III project. So we expect the previous license for Q3 this year.
The main restriction lies in the road rolling licenses these delay need us.
The waste movement.
We are not happy with that and this there is a room for improvement in this area and that's 11 deep cable crushes Dong plus 'twenty I want to draw your attention here. Its a great new we just received the installation license. So you are allowed to start implementation of the plus 20 in F. <unk>.
<unk> in the south and southeastern system.
Shoot.
On time, we expect to bring in Q4 total dam construction is done and we are expecting the final permits by the end of Q3. So we expect to bring the asset in Q4. This year now moving to our production guidance, we revised our production.
Guys are for 2020 through now is a range between 310 and 320.
And here you see.
We've been losing so some flexibility to deal with the first half of this year.
The beginning of the year remember the IV.
Rain season.
Secondly, we have to change the stockpile information process in the north due to the moisture management.
It was a consequence of a new from.
In the mining that's 11 deep all related to safety issues backdrop restriction to the system, we were ready to address the most all of these restrictions.
<unk> will bring us closer to the lower range of the previous guidance.
With more with a higher risk. So we adjusted the risk. We also adjusted the center West production that we just sold.
And we also consider that we can have an adjustment in the volumes due to the market condition to conditions.
That's the margin over volume mantra here in the production guidance.
Moving to the <unk> strategy.
Probably noted that we sold more high silica product in future. We found a good momentum to do should do those sales.
The decision to produce or to sell them more or less volt, several elements, including price premiums and freight costs, we analyze the margins got it about cargo.
The Bureau of the wireless supply chain flexibility, we make daily decisions to maximize our margin.
These product highest daily Cup weekends. So early in the chain as a stand alone product, we can wait for blending or you still can wait more and concentrate in China recently, we announced the partnership with Shanghai shotgun and Port.
We will develop the pre blending facilities in China.
We are advancing in the supply chain in getting closer to our clients looking forward in Q3, we expect vial as average premiums will increase considering the higher volume from northern system.
And.
Additional $30 per ton higher.
Pellet premiums already negotiated so I'll be here for further questions now I hand over to will stop.
Thanks, Marcel and good morning, everyone.
I'd like to start by walking you through the main drivers of our EBITDA performance in the quarter.
As you can see our second quarter pro forma EBITDA was $5 5 billion.
<unk> hundred $4 million lower than Q1 2022.
The decline was caused mainly by the $28 per ton decrease on iron ore fines realized price and $4 $4000 per ton decrease in corporate realized prices. Following the decline in reference prices during the quarter, which I'll discuss in more detail later.
This was partially offset by eight to any 3% higher iron ore fines in pellet sales benefited from favorable weather conditions and the solid operational performance on our southeastern and southern systems now launch our cost performance, excluding external factors our EBITDA performance was in <unk>.
<unk> by $180 million cost increase mostly explained by corrective maintenance at our base metals business. Despite the high inflationary pressure globally. It is important to highlight that we are on track to deliver our cost efficiency goal for the year, which is to keep our fixed cost plus sustaining capex.
Flat versus 2021 less in local currency now focusing on price realization that quarter over quarter performance was impacted mainly by price and adjust as the Q1 to any 22 provisional pricing of $158 per ton for $12 million by the end of the quarter was really.
Is that $137 per ton in the second quarter of the year also 21% of the sales volumes for this quarter, we provisioned at $120 per ton versus a $138 per ton average benchmark. Following the decline in the forward price curves by the end of the quarter. These two at <unk>.
<unk> had a seven $6 per ton negative impact on price realization.
$52 per ton positive impact EQM. This resulted in a difference of $23.
Burrstone between Q1, and Q2 now moving to iron ore all in costs that is C. One cash cost X third party purchases increased by 2.2 dollars per ton for the first quarter, mainly driven by beer.
Average appreciation higher fuel cost and let's say of inventories produced at higher cost in Q1 carryover F&I. Another important cost component is spring, which went from $18 $1 per ton to $21 $3 per ton, mainly reflecting the increasing bunker.
Important to highlight here values competitive advantage on freight strategy, where we have long term contracted vessels for 70% to 80% of our annual needs. As a result in Q2 wireless average freight cost was 30% lower than average too bad LNG spot prices. This.
<unk> has also benefited from our strategic decision to style scrubbers in our dedicated fleet back in 2019 as the low to high sulfur bunker spread has widened during the quarter business strategy represented a $127 million bunker savings in Q2 ballot stream.
Another positive in the quarter with a contribution of $1 $5 per ton on our all in costs. In Q3, we expect additional improvement as premiums were negotiated close to $90 per ton now turning to capital allocation. We successfully concluded the one 3 billion tender offer for values.
In June with that we materially advanced our liability management program extending the average tenor of the portfolio with no relevant debt amortization in the next five years. This provide us greater financial flexibility to continue pursuing our strategic objectives, our EBITDA to cash conversion.
Was also stronger quarter as you can see in the next slide we converted 41% of our EBITDA into free cash and use it as incremental liquidity just celebrate our share buyback program to date, we have already executed 283% of our latest share repurchase program of 500 million shares.
So before opening up the call for Q&A I would like to reinforce the key takeaways from today's call. We continued to advance in our social agenda and the elimination of our upstream dams are reshaping program is mostly completed with the yesterday's announcement of the sale of our stake at CSP, allowing management to <unk>.
On core assets that will benefit substantially from the energy transition trend on production will remain <unk>.
Very disciplined on our value over volume strategy and we continue to strongly believe on the long term fundamentals of our industry.
Finally, we remain highly committed to a disciplined capital allocation process as advances by the announcement of a $3 billion dividend payment to be made in September and our continuous progress on the highly accretive share buyback program with that I would like to open up the call for questions. Thank you.
Thank you, ladies and gentlemen, well now begin the question and answer session. We have devised that the questions should be asked in English if you have.
A question. Please press the star key followed by the one key on your Touchtone phone that if at any time, you would you like to remove yourself from the questioning queue pressure start to play.
Please restrict your questions to two at a time.
Our first question comes from Kai you'll hit beta with Bank of America.
Mr. Kyle you're already always available.
Yes, good morning, everyone. Thank you for the opportunity.
First question is on cash returns.
Seen some other miners toning down expectations on dividends or trimming dividend payments outright. So my first question is.
Given this worsening macro outlook that we're seeing recessionary fears building.
Our debt levels closer to the top of your expanded net debt range.
Can we assume that you will continue to focus on cash returns and potentially announcing a new buyback program. Once the current one is concluded and also what about extraordinary dividends is that still on the table and then secondly on provision associated with Hanover, given some recent dress articles that the president of the Brazilian Supreme.
Court wants to renegotiate values can.
Can you give us some color on what's being discussed and also whether this could lead to additional provisions in your view. Thank you very much.
Thanks Kai this is the stuff.
So on dividends and buybacks look we've been.
Welcome to talk of returning most of the cash and capital generation here to shareholders right. So if you look at last year. This year. So that's what you should expect us to continue to do.
We've done already 23% of the latest share buyback program, we have 18 months to perform on that one so we have time.
So, we'll see where the market is right I think a lot of it depends on how the cash generation performs in the second half of the year, but certainly returning cash to our shareholders is our one of our key priority and we will continue to do so.
Regarding where novel and provision look based on the information we have today.
We believe we have the right amount of provisions in our books.
Can you can you can check that we've been updating this recently it was done this into Q1. So we are feeling good about what we have.
As you know we are going through the revision of each one of the programs as we speak.
But we are feeling good about where we are given the latest status of the negotiation.
I will start with I can't add just I think on the extraordinary dividends because you asked about about specifically.
As I said, we are walking the talk I think where the most discipline in the industry.
We have to assess market conditions and some of the volatility in iron ore is huge but you'll have to bear in mind that the second masters of very strong semester.
Third and fourth quarter, so we're going to assess.
Remember the bucket idea first bucket safe the second bucket growth third bucket policy.
Pork bucket.
Buybacks and if theres any additional we can pay an extra dividend, yes, but I mean, it will depend on market conditions. So that's fundamentally but we will keep no surprises that will never be surprised.
We will keep up you can say we are going to keep our growth. That's that's preserved the policy is sacred.
It has to be put in as we did this quarter buyback.
Buybacks is the next bucket and third if there is market with much better than we expect in the second semester.
There will be extraordinary against <unk>.
Hope you answered your question quiet.
Yeah.
The next question comes from Karl.
It was down but with Morgan Stanley .
Mr. Carlos you all do is available.
Yes, Hello, Thank you very much.
The question that I have is regarding the cost outlook for iron ore given the cost pressures that we're seeing across the industry and commodity price still elevated.
Any fresh set on the high.
Where do you see the evolution, how do you see the evolution of your iron ore costs in the second half of the year and perhaps an early view of 2023 and then just.
Stepping back and thinking about it.
Medium to long term iron ore strategy interest volumes.
How do you feel about these range of 400 to 450 that you had in the past presented to the market.
Still something that you would contemplate or is it more likely that youll.
We'll.
Target around 400 million tons, and they just keep really anything above that.
More flexibility and to improve maybe your product mix, but not really.
But.
We can consider as more like thank you.
Thanks Carlo Gustavo here, So I'll take the first one and then spinelli will complement the second look.
Q2 is usually our.
Most challenging quarter for us because we do have the carryover effect from Q1 volumes are not yet at the levels. We usually produced in the second half so.
As you guys saw in this quarter.
Came above the levels that we are pointing to two two at the end of the year. We continue to feel optimistic about what we had presented before which which means they see one between 18 and a half and 19 by the end of the year. So that's what we said in Q1, there is a lot of benefits already accruing and.
And do you accrue even more in the second half regarding the $1 billion savings program that we've announced that last year. So we are optimistic there and they all lean as we said we expected to be very much in line with what we had last year.
So this quarter was.
Tighter in terms of premiums as you saw given the strategy Thats been asked spinelli laid out but in the second half of the year with more volumes.
Likely more volume coming from the North you should expect our link to normalize towards what do we have very much in line with last year.
Carlos Thank you for the question.
That's firstly.
Emphasize one thing that production.
He is a consequence of margin over one so when you see that we're going after 400 million tons of level and I wanted to if ourselves or another word that I mentioned of flexibility.
We want we want we will go to this level of production if you have a market.
So two main things here.
400 to 450.
Is that only for give flexibility to the level of production, we see 400 to 450.
Do you have capacity to deliver 400 in the.
A reliable basis. So that's the first thing related to 450.
And regarding the 400.
400 level.
Two points here the base to reach this.
Is related to the module volume if the market needs or not so in spite we have.
Variation of deviation in the short term.
5 million tons was even 10 million tons in the midterm strategy you saw them. So we need to long term strategy to zone in the base.
Depends on the market.
So again.
Okay.
Take longer time, but we will be connected to the necessity of the market imagine if you have to bring 30 million tons. So this market today.
There is no necessity for that so again.
400 million tonnes is a level of flexibility to go after.
We have logistics we have.
<unk> reduced jurisdiction to work <unk>.
No institutional problems or even commercial.
Our clients are the opposite to be able to have a.
Very committed and trans relationship with our clients. So we are the best choice to increase the capacity in your future, but we're going to.
Behave as the leader of the market as we are and don't bring.
Nothing.
More than the market needs.
The next question comes from Liana, <unk> with Banco BTG Pactual.
Totally on anthem.
Paul.
Yes, good morning, everyone. Thank you.
So, bringing eduardo back to the discussion.
Base metals for you has been a let's say a pet project in a super important angle you know the business very low you worked in Canada for several years.
We've been I mean, while there has been very vocal right on the on the turnaround of base metals for the past quarters.
Clearly all the energy transition thematic has been helping right over the past quarters.
Now of course things are path the world is facing different issues, but I just wanted to hear your sense on how you think.
Things have been progressing.
Clearly the numbers haven't been there right I mean, it was a very weak quarter and in all fairness.
Several nonrecurring issues impacting like maintenance, which are probably going to be reversed.
But there is a sensation in the market that the company has been facing more recurring issues and that there are more challenges than what everyone was thinking in terms of a turnaround. So no one better than used to try to help us out and understand first of all what the obstacles are.
If theres anything new that's happening.
And how you think you can overcome these challenges.
And the second point here on my side.
Maybe you can help.
I mean, the investment case on valley relies on the fact that it's a different iron ore producer on segmentation is a reality.
And iron ore quality premiums are here to stay right.
Yeah.
Unfortunately, what we saw over the past quarter or so is quality premiums have been declining in let's say valley has been losing this relative advantage in and these negative effects have been impacting all around on pricing and on your delivered cost.
So I just wanted to see if you guys are seeing any relevant changes in how the market is perceiving quality.
If this is just a temporary setback right given how pressured the steel margin in China is or do you think there is anything structural happening. Thank you very much.
Okay.
For the question. It's my bet is it better but part of the.
100% agree well.
Well, let's start with the fundamentals I think youre right on.
They don't change right.
We have the best assets.
We have the best assets in the nickel in the World in Canada and Indonesia.
Also Puma for 60 years of life of Puma.
The vast growth projects in copper and paradox basin.
Actually delivering them Salobo III as Matt as Dash and you just mentioned is coming on time on budget on this next quarter. So we are pretty confident we are delivering voices.
We had the looming copper cliff.
So the growth projects of nickel and copper are coming on stream in the next call.
Can I say that steps out there. So there's nothing changed we'd have the best resources and reserves and Thats. The name of the game right in the end.
What mats short term, we should be very concerned about what you were talking about as people look at the bump is going to be harder.
We know exactly what's going on in our business like we never had problems are stable as I said, we'll have the four months.
One time stop it because we can stay two years to start to stop the plant and we when we start to execute the maintenance we discovered that we had to draw contingent coronium doesn't play in the form of stock.
So it was a 45 day stoppage that end up being a four months. So again I am not concerned on the turnaround on operational tone at all specifically on the Sofia group.
<unk> had these issues, but as mentioned by fashion.
We operate very well the mine so the mine is up and up.
Up and running so that when the plan gets a stable we're going to be able to prove that.
Why if you look at our second quarter or second semester guidance is pretty strong on the copper.
And Nicole the only issue that we have is the underground mines in Canada.
Got it extremely well on the surface plants, because they even have idle capacity, we operate extremely well and cleanup we did they.
Restore Asian and <unk> for the four months in the furnace for extremely complex first time ever that we do that and it's up and running already that as we speak so I am not really concerned about the turnaround is specifically because as we said and we've been repeating that we are going to extract value one way or the other even.
If we would have to bring a partner cooperate plus because I'm not able to complete the turnaround, but I'm very confident we have the knowledge we operate in Canada for 100 years.
Operating Brazil for 80 years, so I'm not thinking that we have unusual to turnaround opted initially speaking what you mentioned I think it's important to stress that might answer a lot of questions that people have is that we believe and that's a true.
And Thats effect.
That base metal has a better life and install it first of all.
Sure.
For obvious reasons, but no decision has been taken.
But since.
We've been discussing this idea with you and with our shareholders. We talking on the what is the endgame.
Organize the assets after we turned around and that while not after a while we turn around why are we stabilize the beef is why we deliver our growth projects.
Got it.
The stronger the sorts of Terry.
And there are all beside May I mentioned that I think that might on the last call in the last presentation that I did that we have options like first awesome, just keep doing keep executing and market will appreciate the value that this is business that is not reflected in our in our <unk>.
<unk> products are already in our value and our market cap.
Why don't you bring a private investor that sees value even in the downturn because fundamentals ability didn't change does it change at all nickel prices are as healthy cooperative is reflecting the slow downward.
This concerns about slowing down in the world economy companies with GDP related assets, so but people that understand the business note that we have a jewel that we'd have a real real big asset or reorganize reserve. So I can't bring the private internment market.
It's good flow.
Why not and then we capture the value, but as I mentioned with nothing has changed we need first execute second grow third structure for <unk>.
Captured opportunities, but im pretty confident that vision and her team are doing a great job to stabilize the business is a hangover from Covid you saw two years, while waiting for the for the maintenance associated with two years waiting for the maintenance and the third the burden smelters.
To not not two years, but the furnace for had to be done and getting into the usual. So I'm pretty confident we're going to be able to extract the turnaround the growth projects are coming online and on budget. Besides <unk> that we had overrun.
Coming with not amused with Bob <unk> mentioned to date and the unusually great place. We had there for 50 years formalize there we're going to bring most of Puma II.
Very strong to the board.
As I mentioned in the beginning we have a very good relationship with the teams now we are able to operate that mine stably. So I'm.
Im really really you're right. It's my bad project, when we are going to cover a huge value in this business. Thanks.
Thanks for the question and then I'll pass to what's been added.
Well you brought two angles of your retro market needs for quality in our strategy. So just to.
<unk> emphasized the boarder market we have.
<unk>.
Pellet premiums for direct reduction hundred dollars, almost a $100 over six to five.
For blast furnace pellets over six to 590 $100 almost a $9100 today.
Our low aluminum.
We have a lack of competitors low alumina in the market with premium high premiums Youre right. When you when you said about the margins in China as a temporary situation.
Due to all the downstream some certainties that we that we have.
We are confident that with all the all the.
<unk> of the government that for you.
Stabilized as demand downstream demand.
And by the end of the year, we have with a lag.
Off.
Of of competitive with high grade ores and also the cost of the of the Coke. That's just not low it's not into the lower level.
We saw in the past.
That's the Cambridge overall show there.
C J.
Premium level, so again, that's the trend.
There's no return, but we can have some volatility in short term.
And regarding our strategy definitely we are.
The company that is.
Investing in products and in mind to bring in high grade ores, we are sticking to this to this strategy.
Could bring more volumes to the market with low grade ores, including Kreis, the stockpiles in China and depressed the whole portfolio of ours.
Of our company and also the market, but we're not doing that so we are addicted to the value over volume and <unk> is basically in the iron ore with.
High grade ores.
Our next question comes from Jaguar Lucky.
This could be I mean.
Thiago, Yes, I'll do is available.
Thank you gentlemen, two questions here for skin <unk>.
How are you seeing the iron ore demand.
Environment now.
Now in the short term maybe in the second half of this year.
Especially considering the Chinese government's target to keep production flat. So so what's your take on this end and again what are you seeing on the ground in terms of demand and then the second question. Obviously you commented about premiums.
You're expecting improvement in the coming quarters can you give us a little bit more color in terms of the.
Product portfolio.
Expecting maybe less of the high silica.
Hum.
<unk>.
To be sold or.
How should we think about the product portfolio and the premiums again, maybe more for the short term maybe second half of this year. Thank you.
You could share growth.
Thanks for the question, so I don't know where demand.
Let's start with China.
We started to talk.
We lay out on the last question so what we see.
The first half we.
We had a huge problem with the call via the strategy and the small business sexually we see and we feel in our business more regarding the properties regarding the constructions.
Yeah.
What we have in the second half.
And it's good to compare what happened with the last year. So even with you conceded that they will the forecast that it'll be a flat production.
We can say we can have the same pattern of last year in terms of CSP.
The answer is almost the same you've introduced tier was below.
Last year, we don't have any any energy goal for this year.
Even production goal as we have last year, we don't have any Olympics in the first quarter for next year.
And we have it the economy.
Total deferred curve, if you compare with last year. So we have.
A delay in the in the infrastructure investment they are committed to that.
Been here about the 60% GDP the second happened in China.
And can happen.
The infrastructure can support manufacturers can also support we expect double digit in this in this area and what we see is they are talking this week about a property as a security problem in China.
Because they they can they can bring this to a trip.
Their current economy, so there's another level of commitment.
At least that's our forecast and so we don't see a heartland inappropriate.
Probably a soft landed they will decrease.
<unk> strategy to meet the long term strategy, yes, but there is a support.
If you compare to last year in terms of them and so we expect.
The downstream demand to be heater.
By the end of this year and especially in the first quarter of next year.
So and also we can adjust the value of a volume.
As we mentioned in next China.
When we see.
Our clients today, they already booked in the third quarter.
We talk about the recession, but we don't see recession and they are in their sales at least yet.
But in the fourth quarter. They are in the more a short term view.
The main concern are related to two any restriction regarding the <unk>.
The cost and the availability of energy in the Coke the terminal Coke. So energy is a key issue by the end of the year in Europe and parts of the world that.
The problem of the war, so again debt.
It will be is this to a problem but.
On the other hand in terms of premium if you combine.
A better marketing trying them better margins and SKU.
Price supporting the growth of late growth that will come by the end of the year to China and the necessity.
Two.
Yeah chip to save the Coke in.
In the part of the World that they don't have a view.
The ability or the price would be high that'll be debt, but what we can expect a consumption of better product so product by product.
Today.
Pellets, we see.
A good level for for for the direct reduction.
So we see it by the end of the year almost the same level that we see today.
Probably in pellets.
Less furnace pellet theirs.
Downstream.
Raised but not that much so that's that'll.
That'll be wider gap between the pellets and that and we've been developing a third way for the pellets to swing. If you have more demand for direct reduction can swing part of our production.
<unk> to feed this market or spring to.
The blast furnace they'll show we played this game by the next quarter.
Quarter end.
And we our behalf as I mentioned the key point, there is competition and I O C. J as I mentioned, we see a support for upstream risk by the end of the year and the next quarter.
The next question comes from Danielle <unk> with <unk>.
Danielle Yeah.
Oh, there is available.
Hi, guys. Good morning. My first question is on asset on the asset divestment, Frank you've done a tremendous job on diversifying away are actually focusing more on your car businesses after selling.
Your cooperations VNC.
Just be California, steel and so on and so forth.
But aside from a M. R. N that you had already disclosed that is on your on your at least for for divestments is there.
Something else.
And on the same lines can you elaborate a bit further on the potential on the merits of a potential IPO of the base metals Division.
Given that you don't really need you you are in a solid balance sheet position and you don't really need to raise capital to.
Do the growth portion that Eduardo commented.
On this business right is it just a matter of unlocking value or do you do you see maybe opportunities that could only be tapped.
With new fresh cash and therefore, the IPO of the base matters would make sense.
And and and if you.
Could maybe spinelli elaborate a little bit for you commented on the on the Chinese situation on your previous answer, but if you come in to what your if you're seeing.
More importantly, deceleration in activity levels of steel makers in Europe , because of the energy crisis situation that you that you mentioned in your previous question that would be that would be great. Thank you.
Thank you Danielle I'm going to pass your question to stop but I want to play that youre spot on.
It's not about just it is unlocking value obviously, because there is no value perceived on base metals inside the body right, where placebos are not on our company. So that's what we want to unlock that event, it's not unlocked value.
And you're exactly right. We when you have this the structure, we will be able to do different things that we cannot do today, but I would like to have a I'll let established.
Dave a little bit more because he is having the discussion okay.
Together with <unk>.
Hey, Danielle so yes, so on the potential transaction right. We haven't decided as Arthur said, if it's an IPO or an IPO, but I think fundamentally what we're trying to achieve here is a more dedicated governance for base metals, which we see a lot of merits for.
We also want to make sure we create occurrence for growth. This business is very different from for an iron ore right. So we have a lot of growth in iron ore by resuming our capacity with limited capex.
As I think <unk> pointed out we are a cash story today, we appreciate that and we are happy with that and we'll continue to pursue that strategy, but I, but base metals is different right.
<unk> business, there is tremendous amount of momentum for easy transition for electrification of the words, so all of that.
The polls for different strategy and we believe.
It would make sense to have a current step could support an accelerated growth strategy. There. The final format, we'll see but that's how we're thinking about and that's what you should expect us to pursue certainly the market today is not appreciative of a transaction, but to continue to look into that and bring that to you guys.
Once we feel good about it.
On the divestment MRI and this is the one we've said publicly and it's quite frankly the last one.
So we could continue to look for ways to optimize the portfolio in the margin, but I think we can certainly say we've done most of the reshaping that we wanted to do at this point.
And.
Just to complement your points.
It's like our growth goal and a yieldco, but valid never going to let go of the base metals business. Okay. If we want to bring partners even surprised that even if we go public it's going to be a wireless and theres going to be a growth goal is currency nobody has a strong and commodity like we do as a matter because we believe.
Better golf announced we believe better partners could help us grow.
But we don't want to lose our growth of course, there is a huge amount.
Our opportunity in the <unk> world the transition to led to the energy transition World, But then we have our yieldco that it's really healthy.
As a matter of resuming cut back as its been animation.
The market needs.
And we can do that but with the timely manner. So just remember those two things yieldco growth goal, but theyre all valley coal.
Well the Neal.
That's that's.
I'll talk more about the China market Chinese market and also European.
And the big Viewable, a wider view about the world demand so in China, what we expect for this.
Next half so we'll have the seasonality don't forget the fables Golden September that we restart.
The downstream demand.
Usually there is a peak for full for the construction.
Manny, it's accumulative coming from from the Gulf of Maine.
Our lagging demand coming from infrastructure by the end of the year in Q1 'twenty three.
Without.
Any any effect of the elections that the.
They have the elections by the end of the year and in November So again, we see a trend.
The COVID-19 risk is there.
But even after the elections received more power in China. They have partly have capacity to boost their production. So that's a trend that we are working in.
In our forecast so Europe , yes, there, they're well so they have good prices.
Different level.
From.
Last half, but in a very healthy way.
Q3 sold out Q4, some concerns of ball to energy, but let's bring the other all the views of Baltimore demand.
Southeast Asia, Bloomingdale, going really well, India their back.
And there's a connection that we need to emphasize also that the supply side of the equation here.
So C. I S is out of the market.
With more than then.
41, <unk> 20 million tons of iron ore and also.
If you consider that India is only producing and without any export about iron ore.
In the seaborne market. So we have.
Balanced market for the Q3.
And we will produce more than that in the Q4, but not more than we had in the last two years. So have the same partner and all the events for us in China.
If we get up we can expect that we will support.
In a bowl of more dim.
Demand regarding the downstream effect that we have in China, we see.
Q4 in Q1, 'twenty three in a better shape than last year.
Our next question comes from.
Alex hacking with Citi.
Mr. Alex your audio is available.
Yes, thank you for the call.
First question on iron ore any comments on China's plan to create some centralized.
<unk> entity and then second question on <unk>.
Just on the Ferro Nicole.
Smelter 73000 tons of does that fully incremental to existing production in Indonesia.
Can you remind me how the offtake works can peak CVI market all of that material or just the share of it and then on the power if I remember correctly.
Using cash.
The cold trauma or the carbon footprint.
Is that still the case, even with all the volatility.
Gas prices recently, thank you very much.
Thank you Alex Spinelli here thinking for a question well.
Regarding the <unk>.
<unk>.
First of all just see valleys long term partner of China. So are.
We maintain a great relationship with the Chinese clients.
We just announced that naturally we are strengthened this relationship when we announced the pre blending strategy.
We are in more than 17 ports in China in blending facilities.
We are concentrated on.
Trading was in China, So we're expanding our relationship with the Chinese so.
We truly believe that.
All these are the market reflects the supply demand balance so in a timely manner. So where are we at and we are part of the of the market.
So and.
And we do our part bring you more transparency as we bring our our products too to the to the market.
And in regarding the the part this shallow did you invest in iron ore.
They are deploying their strategy put any threats.
The strategy to secure the resource in this.
<unk>.
We see as an opportunity for volume because we have the best assets in the world and the best possibility to bring capacity to <unk>.
The market.
In a very safe environment, and we deal with the logistics in place so we.
We are open to them.
Alex Thank you for the question on the Baidu P project.
This project has he guided the LTA is in our case project and we will produce 73000 tons of Ferronickel. In addition to the current P. T V. I a production of around 17, I will say now 76 to 78.
In terms of the back of the fund is for rebuilt and we have just completed in terms of the of the structure of the of the project, we will build a 100% of the of the mine, but they plan to Dr. Kerr will be shared 49% with the China coal and that's typical and as being high who will also be there.
Doctor off the plant and then in terms of uptake for the first five years. This will be all the offtake will go to China call and after that <unk> will get to market. It's 49% of the of the ship and your question on LNG that is still the plan.
The economy, it's about 500 megawatts.
We are talking to some of the local our supply is full of LNG. We had brought in third parties as well the solution hasn't been fully stitched, but just this morning, Alex we've got what from the government that this project will get into the President's natural or national strategic projects, which means that this project.
Will be prioritized in terms of the overall energy support as well. So we're still sticking with LNG, we know it might be a little difficult to source. The plant itself will be both by thing high and yeah. We will give you a further update in the next results call.
Thank you.
The next question comes from adult swim with JP Morgan.
Could you hold off where your order is available.
Thanks, So I guess most of them are key questions, which I think we're.
Mostly on what's happening on the cost side and the turnaround of base metals, we are ready.
Really discussed I just wanted to add one more question.
I wanted to hear about the licensing process.
In the north what's happening is it.
Why is it being a bottleneck to Hollywood something there.
For me thanks.
Thank you Aldo for Spinelli here.
Well.
Viral mentor.
Process the license process in Brazil, and actually in all parts of the world is getting.
More sophisticated I think is the.
Best.
A word here and I can see that we have another league.
In <unk>.
Regarding ESG and also safety restrictions in the mining industry. So again.
That's a level of of.
Quality depth, you need to bring to the license process.
In the North is the same so we are in sight I was joining us. So we are bringing the best analogy as to guarantee that we have protection and sustainable development in in our in our area of action.
Joining us so again, we have.
Just an example.
No.
Although if we have the itv's always institutions I think we've been investing more than $140 million. The last thing he has to bring and genome analysis DNA to bring up faster and that was just to guarantee that we are doing the right thing and working together with our with the agencies again.
We couldn't blame against that but that's the reality and we need to work hard and actually worked together with agents is to guarantee.
Our our what we see is our long term strategy.
ESG compliant company, we need to do our best to guarantee that we are doing the right thing and the license process. So what we can expect for short term.
We had a delay in our what we call does this rolling license is all the time. We are we have some small license that opened the beats, especially the north ranch.
<unk>.
We expect another.
Round of small pits for September the last.
It should be in July so we already in our guidance. We have this September it's going well.
The good thing that we already have the plus 20, that's a huge achievement you have.
Space for the construction and we can bring a huge.
Capacity to bring flexibility to do is to this area of our business. So again, that's a trend that's the level of the of the game now.
You may need to be good.
The next question comes from Liam Fitzpatrick with Deutsche Bank.
Your audio is available.
Thank you.
Just a couple of questions on your iron ore strategy. So we've seen similar to do as it looks like it's finally getting off the ground and we could see first production.
Perhaps in four years, given this is a direct competitor.
To your product suite, how is this going to influence your your longer term strategy to the next to 400 million tons and potentially higher.
And then linked to the.
Short term into the previous question around kind of the iron ore licensing challenges you've previously told us.
That you wanted to get to $3 70 capacity at the end of this year, what's the latest.
Sort of target for the end of this year and when do you think you'll get to that.
370 level.
I'll ask one final one just on base metals.
A lot of moving parts in Q2 costs were quite a bit higher can you give us a sense of what unit costs will be doing an age two or run rate by the end of the year compared to what we've seen in Q2 in the first half.
Yes.
Yes.
Thank you Liam Spinelli here again.
Projects that we have around the world that we don't comments, we'll have some but we consider.
And part of that in our models that they will come that it's part of the game.
Don't forget there are a lot of challenges in many of them and.
And we can bring for us the challenge that we have are regarding the license in the mine side, but we already have in place the infrastructure for logistics imports and loan environment that we really know and know how to manage and also don't have any.
Okay, how can I say the institutional issues. So again, we are in the best place to bring our capacity and our structural mode.
Don't forget that quality is the game is the name of the game for the near future in the future.
So.
That that's a lack of quality.
In terms of supply and even if you're bringing more so like coming from Simandou Theres no risk.
The race for the strategy in the future when you see the demand for high grade ores, it's a huge demand and the and the other point about the base two to reach.
Any number three seven to 400 it depends on the market.
Pens on the market and the window to talk about our capacity to produce.
Appointed that we have three main areas huge work in the first one is related to the to the.
Impact coming from the bumps and we've been.
Great.
Great journey.
We brought back all the all the operations we are expecting the two dams that are coming.
By the end of the year W. Shaw and thoughtful shoal, it's okay. It's on track.
The license skin can be.
This delay can be an adjustment that we can we can do and also the projects adjustments. So.
By the end of the as usual do you're going to you're going to say the level of production for next year in the Vale day.
But again the main points here is how can we get just the base to bring volumes to the market.
And the trend is quality also so we're not going to bring.
Product stepped on op.
With the demand.
For them so.
Final numbers will come in the holiday.
And then just regarding your question on base metals cost.
I absolutely agree that you know this was a good quarter, but I think the team and I are very happy about the tough decisions. We took in terms of trying to get some of the foundations right with regards to the asset integrity.
Then come to a cost I mean on the copper side, you know what was driving the copper cost in the quarter was of course, the additional maintenance that we had to put both into as I say go and Sonoma that affected our unit costs quite materially in the quarter. So a good number for us and if I look at quite a <unk>.
<unk> you know on an all in basis for copper, we were just over four and a half thousand dollars per tonne in this quarter 6300, as Eduardo I'm advised as well if I look at my watch all of my half on half improvement in tons of copper production. Despite the VI.
The guidance, we still are anticipating a 36% increase and that's because to say that we'll be at full capacity, we revised slightly salobo for the next for.
For the rest of the on the basis of the maintenance that we want to make we want to do so we are hoping by year end, we'll get to at least at 4000, just over $4000 per ton in terms of the.
The all in cost for copper. So just so that we all are clear the oil and excludes capital, but what's happening on nickel. So if I look at nickel on quite a one and quarter two we around 8500 in the fourth quarter, all in and fourth quarter to $12500 per ton, which is a respectable number.
Because on nickel they get to offset a lot of the byproduct the byproduct.
In quarter, two let us down a bit because not only do we have some challenges in copper in the South Atlantic operations have you also lost a bit of a couple from our Coleman.
An incident that we had in quarter, one, which I also reported on in the quarter and that's on the colon seismic.
Event. So we've lost about a byproduct credits that we would typically get but again as Eduardo mentioned in terms of all of the initiatives underway. We are currently at the downstream capacity that we need to maintain the local guidance and hence the almost 25% increase half on half a nickel as well so when it all comes together.
Are we anticipating around an 11500 to $11700 per ton in terms of the full year nickel and nickel all in our cost. So that's how I would look at the cost that yeah. Thank you.
This concludes today's question and answer session. Mr. Eduardo Bartolomeo at this time you May proceed for closing statements.
Okay. Thank you.
First of all thanks, a lot for them.
And I'll call a lot of questions. Good questions I think that's great I wanted just to reemphasize, what David mentioned he need to handle this is the initial remarks.
Due to increased volume with three years and a half after boumediene. We're learning a lot we will never forget my view from a D was a driving force have been always saying that.
Our dams are totally under control we are much safer now than we were three years ago.
Our USDA championing the talk is embedded in our business.
We did our team did a really great job in the reshaping it made us really proud we sold nine business in five countries, we cashed like $2 billion in drains you know the numbers. So it's something that we'd have to celebrate its over.
Now we have to focus on our core assets and we have extremely good reserves and reserve risk.
Resources.
And marketing is in our favor, it's helping us we don't need to rush you can do it safely we tend we appropriately.
We are going to manage that correctly as leaders of nickel as leaders in iron ore. We are going to do what is needed with safety and we're going to focus that we are used to say we have a variety of novel slides now we'd have to run it.
Like one and we're going to do it.
And later just to reemphasize, we've really trust the fundamentals of the industry.
The energy transition is here. Besides all the short term hiccups I've been up here for the always say is not a sprint. It's a marathon not here for one year. We're here for like volume 80 years, we have built.
The value of 100 years, not that Nevada for 81 years. So we believe the fundamentals there is.
So resilient demand there are supply hurdles and then geopolitical risk, but we are really truly believing that we have the right moment.
<unk>.
Like us by value.
Investment that you can do it because we are extremely extremely discipline since day, one when we said we're going to we have capital location. We are doing what we say so Beth best investment best growth opportunity. After that you can have in your hands.
That's exactly the time to take risk so do like us by value and thanks, a lot and see you again in the next call.
And keep safe.
That does conclude <unk> conference call for today. Thank you very much for your participation you may now disconnect.
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Thank you rich.
Thank you.
Okay.
[music].
Sure.
Right.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Thank you.
[music].
Certainly.
[music].
Okay.
Okay.
[music].
Okay.
Thank you.
Okay.
[music] image.
Okay.
Thank you.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
[music].
Understood.
Okay.
[music].
Okay.
[music].
Thank you.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Great.
Yes.
Sure.
Okay.
[music].
Thank you.
[music].
Okay.
[music].
Thank you.
Thank you.
[music].
Okay.
Okay.
Yes.
Okay.
Sure.
Thank you.
Okay.
[music].
At the beach.
Yes.
For the year.
[music].
Okay.
[music].
Hum.
Okay.
[music].
Maybe just two.
Yes.
Okay.
[music].
Certainly.
[music].
Okay.
[music].
Thank you.
Okay.
Great.
Okay.
Yes.
Okay.
H.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].