Q3 2022 Vale SA Earnings Call
Good morning, ladies and gentlemen, welcome to <unk> conference call to discuss third quarter 2022 results.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
This call is being simultaneously translated to parties.
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As a reminder, this conference is being recorded and the recording will be available on the company's website at Vale com at the investors link.
This conference call is a campaign by a slide presentation also available I think that search link at the company's website and is transmitted via internet as well.
The broadcasting via Internet, both the audio and the slide changes has a few seconds delay in relation to the audio trumps meet it via phone before proceeding let me mention that forward looking statements are being made under the Safe Harbor of Securities Litigation Reform Act.
Of 1996.
At 12 performance could differ materially from that anticipated in any forward looking statements Goldman as a result of macroeconomic conditions market risks and other factors with us today are Mr. Eduardo side, its Bachelor Mail Chief Executive Officer.
Gustavo maker Executive Vice President Finance, and Investor Relations, Mr. Marcello Spinelli, Executive Vice President Iron ore and MS Destiny Naidu.
Executive Vice President base metals.
First let me state at the wider the backfill of mail will proceed the presentation on the fly to start quite a 2022 performance.
And after that he'll be available for question and answers. It is not my pleasure to turn the call over to Mr. Eduardo Bartolomeo, Sir you may now begin.
Thank you very much good morning, everyone I hope you have fun.
I would like to start guiding you through our main accomplishments in the quarter.
We have made significant progress with regards to operational stability.
And iron ore our production was close to 90 minutes homes, an increase of 21% quarter over quarter.
While the world is facing growing inflationary pressures.
We remain focused on cost discipline, our sue won't cost.
Greased.
One $5 per ton in our base metals business.
Foremost improved significantly after the extended assets maintenance illegal production increased 51%, but sales lagged production impacting our EBITDA dash name, who will give you more details on that later moving to our strategic agenda.
Leaving the lock commitments to lead the low carbon mining our solar project saw just a hub is coming on line to further reduce our carbon footprint. We are refining our strategy positioning body as an iron solutions company and the partner of choice of the energy transition and the Mega trends.
We continue to strengthen our business to deliver the products are essential to a more sustainable future.
It says we are making progress in growing our supply of low carb on Mako and the other critical minerals for the energy transition in.
In Canada, we have successfully concluded the first phase of CCM, one the project will nearly double our production at copper Cliff mine.
Xu.
The reconstruction of the also Puma second furnace was approved recently by our board of directors.
On capital location, we stay committed to returning cash to our shareholders and to our share buyback program. We are shaping the value of the future.
Boarded by the uniqueness of our assets and resources are investments in technology and productivity.
And he and our discipline in capital allocation to lead the mining transition.
We are promoting solutions to expand the use of electricity so species to diesel in our operations.
We just received two electric mining trucks with 72 tons of capacity, we are not only cutting emission, but also reducing noise minimizing the impact to our communities.
Our strategy to electrify assets already includes 49 electric vehicles in our Canadian mines and the operation of two battery powered locomotives in the yards of the parts of the audit and so Luis.
Further move our electricity consumption towards clean energy. So I'll just hit hard the solid project coming online. This month as I mentioned and we will ramp up until July 2023. The project has a capacity of 766 megawatts peak annual supply 16% of valleys.
Electricity needs in Brazil.
It would be enough to power a city of 100000 houses.
We are delivering on our climate agenda, we are doing that because we are vigilant to the needs of society.
But also because sustainability is crucial for the future of mining.
Society expects the mining industry to leave a positive legacy.
Mining companies play a key role in addressing global warming by supporting the global energy transition.
Transition to a net zero economy will be metal intensive.
Significant expansion of low carbon technologies, such wind turbines solar panels and electric vehicles will boost demand for the meadows needed for these technologies for instance, producing battery Viets requires 30 to 40 times more nickel than the traditional ones. So the carbon footprint.
They'll just batteries is very critical and we have a distinct portfolio for that are high quality class. One niggling, Canada is the lowest Youtube footprint and we have third party certification validating it now.
Now moving to iron ore as I mentioned before we are committed to provide decarbonization solutions for our clients. What do you have different from others assets and technologies, we operate the largest high grade deposits in the World got Us US with 66 Simpson S. Equaled 10th reserves, we have developed projects too.
Help decarbonize, such as Green, Briquettes, which can reduce over 10% of the images in the B F. B O F. Throughout our plants are under construction in Brazil, we have capacity of 6 million tons per year and the startup is expected for the first half of 2023.
With those Differentiators, we are a partner of choice for our clients. We are establishing a partnership with stills meals to jointly find new solutions that help to decarbonize. The industry. We have signed with clients represented almost 50% of our scope three emissions.
Finally shift.
Shifting gears to them safety I'm very proud to announce that we have completed the works in more three upstream struck just that were eliminated and at September <unk>.
As promised in 2022 we have eliminated five structures and so far we have completed 40% of our program to eliminate upstream dams in Brazil on top of that we have removed the emergency levels of five dams English realize the structures also received declaration of a stability D. CS.
Which at best at their safety conditions since the beginning of this year seven dams had their emergency levels removed.
As part of our strategy, we have materially Derisked volume.
As well he blew my deal we are fulfilling our mission to the Tegra reparation in it.
Weak in a fair way. So we are delivering on our commitments to be safer and more reliable company. We are building a better volume.
With that I now turn the floor over to our vice President of base metals dish Naidu for her remarks.
And it'll be back soon to our Q&A session. Thank you the floor is yours nationally.
Thank you Eduardo and good morning, everyone I would like to start by highlighting the progress we continue to make towards achieving our base metals growth goals.
I'm happy to announce them.
As Eduardo mentioned, we have approved our unsecured my second furnace project this quarter, which will see a nickel production grow by 15000 tons on average play yet in South Atlantic.
And I'm, making progress at pizza by the Indonesia on the approval to establish the popular 120000 ton JV with <unk>, why you cobalt and Ford Motor Company.
Looking at our project delivery, we officially opened the CCM South mine refurbishment project earlier this month.
And I have 98% physical progress at Salobo III that we are on track without leasing activities.
We are also on schedule with our revised <unk> project.
Next slide please.
Now looking at the performance in the quarter.
On the operational side, we recovered production in quarter three for both nickel and copper following the completion of a major plant and some corrective maintenance work in each one.
Specifically the premise for rebuilt at P T Valley, Indonesia, and the Sag mill maintenance at CECO.
Safety concluded last quarter.
On the nickel sales, we have an 8000 ton difference to production. This quarter. Some tons were retained to meet quota for commitments given our scheduled current maintenance at answer Puma long harbour and Matsuzaka.
And linked to global supply chain constraints, we faced challenges to higher container ships at unsub, Puma and shipping issues in the U K due to pork industrial actions that led to port congestion.
These also affected sales.
This timing lag will be chewed up at the end of course, a full where we would see higher sales and production volume.
In copper and as previously highlighted we revised our copper guidance, we have increased our maintenance activities at our Salobo operations in age too we are already seeing the results of the work to date translating into improved product availability and throughput rates.
We have improved our throughput by 10% from June to September this year.
The next slide please.
Now turning to our financial performance, we had a significant impact from allianz prices quarter on quarter, Niko dropped, 24% and copper, 19% nickel price drop had a significant impact on our quarter on quarter EBITDA in Copa over the quarter.
Of course, the price impact was largely neutral as we had a huge adjustment in P. P. As in quarter two given the significant backwardation of forward curves from quarter, one to quarter two as explained in our call last quarter.
We also had timing impacts on cost this quarter.
We had carryover inventory from quarter, two priced at a higher cost mainly due to major P. M P.
In addition, the quarter to fuel cost increases that P. T bother, Indonesia are reflected in our consolidated results this quarter.
As you could see in our latest reports we are looking at ways of maximizing our downstream capacity, whilst we ramp up our projects.
This means some portion of our production originated from processing third party material.
This quarter alone, we produced 6000 tonnes of nickel from purchase feet, while in quarter. Two we had produced 3000 tons. So they are all positive takeaways the improvement in operational performance would have translated into better financials, how do we translated or production vote.
In quarter, three to sales and not seen the timing impact of price variations I now hand over to Marcelo for his comments on our iron ore business. Good morning, Monsanto over to you.
Thank you dish good morning, good afternoon.
Well again I'll start my presentation give you some colors about our production in Q3 and also Q4.
We are back to 19 million tons.
That's a good news after some headwinds with the heavy rainy season in Q1.
And the moisture problem in kind of jobs in Q2.
We increased 10 million tons in the north system. It is below our expectations.
Plenty of the beginning of the year due to the delays of some license that.
Let me it has increased the waste movement in the mine.
We have better news.
And as regards I'll give you an update in some minutes.
Production guidance remains T 310 to 320.
You may notice the gap between the sales and production.
It is the same pattern of previous years related to the seven out of production and the lead time to reach China, We may expect.
Higher sales comparing to production in Q4.
Now moving to the next slide to give you now some update about the production plan. We had some important progress north range July brought it.
We already started the commissioning of the first phase.
And we expect to ramp up next year.
And three projects, we got the previous license the L. B.
After some delays that we are.
Really working close to the agents to get the installation license by.
The first half of next year start of construction in bring volumes in the first half of 'twenty 'twenty four.
The rolling.
Rosie licenses.
As an example was the a vegetal suppression or a redesign of our mine cave.
We had a wave of small license in the last month in September and we expect another group of license in the first half of next year.
A closer approach with the agencies is helping us to progress in this area. We've been investing in technology studies universities and people to help them increase their capacity.
We analyze our projects.
In process in terms of quality.
And also in terms of uptime.
Moving to our celebrity.
With improvement of the ore body knowledge.
We addressed this small just left the Eagles, you know that in by the end of 'twenty 25 would be able to bring the biggest crusher.
We will allow us to move the larger just lags until that we'll have the plus 10 coming aligned in December .
And we expect to offset that problem plus 20 is under construction.
All time.
So few some system.
The first phase of it our beautiful raising works is dong mission accomplished that will bring flexibility to meet or beat it to improve the quality.
It is a hybrid operation with them and dry stacking tailings disposals.
And this is a point of attention.
When do have dry stacking, we need continuous expansion of area to stockpile that rely on continues licensing process.
Ms <unk>.
Broker to dot construction is ready for now almost three months back.
Beth you ours to waiting for the final permits that's a new regulation that came that came after Roma Jim.
That creates a lot of steps in multiple agencies approvals related to the emergency plan, it's taken a longer time.
But we still expect that.
The operational license by the end of this year.
So in summary, I'd like to reinforce some massive here.
Adjusting our production plan.
Based on more realistic expectations about licenses regulations in projects accomplishment.
We are working close to the license the agencies to improve their capacity to analyze our processes on the other hand.
We always assess the markets to understand the demand.
The violence of supply them in there is not.
Excuse for the headwinds to speed up our production plan.
But it is very important to take in consideration finally, moving to the next slide.
It is happening a huge transformation in the market regarding the de carbonization and in SaaS to off high grade ores.
We are in a silent transformation site volume, we are running an aggressive action plan to lead the class one market for iron ore with higher premiums.
Give you more callers.
The Vale day in one month.
In Q3, our fines premiums decreased due to the negative margins in the Chinese market driven.
Driven mainly by.
The downstream demand.
Drawing seem sentiment to ban.
And the pellet premiums stayed in a high level with this strong demand for the rack reduction pellets.
We'll be here for further questions now I hand over to Gustavo.
Thanks, Marcel and good morning, everyone.
Starting with our EBITDA performance for the quarter.
As you can see with the diversity of $4 billion EBITDA in Q3.
One $5 billion lower than Q2.
This decline is largely explained by the training to 25% decline in the benchmark price for copper nickel and iron ore during the period.
The other two external factors banker in effect basically offset each other out on.
On volumes, we have delivered a strong quarter across the board contributing to better financial performance on a quarter over quarter basis.
Central costs and expenses, where we start to see the benefit of the efficiency program. We launched last year just to remind everyone. Our objective here is to keep our total fixed cost and sustaining capex flat versus 2021 in local currency and we are on track to deliver that.
Now moving to iron ore all in costs, our Q1 cash cost X third party purchases increased by $1 $5 per ton, mostly driven by higher production and the positive effect from the Brazilian real depreciation.
Another important component of our all in cost structure, its frame, which went up from $21 $3 per ton to $22 $4 per ton.
This is explained by two factors one is the seasonally larger as spot affreightment. Following the strong production in the quarter, our CFR shipments increased over 25%.
Some of these cargoes are stemming transit and shouldn't be recognized as sales in Q4.
There are there is a lag effect.
It takes about 30 days on the bunker cost to being recognized as cost of goods sold.
Therefore volume Q3 bunker cost has body of capture the dropping prices observed in September and we should see a benefit in our Q4 performance.
The premiums we earn in our product also play an important role in our all in cash cost.
The average premium decreased by $7 per ton. Despite the record pellet premiums contracted in Q3, and an improving credit and mix within our product portfolio.
This is Marcello explained as a consequence of lower market premiums for low alumina products and the absence of seasonal dividend from JV.
All in all our EBITDA breakeven closed at $51 $2 per ton and you continue to expect our Q4 performance to be in line with last year now ill turn to cash generation, our EBITDA to cash conversion increased from 41% last quarter to 54% in Q3 the positive work.
Catherine for aviation is mostly due to better days payable outstanding as it continued to improve the efficiency of our working capital management with clients and suppliers. Therefore.
This was offset by regular uses of cash such as Catholics attacks.
And by about $4 billion of cash return to our shareholders reinforcing our continued discipline on capital allocation now moving to the next slide this quarter, we revealed the expanded net debt content to be more aligned with the market.
And have an indicator that battery forms management on capital allocation decisions as a result, we excluded.
<unk> net debt concept the provisions for vis vis tax renegotiation and the debt the characterization coke.
These obligations are distributed over a longer period of time and operational in nature as compared to the <unk> and Mariana provisions and obligations. This change does not affect our targeted $10 million to $20 million expanded net debt, which you continue to see as a very adequate third this cycle leverage ratio.
For opening up for Q&A I would like to reinforce the key takeaways from today's call with delivered a strong operational quarter across all of our products.
They're risking we have eliminated five upstream Vance this year, reaching 12 structure are 40% since the beginning of the program.
We announced the startup of the perfectly complex Salt mine project in February and the approval of a settlement second furnace implementation in Brazil. They are at.
Fourth and milestones as we position based models as a critical supplier for the energy transition.
And finally, we remain highly committed to a disciplined capital allocation and the best set by the $3 1 billion dollar dividend paid in September and our continuous progress on the highly accretive share buy back program with.
With that I would like to open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. We device that the question should be asked limitless.
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Trip your questions to.
Two at a time.
And our first question comes from well not do Kohei, yet with BTG Pactual.
Yes, good morning, everyone.
So my first question on base metals.
To do that.
The units.
Is it supposed to results, which are below the company had been doing over the previous years right there.
Looking at the annualized EBITDA figure for a base that is now the number is slightly above $1 billion right to EBITDA.
So I just wanted to hear more about the let's see this path to normalization right then.
Know that several issues have been impacting.
We've been seeing maintenance issues in several other issues on the cost side.
But I just wanted to hear more about this normalization process and how how long you think it can last.
And on a similar topic I mean does this delay the monetization of this base metals unit right, because I mean results being depressed I can imagine.
This could impact I mean, the perceived value of.
The assets second point on on volumes on iron ore volumes and maybe we can bring spin at the end of the discussion.
Spinelli.
There is a big debate on value on what.
I mean on how this normalizes as well right I mean, how iron ore volumes will normalize in the medium term.
The company is running on lets say 310 million tonnes of production now right.
Nameplate capacity is $400 million.
The market discusses whether 400 million is achievable and whether this let's say effective production would be much lower than that maybe 340 to 350. So I can understand that you will give more guidance Duane validate right December 7th but can you just help us out understand exactly how the.
Medium term path on values in terms of production increases in let's say what is the more realistic long term targets.
For wireless production. Thank you very much.
Thanks <unk>. Thanks for the question I think the threat separate maybe.
And actually it will help as well, but anyhow lets put this way it's not fair to analyze correlate that because that's his possession mentioned there was one like some carry from one on one quarter to the other so it's not the number that you should look at us by the way so but on specifics.
Some of the first quarter and first half of the year events were largely a hangover from Covid a lot of maintenance that were postponed I think we're pretty good on track well north we're trying to achieve with north Atlantic with the refineries are the underground mines are improving their productivity I'm pretty comfortable with the nickel production, we just feature.
I think the highest quarter since I was there I think it's 19, so pretty pretty well pretty comfortable with the vehicle it can.
Within the guidance and I don't see issues. There is that should we say we have to replace defeats but doing that very well. He places Babe. So that's not for me a question on the copper, yes, a more challenge that we expect an intolerable, but say it goes back on track after the long very long maintenance that we had last year. So it's a.
I think going to your second question I think it's more importantly, because this game as a ball through our R&R resources and reserves and we have the best of all in the World and this is this is where the value is.
We will fixed asset this fees be fixed as Ive mentioned, a nickel I have no doubt about that.
If copper as I said, but the assets are there the assets are located where where you should be first first split first world a jurisdiction like Canada.
Does he didn't kind of Brazilian debt, we know the whereabouts and I on the collar jobs with the growth projects <unk> been there last month. This 98% complete now settled with three so our growth plan is there and people that that that that has understanding our value nor where the value is so I don't think it changed perspective, then they're not buying past performance they are buying.
Reserves and resource.
Reserves and resource and and then in future performance and by the way.
That's why we are we believe that ring fencing, the beezus bring a partner we will speed up this.
Performance that you are asking us to deliver and we have 100% with you will know in that sense, but the value is that is above and beyond that so and.
By the way of course, you cannot analyze the this quarter because it doesn't make any sense to know that because we already had more than the delta what roles in our lives as a result for this year, but anyhow I think so.
Good point and again, we are very optimistic very very how could I say that very sure that we are in the right track to fixed assets. The ring fencing wheel helps get off that but fundamentally the vendors in the reserves and resources and we have the best in the new ones in the World how best to this dynamic.
And to go over the the iron ore.
Well thank you for the question.
First point, we couldn't werent able actually to you know to predict to plan.
<unk> backed up to <unk> and also our body and that's happened when we changed the way we are mining in disposing the the tailing dams in the south eastern system.
But we we got it and we replenish our our growth our our recovery plan to the future. So this is the first point on one side. The other side is we are we need to change the approach with the agencies and we just did it.
We are closer to them there is a.
Lack of capacity with a huge amount of license that we need to to bring online.
And all of the systems and all system, mainly but also in the southeastern system, So you're working differently with them.
And and we bring Gratulate as Walt I'm sure. We will give you some numbers and callers are involved with it.
Our next question comes from Kai you can be too with bank of America.
Yes. Good morning, all thank you for taking my questions. So my first question is on the different avenues right that youre exploring to unlock value in the base metals business and I normally do I do that you recently mentioned that the financial Times conference right that IPO in the division was an option that you guys were looking at but there are other.
The options on the table right as you've mentioned in the past you know like selling a minority stake in the business setting up a partnership with another miner.
So I just wanted to see if you can give us more color on which of these are avenues that you tend to be leaning more towards.
And also if you can give us a sense on timing that would also be great and then secondly in regards to your value over volume strategy right iron ore price since they've come under considerable pressure lately and.
And in the fourth quarter of last year and a similar situation unfolded. So I wanted to see if this time around you would consider removing lower quality or higher cost tonnage from the market to try and protect prices. Thank you very much.
Hey, Kyle.
Thanks for your question.
Let's see well.
Well that's true.
We've been very clear on the on the on the path to unlock value in the base metals as I mentioned in the previous question.
Where we see it.
They are enormous.
How can I say that multiple value to be delivered.
The execution path that we've been discussing and again as you mentioned the IPO I'm going to I'm going to get back to you Tonight in the minutes.
We've been very disciplined on that we've been communicating to you first of all no decision has been taken within our board, but we were going to segregate out assets. We did that so we just announced that their recently because yes, we we see avenues, but the avenues. They they they have a path to that and.
The best goes back to the execution over operating assets the execution of our growth plan with that.
We could see a partnership being built I think this is the most natural.
And it has been this again voiced by us and even in the event that you mentioned in the in our calls so we have engaged advisors to help us on that.
We are able to find partners because one very strong point to you for you and for everybody who not sadly, we're not selling base metals. They just mail does the is the best assets in the world value. They will keep it. So we what we want is a partnership eventually is to look at this videos that you just mentioned and then though the word that I use there was eventually.
And might be a confusing word for English as vessels peritrichous, IP always an optionality because not the one that we believe that's going to be happy now because of the previous go action, we need to fix the asset still partnership can be done now because we can't fight partners that see the fed with that we see in this business help us deliver the growth help us there.
I'll leave it at the execution help us with creating a new careers, yes to go after or does that venues and timing wise, our best to Gustavo.
Because he can give you more color on that then spinetta can come on the over the value over volume question.
Thanks, Eduardo So kai on the timing I think what we've been.
Since beginning of the year is that we expect it to be able to give you more color at validate so continue to choose to work with that timeframe.
It's gone up certainly take some time for execution.
Probably early next year, it's going to be more the ideal time so stay.
Stay tuned I think validate we will probably be in a position to share more information in terms of specifics there.
Tayo.
Thank you for the question and then I'll split this they instrument too in two parts. The first one that Canada is also true to lay off from from BTG.
Value for both of them have all the time to check the value part of the volume part of the of the the value.
So we really have to check that.
Mount that we bring into the market.
To not give a problem to the cost curve.
It creates a whole system. So that's the reason why must take care about the the way we are bringing volumes neat in near future.
And this is important when we are talking about the mutual long term.
Production plans, we have a we have a window to adjust that.
It's important to say that.
And Ah, you're you're talking about quality. So all the volume you're bringing to the to our production plan is related to quality.
So we need to address that.
Mutual long term long term, we will have.
High demand for high grade ores.
Even agglomerated.
<unk> products with pellets or Briquettes, that's a trend that's the the the wall will be once you focus on and into everyday eh.
We we assess our supply chain, we have a flexibility to hold a low grade ore concentrate later in China are concentrated in our supply chain and that's what we do is sold today. If you ask me if you'll have in our supply chain load radars that can hold it blend it all concentrated were allowed to sell in.
And in negative margins.
Our next question comes from almost Fletcher with Barclay.
Yeah, Good morning, and good afternoon, everyone couple.
Couple of questions first one for Destiny I'm, just looking at the base metals business member cost base at Sudbury.
It seems to have blown out to quite a big degree.
If I look at the revenue minus EBITDA number it separate reached over $1 billion in Q3 against our quarterly average for the last few years around $600 million. My question is what happened there and should we expect it to mean revert in Q4.
And then second question on answer Puma, the Capex for the second and third it seems to have gone up quite a bit to $555 million against $320 million you spoke about previously.
Can I ask why is that.
Thanks very much.
Thank you and less on the first question regarding the cost as I guided in the in the presentation itself you know and as you said, there's about $300 million in terms of the quarter on quarter and increased $200 million of that actually come.
From the purchase of third party material. So let me explain that the third party material that we buy is actually concentrate definitely buy at market prices now during quarter. Two you would recall that the nickel prices with.
Well actually it was about 26 to $28000 per ton and that led to a very high price. So when he concealed that Mccann Hill about 60000 tons and to end and at a 10% <unk> grade and that affected our cost of about $200 million in quantity itself and to put that.
Into a context and its current alami prices I would possibly treat about 7000 tons in the coming quarter and that prices around $120 million to $130 million. So that's the impact of price and as we indicated there was inventory that we priced again at a higher price in quarter two that came into this quarter.
That's a one off a $15 million, but as with everyone else. We are experiencing inflationary pressure and I did have some inflationary pressure both of them, but a few that came into my upsell services. So on a go forward and most definitely not seeing those numbers and we should see the numbers.
I'm quite a one quarter to somewhere around the middle of that materializing on the next question on answer pull not fun. Its too. So you are right that number is at a higher capital intensity than we were previously planning too and a big factor D. In the last six months when we finalize the estimates we had a very high inflation.
I took that to coming into these cost and we approved it would in parallel the team working towards them and really looking at some of those estimates of inflation is a big factor. Then in addition, I mean, the economy Burbling, you know our finances in 2022 without really looking at the the greening of these finances. So.
It is money in the capital budget to make sure that we can continue to work on fuel switching and we are looking at using biomass down the line as a few other options. So that's the other larger one and we have put some money into the budget for some of the social obligations. We have in the region. So this is not your typical budget go.
From a capital point of view that we would typically see I think just also mention that this project does bring a lot of synergies and to the current operation because as you know the complex is both for 40 odd thousand tons to retain the context of 40000 gives us a significant cost benefit and we've seen that at least 15%.
Reduction in unit cost once the project ramps up I hope that gives you sufficient color. Thank you Emma.
Our next question comes from Carlos de Alba with Morgan Stanley .
Yes. Thank you very much good morning, everyone.
Couple of questions one on iron ore cost I think we'll start with you mentioned the expectation for the fourth quarter is to come for iron ore unit cost to come down to levels similar to the fourth quarter last year.
But we've got a little bit surprise at least relative to our expectations on before on the third quarter.
We're very optimistic outlook for the fourth quarter, what can you talk about the outlook for for the calls going forward.
Every single mining company in the World is facing a inflation pressures how do you see that our iron ore and a unit cash cost moving.
In 2023, maybe beyond that.
On one hand, you have the benefit of higher production, but again the inflation cost inflation pressures that are negative and so if you can share some color that would be great.
It would be in terms of the Mariana negotiations.
Via hasn't gone a tremendous effort to to basically turned the page and do everything right to repair the damage that was done and implement Nino, obviously tremendous airports as well drilled by your partner some article in Mariana <unk>.
Finally, really move ahead from the situation I think.
The Marianna the Mariana situation needs to at least two and so you can share any colors. There would also be very useful. Thank you.
Thanks, Carla so I'll take I'll take both on.
On cost, yes, we've shown some improvement quarter over quarter 1.5 dollars per ton.
This quarter, particularly we had a little higher percentage of third party purchase which impacted the linear and the C. One, particularly which should be normalized in Q4 as I said in my prepared remarks, and they only you've seen freight coming higher as well a lot of the.
The drop in costs, especially in September it wasn't yet materialized, but we should see those in Q4. So overall you should see a better picture in Q4 as you mentioned that you bring volume and some of those pressures.
Reduce rent.
Looking forward for the next couple of years look we will talk in more detail as valid today, certainly I think the entire industry is suffering from some high inflation, it's affecting particularly in terms of fuel cost.
Being digital and bunker. So we are seeing some impact on it but.
But we will we'll share when more details are doing validate what is our view for four for 'twenty. Two 'twenty three I think one thing that we are doing very well is we continue to move.
On our cost reduction program remember, we had announced the 1 billion dollar cost reduction, it's moving super well and that's certainly helping to offset some of those external pressures.
On Mariana look we're positive about re engaging and in reaching an agreement I think for all parties here, including ourselves a solution makes sense and a potential settlement makes sense.
So we think it's you know.
We will be able to sit down again and and resolve this as you said I think it would be beneficial for valley.
And for for BHP for sure as well and you know we are optimistic that within the next couple of months, we'll be able to resume conversations and hopefully <unk>.
An agreement that works for everybody.
Our next question comes from her fail bedfellows with Banco Santander.
Good morning, and thanks for taking my question. My first question is a quick follow up on iron ore production. So so could you. Please elaborate further on your production outlook for S 11 D operations and in your view what are the main challenges for for volatile delivered up their production figures in the northern system into 2020.
Three.
And my second question is related to your new expanded net debt concept. So could you. Please give us more color on how was the decision process of revising these concept and as a result can we assume that Vale will accelerate cash returns to shareholders. After these announcements. Thank you.
Okay.
Thank you I'll file for the question well, let's talk about last 11 D nameplate up for celebrities not 19 million tons, we are below that.
Yeah, we had that.
Knowledge, where they're all B K.
With the the founding of the huge amount of just a light that made us change the mine planning and the way we are processing the realm.
So what they can expect and in stage here, we have the small just latches already dog.
So to meet or we expect to solve the problem and only by 2025.
But we have coming on line the plus 10, plus 10 can offset this the nameplate difference between the what we are producing today.
And the nameplates sold that that will bring.
Our volume for next year, so that we can consider that.
And the plus 20 is it's under construction show by 2025, we have.
And additional capacity solving definitely the problem of the of the troughs polite and a tool that we have an improved coming from the blood stem.
And the in the the whole picture for four north system.
The other side North range, we are facing the increase of strip ratio.
Because we are we we've been waiting for for a license a continuous licenses. It is delaying so it forces us to choose a true to move more waste. So increase your your your cost and your decrease your production or production.
All of them.
So what we have to do that keep.
The the path choose to reach the the license to bring the license.
And three it's a it's a body not a big one but it will be important we already go up now the L. B. The Parisian was license. So we expect to have the final line sense.
By the end of next year, so we bring volumes in 'twenty three 'twenty four.
And we call that there's a small license. So every time, we need to have a suppression in the mine R. A.
Chu Chu reduce the radios close sure cavity that we redesigned the the you know the key that we have would have to keep the IC M. B B you, Andy Burma agents together to speed up. This so we've been doing this but it just.
Just stop there.
As fast as we can so we're adjusting the plan to reflect this oldest sophistication and.
And the right time line for that.
But that's that's what we'll have to do a big July though now this year are in three and this is small license tried to be asbestos as we can but in Britain and the right planning.
So we're focused travel here just to close on your second question look.
Look I think the objectives were one to make sure we had an indicator of more aligned with market.
That was one of the reasons why it with with revisit it. The second one is you'll have an indicator that could inform us better in terms of our capital location decision right. So.
The items that we took out of the expanding that that we're very long term in nature.
Operational in nature. So we thought it didn't make sense to have that included in our expanding that that concept and is at the end just provide us with more financial flexibility they've been extremely disciplined over the last several years. He said where it came in you should expect us to question. It should be very this had been their focus on cash return.
Shareholders.
Our next question comes from adult for badly with J P. Morgan.
Okay.
Good morning.
I think most of my questions already answered, but I just wanted to.
Insist a little bit on what's happening in the north.
So the issue with the licensee I just wanted to understand exactly what is the issue because.
Those.
That operation and it says being around Steve when we had the.
So the money planes defined.
Already.
So there should have been a lot of visibility which areas need to be licensed in.
Just wondering what is happening is it.
Uh huh.
The authorities are being more.
Tougher or what exactly is the issue.
And how is it that.
It's going to be.
Overcome.
<unk>.
Thank you Adolfo.
Many points here first one after <unk>, we have a huge transformation of the mining business in Brazil.
Regarding the you know the license environmental license, but all of the permits and this is one point that we must take.
Consideration the other point is.
First off the of the of the agencies. So many times, we have to prioritize it doesn't have enough capacity for that and that's the main thing that we've been working together with them, bringing the priority to the to the agency and given them tools and hence.
To help them choose to speed up the process to adults will define our you know the license as a whole so the my plane consider that but do you mind. If your mine plan consider to get a license in one year and if you don't get you have a problem in your mine plan every.
Time you'd have to do this.
You you you made a mess in your in your mine plans. So two things here as I mentioned, we need to be more realistic in their own mine plan Toshiba that it's still fair, yes, it's one point.
It's it's each softer bromont gene that's not yes, and don't forget that this oh come on.
Ah I can say wave of.
Uh huh.
Viral meant the props and every place and every world is getting more sophisticated bring we need to bring more studies and theres not a problem only in Brazil, but in every part of the world. So the combination of these three factors.
We need to chew implement a different approach and that's what we're doing.
Bringing more capability to the agencies.
Our next question comes from Daniele Seitz, all with <unk> BBA.
Hi, everyone. Good morning, Thanks for taking my questions. My first question, maybe to do ought to do a if you could comment a bit to do out on how you think E D.
And true self concerning to you or you are.
Ensure babies shareholders base could could help.
You too to develop a in your strategic operations are there strategic planning how have been the first conversations or interactions that you've had this with our members from cause them.
How how you you receive the increase.
Inquiries are these participation that they just acquired.
In the market that would be great. Maybe my my second question Gustavo Spinelli, if you could comment a bit on your expectations for for China now that.
The Party Congress has has finished and she was reelected for a new term.
If you could comment a bit on the conditions on the ground that you're seeing for the property sector or just wanted to move a bit.
The called towards these operational metrics our operational performance. Thank you.
Thanks Danielle.
Great question, because I think we see cause moves as a as a validation of our investment thesis right. When you look it goes up with the record that the solid track record that they have on creating growth people that has this mindset in and take this bet on or not on us makes us.
Extremely.
Positive there our interactions so far have been great in the sense that they they they see the uniqueness of our assets. They they they act by the way. These cells that are as I mentioned in the beginning of my speech, we are materially derisked.
Screaming compliant or ESG.
So I think it's just a it's a it's a great movement, because somebody with with track record that that getting off obviously within our Florida shareholders can help us see opportunities help us unlock value and see the value as I mentioned before on my base metals.
A discussion.
It's it's it's it's it's only positive so it's a as I mentioned, it's a validation of our investment thesis.
And then stopped right I'd want to.
It won't be because because what a bulk information right.
Yeah, and I'll, just say before passing to two spinelli to talk about China. We you probably saw a recent report from Moody's.
Reaffirming our rating, but more importantly, or as importantly, giving us an upgrade on the yesterdays stats I think of this as you know one external very important external.
Validate or seen or the progress that we've done over the last couple of years and you've seen because I'm talking about that so I think the company has evolved a lot. The last several years and we're starting to see some external validation of that progress.
Okay, Danielle well now.
About China, so, but let's slip is in short term and mutual long term so.
Best place for that is cautiously optimist Everytime Gustavo says that then coming from the the party Congress, who have some mixed feelings.
On the negative side the geopolitical message you know no change to the Covid. Paul This is in short term.
Some neutrality I think came from the properties I know that the prop.
Properties is declining the the the demand is this is a bad thing but.
Nothing eh they are controlling the implementation of the three red lines that this is a good news. So no disruption is is perceived.
Despite is declining it is at least.
<unk> been well controlled and the good side for that of the party Congress is is the <unk>.
Is the infrastructure and manufacturing, though we can you can see D. C. I. So they are betting on that and their commitment to the environmental goals that they will bring an extra demand for our high grade ores.
So this is the debt what we heard from that Oh.
<unk> numbers, we see GDP last quarter higher than expect we expect a 5% growth.
For the G to be next year.
We see a decline for properties in the ended up or upside fault for Ford for interim and as a whole. We see are these year the CSB their crews to your production.
In 1 billion, a 20 million tons around that and next year, a bold 1 billion below this year. So we have this oh my macro analysis and I think the other point is mid to long term, we see a.
It is it remains intact.
Stability when the the part you said the stability we it it means for at least four to four 5% GDP growth in the coming years. She has be a round one beat its big market. They have wins in this front, we see a strong demand coming from.
The de carbonization infrastructure.
With a lot of us see meters stimulus.
There are many urbanization, we do we need to keep this on track we have a huge opportunity in China and <unk>.
The consumption this too.
Intensities and the construction. So this together with the Dayton viral Mount Ah.
Commitment.
See the big long term our thesis remains intact.
Our next question comes from Tyler Brown with RBC.
Great. Thanks, Thanks, very much for the call today from but just had a question the west three project you've mentioned that that's been been halted now that was the blending facilities in China.
On a wider basis Europe . According to our analysis you'd be at record levels of inventory at the moment I mean, how does that does it.
Canceling the West Street project change your blending strategy and then secondly, I mean, how much capacity do you have to be able to hold them hold iron ore within the system.
And then the second question wanted to ask just around the base metals.
Progress there in terms of the partnership but I think it sounds much more like this could be someone that's providing more of an industry partnership I guess Eduardo from your thoughts. So how do you sort of play off the difference between the benefits from a more financial or or downstream partner versus a a sort of a peer thanks very much.
Yeah.
Yeah.
Thank you Tyler well, we if you if you see the numbers of the inventory in China actually it is low. So we are hitting now of 130 million tons as a whole in China and our our inventor is is is in the low level also so are.
We have comfort that we don't have any problem to not to raise any inventory even for operations blending so.
We have spare capacity for that and the Welsh Okay and add the capacity we have in Malaysia.
Sure.
Our center.
And and regarding the West three project, that's an expansion in Schuller, who port.
And the main entrance of the the yellow Delta River. So this is it's more related to a choice.
Chinese is trapped digi to chewy.
We reorganized their the.
They establish establishment of the C. M R to China I mean, the Redwood shores. So CMI is are they have the mandate to to expand don't show optimized there those services and we are really close to them to make this happen. So I think they are holding those decision because.
The organization, but in terms of the strategy and in synergies with them. We are totally aligned but we don't see any this is not a message of Uh huh.
That's enough.
The inventory or capacity just a question to reorganization of the Chinese site.
Okay. Thanks Tyler.
Tyler I think I'll ask Gustavo to help you he is leading the process, but just to.
To get clear I think when you look again its a.
A question of value right.
So we want people that's perceives we want partners not sallie.
When people that perceives the same values that we do perceive in the asset otherwise we won't do it by the way so it has to be.
I don't see appear in this case, because it doesn't make it doesn't make any sense.
But it will stop can give you more color on that okay, well, we want partners and partners that thinks like us.
Yeah, I think Eduardo cover it well look we are we have a very unique asset base here.
Getting a tremendous amount of resources.
Very good jurisdictions.
They are very well positioned for two of the most relevant macro trends of our generation right. The mobilities less U V. Electrification, so everybody wants to to be closer to us that that that's clear and we hear that loud and clear from the market.
We are evaluating what is the preferred path, but as as Arthur said it has to be if you were to partner with someone who has to be with someone that believes on those long term fundamentals is why don't you invest is willing to create probably the most exciting future facing commodities bladder firms in the world and that's what we are we are after here.
This concludes today's question and answer session.
Mr. Eduardo Bartolomeo at this time you May proceed with your closing statements.
Well. Thank you. Thank you guys I think thanks.
Thanks for the interest in I think this quarter, it really changed a little bit the perspective was a solid one.
In terms of production costs came in line freight as Gustavo mentioned.
Eventually disappointed a little bit, but not because it is.
It's fact based as a as a question.
Question is is it just a movie ever so we will I believe we are doing the right things around cost as Gustavo Mitchell I think it was a solid quarter, we need to do much better, but I think when the write backs as we as we've been saying since day, one we have a real focus on people on reparation and and safety we have materially Derisk the company we have them.
Materially Derisked. So the case of the characterization on the dams is one evidence of that did the the Moody's changing rates as in is it not a certification.
U S. S. A lot of the questions were done I think we are taking profit of the uniqueness of our portfolio, we're able to deliver at Salobo III, we started with a boom advises a college as a spin out it went on to discussing how we can improve and accelerate that but are the assets that the resources are there and we're gonna.
Let them out on the right time, because we have a unique portfolio and unique time of the world.
We've seen all the geopolitical tensions, but nobody questions that the way we are humanity has to face the climate change the challenging and volatile I believe without any doubt is that one of the best miners in the best position miners in the world because we are good on both we see this not as a threat we see this as an opportunity.
And we want to help the climate agenda and of course create value for society. That's why because just by the way otherwise there's no reason to be a minor and then lastly, I think are not necessarily to be reinforced as has been discussed as well we will be extremely disciplined we will only we're here to create value to our shareholders to our.
To our employees to all the stakeholders. So that it would take time and Oh Wow I used to say when we got to have to do my deal is not a sprint it's a marathon, but its a marathon that we still have a lot of guests to get it to the final after the final land and where I think we are we if we know our team and our employees are doing the what is it what is steaks and.
I hope to see and listen to you in the next call. Thanks, a lot keeps safe.
That does conclude Valley's conference call for today. Thank you very much for your participation you may now disconnect.
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