Q4 2022 Vale SA Earnings Call (English, Portuguese)
Good morning, ladies and gentlemen, welcome to Valley's conference call to discuss fourth quarter when each of 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 Portuguese.
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As a reminder, this conference is being recorded and the recording will be available on the company's website at <unk> Dot com.
Investors link.
This conference call is a companion bodies like presentation.
So I'll be level at the investors link at the company's website and is transmitted via internet as well.
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Before proceeding let me mention that forward looking statements are being made under the safe Harbor off the Securities Litigation Reform Act of 1996.
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. Ed why don't you sided bottle of milk Chief Executive Officer.
Mr. Gustavo <unk> Executive Vice President of Finance Investor Relations, Mr. Marcello Spinelli Executive Vice President of Iris solutions, We said Cod was mid Data's executive Vice President of operations.
That shouldn't be Naidu executive Vice president of energy transition materials.
Mr. Eduardo Bartolomeo will proceed to the presentation on valleys fourth quarter 'twenty to performance and after that he will be available for question and answers.
It is now 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're all doing well.
'twenty, two we substantially derisked and reshape volume.
We've had strong believers in their management and decommissioning, we advance as expected.
Operations.
We created leverage or operational stability and flexibility.
We are simplifying our business put forward in there.
<unk>, a greater focus on our core businesses.
On top of that.
We drew up a plan for the body of the future.
Company that promotes sustainable mining fosters low carbon solutions.
Capital disciplines.
Next slide.
Before going to our performance in Q4, let me just reinforce that we just announced a new organizational design for valleys Executive Committee, which you really strengthen our core business broaden technical excellence and improved project execution I will provide more details later on.
I'm also very happy to announce the appointment of Jerome again, as our first independent director for our energy transition materials business in line with the New management model that we had laid out do me validate.
<unk> is a former president of automotive and has played a key role in developing the EV market as we know today.
He is a very noble and purpose driven individual that will certainly add tremendous value to our analysts transition material strategy as.
As well, we continue to make substantial progress on the minority sale and expect to share additional details with you is still in the first half of this year.
Moving on to our operations in Iot solutions, we delivered strong results with fine sales up 24% combined with very strong price realization.
Our all in cost decreased benefited by lower freight rates.
On the project site.
There's a lot of the project is now under commissioning and that help us make us very confident about our production guidance.
In our energy transition material business are niko production about steady.
<unk> sales up 30% and production up by 6% male.
Mainly due to the excellent performance of our Sudbury mines, which delivered the highest production rates since 2019 also.
Also Puma had the best annual production in the last five years.
And copper it was a quarter of important maintenance activities in a little bit into stable to ensure asset integrity.
Which is paving the way for a higher production rates in 2023.
We successfully completed the start up of <unk> III.
Which will add 30 to 40 kilo tons per year of copper production capacity.
On product strategy I would highlight valleys long term agreements with general motors to supply battery grade nickel sulphate.
This reinforces bodies unique strategic position to be the supplier of choice to the industry.
In our quest to become a leader in sustainable mining, we continued to deliver in many of our public commitments such as in human rights, Amazon Forest protection and the safety of our dams.
Italy.
We walk the talk on cash return to our shareholders. We just announced a $1 8 billion dollar dividend for payment in March while remaining committed to our buyback program.
About.
42% completed.
Next slide please.
The redesign of our executive team.
To ensure a fit for purpose organization with greater focus on its core business and on delivering our strategic goals.
We now have a dedicated structure.
<unk> been early to accelerate the development of innovative products and solutions in iron ore and the improvement of our marketing strategy.
Kosmos deals now has the challenge of accelerating the implementation of values management model, which will promote greater safety and reliability on values operations.
I'll be star was promoted to the executive team he implemented with excellence, our tailings dams management model and now real leads our technical office, which incorporates safety and operational excellence mineral exploration and operational innovation.
They should've been data will be entirely focused on implementing a state of the art project planning execution from end to end to secure our long term growth ambitions as.
As you can see we designed our organizational structure for the efficient management of our operations and the development of innovative solutions for our carbon neutral society.
Next slide please.
We're seeing unprecedented opportunities for segmentation and demand growth for high quality products.
Quality is key for the decarbonization of steelmaking and a game changing transformation for the high quality suppliers like Bali.
There is no other company like body, which combines volume and quality innovative products and supply chain.
They leave the decarbonization solutions that is fueling needs are idle solution strategy is designed precisely for this purpose with those differentiators. We are a partner of choice for our clients, we're establishing partnerships with steel mills to find new solutions to decarbonize the industry we'd have.
Spine with clients, representing almost 50% of our scope three emissions as you can see on the chart. We are projecting a higher average iron content in our iron ore ports volume starting in 'twenty to 'twenty. Three this would give us much higher quality premium on prices, it's a quality.
In a price game.
Just as a reference of how much value, we can generate on quality. Each one percentage point increase in the average iron content corresponds to around $550 million of incremental it beats, though.
The commissioning of the plus planning project and the S 11 deep into July the projects, which I already mentioned will help us achieve growth higher quality and better prices.
In the southern Eastern and the southern systems, we are increasing concentration process to deliver a high quality feedstock with the fourth generation plants and its a beta version go to LNG Embraco too that we delivered recently.
And concentration is key to a high quality low carbon supply reason why we signed up for the development of Mega hubs in the Middle East.
And finally.
We are also about to start up our first green brick plant in the first half of 'twenty to 'twenty three we faced six millionth ounce production capacity as originally planned.
Next slide please in our energy transition material business, we have the right assets in the right jurisdictions, making us the ideal partner for delivering high quality products to our customers in 'twenty to 'twenty, two we entered into a strategic nickel supply agreements with Norfolk and with General Motors.
In addition to an Mou for nickel processing between P. T V. I why you and Ford Motor Company, we're developing a first of its kind plant in Canada, and North America to produce nickel sulphate from high purity low carbon vehicle from our Canadian refineries. This project is a match.
Extension to our business offering diversified sales with for greater footprint in the North American EV market vehicle production increased 6% in 2022, mainly due to the stabilization of <unk> operations and the consistent and strong performance at the onset Puma.
Copper production declined by 15% to 250000 tons in 2022 due to extended maintenance at the single meal. During the first half of the year and additional maintenance required at Cebu and Sellable with the maintenance completion and the backstop of Salobo III are.
Production should grow materially in 2023.
In short we have the assets, we have the innovative tech knowledge and we're building the client engagement and the supply chain.
With that we have the will and the conditions to take valid to the leadership of a sustainable mining on the critical minerals a world.
Next slide please.
Safety is the basis of a work and culture and we are proud to have achieved historic results in 2022, we've reduced more than 80% the number of high potential injuries. Since 2019 in key critical activities Vale has now the lowest at three right.
In 15 years.
We are also 40% completed in our goal to eliminate all ours upstream dams there between before them had its emergency level reduced from high to medium after successful safety improvements and important milestone in the journey to eliminate critical savings conditions in dams by 2020.
Five <unk>.
It is around 90% adherent to the requirements of the global industry standard for tailings management, which give us confidence that we will be.
<unk> percent compliant by 2025.
And we will continue to pursue the highest safety standards and operational excellence, making sure safety is incorporated into the company's culture.
Next slide please.
At Valley, we have.
Sure that's sustainable mining is that the core of all our actions.
On our journey to reduce the scope one and two emissions we establish a natural gas supply agreement for the Pelletizing plant in San Luis.
We are also testing bio char in our metallurgical and pelletizing processes, while progressing with the conversion of the two pelletizing plants to green brick fats into battle as mentioned before we.
We have a voluntary commitment to protect and restore additional 500000 hectares of forest by 'twenty three we protect it and recovered 51000 hectares in 2022, bringing the total to 172000 hectares since 2019 or about <unk> <unk>.
The four 4% of the long term goal.
On the human rights, 100% advisory operations in Brazil are covered by human rights due diligence as you know we have a goal of taking 500000 people all of extreme poverty by 2030 in 2022, we detail our action plan in 2023, we will start a pilot project.
Benefit 30000 people from areas neighboring values operation and in other locations.
My D. We delivered 58% of the commitments set by the reparation of agreement with the established deadlines. The Marianna there. Another foundation provided 315 holiday solutions in 2022. This means in Nava provided a total of 441 housing solution, so far or about 60%.
Scent of the receptor requirement.
In conclusion, we have materially Derisked body, and we are delivering on our commitments to be safer and more sustainable company with that I am sure. We are building a better value.
Now I'll pass the floor to Gustavo will detail, our financial results and I'll get back up to a Q&A at the end. Thank you.
Thanks, Edward and good morning, everyone. Let me start with our EBITDA performance for the quarter as you can see we'll deliver a solid $5 billion EBITDA in Q4.
$1 billion higher than Q3 2022.
This $1 billion increase is mainly explained by our strong sales performance in the quarter with iron ore sinus by $15 8 million tons, and Nico up by $13 nine Kilotons.
This realization for iron ore fines also contributed to our better performance and I'll provide more details about that on the next slide.
Bunker costs to us, but it's heavily affected by $250 million due to lower freight costs.
Mainly as a result of lower bunker prices.
In others. The main driver was the $224 million one off tax agreement in Peru, which al will cover later in my presentation.
So back to iron ore price realization the average reference price for the quarter was 19 $90 per ton.
Our average premium was $1 $6 per ton.
One dollar versus Q3, as a result of better sales mix.
The pricing mechanism.
Also a positive impact on our final realized prices. This is largely explained by the higher forward prices at the end of December around 31% of sales who are booked at an average price of $116 per ton you can see this effect on provisional price and current corner, which can.
With $5 $3 per ton before the adjustments for moisture and fog sales price realization was about $107 per ton eight 5% above the benchmark price.
So in summary, we delivered a realized price of $95 $6 per ton.
$3 per ton versus Q3, despite a decrease in benchmark prices for three $3 per ton.
Now moving to iron ore hauling costs as you can see at the bottom of the table, our EBITDA breakeven cost came down by $2 $8 per ton to $48 $5 per ton.
This is explained by three main factors.
The 18% decrease in sales from third party purchases, which contributed 1.2 dollars per ton in our silicon.
Second our freight performance, which contributed with the cost reduction of $3 $6 per ton due to lower bunker prices and better freight rates.
And $1 per ton, resulting from higher fines premium due to a better mix.
Royalties Valley joint approvals with the government of powder in relation to the increase of T effort.
Which is a fee to fund the government supervision of mineral production activities.
Women, which covers the entire 2022 fiscal year was fully recorded in Q4.
Excluding this one off event the royalty line in Q4 would have been $2 $7 per ton lower with all in EBITDA breakeven of $45 $8 per ton versus the $48 $5 per tonne reported.
For 2023, we forecast a decrease of $2 per ton of EBITDA breakeven due to higher average quality of our product portfolio and lower fuel costs.
Now turning to energy transition matures, our EBITDA more than doubled quarter on quarter, reaching $775 million. This was mainly driven by better price realizations for both nickel and copper.
As well as a 30% growth in nickel saves in a decreasing nickel unit cost by 16% in the quarter.
Now looking at all in costs in nickel, all leading unit cost drop it by 2006 hundred per ton, mainly driven by lower cost of goods sold.
As you May recall in Q3, we had a carryover of heico's, Stephen tourists, which was a one off impact to our Q3 cost of sales for.
For 2023, we project Niko unit cost to be relatively flat as we don't expect to change our purchase feed strategy in the short term despite higher expected productivity in separate.
In the midterm, we expect the reduction in newco cost as we ramp up <unk>.
Now moving on to copper.
Corporate poorly and unit cost was that due to lower volumes for South Atlantic operations.
The maintenance at Salobo as a stable plans were.
We expect unit costs to go down on the back of higher volumes associated with better operational performance at Salobo and sustainable and the ramp up of Salobo III.
Now moving to cash generation.
As you can see free cash flow generation was largely impacted by working capital Capex, which are usually higher in Q4.
Working capital variation is largely explained by the $2 $1 billion increase in accounts receivable, mainly due to higher accruals sales volume.
Yeah.
Together with the positive effect of $21 per ton on high iron ore provisional prices.
These invoices will be collected in Q1 this year and we expect the effect on working capital to reverse in the following quarters.
We also repurchased around $1 billion SKU body shares in Q4, which is aligned with our capital location strategy.
So let me talk more about our capital allocation strategy in the next in line.
Since April 2021, we bought back 683 million shares or 13% of the initial number of outstanding shares. This means a 15% increase in concentration of earnings and dividends on a per share basis.
So yesterday, we announced the $1 $8 billion in dividends to be paid in March 2023.
So before opening up for questions I would like to reinforce the key takeaways from today's call as.
As Eduardo mentioned valley redesigned its executive committee to ensure a fit for purpose organization with greater focus on our operations and on delivering solutions critic global energy transition.
In that sense, we have taken actions to serve a growing market demand for quality products leveraging on our unique mineral endowment and innovation capabilities. For example, the high grade Palatin Briquettes, the mega hubs initiatives and the low carbon Nico chronic.
We also remain focused on delivering new projects to meet our production guidance and to make sure. We stay the unique competitive advantage of Bali.
And finally, we remain highly committed to a disciplined capital allocation process as evidenced by our highly accretive buyback program and dividend payout.
Now I would like to open the call for questions. Thank you.
Thank you.
Ladies and gentlemen.
We'll now begin the question and answer session.
We advice that the question should be asked in English.
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Press Star two please restrict your question chip two at a time.
And our first question comes from Leonardo Correa with BTG Pactual.
Good morning, everyone. Thank you can you hear me well.
Yes, because we kept low okay.
Perfect. Thank you.
My first question goes to Gustavo.
On the note of still have cash returns right.
Will you.
I mean, if all it has been very active on the buybacks over the past quarters and since you joined the Vale.
Which has been very clear on.
On buybacks.
And the preference for buybacks right think Vale has really stepped up the game on that front.
Since the recent lows right I mean valla has rebounded like 40, 50% stock have has performed quite well over the past months.
In this context I mean, the stock has re rated as well right I mean versus Australian peers, we see that re rating process, probably complete right I mean, the multiples now.
[noise] Alliance, which which is fair right.
So in this context Gustavo I mean, how do you see the balance right.
Now.
Sustaining this this buyback right in the in the context of a let's say a higher price share.
Visa V paying that balance an extra ordinary dividend. So I just wanted to see how you see the current trade off given where the share prices and the recent rally.
And the second question on costs, I think we had a pretty reassuring number right and.
In terms of delivered costs into China.
Has has declined from $51.
It's about $48.
The fourth quarter.
I mean looking forward right given the deflationary pressures, we're seeing them in the oil prices is still quite quick.
Quite depressed I mean, if you think of freight rates, Brazil to be alone.
The number is $16 so still below the freight rate that you guys are booking and I understand that you have good part of that which is long term contracts, but just putting everything together I mean can we see the delivered costs into China falling below $45 by by Iran. Or are you seeing the evolution of those costs. Thank you very much.
Thanks now so.
On the first one.
As you know we have a very attractive dividend dividend pilots right, the 30% EBITDA less sustaining which is.
It's somewhat close to a 50% payout so it's been tough for me on that.
And on the buyback as you know has been a welcome to talk delivery and then execute on the buyback specially when prices are softer.
Quite frankly, we continue to believe that even at the current levels.
This is probably one of the best if not the best investments that'll have buying back shares and we'll continue to do at those levels. So continue to be to believe that these investments at the current levels is highly accretive for our shareholders.
The cost I mean, the guidance that we have provided for 2023 is about 47, so $2 lower than what we posted last year.
And so we'll have to see I think a lot of it will depend on how bunker performs certainly ear to date.
Freight rates are better.
About $3 altogether, so that could be an upside.
But so far were keeping the 47 is our guidance for 2023.
And our next question comes from half bio box sellers with Banco Santander.
Hello, Good morning, and thanks for taking my question. My first question is about BRCA thing I mean, our whole how is the marketing project evolving and how has been your commercial strategy on these as I think we are approaching a start up and of course, how are your customers have been reacting to that Ed.
And my second question is about the base metals Division.
Could you please elaborate a little.
On how are you seeing your operations evolving now in the first SKU not only on the cost side, but also on the production side and which type of contribution to Vale, we could expect prompt Atlas former executive who just joined the board I. Thank you.
Thank you Javier for our questions is spinelli here I'm talking about the BRIC at the green brick it so as you mentioned we.
We expect to start up this year for the first industrial plant in the first half second in.
In the second half. So this is the year for four test so our industrial test in our clients are we we.
We've been developing the blast furnace brick it and we've been testing around Brazil.
And more than the older kind of a sizable blast furnace, so that that would be another task. So we we were going to explore the the seaborne all the the impact and the vast social that said, let's say your first test and also direct reduction.
It'll be a plus.
Possibility Choo Choo Foster and increase the speed to testing in or in our clients. So far this year. It's it's about test the oldest threat to the commercial strategy is is similar to to the to the pellets and for next year will be.
Evolving in our agenda to expand our production to the mega hubs and into our clients.
Other parts of the world.
000 led the question for me to go over the performance, but I wanted to explore your second part of the question around the Jerome.
I think as we're being.
Well he knows he's saying are we have unique assets and opportunity in the what I say revolution energy of the world.
And I think Jerome is part of this right is 10 years and he is he's been through and made what we know.
What is the view world today so.
He will help us a lot.
On guiding us on helping us and the board together with me and other peers that we've got a.
Construct to unlock the tremendous value that we have inside this business.
Absolutely, it's what one one profile that fits because he comes from OEM. We're looking for all the profiles as well that will help us with the other girl buying it for sure.
With the base metals experience. So when we said lets carve out the business. That's ring fenced base metals is exactly to attract talent soft people and I think this is a good example, and again I'm. So glad that he took the challenge to come and extract this this.
Perceived value of the base metals business side body and I think that's you can elaborate on your question of all of the performance.
I think we are doing good strides on that side as well and still a lot of challenges as well okay. That's in place.
Thank you for that Eduardo and thank you for the question Dan Raphael.
Look at nickel and as we guided at a valet bolt nickel will be very similar to the production levels equal to last year, our bandwidth to tinder.
I'll take the answer Pollo finest one down in a quite a fall and it will take the Clayton shelf down for overhaul all quantity, but despite that and because of the productivity gains that Eduardo mentioned in terms of the Sudbury, we are still expecting to keep production largely flat and the rest of the business.
Outside of our Sunbury and after completing the pizza the ice planospore rebuild lost their pizza Riyadh will give us the delta 10000 kind of yeah. So that's a nickel, but I didn't because of the seasonal impacts of P. M. P.
During the first half we'd have a similar year for local where you'll see the production back ended to the second half poodle felt as well coming to a copper. So Cooper. There's two changes that will happen. This year. The first one is the north Atlantic, but we'll see about a delta of 10000 patents.
And that's largely probably improved support that we did last year following how long the seismicity events, we've had and that it's been supported and it was great to see not only did you know Eduardo local had a great quarter last last quarter, but so the copper for us auto part Sudbury the game that we need to win.
This year is the <unk>.
Backlog of maintenance at both the local and the Saco and turning to Salobo are quickly. We've now moved us into a very structured program, where we've mapped out not only all of the risk based in Lhasa profile, but the accident that we need to follow to both catch up on some of the backlog that maintenance, but as well as keep up to them.
Central that we've had and again, we haven't we have had a good January with tells us that the on the right planning now we all know that in order to be successful what magic done. So we've actually put the salobo operation into a PMO structure. So that we know as a leadership team can see weekly all of the work.
That is that that is happening that will give us about a delta of 45000 tons from last year's performance across both salobo wanting to plant as well as due to single a ton, but the real win class this year.
I'm sure that we can continue on the ramp up plan of Salobo, III plant, which will give us about a delta of 40000 class and in the year and again that will be back end, just because of the nature of the ramp up curve that we have but we're very happy to report that as of today, both lines are operating and.
Hello, <unk>, so the way to look at the outperformance nickel similar to last year with Taco exceptions, I mentioned copper we are targeting the guidance and it will come from the Dallas is ever going to get in terms of the maintenance that we are doing but because of the salobo three ramp up back ended into the second half of the wall.
Our next question comes from Kai you hit Beta with Bank of America.
Yeah. Good morning, Thank you for the opportunity. So my first question is on the base metals Division might if you could share some updates in regards to the process right of potentially selling a 10% stake in the division that'd be very helpful right, especially in regards to the timing of concluding the transaction.
First half 'twenty three it's still valid what profile of investors, who are in discussion with and what do you plan to do with the potential sales proceeds.
And then secondly, if you could also provide an update in terms of discussions around the renegotiation of the framework.
Framework agreement.
Whether there is any timing any definition of potential amounts already agreed that would be great too. Thank you.
Thanks, Kyle this is Gustavo so I'll cover both.
On base Mattos.
It's moving quite well quite frankly, we are expecting to have.
News and more details as we said before in the first half of China's China, three which Scott and discussing the opportunity with different <unk>.
Artists Oh, great part is that we think it's going to add a lot of value to this story. So so stay tuned we should be using it a larger portion of the proceeds to fund growth. This is a business that should be.
Investing in new platforms going forward that I think it's going to be highly accretive right. Good level of returns and so on so the idea is that a lot of the resources will be use it for that.
On the T tack renegotiation renova.
We continue to evolve on the discussions I think the new government has been vocal in the sense that they are also reinforcing our desire to saddle, which as we all think it's a good thing and so our expectation is that we'll be able to find a resolution in saddle the renegotiation this year.
In a format that works for everybody.
Our next question comes from Carlos de Alba with Morgan Stanley .
Thank you very much good morning, everyone.
So a couple of questions going back to the base metal business.
I don't know what else can you elaborate but maybe how do you see that.
And the value re rating that are transaction.
Transaction and base metals.
I kind of take place do you see that more.
More coming from a multiple reiterating or or you think there is more really the performance of the business that unfortunately, even though in the last in the last few months. He has some true.
Over the last several years has been stellar.
How do you could you maybe are equally.
And Michael Mayo style.
Do you see this playing out do you attribute it more to multiple your rating to expiry fee structure of the business.
This structure and leadership structure or more to the performance.
Going forward would be better on a sustainable basis and then the other question if I may even start well it has to do with.
The CSL and recent decision by the Sds.
And you know potentially.
The government will be able to get.
The money.
On tax disputes before the process or the disputes come to our NAV.
Next on the legal avenues and it could be in theory retroactive how.
Valleys exposed to that.
And then also continuing with the tax situation there was a proposed.
Operation make sure that we've got.
Change in transfer pricing practices in Brazil, how is val exposed to that provisional measure. Thank you very much.
Okay, Carlos Oh, let's stop and go to the second one but again.
Maybe all the above that you mentioned because.
Let's be Frank I think the name of the game here I've been saying that for a long time its execution.
Why are we running faster business, because we believe that are doing the right incentives. The right motivations will allow us to improve our performance is happening by the way you'll notice that so and we are finishing this ring fencing. So.
That's just going to have all of the <unk> X go together with her directly focused.
The governance that we are building together is around attracting people like I. Just mentioned are all of them and the others that you'll see in the next Bob says as we evolve into the design of this.
This has gone far enough, but fundamentally why why us why why bring somebody else to the table now that's a good question. A fair question to answer did I said that we would do any way Brian . So just b mind that is.
Virtually we don't have a.
Uh huh.
Right proposal, because what we want with this is an anchor to promote the acceleration of execution. We spent already 16 years. All that we can we don't have another 16 years for that so if I'm able to bring somebody that shares the same perception of value of like like I am.
Jerome do you Desert Board member or the Sky is a partner a financial partner a strategic partner that can help us get accelerate the execution.
That would be the fundamental reasons, why we carved out to bring fast and sold a minor participation.
I want to put lipstick on the pig, we want to make this business really really excel.
I'm sure the re rating ski here, it's not only because body has reiterated his eyeglass being loud mentioned.
I think the whole industry is underrated the whole read this is ridiculous other rated.
I'm not talking about the mining industry, we cannot be the basis of the energy Revolution and being taken multiples as we speak and not evidently if I move the green battles.
Or nickel cobalt to a separate entity that make us easier to people understand the criticality and the growth that scrubbing. That's the next reason why we're doing that because if you understand the needs of cash for this business were talking huge amount of money, we're talking $20 billion and I think voice Iris solutions.
Shareholder eventually wouldn't like that as well so why not have disappeared. This option in the near future. If you are executing well so sorry for the long answer our calls, but it's all of it up all of that Bob and I have zero doubts that we are in the right Beth I have zero doubt that we're going to execute much better than we have been as acute.
I have zero doubt there'd be gonna have a re rating and the rating much more above and I think mining industry has to be related. It's it's unacceptable to be re rated like rated everybody to know that I'm talking about what I'm talking about the mining industry. So we are so critical to the world and they will know exactly what I'm talking.
About valuations so long answer sorry, but that's a fundamental thing for US. This is the most important strategic matter in our in our in our portfolio today.
We will have time to talk about iron ore by the way I never saw call with so many questions about base metals I think that shows the interest. Thanks, Scott for the question again I would ask are starting to go over the.
So Carlos just to complement quickly here on the tax.
C S Atlanta.
We've we book at 100% of the of the potential impact on valley in Q4, which was $150 million.
So that's fully provisioned, including the interest and penalties.
You've probably heard that there has been discussions around giving some relief on penalties, which we are following closely but at this point, it's fully it's fully reserved a $150 million of impact in Q4 on the transfer pricing.
We saw it very positively actually because I think the the view here is that the regulation will follow the OECD principles, which is what valley already follows. So I think to certain extent to give transparency and clarity on the regulation that valley has been already following so for US It was a positive move.
Our next question comes from Vanessa Kate I'll go with credit Suisse.
Hi, Thank you for taking my question.
I have a couple the first one is I tell.
If you can discuss how you see the cooling.
Clarke higher grade iron ore and agglomerate.
I mean, they're very short term, we are a well.
The fundamentals for the medium or long term, but just wondering how what is your sense of them of that current market conditions like the product and the second one just to add on that question you talked about base metals.
We've seen.
And we carried that potential partner it could be either.
They're in the automotive sector or a financial partner. So can you discuss a bit further on what are the different verticals that you see either profile for that potential and strategic partner.
Thank you Vanessa for your question Spinelli here well.
Let me talk about the short term and mid term so short term.
Pellet business, but deliberate business now as pellets, so you're moving to green green brick at so far but.
Actually blast furnace a pal.
Perl that in the last quarter.
We had some and some are just adjustment in there in the demand because of all the.
The problems in the energy in Europe . So Europe is up it's important client, but so far so good they didn't have a huge that's huge in fact that we were expecting so the demand is strong for this quarter and next quarter.
Correct reduction Ah is Ah is really with a good demand in the in the Middle East Midwest and in the U S. Today are the main.
User for a direct reduction routes. So so far they have a they have some.
Adjustments in there in their price, but the demand is there and when they receive.
The demand and the production and de lever that we that we announced in the in our guidance, but I have some using an inch in near term I just came from from China actually it was the first major in presence in China.
So far up after Covid and one thing is they are.
And it's funny, because I expected that the Europeans will come in the first moment for the Mega hubs all discretionary that we have to improve the production for pellets.
They're really interested in that.
We believe in that trend of growing the use of scraps in China.
But they are struggling to choose speed up that are that the supply of of scrap.
And are they would need that Alex for that so they are aiming to join us in this in this mega hubs project and also our team wasn't in Japan in Korea, and so far they are already a investing in and in and in some places in the.
Where we have and do come that is in Oman, and also household care and in in Saudi Arabia. So again, it is happening and for the mid term the carbon.
Price you will make a real important difference and so far are the clients are coming so we are excited to keep our strategy. We are sticking them there.
Vanessa Gustavo here just on the on your second question.
Look we are keeping this certainly close to us in terms of details of potential interested parties. What I can say at this point is we are looking at Patel.
Potential partners that believe on the energy transition believe on what did the widely highlighted early in terms of electrification of everything easy transition that sees the long term value of base metals right and it's willing to support our strategy. So that's.
That's the type of profile that we're looking at so we will make sure we share those details later once we finalize those conversations.
Our next question comes from her Doughfoot Anjali with Banco J P. Morgan.
Thank you and I have two questions. My first is this.
I think a hard one but I would like to hear your thoughts.
You know what I'm hearing from the school as you know there is a big change happening at Vale.
Ah you're positioning the company to be.
A key player in the world, that's going to be very different.
And indeed, the company has very unique assets both in the base metals.
And then in the iron ore.
Space to kind of deliver that.
But you know.
We're still a few I don't know that there's a gap of time until we get there.
And in the meantime, we're of course looking at what's happening with discuss cost will discuss.
A number of things here. So my question to you is a win or what are the key kind of first indicators are that will become will make clear that you know for investors that we're getting to a point where.
Profitability is increasing because of.
The profile of products. The company has because of the changes that are being implemented.
And you know if you.
I think that will happen before the re rating of the sector right now and so that's that's a more of a a concept a question.
And the other question with says Oh, I'm, sorry, it's gonna be a bit more boring.
I just wanted to know if you can provide.
Provide us.
The base metals cost guidance assumption.
What are your assumptions embedded therefore.
Byproduct credits.
That's it for me thanks.
Well, we're a little foot.
As you said hard question, but.
Excellent question.
Try to be brief.
Because it.
It's around what everything that we've been talking about right. If you look at this Iris solutions visas is theres a fundamental shift that you're trying to push on there on average bodies mind and ourselves by the way. That's why we redesigned organization. They can spinelli completely focused on all of this on the marketing.
That strategy, bringing made deals to face the most immediate challenge that you that you that you mentioned how can you boost sees that it's the grease.
Production of pellet feed and feed of quality in the northern system.
Drew brings exactly that percentage point that I mentioned.
The two are to the models that you model because of course, we have to be on the lowest quartile. We are we have the bad assets with some cost pressures, but you'll do between final costs, that's and we fully dilute for 340. This as you model. It will obviously, we will help but fundamentally is a.
<unk> of our iron ore.
That is the iron solutions, that's the way we segment the market, where we play the high yield remember the slides on the presentation that showed that D. Serine proof 0.7 percentage points, but we want to improve like two points percentage like I know it is.
You remember holiday, we put kind of just being able to concentrate to 67.
That's where you're going to start seeing the true premium and without doing a webinar about that by the way just a it's not a place to analysis kind of things, but we had planned webinar to give even more details about that for you because people are not factoring that.
We mentioned that in holiday and we're going to talk a little bit more so that's one part of the equation second one.
Try not to repeat my whole speed about base metals, but that's it's ridiculous or the other values.
Everybody not only us.
The the kind of demand that's coming over a nickel copper and cobalt and everything on the lithium etcetera, it's not priced and we need to be able to deliver the projects. So I think if you asked me what were the key points are delivering to the guidance delivering the the effectiveness of our current operations because we still have great assets.
There are other but that could perform better I would say underperformed, but they couldn't before better be I forget it better.
Better before but like in copper.
Matt Desch dimension or nickel and that and the growth because that is the growth there like salobo III. We are very excited there's a little bit III. So Oliver three started up very well are those kind of assets are the ones that are going to bring growth to the market and people are going to stop appreciating that and and you look at when you look at the percentage of our book.
The participation of base metals, and our cash generation and again go back to a model redo it because you others debating the size of our of cash generation that we're gonna be able to bring if we execute the projects. So that's why again, we we specially we focus our our organization that sells so conceptually speaking is there.
So I think.
This is it's a bit of a but not the only time I think I'm not trying to buy time here, we are doing we executing.
We are buying back value that's another.
<unk> Avenue of growth you should and you don't do much more better calculation than I do you'll know increased 15% to up the basis, we went up by more 7%, we're going to renew our buyback program. So I.
I think it's a long term game well I always said that this.
This is this kind of business is not a sprint.
It's a marathon and people that believe in the marathon is going to pick up a lot of money as S. As we are doing outright right. So let's be honest I think body has been really attractive.
And that has a lot much to do and I think those questions are done through was that the vessels should really thought about it and people that jumped in the bus now we'd be very happy in the medium term.
Thanks for the question.
Eduardo just complement overdoses question on the second one on the cost.
So therefore, we are taking certainly the benefit of by products based on market prices. This is the numbers. We are currently using for 2023 we had guided copper at 3200, it's better than last year as we are bringing online resuming capacity at Sellable, one in Chile, and bring a sellable three online.
And then Nicole we are at 13000, so similarly to last year as volumes are somewhat flat addition has highlighted.
Our next question comes from Danielle <unk> with <unk> BBA.
Hi, everyone. Thanks for taking my questions. My first question is on the TRA fan in part out right.
And if you cannot draw they basically but I was trying to triple the the taxes will be charged and you actually reported higher higher royalties or higher expenses with priorities in your iron ore business this quarter and and you explicitly.
You mentioned that $2 $7 per ton costs.
Cost increase because of an agreement with the state if you could just give us more details on how our or by how much are the final taxes really increased that would be great and just a quick follow up on the iron ore cash cost you mentioned that.
Europe , we remain comfortable with our $47 per ton guidance for the year, but if you could comment a bit on the on the marginal cost that you've seen in this industry right now after the very strong cost inflation that we saw but.
During 2022, but then again, we're now seeing lower bunker prices as you mentioned lower freight rates. So if you could give us a samsung where do you see the marginal prediction cost standing right now that would be great. Thank.
Thank you.
Thanks, Danielle Oh, let's genetic over there the marginal cost of the system on.
On the T F Ram the increase is one it's an array is actually it's around eight reais. So in dollars about 1.6 per tonne from the north right. So this was a long dispute we had with the state of <unk> and we decided to saddle part of the increase will be dedicated for local investments that we're planning to do so.
Related and others, so that that state backed or youre going to see for now one as I mentioned in my prepared remarks, we book at everything in Q4, that's why you saw that.
Variation in our Q4 performance.
And then you also spinelli here, so yeah, you're right the there's a movement.
For us it's better than our competitors actually we are more exposed to tool to the freight.
And what do you reach a day that are our long term.
Price is the last the seventh that used to be in the past now is 90.
Despite all those ups and downs in terms of cost that's that's a long term price in average so and and again that's important to say are we worried a benchmark last year in terms of falling costs because of our high grade ores.
So the premiums are playing an important role in that that the.
Meet your long term strategy that we see the premiums you played a very important role to two two to be to make valley in the first quartile of the cost free of the cost the cost curve.
Our next question comes from almost Fletcher with Barclays.
Yeah. Good morning, everybody. So I just had one question on base metals I just wanted to play Devil's advocate here enough. What you know why does it make sense to bring in OEM onto the shareholder Register and the board of the base metals business.
I'm, just concerned I guess around potential for conflict of interests.
Well low nickel and copper prices for all our shareholders want and high prices.
Yeah I guess my question is why is that OEM is this it is a shareholder when you confine offtake volumes that because you've already been doing with Tesla and GM etcetera. Thanks.
Okay, almost oh, that's what's up guys was obviously, leading the process just to be clear like Oh me as a former guy right. So I think you're really asking about the partnership.
We'll go up go ahead.
Yeah. So Jeremy this is no longer with Tesla right. So what we are after is his innovation capabilities understanding about the market. We think it's going to add a lot of value to the board.
Regarding.
Our reference to G. M. We haven't commented on any potential candidates, so I won't comment on that.
That's critical.
Okay.
That does conclude today's question and answer session.
At this time you May proceed with your closing statements.
Okay. Thank you.
I think very exciting Ah ha moment, right to think a different call.
Good to have a different goldwasser in awhile, but I don't know people nobody asked about China, China is doing fine China is going to improve but anyhow.
I think we are in a good start I think I'm going to push on the style of his remarks in the AD.
The organization after the reshaping.
As we exit all the assets that were draining cash aside value, we were able to repurpose our our people we have a great team here about it to execute this strategy.
We have taken the actions as was asked why God awful.
Need to put quality truly on the market with volumes our volumes are coming back with quality, we're not gonna put anything else before besides quality, so and we're going to have to make that our solutions are.
Be real.
In base metals and energy transition all we need to educate ourselves as any transition materials. It's the opportunities are huge as we discussed during the call and execution of the projects and the operations are key.
And finally, we will remain capital disciplined I think if any of our the checking to check box leased as we've been very critical.
Two assigned values to our shareholders and to our stakeholders. This is our society as we discussed before has to perceive volley as desired and not only fly doesn't mean by any of them were not in this game alone.
In effort to supply the critical minerals that are needed for society. That's the collective effort society has to breathe cocainize of debt.
When that does happen I would truly believes that not only volume, but the whole sector will be re rated so with that I would like to thank you for your attention to your your questions and hope you all keep safe and hope to see you in the next call.
Have a good day.
That does conclude Valley's conference call for today.
Thank you very much for your participation you may now disconnect.
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