Vale S.A. Q1 2023 Earnings Call
Question and answer session and instructions will be given at that time.
This call is being simultaneously translated to Portuguese if you should require assistance during the call. Please press the star followed by zero.
As a reminder, this conference is being recorded and the recording will be available on the company's website at <unk> Dot com.
Investors link.
This conference call is a campaign and by a slide presentation also available at the investors link at the company's website and is transmitted via Internet as well the broadcast via Internet, both the audio and the slight changes has a few seconds delay in relation to the audit tools needed via phone.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor of the Securities Litigation Reform Act of 1996 actual performance could differ materially from that anticipated in any forward looking comments as a result.
Macro economic conditions market risks and other factors.
With us today.
Ah Mr. Eduardo the salaries back the Ola Mill, Chief Executive Officer, Mr. Gustavo female executive Vice President of Finance and Investor Relations. Mr. Marcello Spinelli Executive Vice President of Iron solutions, Mr. SCADA lives midday Who's executive Vice President of opera.
Patients Mr Destiny, NATO executive Vice President of energy transition metals.
First Mr. Eduardo Bartolomeo will proceed to the presentation on the valleys first quarter transitory performance and after that he'll be available for questions and answers. It is now my pleasure to turn the call over to Mr. Eduardo by Columbia, Sir you May now begin.
Thank you very much good morning.
Everyone I hope you're doing well.
We started with great confidence in delivering our goals for the year.
In our solutions.
Iron ore production was solid, especially.
Thanks to a better performance or a drug class system and installation of the new crushers in 2022.
In addition.
Our pellet production increased by 20% year on year with higher seed availability and improving asset reliability and our pelletizing plants.
I will now turn loss sales.
To get to production.
Primarily due to other distributions in loading at our northern Port and supply chain rebalancing after strong sales in the fourth quarter of last year.
<unk> production was not affected.
Expect to offset this impact in the second half of the year.
In this sense.
Our average RF content and quality was a slightly lower effected by the port restrictions.
And opportunistic sales of low rates.
<unk> add.
To the company.
In NH transitional matters copper production grew over 18% year on year supported by solid overstocked tops.
And with sales up to 25%.
Finished vehicle production was impacted by the ongoing transitional periods between the depletion of mine and the full ramp up of license fee.
The very high note, our soluble mines continue to disease.
Remarkable performance with record oil production rates since 2017.
Also we continue to make progress on the supply chain with two important milestones for <unk> and mortality.
Indonesia, which I will cover later.
Moving on sustainability.
We are steadily making progress with our best safety management this year, we upgraded.
Safety levels of two more advance removing their protocols.
Our improvements in the health and safety practice led to renewed perception by ESG ratings providers.
<unk>.
<unk> completed its annual review loan volume in March.
Substantial upgrades in our ESG risk rate.
On top of that our.
Our discipline in capital allocation things.
<unk>.
We are walking the talk and returning value to shareholders.
In March we distributed $1 $8 billion in dividends, while completing 47% of the third buyback program largely ceased Duane Duane.
So, let's see our performance EBIT into next slide please.
We are well positioned to deliver the production guidance for iron ore to secure.
<unk> reduced or million tons for the same period of last year, and we expect to continue with a steady performance at the seasonal challenges fatally.
In the northern system.
Availability increased <unk>.
With lower non scheduled maintenance and solid production.
We achieved and aligns with our intensive supports to standardized process and ensure adherence to best of Provisional France.
In the southern and southeastern systems.
Ravi rings did not prevent us from the leaving a strong production both drafting with what we experienced last year.
The loading restrictions mentions.
Cost the progression to save gap and a lower average rate, which are temporary and we should be able to compensate it in the second half of this year.
In addition, we are close to obtaining the operating license for total debt since we had its emergency plan approved in March.
Dan do support pellet quality and volume as well as product mix and the average price premium.
Another project, that's moving well is the commissioning of July which will produce high quality pellets feeds by reusing the savings that have been deposited in the July to date.
In this context, we are confident that we will reach our volume guidance and average grade for the year of 2023.
Next slide please.
In RF solutions best in clients furnaces are confirming the benefits of iron ore breakouts.
We shipped the first cargo for international desks in April so far eight industrial deaths in six furnaces and <unk>. We have another nine deaths expected this year or first two industrial plants, we stockpile this year into bottom.
I believe we are facing unprecedented opportunities for segmentation and demand growth for high blood.
Most integration is key to our high quality low carbon supply.
Reason, why we signed up for the development of Mega hubs in the Middle East and launched the Green Briquettes. Therefore.
<unk> is uniquely positioned to be the supplier of choice in that scenario, we combined volume.
Quality innovative portfolio and well structured supply chain for a decarbonising world.
Next slide please.
In the energy transition map those business I call your attention to our copper production growth up 18% year on year.
Which allowed for a sales growth of 25% year on year.
This was mainly the result of Salobo III ramp up and so sales improved asset availability benefiting from the extended site new maintenance in 2022.
In vehicle subsidiary delivered the highest production in the past five years.
Following another production record in the last quarter.
Due to the excellent performance of our subsidiary banks.
As I mentioned before the lower finished production for the quarter was expected and was mainly due to the ongoing transitional.
Between the depletion of our pipeline and the production ramp up of <unk>.
While the second quarter, we have planned maintenance for our voices big and long harbour operations, as well, which should impact voice space and thoughts on production.
Next slide please.
As I said, we are steadily ramping up sell over three.
Both lines are operating which is an important milestone for the science.
We expect to reach full capacity within 20 months, we feel relevant contribution to production by the end of 2023 once.
Once at peak capacity celebratory worth $30 to 40000 tonnes of copper per year.
As you can see the future.
This is a beautiful set for a promising project in the natural hub for copper production in Brazil with substantial value creation for our shareholders and sell side.
With all of that.
Confidence on both guidance for copper and lead to for this year.
Next slide please.
We continue to engage with clients with partners in the supply chain.
We are setting the stage to be with indigo.
In that direction together with our Chinese partner <unk>.
<unk> signed a <unk> agreement with global Automakers Ford Motor Company for.
For the former H bulk project developed in Indonesia, the three body collaboration fosters conditions for a more sustainable vehicle production in Indonesia.
We are still launching the project construction and modality in February .
This is an integrated nickel mining.
And processing plant powered by natural gas with startup expected in 2025.
As you can see.
We have unique assets innovative technology customer engagement and supply chain to be the supplier of choice for the EV Revolution.
It's actively screening and an open dialogue.
We have set the stage for the strong growth ahead of our energy transition metals business.
Moreover, we continued to make significant progress on several fronts, including on the buy in order to save and today I am happy to announce that we have advanced on bringing mark good funny as the chairman of our newly formed energy transition metals Board.
Starting July this year.
Mark needs no introduction and we are certain he will be a valuable partner as we bring our tier one portfolio of assets to domestic level.
Locking significant event to our shareholders.
Next.
We are moving safely towards leadership in sustainable mine.
It starts with reducing the risks associated with them.
Since 2020.
Our approach allows <unk> to be stated safe and stable by external independent reviewers with that those geotechnical disrupters have therefore this level removed.
By August we are on track to be adherent to the Gi STM the global industry standards for stadiums vantages for critical structures.
That gives us confidence that you will be 100% compliant.
<unk> and 'twenty five to all other structures with more robust safety practice DST recent recessional body improved considerably.
The company has been re rated but important ESG risk rate base.
We've sustained analytics provided the latest rate improvement for our company.
That decision came with an assessment of critical both reversing and improved breakfast and the health and safety.
<unk> volume in the industry first quartile.
We are seeking leadership in sustainable mine.
With that.
We continue to deliver on many of our public commitments such as in human rights Amazon Forest Protection and community Relations. Finally, <unk> operation, we reached 59% of commitments delivered further conditions and deadlines set by the <unk>.
Table reparation agreement.
Slide please.
That is one thing I made sure to emphasize every single time, we substantially.
East and reshaped bonnell.
On the de risking we had strong belief in their management and characterization besides advancing with the <unk>.
The reshaping we simplified our business in a major <unk>.
Diabetic from more that that business in five different countries tapping cash trends and allowing ourselves to laser focus on our core business of <unk>.
Safety and non production stability.
The last milestone finally state we completed the reshaping program is the divestment from MRI.
We moved a lot in building filing of the future a company that promotes sustainable mining.
Foster's low carbon solutions and remains disciplined in allocating capital now.
Now I fastest Florida staff will give you more details about our financial results I will get back at the end for our Q&A session. Thank you.
Thanks, Andrew and good morning, everyone.
Let me start with our EBITDA performance for the quarter.
As you can see we delivered a $3 7 billion pro forma EBITDA in Q1.
$2 $7 billion lower than in Q1 2022.
This decrease is mainly explained by one $5 billion lower price realization for iron ore plants.
On volumes, we had an impact of $574 million from lower sales of iron ore fines, which was down $5 5 million tons year over year.
Despite the $3 7 million tons production increase.
This is a transitory effect due to northern restrictions at both of them are data terminal during the rainy season and supply chain rebalance after strong sales in Q4.
We expect to offset this impact in the second half of the year keeping the annual sales plan unchanged.
The $435 million increase in cost and expenses, we will be detailed later in my presentation.
So back to iron ore price realization.
Iron ore fines realized price was 108 $6 per ton.
23% or 30 to $8 per ton lower when compared to Q1 2022.
Mainly due to the decline in benchmark price of $16 one dollar per ton.
Our average premium also contributed to lower price realization as our average sales quantity less impacted but temporary shipment restrictions at both of them are they report and the opportunistic sale of high silica products.
As comps for this products were low due.
Due to steelmakers negative margins.
The pricing mechanism had a negative impact of $2 $4 per ton on our final realized price.
This is largely explained by the negative effect from realized lack of prices at $96 per ton, which was partially offset by better sales prices in the quarter as compared to the provisional price accrued in Q4.
Moving to our cost performance in the next slide.
As you can see our Q1 cash cost X third party purchase increase it to $23 $6 per ton in the quarter.
This expanded by three main factors.
First one off events, which include profit sharing in Q1 and anticipation of maintenance activities taken advantage of the lower volumes in the first semester.
Second the volume mix and inventory effect, the lower production from our Nordic system, where we have the lowest <unk> together with higher third party purchases had a negative effect on volume mix and fixed cost dilution.
We expect this transitory effects to be normalized in the year to go.
The remaining tax related with the geological inflation in <unk> and higher fuel costs in our operations.
We remain confident in achieving our Q1 guidance for the year of <unk> $21 per ton may.
Mainly due to the production rate over in the northern system and the rollout of our productivity program with gains in asset reliability and procurement initiatives with suppliers.
Moving to operating cost in the next slide.
As you can see at the bottom of the table, our EBITDA breakeven cost reached $58 $2 per ton.
The size of the Q1 cash cost decrease which I. Just explained there were two other drivers first our distribution cost, which increased by $1 $5 per ton managing to a higher share of beneficiaries province in third party concentrators, improving returns and margins and second lower.
Market better premiums.
As we reduce our Q1 cost and improve the average quality of our portfolio with highest prediction for carriage us and more parent seed production in the horizon, we expect that our breakeven to improve in April .
Now turning to our energy transition metals business, starting with copper all in costs.
There was a year over year decrease in cost of goods sold per ton due to higher fixed cost items.
Largely attributed to the improved operational performance at <unk>.
This was offset by a decrease in our byproduct revenue due to higher proportion of copper concentrate from sourcing.
Also benchmark treatment and refining charges have increased this year.
All in all our EBITDA breakeven, excluding who which at $4464 per ton, which should gradually reduce throughout the year as we continue to ramp up production at Salobo III.
Now looking at Nick all in costs.
Cost of goods sold X third party purchases was impacted primarily by lower dilution of fixed cost and inflationary pressure, including higher fuel costs.
In addition volumes from third party fee increase year on year as we had anticipated.
Although this increases our cost it is aimed at maximizing the utilization and performance of our downstream operations.
Specialty as voices Bay open pit is depleted and.
And we progress on the ramp up of the underground mine.
Now moving to cash generation as you can see we delivered a 62% EBITDA to cash conversion in the quarter.
Compared to 19% in Q1 2022.
Free cash flow generation was positively impacted by working capital as we had a strong cash collection from Q4 sales as we had anticipated last quarter.
This effect was partially offset by transitory inventory buildup.
And seasonal disbursement related to profit sharing in the first quarter.
We also paid around $1 8 billion in dividends and repurchased almost $800 million shares in Q1.
And with our capital allocation strategy.
So let me talk more about our capital allocation strategy and more specifically about our buyback program.
We are close to reaching 50% completion of our third buyback program and we expect that you concluded in Q4 with.
We continue to see the repurchase of our shares is one of the best ways to create long term value for our shareholders.
After the completion of the third buyback program, we will have repurchased almost 20% of the company's outstanding shares.
This means that for our shareholders, which positions since the start of the program without spending any additional dollar their participation in future earnings would have increased by almost 25%.
So before opening up for questions I would like to reinforce the key takeaways from today's call.
As Eduardo mentioned, we are very encouraged with the leading indicators coming out of our key operational sites and this solid operational performance in Q1 only forces we are moving in the right direction.
We are also focused on delivering value accretive growth projects, such as a laboratory leveraging home values unique in them.
On Port finally design, we are happy with the progress to date.
<unk> strongly believes the current portfolio of assets and the recently announced organization will position us to successfully deliver on our key strategic objectives.
And finally, we remain highly committed to disciplined capital allocation as advances by our highly accretive buyback program now.
Now I would like to open the call for questions. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session. We advised that the question should be asked getting English you still have a question. Please press the star key followed by the one key on your Touchtone phone now if at any time, you would like to remove yourself.
The question in queue.
At the start Q. Please restrict your questions to two at a time.
Our first question comes from hurdle.
Jpmorgan Bank.
Okay.
Good morning, everyone.
Two questions are the following first.
On the operating side, we know that.
With lower volumes.
Right.
Costs will naturally trend higher.
But I've been more and more asked by investors about.
The trend that we've been seeing particularly on on iron ore.
Also on the nickel business where costs.
Deteriorate substantially.
So my question is what can be done.
To kind of reverse this trend.
If you could comment.
Alright.
Costs have been if we didn't have especially on the iron ore.
The restocking that we saw and how relevant are the new licenses over the two to lower this.
So any color on the cost trends.
It would be greatly appreciated.
And my second question.
It's more on the.
The industry and now wireless.
<unk> is positioning itself. So we started to see after years of extra.
Extreme for concern.
Shareholder returns are the industry is now moving back.
A little bit more into growth mode, especially through.
Some M&A.
Upon their highs.
Just completed.
Divestment program, we've been discussing.
So.
This strategic move on the base metal side.
The potential partial sale of our stake there to a strategic.
Shareholder as well.
And my question is.
Should we.
Back to violate also to join.
This new kind of trend in the industry.
Should we see the base metals also as an opportunity to speed up growth.
Really not only through.
Ganic, but also through M&A opportunities.
Those are my questions. Thank you very much.
Okay.
Thanks, a lot all four years.
I will let.
Styled will elaborate on the cost related to dilution in the Umbro for R&R in nickel okay.
I think youre spot on.
Values completely focus on its core has two core businesses first iron ore, we are always looking for some opportunities.
Some of the also some smart M&A that we can do.
Jason.
Of our of our operating assets.
In base metals.
The energy transition metals that we call now is this platform. We've never hide that is almost three years that we're talking about ring fencing, it creating the right drivers.
As you'll see today, our moves are substantially and effective we just brought the Jerome from standby to be an independent board now we have the the.
Outside in English the happiness to have mark of good friend, an old friend that work with us in the past to lead the board of this new company and this company is going to be a platform of growth.
We have organic growth, we have an endowment that nobody has in the world and the right addictions both Carter.
Canada, and Indonesia, we have to tackle as <unk> said as you'll know as well we are going to consolidate this.
And this is going to be consolidating so we are going to have the right entity to do that so yes. The answer is we are going to go to grow we are going to grow organically and we can go inorganically. When we have the right entity and Thats, what we are building and we are.
And truly on track on both the software as people the hardware. So that's the legal entity and even the participation that you mentioned that we are advancing as well.
No.
10% that most participation in the business I hope I have answered your question, but I think it's a very exciting moment for the energy transition metals world for sure whether we're going to do it with the extremely cautious and disciplined way as we always have been.
And we will start please could you elaborate on the question about costs.
Yes.
I think everybody is facing cost increase in the sector I think if you look at the last.
Three years pretty much everybody has increased materially theyre, all lanes right to from 50% to 100%, it's not only volume, but our competitors I mean, there is a higher fuel cost impacting everybody in the space Labor services, So I think that that.
That is that applies to everybody now I wouldn't read too much into our Q1.
Cost numbers and for a few things for a few reasons I think the major impact we faced.
It was regarding the pointed in my data restriction the shipping restrictions that we have if it wasn't for that impact to our C. One would be probably $2 lower right. So we should be normalizing. This Q1 in the second half of the year.
The major the major leading indicators that I think we have to look at its production and.
And we were able to put $4 million up quarter on quarter compared to last year and the shipment we do have flexibility in the system and to offset this in the second half. So I think our lean when we bring those volumes of specialty <unk>.
Our costs should be benefited the results.
<unk>, which as we've said before it will help us with pellet feed almost 9 million tons, which will then lead to lower.
That are all linked in terms of better premiums so.
We should be we are very confident that we should be normalizing. This figures in the second half of the year and Nicole there's a similar component there we.
We had more third party feed.
In the first quarter of this year than we had last year, but we should be also compensating the having more.
On production in the second half of the year and therefore, we continue to point to the 13 kilo tons as our previous guidance for for nickel cost.
The next question is from Leonardo Correa.
TG backdrop.
Hello, Good morning, everyone can you hear me okay.
Yes.
Okay perfect Yeah. So good morning, everyone.
I have a couple of questions.
Go for it.
Moving back to the.
Quick question on costs from Hugo I.
I suspect that this is going to be one of the big themes of.
This conference call.
It seems clear.
From what Youre, saying that there is a very big elements.
Yes.
Cost performance, which is nonrecurring and somewhat of a one off right.
If we if we think of the breakeven costs just refines into China.
The number moved up to $62 coming from about $52 in the fourth quarter. So this is a this is a $10 per ton sequential increase which I think obviously caught everyone by surprise.
Using your judgment and using all.
Obviously, the number that you guys have inside the company.
What percentage of this.
How much of this would you say is nonrecurring things is a super important just so we have the right base.
To forecast going forward.
This very critical and important.
So just wanted to get a sense on how you see this line how much of this $10 John .
Is nonrecurring you mentioned that the guidance with <unk>.
For the year.
It's still upheld by the 'twenty to 'twenty, one so I just just on the C. One can assume.
You guys have like a two to three.
Potential reduction in cost going forward when I look at the breakdown for premiums.
Clearly the result was very weak in the quarter on crude and so just wanted to hear you on how you see this line going forward and how much of that would.
<unk> performance is among.
The second question regarding production and more specifically at the Crown Jewel of volume, which has always been the case right now to Jos.
Jos.
US has also been slugging away.
For a while and.
Clearly there are several issues, which are <unk>.
Roger using out of control.
Licensing.
Like the cave law right.
So first of all I mean, how are you seeing these discussions has there been anything new right.
The solution to improve the situation and to allow volume too.
Operating more efficiently.
He's a sense on that and if you can if you can give us any color that you can on how you see production et cetera.
In 2024, thank you very much.
Okay.
We started going after the cost I'm going to go over the crash test production okay.
So now Youre right I think.
<unk> one is.
Around tissue $3, I've said $2 $2 ish in terms of transitory impact.
No.
Understand well I mean, the transitory impact and the quantity also impacts our Lee it impacts premium right at <unk> some of the beneficiary issue cost because we concentrated more presumably in China in this quarter versus last quarter. So there is probably a similar impact in Q1 apply for the other line is that we have in the <unk> call. It.
$6 I think a lot on the final all lean for the year, we will depend on how the fitness performed there were indeed, a little lower but a lot due to the mix. So if we resolve the mix if we bring towards online in the second half of the year through Brian Jess you should expect to see.
Yourselves, posting a better premium and therefore have any and all being substantially below what we had in the Q1.
So with that I'll pass it over.
Okay.
Hello.
This is a very black.
I think as you understand those.
I think it's easier to explain to you, but let's be very clear here that separate <unk>.
Jos Northern system with the <unk>.
<unk> all endogenous it's all in our hands, we need to take care of debts.
<unk> built to compensate the loss that we were going to have.
On the depletion of the northern range, So and we mentioned already we are improving there and that's where the growth is coming when you look at our guidance and our numbers for this year. There is no licensing up that <unk> on the northern range, we are planning with together to stabilize.
Around that I mean, it turns on.
So northern range and.
Sal asked you so.
We are advancing with the cave legislation with the licensing because as you might understand we had the last big license.
No on the range in 2014, if I'm not mistaken in the last small one those mobile good LNG in 19, and now we are pointing out to the body entry.
That we already had the installation of the product is already a provisional license for that but.
But the other spinelli needs to have the feed to make Xyrem solutions, we are working.
Very thorough fleet, but for the medium term not for <unk>, we did very well by the way we operate it to the program encourage us.
On the other range.
Where we hit the program by the way, but it's a program that is lower.
Amy as I mentioned to be done.
Tom's on Aldo on both systems. So there is not an operational problem there different promise all of India that I mentioned already but we're not sitting there and waiting and.
Not only the <unk> that we already got the license.
Plus standard is being commissioned so growth from the quarter.
From the.
Northern system is going to come from mass 11th for sure. That's what is being designed so we're going to move from 80, something this year, we're going to go up to 110 120, that's what we are investing by the way and I think a good noodle will maybe we didn't stress.
<unk>.
That we have licensed.
And so we are executing plus <unk>. There is no problem of licensing there. So we are up and running with that project, but you are right we need to get back to the production on the northern range and say how last year and it's been nearly as leading several initiatives that I think if you can share some with you because we're not sitting here waiting.
And letting our mind that can do for 140 <unk>.
At the Hunton.
<unk>.
Eduardo.
No just just a reminder, the main projects we already have the license so plus 10, plus 20 <unk>.
New Crushers and also in the Salton behalf, we have tap on Nemo. So these.
One site. So we've been evolving in this side and the northern range Us as Eduardo mentioned, we have we have a.
The combination of small licensing and big license that we need to meet their long term.
You may notice that you are not counting on north range.
Without the dollar volume so with flat production there.
We guarantee that we're going to deliver that so we have three and one and two and in sequence and you mentioned a small piece sometimes is related to a true super.
<unk> or like Cabot Tis that you mentioned, so we are working really close to.
The agencies I believe that we have.
We have people in the frontline I'm personally in the frontline to discuss this we see good news coming.
A very technical analysis.
We are bringing a new studies, we are bringing our investment.
In the field like ITV the Valley Technological Institute that we we are supporting a lot of business started so we see in this new crew that is leading this and the government that we have a very technical and growling perspective about this so we are confident.
We need to work hard in this in this trend, but we are protecting our plan in the next three years, we guarantee that is going to deliver that.
Next question is from Thiago looking vehicles, but it is.
Thank you good morning, gentlemen.
Two questions. So the first one sorry to insist on the cask upfront Gustavo.
But how confident are you guys on the on the on the guidance $2021 for the Q1 so.
Basically entail.
<unk> costs below $20 every quarter from here to the end of the year or significantly below $20 in the second half I just wanted to try to understand how realistic.
This is <unk>.
Just just additional color on that would be great.
Good question.
For spinel definitive.
Can you talk a bit about the reopening dynamics in China.
We're seeing steel margins scale depressed steel prices actually falling at the margin, but at the same time. There is some positive data out there still production decreasing.
What's your take on supply and demand dynamics for iron ore.
Let's see a couple of quarters.
And also what kind of a play as sentiment having.
On this whole price formation story here for iron ore. Thank you.
So tableau Gustavo here, let me take the first one so it's going to be gradual.
And most of the benefit we see in the second half of the year as we bring more volume and as we bring better product into the mix, especially the products from <unk>, which has substantially lower Q1, right. So youre going to see the benefits on it and then there was about half a dollar to a dollar.
Our efficiency initiatives that we've been pursuing strategic sourcing overhead efficiency.
Discussions that we've been having with some of our suppliers. So we've been laser focused since last year on cost efficiencies. So we are seeing benefits and we have that in our plan for the rest of the year. So you see you see a decrease a gradual decreases were feeling good about it.
And we believe the 'twenty to 'twenty, one is a reasonable number to be achieved assuming.
That would bring the volume, especially from <unk>.
All lines in the second half of the year.
Yes, sure Spinelli, you think the real question so.
We've been seeing the.
<unk> in China definitely we have strong numbers, you mentioned that so GDP.
ACI.
Their resilience Inc.
Infrastructure investment.
Properties, we have good news also so.
Bright said that we are just talking more in China right. So we are we see the sales increase and also the.
The accomplishment of construction also increase and you mentioned all the micro numbers less furnace going well.
We just came from China.
It's a common sense that production will be flat. This year. So so the production is there.
What is concerning today so.
The first thing.
Is it related to the property.
It is in the cycle. So firstly, we need to sell finished their construction. So our land sales and new starts are coming so thats, but you need to come yet.
That's the main volatility that we see in our even though our clients. They are in a wait and see mode.
Everybody is waiting therefore, only for the second half. So we are on track and we need to wait for that.
I think the price in steel it's another concern, but the good news is if you if you see the export that you had in China This quarter.
If that implies that we have.
Senior traded price next try and compare it to China. So there is a when that can help China to improve the price in steel market.
And as a combination of all of this we have that.
<unk>.
Really step it.
Margins do them, yes. So.
With all this we have this wait and see.
Uh huh.
Behavior.
We have all the inventories are really low so in all perspective short term, we can see a rebound.
Next holiday that is coming out.
They will need to replenish the supply chain.
And in the second half, we need to wait and see what's going to happen to the property I'm not saying that we see a growth in the profits but.
A smooth.
And flat demand.
But just to conclude shallow I want to drag your attention and everybody that the supply demand balance is really tight so.
That's what I think is a very important information to give to you.
The demand.
China is growing one 5% to 2% Theres a unfortunate demand.
And the supply side, you have a growth that is not debt.
That important growth.
Yep.
That is a balance in this in both our growth. So we can see an additional.
Five to 10 million tons in an event that has very little today 130 million tons in China, So I'm talking about iron ore.
So we see a balance in the market for for the Ireland for iron ore and that that can bring.
And upside risk for the price or at least a stability. The name of the game of these usually stability. We are all the time.
<unk> bought the debt, but production is theyre very stable the macro is coming in and we see the supply very very.
Organized very very.
Tied to the.
Would that be the supply balance again.
We are cautiously optimistic that would do to wait and see the property market in the second half.
The next question is from Kyle.
Debated Bank Bank of America.
Yes. Good morning, everyone. Thank you for the opportunity. So my first question is on the third party ore purchases and the iron ore Division right.
This quarter, you purchased almost a million tons more than in first quarter 'twenty. Two so I'm just wondering if you see room to increase third party purchases in 2023 for.
For the full year versus last year, and if you can provide any indication on the volume of those purchases for the year right and then my second question on your expanded net debt, where you continue to follow our target of $10 billion to $20 billion I just wanted to understand if you would be willing to temporarily surpass that upper.
Range of the target if you do encounter an attractive or smart and any opportunity as reported.
If this opportunity does not unfold and whether the focus will continue to be on cash returns via buybacks and dividends. Thank you.
Okay.
Thank you Kyle Thanks for your question. So third parties is a trend I don't I don't we don't see a huge growth I'm talking about two to 3 million tons.
Probably in this year.
He is an ecosystem that we have mainly English it is state in Brazil.
Some.
We see the smaller minors there are big companies that we've been developing for many years. So we see a good a good. Thank you just just you've figured right we.
We made of <unk>.
$20, a tonne and margins with this with this kind of business. So it is a.
We have capacity in our supply chain you have the market and if you can improve this product with some application a lot like a pallet feeds for pellets pelletizing plants or blending or even in the future.
The break up plans, we may taken advantage of that so that's something that once the strength.
And bring this partners more and more.
<unk> and with more quality Uh huh.
In a sustainable way, so we want to foster that but for this year when we expect some growth, but the smaller like numbers like.
3 million tonnes.
So on your second question on the balance sheet.
No we are not expecting and planning on going beyond that to any billions that we have in our targeted.
Leverage ratio I think what Eduardo was referring to is.
First on days Martin M&A those are adjacent opportunities with the limited capital that we continue to look, especially.
We're selling our high quality products. So we are seeing some opportunities, but they shouldn't be intense in terms of capital deployment and homebase matters. If we decided to do something it's certainly using the occurrence that we are about to create that's one of the reasons why we've been discussing the carve out of base metals. So we are not expecting to you.
Used batteries balance sheet for any move we continue to believe.
The share buyback, especially at the at the share prices that we're seeing today are one of the best if not the best investments that we have for our available cash.
Our next question comes from Liam Fitzpatrick Deutsche Bank.
Hi, everyone two questions from my side, both on the on the base metal strategy.
So I just wanted to confirm is the target is still to complete the stake sale by the mid year point and then in terms of next steps.
Sure Mark it's funny hasn't joined to be chairman of a subdivision within Vale. So does this appointment more or less confirm that you are eventually headed down.
Ti pure routes so any color on that would be appreciated. The second question I'm sure you know full well wobble asking around M&A, but.
When you say the correct entity and then Youll consider inorganic opportunities will you have that correct density once you complete the minority stake sale or are there further steps are needed before you before you get there. Thank you.
Yes.
Okay. Thanks Liam.
First of all I think.
As we mentioned.
I always said that actually went into one of them on one of our meetings I said eventually and I understood that eventually in English is we are going to go obviously, an IPO down the road is a liquidity event that you could.
Pursue but the fundamental.
Reason why we brought mark is to help us on the execution of this plan to this liquidity event you can have several forms of liquidity.
So I won't go over them, but and he is joining us as a chairman because he sees the opportunity to transform.
The best assets of transition metals in the world and he knows that very well and of course, he wants to unlock substantial value from it as we do.
So that's I think the answer to your point, but we always said that that is not the definitive option that we're going to IPO, we want to create is.
Optionality is.
Even if.
If you want if we settled alrighty about M&A for sure like like like I mentioned when you go back to the to your second question I think adds to this to this to this first one as well because the legal entity is being designed.
Relate of course, it does relate with the sale of the participation, but let's be very clear as well.
If we don't find the right partner that adds value to us and perceive the same values at the same value as we do we do on a go it anyway. This organization is being ring fenced as we speak.
Because of the legal and time.
Issues, we believe is going to be hit then running at.
The first of July .
And we believe at that moment and I think we'll stop it can help me with more detail and clarity, we're going to be able to see that we know we have a partner, but we are going to have a independent board led by Mark I'll be part of it is going to be run through our.
Is it utilization metals as active coal and <unk>.
In our run to create a huge amount of value and organically as I mentioned already.
And when he is ready you can go.
Again, it goes well with IPO is not necessarily.
One of the maybe is not the only option that we have in this optionality. So you can help me a little bit to start with the details.
I think I think you covered most of it the doors I think Lee on the in terms of timing, though.
Continue to work hard to do.
Do you have it finalized by by mid this year discussed with our board and then share with you the news.
But it's moving along very well I think there is a lot of interest as you as you are all following in the press there's a lot of interest for this type of platform.
And we think we have a very unique platform and our hands, which is what I just said.
We are working hard on many fronts, including by bringing Mark to take this to the next level. That's the goal I think the carve out to create a series of options for us.
We need to take this business to another level to grow the business and create value for our shareholders. So in terms of timeline, yes mid this year, we should have some news to share with.
With you all.
The next question is from Daniele Cecil.
DBA.
Hi, good morning, Thanks for the opportunity My first question.
It's not.
On supply demand balance.
Mind, you are very confident.
Sure.
For Q1.
Good morning.
Hum.
Awesome.
My question is on.
Jan.
One strategy.
E C.
Yeah.
And then.
Thank.
Thank you.
Yes.
Yeah.
Okay.
And then actually.
I mean.
Okay.
Okay.
Thank you.
We expect to prove.
Yeah.
Seasonally strong.
No.
Two.
In Q2.
Decline.
And Shannon.
Yes.
Sure.
We can imagine.
Yes.
Our European Q2 continue into July .
And the lines of communication.
Sure.
Yes.
Yeah.
Yeah.
Hum.
Yeah.
<unk> are a media plan.
New CBD Smedes.
Right.
Please.
Yes.
Sure.
Yeah.
That's true.
Thank you Mike.
Thank you Danielle good to hear.
Sure.
Demand balance so.
Second half.
I mentioned one number.
Importantly, plus export in China, the first quarter's 20 million tonnes. So.
Just keep this in mind because this is important while demand in China, but do you have a connection and ex China also so we don't have all the China too so supply will have.
The second half or are we.
We have the the tour to them.
We expect by the end of this June and that we have a production and we'll go to with less high silica. So it's not about improve the pellet feed and <unk>.
<unk> tightened, but there's just less.
That today is it's playing more premiums is the gap between the high grade ore and low grade ours is narrowed because of the margins in the industry. So we do not expect this fall for the whole year, but but we're going to increase the production of pellet. So this is one important.
<unk> is not in China is for me, the waste or Japan, and in Europe , and Brazil. So this is one one point of view of the other point is we went to increase the high grade ore and our premiums are today.
Premium bike product is is very good so a b or b F is with a premium even carriage as we're talking about 16.
It's perhaps a day it could be higher it depends on the today it depends on only in the.
And the margins of the industry, we don't have the problem of energy.
And this is a good thing so we're going to have the right product that is Scottish asked Dr. B F <unk>.
Increase of of of pallets. So we have the right product in the right moment.
For the year. Despite if you have any in there just of production in China to support. This go off flat production, we'll have other markets that are aiming for high grade ores like me.
<unk> always told you so thats our strategy for the year or keeping our sales plan.
With planning for the year.
So Danielle Gustavo here it was breaking up a little bit your question, but we understood. It was more on the external.
Brazilian institutional.
Uncertainties potential uncertainties, I think you've made a reference on taxation and so on look our view is.
What we've heard so far is.
Tax reform to pursue neutrality in terms of potential tax burden, which I think makes sense and that's what we are hopeful.
This is a very critical sector I mean, the mining sector is very critical for the country in terms of imply them in terms of taxes.
And when we compare ourselves with the Australians for example, we are already very highly taxed. So it's from our perspective very important to remain competitive.
Especially because we compete in the global stage. So we are feeling good about it.
And we are following very closely all of the discussions.
This concludes today's question and answer session. Mr. Eduardo Bartolomeo at this time you May proceed with your closing statements.
Okay. Thank you.
Thank you again for the interest and attention to the to our.
I think the former masters that will start want to point out I'm going to just very very wrap up them.
Sorry.
We are very confident on the production for this year on the guidance that we set up the worst seasonality factors mainly for iron ore over so I think the production was solid wasn't reflect on sales, but we will be in the second semester as we mentioned for both business than a transition metals into our solutions.
As you May as you noticed in the questions of valleys uniquely position even in this M&A frenzy that is starting to happen now we still have in our R&R business and ability to grow 40 million times, we can use third parties.
It's been added mentioned a huge amount of iron Arctic and go through our infrastructure that we are going to use is a new project for us we have as mentioned even with the.
The optionality that we're or designed here eventually for the new energy transition metals business to IPO in the future to M&A in the future. So we are creating a.
Tremendous opportunity to unlock value on both business through growth.
I'm very proud with my team to really really red focus value and we're very happy to sell to delay at least part of our reshaping that was M are in today.
<unk> dental yesterday, and so we're now really ready to focus on our two main and great business.
<unk> solutions in the energy transition and for the shareholders. I think you have to have no doubt that capital discipline and shareholder return is the main priority of course, creating benefits for everybody and so site. So with that I would like to end the call and thank a lot for your attention and interest and hoped.
See you in the next call that does conclude wireless conference call for today. Thank you very much for your participation you may now disconnect.