Q2 2023 Vale S.A Earnings Call
Okay.
Okay.
Good morning, ladies and gentlemen, welcome to <unk> conference call to discuss the point between second quarter results all participants.
Hopefully in a listen only mode at the end of the presentation, we will provide instructions on how to participate in the question and answer session.
Call is being translated simultaneously Portuguese if you should require assistance during the call. Please spread the starkey followed by zero and as a reminder, this conference is being recorded and the recording will be available on the company's website at <unk> Dot com.
Oh, yeah for investors.
The presentation that accompanies this call is being broadcast on the Ethernet and is also available in the investors area of the company's website.
Slide two second delay between the audio and slides change there.
To the audio transmitted via phone.
Before proceeding let me mention that forward looking statements may be provided in this presentation, including values expectations about future events or results in compressing those matters boosted in the respective presentation.
We caution that forward looking statements are not guarantees of future performance and involve risks and uncertainties to obtain formation on factors that may lead to results different for those forecast by Vale. Please consult the reports <unk> files with the U S Securities and.
Exchange Commission F E C.
The Brazilian commis soldier of although it is mobilia Artus C D M.
Particular, the factors discussed under forward looking statements and risk factors and the valleys annual report on form 20-F.
With us today are Mr. Eduardo decided about Google Mail, Chief Executive Officer, Mr. Gustavo female executive Vice President of Finance and Investor Relations Mrs. Daschle They do.
C E O Valley base metals, Mr Capitals, midday Ito's executive Vice President of operations.
Mr. Eduardo Bartolomeo will begin the presentation on <unk> second quarter performance and after that he will be available for questions and answers. It is now my pleasure to turn the call over to Mr. Eduardo back Colombia, Sir you may now begin.
Thank you very much good morning, everyone I hope you're all well.
That starts with a very significant milestone that we delivered in about last night.
We signed a strategic partnership.
<unk> World class diversified investors for the energy transition metal business.
This partnership at debuted at a very attractive valuation for our EGF thesis, which shows that our partners recognize the bed with G&A ratio potential.
All of our assets and how uniquely position they are.
This is an encouraging starting point for what we believe is a powerful platform for overall.
I will give you more details during the presentation.
Now, let me qualify our operating results.
We delivered a solid production performance for our business this quarter in our solutions, we are growing quarterly outgrew its year on year, while our poly cost decline yearly and quarterly.
We are sole commissioning towards the dam, which will increase availability of pellet feed for brokerage operations and improve the average quality of our portfolio.
In the attic ventilation mattos celebratory is ramping up ahead of schedule with a solid contribution to our core pro growth year to date illegal we are forbidden marching towards our annual guidance.
Moving onto their management, we reshaped the first deadline for implementing the global industry standards for tailings management. The G. I S. T L with a positive outlook all of our prioritized structures are in conformance with the standard with ongoing action plans to ensure that the best practice in place.
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This is part of our commitment to being a safer company for our employees communities and society.
Top up debts.
Our discipline in capital location remains pristine.
Now the distribution of $1 $74 billion in shareholder remuneration with payments in September six 2021.
Total amount distributed in dividends and interest on capital translate it into a 27% yield to our shareholders. This shows.
This solid track record in creating and sharing bed.
In addition, our third share buyback program is now 6% to 9% complete since launching our first share buyback program to anything well body has repurchased about 16% of share base, representing a concentration and shareholder future earnings of almost 20%.
With that we are walking the talk delivering an oracle made sense.
So let me go now over some details of our performance.
Next slide.
We reach at the end of the first half of 2023 with strong results and a positive outlook being well positioned to deliver the production guidance for 2023.
In our solutions.
Asset reliability initiatives have started to bear fruits this quarter and driving the solid performance across our three systems.
We set a new production record for our second quarter at AST 11 deal.
It's a beta in Washington to perform very well as well and our mix improved substantially.
As a nation goes to is finally commission, which should allow for more pellet production, improving our mix and average price premium.
In the energy transition metals copper production in the second quarter grew 41% year on year.
Mainly due to sexual ramp ups, our Lobo III and improved performance at the table.
Benefiting from the extended side you made this done last year.
Copper sales were exceptional for the period growing 43% year on year.
Finished vehicle production.
Grew 8% year on year Gabe.
Given continued solid performance from our Sudbury mice and improved production sourced from Indonesia.
With planned maintenance in the quarter Visors Bay, and long harbour operations headed lower outputs.
All supplement furnaces discord Lee operating it at over eight in preparation for the furnace rebuild later this year despite that our outlook for 2023 legal production remains solid.
Slides.
We are wrapping up Salobo three ahead of schedule with strong production rates, we had in increments of 10 kilos sold this quarter versus the first quarter. We put total output of 16 kilotons in the first half of 2023, meaning 9% of our.
Total copper output in the same period.
Once at peak capacity.
Expected at the end of 2024 sub over three will add 30 to 40000 kilos per year of copper to our total salobo complex output.
Next slide.
In 2020, we committed to implement DJ STM, the global industry standards for tailings management within the industry timeframe.
I'm glad to inform that we have implemented the standard for all of our bigger thighs structures with deal. The first deadline with ongoing action plans to ensure local forms.
This is an important milestone in the evolution of our bed management towards the state Pilbara glees neighboring communities and Society. In addition.
We're on track to boot performance for all all law, our tailing facilities not a state of closure by 2025.
Consistently reducing risks associated with our dance and implementing the best International practice embed management, while developing alternative solutions to reduce them yields.
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We will continue to deliver on our ESG commitments till death Valley becomes a leader in sustainable mining in a benchmark and safety net.
Next slide.
Finally talking about our E T M business.
As you all know we have been working over the last 18 months on a series of initiatives to position our E. T M visas for success.
We have some bullet.
Redesign our urbanization ring fence the business into a single vehicle.
And new lending in their structure and a dedicated golfers.
Corrected industry experts for the board.
Top talent like Jerome began in market funding.
Needs No introduction. In addition, we defied management incentive plans tailored to foster business development.
All of that.
We established a more fit for purpose organization that will allow us to unlock the GM business value over the next several years.
Today, I am very proud to announce the formation of a partnership with World Class Strategic Investor Street T M, which I'm confident will create substantial long term value.
All of our shareholders.
I am honored to partner with Monarda minerals investment company, a new venture between model and the.
The public investment fund.
That brings in nicks fears and help us in accessing a strategic geography for <unk>.
Including the iron ore business with our Mega hubs.
I am also honored to partner with ancient number one a reference and sustainability focused investments with solid ESG credentials.
The future ahead of us is very promising.
The need for a lower carbon economy is a generational challenge, but at the same time is an enormous opportunity is just simply will not be achieved without a significant increase in the supply of critical minerals.
We see E T M uniquely position to play a relevant role in this process.
Not only because we have a tremendous mineral endowment, but also because we are building the leading ESG future facing minerals platform in our space.
That pursues long term value creation to all stakeholders.
We all share the same vision for long term growth and value creation.
In the terms of our partnership is a validation of that.
I said, we would close a deal only at the right place with the right partners.
That is exactly what we achieved that today.
So now I pass the floor to the staab, who will detail the transaction and our financial results and I'll get back to you on our Q&A at yes, and thank you for your attention.
Thanks, Eduardo and good morning, everyone.
Is it the white explain it this partnership is another important milestone in building a lead the future facing commodities platform with.
With significant mineral endowment and resources inclusive of reserves amounting over 30 million tons for copper in 90 million tons for Nick.
We see potential for E T M to invest $25 million to $30 million in highly accretive projects over the next decade.
Growing its copper production from approximately 350 kilo dose per year to <unk>.
900 kilotons per year.
And it's Nico production printer wrong 175, kilotons per year to 300 kilotons per year.
With this exciting outlook I now turn to the transaction details in the next slide.
Given the strong interest to partner with the T M and the high caliber of potential partners.
We together with our board decided to accommodate a greater share of investors and increased the equity capitalization to 13%.
Salary and enterprise value of $26 billion.
The bride pre money equity value for valley was $25 $1 billion.
Total net proceeds are expected to reach $3 $4 billion out of which one day that will stay with BBN and the balance will be return to the parent company for future use expert our capital allocation framework.
Now moving to our financial performance in the second quarter.
To start with our EBITDA.
As you can see we delivered an EBITDA of $4 $1 billion $1 $4 billion below the same period in 2022.
This decrease is explained by $15 per ton lower iron ore fines realize at price and by the $3000 per tonne lower nickel realized prices. Following the decline in the reference prices six second quarter 2022.
The impact of costs and expenses on EBITDA was relatively small at $96 million, mainly from transitory effects in the nickel business related to the maintenance and higher third party Nick coffee purchases.
In our horn copper despite the year on year inflationary pressure.
Costs and expenses improved EBITDA by $218 million.
I will go into more details on costs later in my presentation.
Sales volumes and by product helped increase our EBITDA by $154 million as a result of initiatives to improve asset reliability and we expect to continue to see this positive results in the second half of 2023.
Now onto iron ore costs.
Our C. One cash cost X third party purchases came down slightly to $23 $5 per ton quarter on quarter.
Even considering a 70 cents per door negative effect from the Brazilian currency appreciation.
Given the significant appreciation of the Brazilian real and now considering an average exchange rate of four point 95 for the year.
Versus our previous assumption of five point Joannie Reais per dollar.
We have adjusted our C. One guidance for the year to 21.5 to $22 $5 per ton.
This means an expected C. One below $22 per ton in the second half of this year.
Driven by more northern system production and the mix and the continued rollout of our productivity program with gains in asset reliability and procurement initiatives.
With regards to all in costs, our EBITDA breakeven, reaching $53 per ton roughly flat year on year, and 5.2 dollars per ton lower quarter on quarter.
This can be attributed to the improve it product portfolio mix with more northern system War and lower high Selic product sales in addition to greater volumes.
We also adjusted our iron ore all in cost guidance to 52 to $54 per ton for the year.
This change is essentially the result of external factors such as the lower all in premiums due to market conditions and the adjustments in Q1 due to the Brazilian real appreciation.
Just to give a sensitivity a 10 cent appreciation of the Brazilian rail converts into a 30 cent per ton increase you can see one cash costs extort party purchases and a 50 cent per ton increase in all in costs in 2023.
In corporate we continue to see gains from higher production at both soluble and sourcing.
Which supports the dilution of fixed costs at our operations Hyatt.
Higher gold prices and the one off effect on tax credits contributed to reducing our total cost in the quarter.
As a result, our all in cost was just over $3000 per tonne approximately $8800 per ton lower than in the first quarter.
Which is in line with our expectations with the continued ramp up of soluble <unk>.
At our Nikko operations, our Cogs ex third party feed increased about 5000 year on year due to lower availability of our own feed which we were already expecting with the ongoing transition advisors Bay mine and they're relatively longer planet maintaining spirit at long harbour.
Also in connection with Advisors Bay transition and long Harbor maintenance. This quarter, we have recognized a one off decrees in the recoverable value of inventories, which were produced at higher costs. As a result, our holiday cost increased year on year, but stayed essentially flat quarter on quarter.
At just over 17000 per ton.
The all in cost guidance for ne copied to any Chinese III has been adjusted to 15500 to 16000 per ton, mostly reflecting lower than expected byproduct prices and volumes, which are expected to continue throughout the second half of 2023 for.
For the second half, we expect all in cost to decline as production increases and no other one off event materialized.
Now moving to cash generation as you can see Q2 free cash flow was negatively impacted by working capital as we had 7 million tons higher accruals sales volumes in iron ore.
In addition to higher <unk> related commitments.
Also in the second quarter body raised one $5 billion from foundations, whose proceeds were mostly use it to repurchase $500 million of higher cost debt and to repurchase $1 $4 billion of shares as part of our buyback program.
Looking specifically at our capital location strategy yesterday, our board of directors approved a distribution of $1 $7 billion in interest on capital to be paid in September based on financial results from the first half of the year.
Six 2021 valid generated 27% of dividend yield.
Additionally, we continue to see the repurchase of our shares as one of the best ways to create long term value for our shareholders.
Since the beginning of our share buyback program, while it has repurchased 16% of our share base representing.
Representing a concentration a shareholder future earnings of almost 20%.
So before we move on to the Q&A session I would like to me for US the key messages from today's call.
We continue to make substantial progress in our operational performance and are extremely confident in delivering our production targets for the year.
At our energy transition metals business, we are thrilled with today's announcement and believe the actions we have taken over the last 18 months will position the business to be a winner in the global energy transition.
At the same time, we have been taken immediate and consistent actions to improve them safety being now at different that the G. I S. T M for all critical structures and finally, we remain highly committed to a disciplined capital allocation process.
If death by todays dividend announcement, and the continuous execution of our highly accretive buyback program.
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. If you have a question. Please press the star key followed by the one Keith touched on phone now.
In time, you would like to remove yourself from the question in Q Press Star two.
Please ask your question in English and limit your questions to two at a time.
Our first question comes from Danielle <unk> song.
With that we'll BBA.
Hi, guys. Good morning, Thanks for the presentation.
My first question is on the cost front.
If you could give us more details.
The cost difference between yard AGA powder system that would be helpful and help us understand the evolution of your costs going forward.
Oh, Bob a participation of the silicone <unk> total sales are.
In the second half and if you could remind us of your exposure what percentage offshore you want is actually denominated in reais that would be great and my second.
Question, Congrats on the transaction for the debates battles adhesion.
If you could give us more color on your expectations on a potential contributions from me then.
Yeah.
Uh huh.
And pis from a strategic standpoint to the development and stabilization of operations.
These battles adhesion that would be great strides frankly center staff.
And how many interesting valuation that you were able to read what you're.
What are your partners could bring to the table and it can help us with.
Those with an auction value in those operations. Thanks a lot.
Sure.
W. First in the cost and we are going to see a little bit more of the partnership with later.
Thanks, Eduardo Thanks, Daniele for your question.
So in the northern system C. One is on the meetings.
All you can do the math you see there is certainly a contribution as we bring more volume from the north.
Two to our overall mix, we saw we've seen some improvement in Q2, a new concern that youre seeing the second half of the year.
Regarding your FX question I think the best States are looking to that is to look to.
Just as a sensitivity that I've talked about in my prep remark. So every 10 cents of BRL appreciation is about there is sense.
Of increase in our <unk> I think that's the best way to look into the overall exposure that we have and fifth to sense that they only.
So I'll pass the third question to Eduardo.
Thanks, Christophe I think Danielle thanks for the question.
The when we discuss the.
The unlocking value for base metals, we always said as a conjunction of factors right. It wasn't the only the participation the participation would come as I mentioned at the right value with the right partner one that would see.
The opportunity down the road and our ability.
Of ourselves to execute it.
We are obviously as he has been stable mentioned there were several interested in and then Manado Madden together with beef and then the and then engine number one as well they came up exactly on those on this too.
Fundamental elements that we believe we will up value first of all they validate the thesis.
They are long term investors, they're not here for the spring they are coming here for the long term.
They bring sector experience.
And modern has partnerships with all other several minor so they will help us as well.
M P F <unk> as I've mentioned already the long term value.
Investor Ann.
Number one bringing seg credentials is key as we are in a business of energy transition. So I believe the validation of the strength in the golf furnace that will happen with them there.
Their health and the sector and then there's a collateral that of course is a benefits from US is that we have the interest is in our in the middle East as well with the Mega hubs as you'll know so there were several elements that added to bring the right partner people that share the same view share the same values have they.
Gas G credentials. So I think they will be very helpful. On the on strengthening the golf announced because as we've been saying repeatedly it's all about execution and growth and we market funny, leading the board.
Threatening talents like him like Jerome.
Having a fit for purpose organization, having partners. This will add up to a convergence of interests and how can I say debt objectives that will unlock.
At tremendous values, because we are going to execute faster and grow faster.
Thanks for your question Danielle.
And we are very excited by the way I think we are beginning of new phase and value that will unlock tremendous value for all shareholders and fundamentally for the base metals business.
Our next question comes with Leonardo call, Hey, Banco BTG Pactual.
Good morning, everyone. Thank you.
So my first question for US is on base metals.
You mentioned during the.
The presentation of the initial presentation that.
$3 4 billion was the total.
Right the injection.
And the transaction, but you mentioned that $1 billion would stay at DBM and $2 4 billion would be returning to volume right.
I guess there were some doubts on how much would stay at the.
At the energy transition units. So I think you clarified that I just wanted to confirm.
And this $2 4 billion of dollars thats flowing back into Raleigh.
Where would you see that being.
Allocated I mean I can imagine the key question would be if if that will be.
Return to shareholders in a form of a special dividend.
We will continue aggressive buyback so the.
Question is is what we'll do with the $2 4 billion.
Returning to the company.
Or that staying at valliant.
Being allocated to begin.
The second question.
Yeah.
Still on cash returns.
And still on.
Forgive Istanbul.
I mean from from your approach I'm, just analyzing with Vale has been you announced you're basically paying the minimum dividend based on the formula right.
And youre allocating all of them.
Excellent right towards the very aggressive buyback, which has been on.
Which has been on a.
Pretty much wireless cards over the past quarter.
Allocating something wrong 1.1 dollars for $1 $5 billion per quarter of buybacks.
Even with the changes in interest on equity, which in Brazil will probably be extinguished.
I think thats the same tone going forward, we should expect minimum dividend.
Paid in all of the balance on the buyback is not filled.
So the way to go so those are the two questions. Thank you very much.
Thanks for your question. So on the first one yeah, we wanted to provide more clarity in terms of.
Where the money will stay so.
Based on what the B M is able to generate.
On an ongoing basis plus their on balance sheet.
We've we came to the conclusion that 1 billion was sufficient to fund the business for the next three to four years based on the plan that they have so the rest is indeed moving back to the parent it'll come in to our overall pool of cash and we will then allocate based on our capital allocation framework that we all know very well so.
That links to the second conversation I'm very happy with the the way we've been allocating capital over the last couple of years I think we are.
Creating significant value for our shareholders.
Either through a very health dividend payment or the share buyback at a very attractive level. This is certainly a conversation that we have constant.
Constantly with our board and.
We will bring more clarity.
In terms of how we we kept going on this one but you should continue to expect us to be very disciplined.
And very focused on creating long term value for our shareholders.
Our next question comes with Sunday's Circuit AGA <unk>.
Please.
Thank you and congrats on that transaction.
A couple of questions one of them is regarding the <unk> agreement.
Agreement with the pioneer is it.
Is there any optionality for off take for the binaries as part of the agreement and will they have a need b C and D meeting I mean any rights to receive dividends from Bali in the FHA and the second question is really.
<unk> Q.
Yeah.
Dan.
The second question.
It's related to I would like you to review basically your corporate covering nine spread <unk>.
And to be able to avoid any tooling change in leadership at the company. Thank you.
Alright, so Gustavo here the first on the first one.
Yeah. So on the there is there is no special defended anything like that on the agreement to think the agreement is very proportional to the final stake of each one of the partners.
There is some commercial discussions that we've had an agreement that we've had with.
Our partners and it's all based on market conditions.
And.
And that's pretty much it so it's very attractive from a governance standpoint for us if anything it just opens up new markets for filing right, including the opportunity for us to deploy our products in the middle Eastern.
Our next call.
No no no no no question with the Minister would have to answer. The second question is still on the corporate governance I think.
Very very important question from Vanessa is that we've been Coenocyte thing 2017 of them, let's take them when we add that Novo Mercado, we've been improving the golf are now so I think values go off on US is fit for purpose for for a world class organization like ours. So I believe that we.
We are in good shape, we have independence, we have representation, we have lead independent director soy I think the corporate governance issues.
It is the rights is right sized to avoid any problems that we would eventually have.
Okay.
Our next question is.
Is from Carlos de Alba Morgan Stanley .
Yes, hi, good morning, Thank you very much.
And congratulations on finally executing the transaction.
I wanted to maybe step back and think about.
How do you see the path forward now for BBN and given given whether you accomplish I guess, what presumably is the first step or the first two steps in that.
Yes.
And what you want to do with this company in the future.
Do you want now to concentrate on improving operations and then potentially do an IPO or see what opportunities are there to buy or merge with another entity.
For the increase the already attractive pipeline upgrades that you have.
If you could comment and provide any color that would be really useful.
Another question, but maybe I can ask it after the first one.
Okay. Carlos Thanks, a question is extremely important because as I mentioned before it's a it's a path right.
It's first of all is execute.
That's why the partners are relevant on that says because they are not.
Uh huh.
How can I say that short term.
Investors are short term viewers on the on this on this matter.
Net.
Interesting that fit for purpose organization that we mentioned that is being that is the design already is ring fast as I mentioned is the first step.
The acquisition of talent like Jerome and Mark will go under the first hurdle that is execute on our existing assets of course, we still have gaps to fulfill those two projects that are ramping up so we believe that the first and most important challenge.
That we have to keep on doing as we are being as we've been doing the defense I believe with this new design or Disney or arrangement is the speed. The second one is growth.
With a more dedicated organization, we believe that the project's sanction the drives are.
It will help us on accelerate that growth.
When those two things.
<unk> and we will take a while is not something you needed to take two or three years and although we will see what what kind of.
Of demands we will have what kind of opportunities we will have a relationship with starboard wants to complement but fundamentally the Airbus is a path to execution path to growth and eventually opportunity set of what they were.
Rise later right.
Theres capital allocation opportunities as well.
Yeah, and I think it.
You covered well with regard I think the key message for US here is also Optionality I think there's.
This transaction creates options that otherwise valeant wouldn't have ramped to fund the opportunities that will come along so we are very excited because I think we are through a series of actions over the last 18 months I think we are setting this business where success Canadian options.
That otherwise we would not have in a more focused organization, which over time I think we all believe strongly that will create significant value for our shareholders.
Thank you and our own style and Gustavo maybe.
The second question I have you could address is the following so valley has a dividend policy that is based on EBITDA generation minus sustaining capex, but.
Assuming that iron ore prices were to come into some pressure.
The EBITDA will come down sustaining Capex, you may have some space to bring it down but presumably basis a minimum level that you wanted to do so so that you maintained the integrity of your operations and assets.
Today's a little bit of little room to maneuver.
<unk> EBITDA comes down.
But.
Not as much as your free cash flow generation impacted by the repayments of the <unk> an accident.
The characterization so meaning it is conceivable that your free cash flow could be lower than you were.
Dividend yield as suggested by your you would give you that dividend policy. So how do you see this.
Situation why would the company do in such a scenario clearly the balance sheet is strong and you could sustain a dividend yield high end and free cash flow yield but.
Potentially you know for too long so yes, I just wanted to explore how do you see this and if there is a possibility potentially to change the dividend policy.
I'm mistaken there.
Sure.
The payments on the expenses on the demand in Europe .
Adjusted out on EBITDA, and some calculations and not adjusted out for the dividend policy purposes.
Yes.
That's a good question Carlos so look at those.
First thing is those expenses or disbursements are temporary right. So over a period of time that there'll be heavier and then there will over time reduce which will free up cash down the road in the very immediate term under the scenario frame I think we'll have the ability to even use our balance sheet than we've been doing this.
This as you have noticed we have a very strong balance sheet.
Amortizations that amortization.
Very.
Is moved over the years, you've seen us doing a lot of liability management in the last two or three years.
Pushing out amortization, which should give us a lot of.
Breathing room for us to accommodate and pension issue to deliver on our dividend policy. So we are we are there is this is very critical for us in real question that should be very discipline.
In terms of delivering on the policy that we have.
Our next question is from Thiago <unk> Bradesco BBA.
Hi, good morning, everyone.
First question congratulations on the on the base metals deal.
And if I may go back to the kind of question.
Which one.
And the lines of what makes that Saar and I'll be more specific and my question here, which would.
Would you consider.
That being.
A potential sale to a larger strategic shareholder.
Now that you have you know the valuation.
Would you pursue larger stats in terms of bringing N.
Larger partners.
Two voluntary validate models or.
Is an IPO, a higher probability scenario or youre not thinking about any of those two scenarios and just thinking about the operating turnaround.
And then my second question David is if I may.
My data is could you please talk a little bit about the main initiatives, we're focusing on at the operating side.
What the main upsides are we understand the licensing bottleneck and resuming production.
Production story, but from your perspective are there any other.
Major levers.
That you are working on two things.
Production efficiency and operating efficiency.
Okay Thiago thanks for the congrats and thanks for the very specific question yes.
There is no.
The best now is execution.
What we have for the focus now as we arrange to every every piece of the puzzle that we have a partner we have a structure. We have the people we have mark we have Jerome who have nationally we have we have our the structure execution.
That's the primary focus but as Gustavo has mentioned that the amount of investment that this business will require down the road. The optionality is in our hands is an IPO.
<unk> could be is a merger could be but it's not in our minds now our minds on totally focused on the execution. Okay. I hope I hope I hope I haven't been more clear now is this is something for down the road two to three years to think about for now.
Now that we did the deal let's focus on accelerating the field if how can I say, that's the filling the gaps or closing the gaps on the on the execution and accelerating growth as I mentioned before and then two or three years down the road what up I don't know, we might and then as well.
<unk> mentioned, the Optionality will be all in our hands.
Haven't think about that yet okay.
Okay, I hope I hope I have been a specific and asset you decide and how best to meet their two two to answer your second question.
Tiago.
So for me the main points have been working.
And.
And the operational side is basically offset reliability.
In all systems. So that's the point, where we believe that there is that most that is most room for improvement.
And <unk>.
Clearly we saw some results.
The last quarter.
Besides besides the.
The reliability graph spin.
Specific points.
From system to system.
And.
And also the geography of where we are.
I believe that is the biggest opportunity.
For upsides is a seller of LNG.
Yeah.
In terms of.
Reliability.
Yes. This is this is the main point.
Our next question is from Amos Fletcher with Barclays.
Yes, good morning, gentlemen, and thanks for the opportunity.
I wanted to ask a question about.
The separation of GBM will it be run effectively with a separate balance sheet and will that influence wallet's net debt targets and cash returns policy.
So for example, if.
Ppm, its free cash flow negative for example are you going to carve that out through consolidated adjusted net debt. When you think about shareholder returns.
Thanks.
Animals Gustavo here no given the larger share of participation it'll be all consolidated still.
But certainly there will there will be able to fund themselves with their own either generated cash.
To raise capital and that potentially that that it's for now we are expecting to be recourse, but over time as the business matures. We may we may may be able to change it but at this point given that.
The size of the participation for valley, it'll continue to be consolidated and treated as such so no change in the policies at this point.
Our next question is from huddle for Julie.
Bank with J P. Morgan.
Hey, Hi, good morning.
First question I just wanted to confirm.
The cash that stays at three P M of 1 billion.
You mentioned this is what Youll see is.
Where the company will need for the next three to four years did I get this right. The stuff can you just confirm please.
Yes, I'll go for because the company I mean, the way we are setting the company up as there is no death. They want right. So very conservative balance sheet, we are adding $1 billion of cash plus they do generate.
Good cash flow so that combination we will allow them to find what they have planned for the next three to four years. So certainly a SaaS may new opportunities to invest may may come up but at this point based on the plan. That's what we have for the rest of 2.4 youll come up to the parent.
The next question is from her file about silos Banco Santander.
Good morning, Thanks for taking my question. My first question about the base metals I mean, firstly congratulations for you you mentioned that the developed base metals Division is expected to invest around $25 to $30 billion in the next decade in strategic projects right. So so could you. Please give us more color on how would you.
We do.
Would you believe that the funding of these investment plan would be I mean overall, how are you thinking about the capital allocation strategy for the division. If there is any risk that you could change the dividend policy to have the dividend policy and more related to the iron ore Division just understand how are you thinking about that and the second question I mean about the iron ore bodies.
So violent finally received the license.
To operate the tour to them, which of course are we improve its ability to produce more pellet feed.
So my question is just to understand what can we expect in terms of ramp up I mean, I mean are.
We will already see these effects in.
In the third Q or more to the <unk> in order to in that I mean, I remember that the broker to complex.
Used to produce like 30 million tons before the room of genotype two and its now at a run rate of 28 million tons. So just to understand a whether or not the broker to complex could return to a run rate of 30 million tons.
In the short term okay. Thank you.
Thanks, Rafael Gustavo here so.
On base metals, there'll be a ramp up for us to get to the $25 billion to $30 billion of investment. The next decade right. So I think the deal that we are doing now allows us as I mentioned couple of timeshare to.
Great options for Us to fund.
Those growth could be internally generated cash their own balance sheet, but could be others right valley could put Jeanette you find it's proportional.
We could also access capital markets, either public or private as adjusted so I think we are opening up.
Different alternatives and we will assess and it's due time Ryan three to four years from now if we need to make a large investment we will assess where the market is and what is best for our shareholders. So that's the first one.
On top of it is already in operations. So in terms of benefit is about $50 million.
Not in terms of volume, but quality.
So it's already there.
In terms of bringing up to 29 that the number that you've quoted it'll take some time a couple of years is still because there is some work that we need to do in terms of waste disposal, which will require some licenses. So the first stage was really really cheap.
To improve the quality of the 21 20 million tons that we currently produce so you'll start to see these already in the P&L the ability to ramp up is still require some licensee, especially for waste disposal.
Which we are working on.
The next question is from a huddle for actually bank with J P. Morgan.
Yeah. Thanks for getting back to me I had a second question for management.
So.
The question is really about.
V B M again, the ambition is really.
You know enormous ranked or talking about tripling copper doubling Nicole.
So the question is really do you have that mapped out is this a.
Going to be done at the current assets or is that at this point.
Our target our goal for the company.
And you're going to be evaluating.
Greenfields M&A as.
And kind of this ties back to my first question because I felt like 1 billion was a bit shy given.
The ambition. So just wanted to hear your thoughts on that and thanks again for joining.
Echoing.
Thanks for the apologist for cutting you off earlier.
So yes. The 1 billion. This is mostly due to the the ramp up profile. So it takes time for us to.
Materialize some of those opportunities look I think one of the unique competitiveness of our ATM business in.
And our perspective that is what attracted this partners and many others that we're interested in.
And be part of this is the fact that E T M or value based models is sitting in a tremendous amount of resources right in three of the most relevant.
Mineral jurisdictions in the world, So Brazil with carriage as.
You have.
Canada, and then you have Indonesia right. So we have a tremendous endowment. So I think the key message that we want to convey here is there's there is two elements of value unlock there is one which is continued stabilization of the operations that we have which markets working with dish.
And being very focused on that and then Theres a second stage, which is how we anticipate the development that will have that environment right. How do we bring more projects faster tomorrow, we see tremendous opportunity to unlock value good level returns me too.
High double digit returns and that's what we're going to go after so we don't need to do any M&A large M&A, a large transaction to get to that.
Should that future I think we can do with their own resources that we currently have.
Our next question is from Tyler Broda Art BC.
Great. Thanks, very much gentlemen, congratulations on the transaction my.
My question is on the on the.
Nickel assets in Canada, I guess in general both voices ban in Sudbury are kind of underperformed this year.
No from the site visit last year that this is going to be a multiyear process, but I guess.
How do you sort of assess what's what's gone wrong. This year and then secondly, with that I guess, how does mark Hood of Fannies presence started to affect that like what's what's mark.
Doing in particular.
His role thanks very much.
Okay, Okay, Tyler I'll, let Tom Daschle.
Go over the first point about advisers, Beth and I don't agree that theres not going on.
As planned I think it is like plan, that's why exactly mean, we'd have this gap between.
The seed for long harbour, but anyhow, but mark with funny is a is a person that had worked with us.
Workday for him well when he wasn't stealing the umpqua at that time and then when we acquired Wally I think Mark brings a total alignment in the way, we see how to fix a problem, but he has done it and the track record. So he already is.
If it does we are doing on acid reveal with top specialists.
To see exactly how we can accelerate things that are already undergoing and other elements that are these going to chair the board of course.
Ill be there together with demand.
So this kind of focus where U S S. As I've been saying help us to to accelerate so mark as a.
The right assets the right Guy at the right time in the right place with the right partners exactly like all other partners that I've mentioned before Nii's fashion to go up over advisors Bay, because we are very excited with how we can actually go down on the ground and extract value that <unk> has.
Thank you for that Eduardo and thank you pilot. So as you mentioned the invoke today that we had.
Sadly the challenge has been on development and very happy to say that the development that the team is achieving this year is more than double what we have achieved Lafayette and the tons are coming to plan, but as you've guided at Vale go. The challenge we have in February from the one off maintenance activities that we have including <unk>.
The critical coach one off so that's why you're seeing a slight decrease.
Exactly as Eduardo thank the Panzer actually coming to plan and we're very satisfied with the performance.
Performance, but as he also guided invaluable regarding voices be voicing.
<unk> and in fact, the entire Vietnam entity will be in Jon Russell for another 18 months or so and the reason for that is we are busy ramping down the open pits.
In a near completion, right now and ramping up underground lines, but sticking very disciplined to our Pnp schedule. We then took long harbour down for two months.
PMT this past quarter, so both transitions in terms of the tons as well as the PMD came together to give us what looks like a horrible quarter, but I can assure you it is through plant.
And just echoing what Eduardo said about Mark Mark and I've already started working together, we are putting together something that looks like a pathway to value plan and in and in addition to what Mark Green for medical expertise point of view in terms of helping the management team and myself, we do have the likes of.
Off Tony a war and some of the other industry experts, helping us with an asset review and we will then use to look at how we can unlock the full potential outside of the current initiatives to fix and get back to the run rates that removed. Thank you.
Our next question is from Alex hacking with Citi.
Yes. Good morning, Thanks for the call. So two questions. Firstly could you maybe give us an update on the outlook for mining taxes in Brazil, and then secondly could you maybe discuss the role.
Engine number one will play in base metals. The fund does have some history of being quite active and its investments. Thank you.
Thanks, Alex So on my tax I think we are minus X I think we are following closely are the discussions.
In Brazil lately, it's also important to remind always important to remind that our sector is highly taxed already compare to two others. When you take the food.
Taxation in consideration so we are feeling good about.
Where we are heading towards of course, everybody like everybody monitoring closely potential impact, but so far so good.
And we will continue to monitor that closely in terms of engine one with we've met that target too.
<unk>, James and team over the last several months about this opportunity.
And we are highly.
Aligned in terms of the VAT Lucy long term and I'm sure. He he and his team are very excited to join value based models and we are thrilled to have them join us I think he will be a very important strategic voice to help us drive value in the long term. So we are excited very aligned long term and.
Looking forward to working with them.
This concludes today's question and answer session. Mr. Eduardo Bartolomeo at this time you May proceed with your closing statements.
Okay. Thank you.
I'm just gonna vehicle.
Establish points in Indiana, They think we.
We are very confident that the <unk>.
Middle of the year that we are.
Stronger operational performance in all of our assets.
E T M S. As we were able to discuss today is a tremendous opportunity ahead.
<unk> always done now, it's a matter of execution and growth.
Very happy to be able to conform with jazz jam a value.
Is going to be a reference in them that management, we started earlier and of course, we we have the obligation with society to be a reference on that in the jazz T. M is very welcome a standard tool to protect ourselves and society and lastly is as.
As was discussed during the call as well.
There is no doubt about our capital discipline.
Anything that we do here is on the way to create value for our shareholders and of course for all stakeholders Society our employees.
And the ones that we think by the way that had the hard time to create this transaction that to everybody received how much value. There is in the assets that value arms and real extra.
Extract as I always say, we are in a marathon and we are in a kilometer 25, now and we're going to get there and the ones that come together with us shortly you're going to benefit from that and thanks, All Ontario attention and see you in our next call.
Valley's conference call for today is now concluded. Thank you very much for your participation you may now disconnect.
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