Q3 2023 Vale SA Earnings Call
Good morning, ladies and gentlemen, welcome to Valley's conference call to discuss third quarter results of 2023.
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Before proceeding let me mention that forward looking statements may be provided in this presentation, including volleys expectations about future events or results.
<unk> seen those matters listed in the respective presentation. We caution you that forward looking statements are not guarantees of future performance and involve risks and uncertainties to obtain information on factors that may lead to results different from those forecast.
By foggy.
Please consult the reports <unk> files with the U S Securities and Exchange Commission SEC W Zealand, let me so although it is more the liard, you'll see them.
And in particular, the factors discussed under forward looking statements and risk factors in the valleys annual report on form 20-F.
With us today are Mr. Eduardo This fall is Banco Lemieux, Chief Executive Officer Mrs.
Mr. Gustavo <unk> Mehta, Executive Vice President of Finance and Investor Relations.
Mr. Marcello Spinelli executive Vice President Iron ore solutions.
Mrs Duston, and I do see all holidays meadows.
Mr Capitals midday does exist to vice president of operations.
Mr. Eduardo Bartolomeo will begin his presentation.
<unk> third 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 Bartolomeo, Sir you may now begin.
Thank you.
Good morning, everyone and I hope, you're all doing well.
We continue to make significant progress on our strategic priorities, we delivered a solid production performance this quarter and throughout 2023.
In IRR solutions.
We delivered substantial output with increased average quality.
Also lowering our production to sales gap as expected.
In energy transition metals, Salobo III has successfully humping up.
Contributing to our copper growth year to date with total production, 10% higher in the quarter and supporting lower unit costs in nickel.
We remain on track to deliver our production guidance, while reviewing our assets to unlock value potential from <unk>.
Back to the capitalization, we are accelerating breakthrough iron ore our solutions, we are commissioning our first brief credit Bryant and collateral.
Combined these strategic agreements to assess the development of the Mega hubs.
Advancing in mining.
Mining initiatives, we created a data to develop our sustainable sand operations, and we signed an agreement with bluestone to foster waste to value transformation solutions and base metals.
On them safety, we continue to deliver on our new framework.
It's a safer volume we completed the characterization of the.
<unk> upstream them and reduced the emissions to a level of between four dam to the lowest.
On top of that we remain with our disciplined capital allocation approach. We just approved a 2 billion dollar shareholder revenue durations payments for December with debt.
Total dividends and interpreting capital distributed since 2021 represents a 29% yield for our shareholders.
We also launched our fourth share buyback program.
Plenty to anyone valet has repurchased over 16% of strip base Wilson trading shareholders future earnings by about 20%.
As you can see we are there.
Leveraging on our commitments and reaping good results from our structural changes.
Let me go into more detail about our platforms next slide please.
We had strong results this quarter and we're starting Q4 at a robust pace well positioned to deliver on our guidance in iron ore solutions. We continue to operate as 11 after your high rate, while increasing pellet feed production from <unk>, thanks to the door to them.
Commissioning, we delivered 5 million tonnes above the nine months output in 2022.
We also improved our portfolio average quality and boosted pellet production by 11%. This quarter, we faced one notch engineering issues at <unk> and the effects of a power outage across Brazil, and despite those issues. We are on our way to deliver a solid Q4 output.
Iron ore fines and pellet sales increased by 6% this quarter, reducing our accumulated production to sales get usually in the third quarter, we have a high production to sales gap, but this quarter was short in that gap by around 50% compared to last year in Q4.
We expect to reduce this gap even further.
In energy transition metals Corp.
Copper production grew 10% in the quarter and 22% on a nine month these days.
There is an increase of 41 kilo tons compared to last year.
Thanks to the successful ramp up of Salobo, III, which is now operating at 80% of its capacity in September there's a lobo complex reached it.
Highest for monthly production levels since 2019.
Copper sales were exceptional for the period growing about 5% quarter on quarter and 22% on a nine months basis, even though we have been delivering a substantial output who have decided to lower our production guidance by around 15 kilowatt <unk> given.
<unk> so the market plan pick mining methods and additional maintenance in April we are performing as planned which includes the continued transition of the voices Big mines, two underground and the rebuild of the Ona Puma furnace number. One later this year our outlook for 2020 through.
Nickel production remains unchanged.
Next slide please.
We are accelerating breakthrough iron ore solutions to deliver the high quality required by a decarbonize in world.
The first brief carrying plant is under commissioning with the ramp up expected by the end of this year, we expect to.
To commission the second plant in early 2024 with the ramp up at the beginning of the second quarter.
The combined capacity will be 6 million tons per year, 2024 will be our first year with industrial level production and obs EMEA operational fine tuning for the long term reliability.
On the Mega hubs development front, we signed two strategic agreements to assess opportunities with both Boston for a facility in Brazil for Hot Briquetted iron production, using our pellets and H two green steel for concentration units in Brazil, and the United States.
Directed downwards products for the low carbon steel value chain, including hei using our breakouts.
Concentration solutions are critical to our decarbonization strategy and we expect to build our first mega hub.
In 2024.
Next slide please.
Fostering vehicle in mining, we launched <unk>, a company dedicated to developing a sustainable business.
<unk> rates and distribute sand extracting from the tailing dams of our iron ore operations.
This type of operation allows us to reduce the use of dams and bias in our iron ore operation and we hope to scale up this business. In addition valid base metals.
Find a long term agreement with Lewis to one to reuse tailings to produce fertilizers.
Also Puma mine will supply Lewis one with flag for the next 10 years.
Initiative expense circle or mining with.
Energy transition metals business.
Furthermore, we signed two other strategic partnerships to assess decarbonization opportunities.
With H, two gris steel wireless taking its first step into the green hydrogen market.
Greenfield expertise will be critical for developing green hydrogen in the Mega hubs in Brazil, and the United States with Petrobras.
We will assess the acceleration of low carbon solutions, taking advantage of the joint technical expertise and synergies all of our two companies.
While it plays a leading role in the decarbonization journey by leveraging relevant actions to enable the energy transition these agreements fit perfectly into this context.
Next slide please finally.
We are building a safer body.
With completed the characterization of the 13th upstream them. We are progressing on our upstream dam the characterization of program with the highest safety standards in place. In addition, after removing around 85% of savings from these three before them we reduced it.
Emergency level to the lowest possible with the characterization to be completed in 2025.
<unk> W usage now for our financial results I'll pass the floor to Gustavo Thank you.
Thanks, Eduardo and good morning, everyone.
Let me start with our EBITDA performance for the quarter.
As you can see we delivered an EBITDA of $4 $5 billion in Q3.
Almost half a billion dollars higher than the same period last year.
The increase is explained by higher realized prices, which increased 13% year on year for iron ore and 16% for copper.
On volumes iron ore fines and pallet sales increased $4 4 million tonnes year on year, taking advantage of favorable market conditions, while reducing the usual production to sales gap in Q3.
The impact of costs and expenses on EBITDA was $189 million year on year.
Partially explain it by the $56 million effect from the consumption of iron ore inventories from the previous quarter at higher costs as well as higher maintenance carried out in our <unk> businesses.
I will go into more detail on costs later in my presentation.
Finally, the exchange rate had a negative impact of $124 million in our EBITDA.
While byproduct revenues from our operations in Canada were $103 million lower.
Iron ore <unk> cash cost X third party purchases came down one $6 per ton quarter on quarter.
This was driven by lower demurrage costs as well as higher fixed cost dilution.
With more production volumes, especially from the northern system, where production costs are lower.
We also continued to benefit from our rollout of our efficiency program, bringing a sustainable cost savings of <unk>.
$3 per ton in the quarter.
We are on track to deliver our annual guidance of $21 five to $22 $5 per ton considering and expected further decrease in Q1 cash cost in Q4.
With regards to all in costs, our EBITDA breakeven is slightly increased to $55 $7 per ton in the quarter.
Driven essentially by external factors, which offset the solid Q1 performance.
Freight costs went up from $17 $6 per ton to $18 $9 per ton, mainly reflecting the increase in bunker oil prices in Q3.
<unk> pivot purpose, a $10 per barrel increase in Brent oil prices translates into a $9 per ton increase in our freight costs.
Additionally, despite the positive effect of lower time charter rates, our exposure to the spot market Friedman increased in Q3 due to our seasonally higher production and shipments in the second half of the year.
Finally, despite an improvement of 87 basis points in the average iron ore quality in the quarter.
The lower weighted contribution of pallet businesses, and the lower 65% as the market premiums negatively impacted our all in costs. This is primarily driven by lower margins and they still industry.
We continue to believe in the strong fundamentals supporting demand of high quality products, given secular trends such as the de carbonization of production processes the electrification of everything the.
The continuous organization of large emerging economies and there were shoring of supply chain.
These are just a few of the examples that support our thesis and validate violet <unk> unique position in offering high quality products across all of our portfolio.
Now moving to our energy transition metals business.
In copper, we continue to see gains from higher production at both soluble and stable.
Which support the reduction of a unit Cogs by diluting fixed costs.
All in costs, excluding the who project were about $3 $3000 per ton a slightly increased driven by lower byproduct revenues due to a decrease in good prices.
At our nickel operations, our Cogs ex third party fees increased to about $23 $3000 per ton.
With higher maintenance cost in Sudbury.
With the end of the maintenance spirit and increased production in our North Atlantic operations, We expected unit Cogs to materially reduce in Q4.
In addition, our all in costs were impacted by lower byproduct credits, mainly due to maintenance at Sudbury and mining method changes requiring additional ground support at they call them in mind.
Now moving to cash generation.
As you can see Q3 free cash flow from operations was about $1 $1 billion, roughly $350 million higher than Q2.
Who had an increase in working capital this quarter due to greater accounts receivable, given higher iron ore sales and prices.
Income taxes also increased as a result of better performance.
Free cash flow from operations was used to return value to our shareholders with the payment of $1 $7 billion in dividends and $5 billion in share buybacks. This.
This is part of our disciplined capital allocation strategy, which leads to my next slide.
Yesterday, our board of directors approved a distribution of $2 billion in dividends and interest on capital to be paid on December 1st.
This results from better cash flow generation to date and the expected inflow from the base metals partnership.
Looking at our dividend distributions since 2021 and including this latest announcement, we have generated robust dividend yields to our shareholders.
On top of our dividend commitment, we continue to see share buyback as one of the most accretive ways to create long term value for our shareholders.
To that end yesterday.
Sort of directors approved a new buyback program to repurchase up to 150 million shares in the next 18 months.
Since we started our first program, we have repurchased a total of 830 million shares representing 60% of our share count.
As a result, he shareholder who invested in Bali. During this spirit has increased their participation of earnings per share by 19%.
With that I would like to now turn the call back to Eduardo for his closing remarks. Thank you.
Thank you Gustavo so to summarize here the key messages from our presentation today.
Yes.
Delivering on our commitment has led to a more robust operational performance across all businesses and we have shown in the results.
Implementing cost efficiency initiatives, while growing production volumes have enabled a continued improvement in our unit costs.
Third the energy transition metals asset review confirmed the potential to unlock significant value. We designed a more fit for purpose organization brought in top talent and entered a partnership with World class is strategic investors, we have taken our assets two or not.
Operating flow sheet for value creation.
And finally, we remain 100% committed to disciplined capital allocation the distribution of an additional $2 billion in dividends and the launch of our fourth buyback program.
After their sub debt.
We are at the forefront of global Decarbonization.
Averaging relevant actions for the energy transition, while driving local and regional development.
We have completed change how valid manages its dams than risks we are changing the company culture with a focus on safety always listening to our stakeholders in a open and transparent dialogue.
We will continue to promote sustainable mining foster low carbon solutions and remain disciplined making valley, a referenced in creating and sharing value.
Finally, I would like to thank the management team our employees and partners for contributing to this quarter's results. Thank you.
Now, let's start our Q&A session.
Thank you, ladies and gentlemen, we will now begin the <unk>.
Westin and answer session. If you have a question. Please press the star key followed by the one key on your Touchtone phone.
If at any time I would like to remove yourself from the questioning queue Press Star two please ask your question in English and limit your questions to two at a time.
Our first question comes from Carlos de Alba Morgan Stanley.
Yes. Thank you good morning, everyone.
My first question is on the nickel results.
Ah I see you're making progress quarter on quarter production increase.
You sold the stake in the company and set up.
Independent Board and a strong management team.
But you are the results continue to show increasing cost.
And so you are guiding you're keeping your all in guidance flat for 2023 are unchanged are better for 'twenty, two 'twenty, three which implies a very significant drop in the fourth quarter. So my question is are you.
Is there a time, where you're seeing who we could see a more sustainable.
Our performance in terms of costs.
In that unit and two can you point us to a specific actions that will drive that significant.
The decline in our all in cost.
In the fourth in the fourth quarter.
And then my second question has to do with.
Clearly you.
Who are generating strong cash flows iron ore is contributing quite a lot.
The company is making improvements in operations and so do you generate a little cash paid the special dividend. How did you decided between the dividend and share buy backs because while we have a new share buyback program really the incremental shares to be bought or only 10 million. So is not not that significant.
But clearly the 2 billion.
Especially dividend is significant so what is the decision you can you walk us through how did you how do you decide between dividends and share buybacks. Thank you.
Thanks, Kyle if he has it widened.
I'll I'll give the questions to bashing in then afterwards to took the matter, but just to to make it clear right. The the structure that we are implementing is actually being implemented.
Implementing so we believe the results of that I was gonna be ripe above operation improvements I think then that's when you can even.
Explore a little bit about that but I'll I'll I'll pass the word for dash and to explain about the Mako results and the nickel expectations.
Thank you Eduardo and thank you Carlos for the question. So if I just look at the quarter, specifically, we produced 42000 tons of Banco, but only sold tomorrow.
And I said well analyze.
Pimenta guided as well, we did sell less byproduct.
In the quarter, so that largely contributed to the overall higher unit cost in the quarter in terms of performance when it comes to our production numbers.
Yeah, So I'll, let the market that I use in terms of how the actions are translating into the right path result, we have increased our overall development north Atlantic by over 20% and that's why you would see the mining production has actually increased year on year by over 60%. So that's X I'm glad to say that the that the app.
Our resulting in the right one but if.
If you asked and you know what are we doing to structurally change the business to get to those lower cost.
So firstly in quarter four we will sell some on the difference of what we have been selling quite a team remained me hold that back in terms of inventory useful maintenance et cetera. So that together with the higher production number will result in a much higher production as well as I felt which is exactly what happened last year.
At this time, we will sold close to last year about 50000 tons. This year.
We'll be close to 47 48000 tons of local therapy quite a fall so that together with some of the copper that we know will not come back into the system. Because we are sticking with inventories ahead of the plant will result in much higher copper byproduct as well. What's your then give us the lower unit cost and quite a for that.
Will dilute the overall year to date results and that is why we are still holding onto the local cost guidance in terms of just the overall structural changes.
<unk> continues to ramp up that those ramp up times will come in at the more efficient our rate and that would result in the overall our unit cost improvement that we would see from the third quarter of last year on what some of the other initiatives and productivity et cetera in the Sudbury will drive us forward.
But as Eduardo mentioned in his opening comments on the asset team is in fact, Tony and the team are currently Sudbury I love. The work there is whether we can reduce or what's the cutoff grade and what the team who initially coming up with a huge opportunities a possibility we look at those kind of grades that will.
Without and saw higher tying that together would tell us the who know the technology initiatives that Tony who wants to put on the table just telling us there's a lot more value potential to unlock with India within the asset base I'll leave it there I'll go over to penumbra.
Thanks, Stephanie and thanks Carlos for your question look we we've been.
Favoring both over the last couple of years with both dividend and share buyback and.
We like both I think both have a role to play in our capital location, especially given where stock prices are today.
One it's a combination of those things I think one as you said, we continue to generate strong cash flow I mean prices.
Constructive and therefore cash flow remains strong.
But there is also an element of the B M partnership here, which has more of a one off.
So that is what led us to favor this the cash dividend payment of 2 billion, but again, we continue to believe share buyback is a is a great capital location two for us and that's the reason why we decided to.
Extend the program for another 450 million shares.
Our next question from Tayo He badal.
Bank of America.
Yes. Good morning, Thank you for the opportunity.
So firstly I just wanted to explore a bit how you see the company's breakeven EBITDA for iron ore evolving with some of the changes right that you're working on in the company.
And also due to some changing industry dynamics ahead as well right. So.
So with this focus on developing our steel mega hubs together with steelmakers, right and given that under that structure.
You will be supplying briquettes and other high grade bond rates of certain regions in the world and including the Middle East are possibly in the U S. As well you know, presumably there will be some shift right in your geographical breakdown of shipments today.
Today, it's largely directed towards China might go with this focus on energy transition D. R. I V S and your strong positioning.
Delivering higher grade ore.
I imagine your regional shipment destination could change and that could perhaps alter your average maritime freight.
And our hydro maritime trade from Brazil to China, you know has always been.
<unk> advantage versus our Australian peers.
But with this potential change in the regional shipment destinations or do you see that potentially helping you gain an edge versus other peers. So I don't know breakeven EBITDA perspectives.
And then secondly on the base metals division, but it's clear that there's a lot going on there with the.
The 13% stake sale underway.
Brought some high profile names of the board and manager of the company.
Carrying an acid with you yet the short term results they showed that challenges still exist with.
Maintenance at some assets are the transition to underground operations of voices Baird I just wanted to see if you could give us any indication as to what milestones you're looking to achieve here over the next two years right and what signs do you think we should be looking for as clear signals that this turnaround of the asset as it has been successful.
Thank you.
Hey cargo stifle here, so I'll I'll get started with the the only question for iron ore and maybe they should he can help us out with the with the base metals here. So yeah in iron ore. There was there was a couple of things, which will benefit our breakeven.
Over the next couple of years right. One is that the simple fact that we should be resuming capacity right. So there is a plan as we laid out in VR today, and we'll provide more color now in December in terms of them up and up capacity, but also ramping up capacity of higher quality products, which will help on the premiums and therefore the all in.
Certainly the ability for us to sell to markets that are closer to our operations helps Additionally to that case.
So overall I think we are moving in that direction of being over time, even more competitive for all these standpoint, so you're right on your assessment and that's the way we are we also see.
So I'll I'll I'll, just hand, it back to traditional chicken tacos.
About about base metals, but before that maybe spinelli can complement.
On the iron ore if there is anything else you want to add.
So the holdings.
Thank you.
That's exactly the strategy that we have right. So it's based on.
On the car.
Segmentation and as we need to declare where we have the direct reduction route.
And we go after competitive energy so middle East is a target you asked as a target and also Brasil sold.
Exactly the consequence of that is he's reduced silver spools are to China.
And and and we that's the way to go back.
Much better.
Choose to Atlantic, There's a as you mentioned and we will.
We don't have the benefit.
S stay Manta says.
The premiums.
With big vessels, we have a capacity to just charging them on the.
The bottom axis, we also have capacity to discharge in Europe, and Ultra Dan show, who go to keep the OLED.
The advantage that we've been developing in China.
In a close our and the stable.
Territory now.
Now I'll hand over to <unk>.
Thank you bye thank you Gustavo.
Okay. Thank you for the question I'm, just going to call out some of the progress that they are already full.
We've had three progressive quarters, that's yeah for copper as well.
For the third quarter three buses are quite of one is already at 22% increase.
Turning to South Atlantic South Atlantic has had a 47% increase in copper production. During the first two quarters of this year and September month end unfold as the same trend in October month, we are at the highest levels of copper production across South Atlantic since 20 long pool and then.
When I turn to Ontario mines, although we've had the issues, which are very explainable and colon line four out of the five mines in Ontario are above 96% of the budget topic. I think we can say that the improvement and the ramp up are being delivered are perhaps not at the pace that we need it to be so one of the first milestones there.
We are that we've delivered is the fact that <unk> I think there's absolutely a benchmark and the liberty on ramp up and what I said, you know we closer to 80% of the throughput which is around 10 million tons per annum run rate already okay.
To delever back within nine months, well, we've had some delays in the second line startup is very impressive honest global wanted to the previously mentioned and valuable that ran the process of doing a recovery program in that recovery plan was really targeted at catching up on some of the backlog maintenance very happy to say.
With that that was the majority of that has been completed and the improvements that we see a kite now is that the plant availability Pat wanted to it's up to 90%, which is actually more than 5% increase year on year and that Coleman asked me mentioned, we're not able to go after.
All of those and the more risky so pillars that we have in the mine, but what I can tell you that because of the gone support initiatives that we had another milestone achieved we.
We are set up to have a better quarter for so when I look at maintenance, what we said you know up.
Up until the end of last year on backlog. The majority of that we do we are beyond what theyre not looking up which is any season allowed thing and this is something we must understand on the local but who knows we will take our smelters down in the middle of the year for month to month. There are assets that will go through two months of maintenance as I'm still on that.
Stuff with plans for next year.
We need to be perhaps guide better in terms of what to expect because local by design will be a little patchy per quarter over the year now what the asset reviews. What we are seeing as I mentioned with things like cutoff grade optimization I think in terms of milestones to look for Mark and I are working on it.
The roadmap for the asset reviews that demonstrates how the value can be unlocked and as Mark has already mentioned in fact a pilot.
After discussion with you on a couple of months ago.
This will take a while to put in place and that's on his experience. These kinds of deep transformation programs will take almost CAD 222 to three years to deliver so we will come back to you in a valuable and explain how the roadmap who come together, but I want everyone on the call to be very clear that the.
The initiatives that we set out to do in terms of catching up on backlog maintenance is coal and that is translating into improved progressive production increases quarter over quarter.
Our next question is from.
Danielle Cecil.
B B.
Yeah.
It's just going to close it.
Hi, Hi, guys. Good morning, Thanks for the opportunity. My first question is related to costs because U D. You did have an improvement in your Q1 and yet you delivered in China breakeven increased versus the second quarter and part of it.
That can be explained by higher expenses and royalties at least as for what we can see from the table that you published.
Was there just curious if there was any sort of one off items on that line or extraordinary items that could report.
Hat or if you could give us more color on on your expectations for <unk> you know that the remaining part in addition to this Q1.
That that composes your breakeven to leave within China, I think that that would help us to forecast that going ahead.
My second question is more on the.
If you could share with us on overall.
On the.
Premiums for higher quality products in China are we saw in recent months.
Forward.
That would be great. Thank you very much.
Thanks, Danielle this is Gustavo so did the first one and then I'll ask spinelli to talk about the second one. So yes Q1 performance came better I think we were expecting performance to improve since Q1, and we've said that so it's good to see.
See one coming down, especially versus Q2, and if you do continue to see that performance improve in Q4.
On the OLED, it's mostly driven by external factors are frankly, because what you were referring to in terms of royalties. It was actually more a one off in Q2 than Q3. So there is no impact in Q3.
Associated with any potential one off on royalties in fact, why do we have if you look at big picture here, it's more of the external factors, which have impacted us in the quarter right, especially bunker, which is almost a dollar per ton.
Crees versus what we had in Q2 and also premium specialty market premiums, which came down in the quarter.
<unk>, which is about $7 per ton. So that is primarily what has driven the audience you should come up but again, we should continue to see improvements as weak when she did you bring volumes plus.
Our efficiency initiatives continue to choose to deliver.
So with that I'll ask spinelli to talk about premiums in China.
Thank you Daniele for your question so far.
Firstly just to reinforce all our long term view remain intact, a ball printing so oh I'll take decarbonization is a trend.
Energy efficiency ease of necessity, we need high grade ores to decrease the impact of Soo Choo in blast furnaces, and we need high agree dwarfs.
In a little more to the form to support direct reduction route. So this is our main strategy long term strategy and we strongly believe on that.
In short term, let let's split lives in three so far.
The fourth point the ballots.
It's doing really well, so who have pipe permits for pellets and these related to this blooming of direct reduction that is already going on in the middle East and the U S.
Yeah. The second one is related to lower alumina. So that's another trend of our competitors competitors are increasing.
Increasing the Illumina and we are taking advantage of our low aluminum products.
And regarding the Caddo shops are the high grade ores.
You always see that leap.
We have premiums when do we need to.
CVR energy so the cost of energy side, that's not the case, who they cook is another level or if you need more efficiency to increase the production increase default rooms.
To support.
The market. So that's the main points here today in China, we have a strong market.
And in a transition mode. So minimizing cost is the sense. Today. So we are all also taken advantage of that so we are selling as we have a flexible supply chain. We are selling some high city comes with a lower discount today.
And we are adjusting our supply chain to blend so inhabitant the the lower aluminum premiums.
But what we see as a transition moment.
The longest period of low margins in China, only comparable to 2015 after in depth moments in 2015, who had the supply side reform. We don't expect these in China today, but what we believe that we have a strong support from the.
The Chinese government to keep their goals in GDP and GDP per capita and that's an important.
Massive that came.
This week when we had the announcement of the one trillion you wants to support the the infrastructure.
Stimulus show at that will support that transition and we believe that that will be.
A better pricing SKU that supports a better margin that support a better premium.
For our hungry or debt to cut our jobs. So that's the figure who have short term.
Focusing on minimizing costs.
But a transition for next year to rebalance the market in terms of price ups you in China.
Thank you very much.
Our next question is from how file back.
Sometimes there.
Good morning, and thanks for taking my question. My first question is about break it. So so so Obama has already started the commissioning test of the first two iron ore brick plants into bottle right. So so I just would like to understand how these operations are improving and when do you expect to reach the combined at run rate production of 6 million tonnes.
And the second question is about the broker to complex I mean after the return of the tour to them. How operations are evolving in terms of mix of products and in volumes and also could you confirm when you'd be able to capture the shoe the full benefit of total there I mean is it to be in the four skew or more.
And next year. Thank you.
Or does this Carlos Medeiros, Thank you for questions regarding the Briquettes.
Uh huh.
You commented during the presentation commissioning the first line.
And addressing the technical problems.
And so far we have not found anything unexpected everything is coming according to plan. So we.
Our expectation is to move into more of a.
The startup.
The beginning of November and then from that point, starting we will start ramping up these life rigor.
Regarding the second line.
As also mentioned during the presentation.
We will start.
Initially it.
During Q2 next year.
And after that it's ramping up so.
Uh huh.
We should be in a position to have.
Oh, the full capacity in place sometime in the second half of next year approximately.
Regarding.
The broker to line is we have three three lines in our processing plants up and running after the talk to them and we should continue to assault on to.
We have licenses for all war.
Waste piles.
B are implemented and then we will be in a position to move true true Oh, where are you from three lines up to five lives.
So that's the the outlook.
And this won't happen before 2026.
Our next question is from Myles Allsop UBS London.
Great. Thank you very much for the opportunity. So two questions first of all on Capex could you give us.
She is a bit more sense around how capex is going to trend this year and over the next few years, obviously this year, you're tracking well below the $6 billion as we look forward. Yeah. It was all a kind of mega hubs and the investments in Indonesia.
How should we think about Capex moving forward are having of how capital intensive from a.
Valet perspective, who leaves mega hubs b and when will we start seeing spend on those and then the second question is just around the <unk> could you give us a quick update obviously, there's the headlines.
Hello, and a weak could you give us a sense, who know how negotiations are progressing or not and you know what we should be thinking about in terms of liabilities.
Thank you.
Hi, Myles Gustavo was toppled going after here.
So maybe starting with our with the second question. So.
Look we continue to work on.
Trying to find a resolution that works for everybody right. So that's I think our belief that this is the ideal outcome here, so who continue to be hopeful that if not this year.
First half next year will be able to find a resolution and that should resolve.
Some of the open disputes that that we continue to see coming through right that.
That is from our perspective, the best outcome for some arc when who continue to look and work very hard for that regardless, we continue to perform super well on the obligations that we have under the T. Tac.
So we've you know 80% of the housing solutions have been resolved.
We have in them is indemnified more than 430000 people spent to date 33 billion.
So things that move in and who continue to do so.
On Capex, yes, we are tracking well around the 6 billion will provide more color and valid day in terms of what is our long term expectation there, but he shouldn't expect us to deviate much from it because especially you've mentioned the mega hubs some of that investment who will be doing will be done in partnership.
With our clients. So we will do part of it our clients who do part of it. So we should be able to accommodate this substantially within the existing figures that we've been working on so we will provide that more color and validate but that's the direction.
You should expect from us.
Next question is from Tyler Broda RBC.
D C.
Great. Thanks, very much for the questions Hi, everybody.
Two questions. The first one is on on iron ore.
He made the comment that the production of the sales gap with tightened a bit.
In the fourth quarter for iron ore it's.
I wonder if we get a bit of color on that.
We've seen a reversal of that as you can see a destocking normally in the fourth quarter is that just to clarify should we expect destocking in Q4, especially after the sort of the inventory built.
Over the last 12 months.
And then my second question is about local.
It's good to see the operations they are moving in the right direction.
Yes, definitely I know if you could share your outlook on the nickel price.
Negative free cash flow now for the last four quarters I mean, how is that influencing your plans.
Our investment and I guess, just what your thoughts are at the moment with prices where they are thank you very much.
Hi, Tyler I'll take for a question. So yeah, you may expect a higher sales than production in the fourth quarter as we have normally in our Ah seasonality okay.
It's slightly higher are the sales to be slightly higher than Q3.
And the same pattern rehab so.
But it is important to reinforce one point here our inventory is six <unk>.
Chelsea we are not.
Bearing or re beauty any any any inventory rather than our operational inventory I I've been hearing some some noise about that we have flexibility in our supply chain. So S. A and we have the the value over volume. So we can and we are.
Now focusing on our blending sometimes you need to hold the project to blend. So that's exactly what we're doing now so we try and cut a jazz and blending our fault for Q1, and we are anticipating high silica.
Some high CD product too.
Reduce the concentration in China, and and anticipating this sales to Q4 do you see are so it's dynamic and ER and we need to think of us as an operational inventory, but pay attention for.
Some information to your friend, who formation from the best we are increasing the pelletizing.
The pellet production. So we have a reduction of the mass.
<unk> jitsu the moisture reduction are when you do this so you're comparing this year to last here, we have a reduction on the total mass of the of the company. When you compare production saves moisture is something that you already have in your models and and other information that we are we've been in.
Crazy now or a production China or concentration in China that we lose we have amass a recover that's who we lose some part of our <unk> of our total volume sold.
To check this numbers when do you consider the the buildup of inventors depth exactly its not part of my own veteran who are losing mass when you do this.
Hi, Pat. Thank you so much for the question I think on a nickel you know the question was more along around what am I thinking about the outlook in terms of how that pricing is going to match, what's happening inside the business just in terms of inside the business. The nickel business is in transition.
Voice is they are projecting which we are taking you know are building two underground mines to replace the open pit ore Voip line will only start to deliver those ramped up tons from the third quarter of Nokia until that period.
That's kind of despite the cost that we see will remain within the business I'm very confident after that who will start to see a lot more cash comes back into the business in terms of current prices you know kind of we do not speculate on the nickel price, but all I can say from the beta that we are looking at is that the EV demand.
And still continues to be strong despite some of the softening that we've seen to date and if I look at you know the current forecast for any sales to date you know, it's still trending just under 14 million. Although you know the world is looking at $14 six at the start of the year against 11 million Nokia and despite what we're seeing in L. S. P.
The game in China, We still school the the right amount of H E. B battery chemistry demand in the rest of the sectors I'm going to leave it though it's all about the business. That's in a transition projects that we have to do so that voices beta not does not create the drag that they currently have and the cost and that the EV sector is still.
What we are anticipating medium term to be the fastest growing nickel demand sector.
Our next question is from Leonardo Correa BTG Pactual.
Good morning, everyone can you hear me.
Yes Hello.
Okay, perfect, Yes, yes, and who can go ahead.
Ed.
Okay perfect.
So good morning, everyone. Yeah. So just I just wanted to focus my first question on the market.
Specifically for iron ore right.
Seeing a very very solid trends for iron ore.
Looking at the key let's say kpis driving very low inventories across the chain at the steel mill level and also at the port level.
China continues churning out.
More than 1 billion tons annualized.
Per year right.
I mean looking at Chinese steel exports. They continue very high if I'm not mistaken.
The last level right.
Steel exports from China was the highest level in the year.
If we think of.
The issues right. The main concern I guess some months ago was that China would enforce.
Those output curbs in steel.
Which is something that we still have not seen right and over the past weeks it seems.
The sense in China is more of a continuity rather than curving steel production.
And at the same time, we're moving into a zone right, which is seasonally very restricted supply we get into the rainy season in Brazil and Australia.
And at the same time, you see Chinese stimulus right that at the macro level, just just coming through and find the tapping me the fiscal level right. So there's a there's a lot going on but clearly the outlook for iron ore has been surprising I think all expectations.
I just wanted to hear how you're seeing the balance of risks.
If you are seeing if it would be valid to say that the there's more upside risk at this point then downside I think that would be helpful and the second question.
On my side.
Yeah.
I could have missed this so sorry, I joined the call a little bit later, but.
Just on the base models and moving back to the entire discretion on base metals I'm going to avoid the performance issues right. There I think that they were addressed over the past.
Minutes.
Just on capital location in base metals, but we still don't have a plan on the future investment program, where exactly you're allocating capital I mean from previous commentary I get a sense that you're probably going to be more incline investing in Brazil, probably more copper exposure in Brazil.
But how is that progressing and is there any update or should we look into any announcements at Vale day on where.
Investments are moving at base metal specific those are the questions. Thank you very much.
Well, Oh, Alaska, it's been additive to the market and.
The other base metals, but upside risk.
Well.
Thank you for the question so.
First of all I mean, you you pointed out many information that supports our strong are our view about what just loved to just said we have a more optimistic view.
About China in the market.
And we can see that that's the China resilience, it's it's really clear that the girl, who now is supporting and giving all the signs that they want to keep their go of GDP. GDP per capita that is already established so many of us are always.
<unk> tracking your properties.
That's a decrease that is actually decreasing and ER and we have.
Some numbers of minus 7% of decrease.
And we have a more optimistic or less bearish view about this when you consider some other information rather than M. B S. A likelihood that we have a slight a slight or a decrease of minus 2%. So this is the common sense that we can.
You say pre but I want to draw your attention for the bright side of what's going on in China. So first thing that there is a range.
Reinventing of the manufacturing in China, So we can see that.
What the government said quality development.
They are leading the green industry turbines, all the equipments to support the decarbonization in the world.
And produce it in China to support their domestic demand and also the export.
We are in production of double digit digits for small appliance.
E V. A they are flawed in the war with their cars and we see it is in Brazil. So there's a new platform off of manufacturing that is going on in China, and we need it and they need more high quality student support infrastructure.
Announced that this team who those off once we don't RMB that we saw that you support next year. The the the inquiries of more infrastructure and they are already exporting as you said 8 million tons that are that they will probably balance that export next year when the.
The infrastructure, who play a more important role. This is the main peer group and the other point that we should pay attention. We we we always track the CSP crude steel production in China, the pay attention in D. I P. The pig iron production in China.
Yeah, there's a decoupling in the production of flat and we bought <unk>.
So when you need splat, you need a better quality production and we need to use the blast furnace route so you need more iron ore.
T. S. P is increasing one 7% P. A P. 2.8% that is supporting all show the iron ore production in China.
I know you have a lack of oh scrap to support a route so there's another important.
Yeah.
The information.
You should definitely have a strong demand not only for short term, but also for for me Tim long term.
Again in this supply side, let's talk about the balance of supply side.
We don't see.
Our strong any strong support from some form of any region to increase the supply of iron ore in the in the seaborne market.
Actually as a decrease in the and in India now is decreasing probably for next year, they're blooming there.
And that's unfortunate formation I'm not just take any information of the market, we are selling to India.
Just sign a 5 million tonnes contracted to India to support them in this very high speed growth. So we see.
A tight market, a very balanced market and the supply side and demand side that can support this upsize breach that Eduardo just mentioned.
But I would just just quickly on base metals, we will bring more information, we're running out of time here, but to bring more information that validate the as a result of the asset review remember one of the reasons why we did the carve out is exactly cheap position base metals for growth. There's a series of projects you probably saw.
In our release yesterday, the project, we announced in Indonesia, Pamela It's a large project there. So there's a lot of copper projects in Brazil that we are looking to accelerate so we will bring this in a more structured way at Vale day, but certainly.
We want to accelerate growth have base metals.
This concludes today's question and answer that question.
Mr. <unk> to go back to normal at this time you May proceed with your closing statements.
Okay. Thank you.
Well.
I have never been so optimistic about the future of this company.
After we did the reshaped.
Third we sold nine business, we focus on are two unique assets in iron ore and base metals.
What we're seeing all leading operational kpis and safety indicators in iron ore.
A substantially better since 19.
As has been the Ellie mention we have a very resilient market ahead of us.
Even in nickel with this softening that is happening now.
But we see it.
Bright future for nickel and copper is needless to explain.
Of course, the aftermath of the carve out is show us.
In fixing the operational issues, we have even more value to extract from those assets.
So I have been always saying, it's not a sprint it's a marathon.
But as I said I have never being so optimistic and thanks, a lot for your attention and let's see you in the 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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