Truckless system S11D. Vale s Performance in 3Q18

Transcription

1 Truckless system S11D Vale s Performance in 3Q18 Rio 1 de Janeiro, October 25 th, 2018

2 Agenda 2 This presentation may include statements that present Vale's expectations about future events or results. All statements, when based upon expectations about the future and not on historical facts, involve various risks and uncertainties. Vale cannot guarantee that such statements will prove correct. These risks and uncertainties include factors related to the following: (a) the countries where we operate, especially Brazil and Canada; (b) the global economy; (c) the capital markets; (d) the mining and metals prices and their dependence on global industrial production, which is cyclical by nature; and (e) global competition in the markets in which Vale operates. To obtain further information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission (SEC), the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF) and in particular the factors discussed under Forward-Looking Statements and Risk Factors in Vale s annual report on Form 20-F. Cautionary Note to U.S. Investors - The SEC permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We present certain information in this presentation, including measured resources, indicated resources, inferred resources, geologic resources, which would not be permitted in an SEC filing. These materials are not proven or probable reserves, as defined by the SEC, and we cannot assure you that these materials will be converted into proven or probable reserves, as defined by the SEC. U.S. Investors should consider closely the disclosure in our Annual Report on Form 20-K, which may be obtained from us, from our website or at

3 Agenda Agenda 1. Highlights of Vale s performance in 3Q18 2. Capital Allocation 3. Business segment performance 3

4 4 Highlights of Vale s performance in 3Q18

5 Delivering in every meaningful way 5 US$ 4.4 bi Total EBITDA 12% US$ 3.1 bi Free cash flow 2% US$ 10.7 bi Net Debt 8% US$ 27.4/t Iron ore EBITDA breakeven US$ 11/t US$ 2.4 bi US$1.4/t Iron ore and pellet 7% Pellets EBITDA 10% premiums in 9M18 Chief Executive Officer, Mr. Fabio Schvartsman, commented on the 3Q18 results, The strong 3Q18 results showcase the structural change in the Chinese iron ore and steel markets. We are the mining company that is best suited to further benefit from the flight to quality given the increasing share of premium products. He concluded, We are turning Vale into a very predictable company by delivering sound operational performance, higher price realization, lower costs and rigorous capital allocation. 5 Note: All figures based on 3Q18 vs. 2Q18, except for pellets EBITDA 9M18 vs. 9M17

6 Record production for iron ore and pellets supported by S11D ramp-up and by the decision to restart the three idle pellet plants 6 Iron ore 1 production volumes Pellet production Mt Mt 95,1 96,8 104,9 12,8 12,8 13,9 3Q17 2Q18 3Q18 3Q17 2Q18 3Q Including third party purchases, run-of-mine and feed for pelletizing plants

7 The flexible supply chain along with S11D and pellet plants ramp-ups led to record sales and increased share of premium products 7 Iron ore 1 and pellets sales volumes Sales composition Mt Pellets % Premium products² Iron ore Other products³ % 77% 79% 28% 23% 21% 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 1 Iron ore fines including ROM 2 7 Composed by pellets, Carajás, Brazilian Blend Fines (BRBF), pellet feed and SFLA (sinter feed low alumina) 3 Composed by standard sinter feed, lump and high silica

8 Record premium of US$ 11/t, due to the active optimization of the supply chain and the premium product portfolio 8 Average premiums of iron ore fines and pellets 1 Highlights 3Q18 US$/t 6.8 1,2 5,6 Pellets weighted average contribution Iron ore fines premiums ,2 7, ,4 8,6 Value over volume Differentiation strategy capturing the benefits of the structural flight to quality trend The record was a result of marketing efforts to position Vale s premium product portfolio and the dynamic supply chain management maximizing margins Premiums added US$ 400 million of EBITDA in 3Q18 vs. 3Q17 3Q17 2Q18 3Q Include the effects of Vale s higher Fe content, premiums for lower alumina and phosphorous, discounts and commercial conditions for iron ore fines and pellets.

9 Consistent quarterly EBITDA growth year-on-year, irrespective of reference price variation 9 Adjusted EBITDA US$ billion Iron ore 62% reference price (US$/t) +43% +4% 3,902 4,192 4,374 2,729 2Q17 2Q18 3Q17 3Q % -6% 9

10 The strong cash flow generation led Vale to virtually achieve its net debt target of US$ 10 bi while returning US$ 2.4 bi to shareholders 10 US$ million , , , EBITDA 3Q18 Working capital Interests on loans Income taxes & Refis settlement program 1 Capex Others Free cash flow Debt repayment, net Shareholders remuneration including Buyback Increase (decrease) in cash & cash equivalents 1 Includes 10 derivatives, Samarco, dividends and interest on capital paid to noncontrolling interest, net disposal of assets and others.

11 Strong balance sheet sets the basis for starting a new era of shareholder remuneration 11 Shareholder remuneration US$ billion 0,3 1, ,5 Dividend / Interest on capital Share buyback 3,3 3,3 5, M Highlights First payment pursuant to the new dividend policy that was designed to be predictable, aggressive and sustainable over a long period of time Vale has executed ~50% of its US$ 1 billion share buyback in 3Q18 3Q18 results translated into a minimum shareholder remuneration of US$ billion. If we deliver the same results next quarter, minimum dividend related to 2H18 will be US$ 2.3 billion, vs. US$ 1.9 billion in 1H18 11

12 12 Capital allocation

13 Consistent with the rigorous capital allocation strategy, Vale approved two high return investments 13 Copper: Salobo III Capex US$ millions Pellet feed: Gelado Capex US$ millions Wheaton Precious Metals bonus Growth capex of US$ 1.1 billion Start-up 1H22 Production up to Sustaining capex of US$ 428 million Start-up 2H21 Production up to 2031

14 Vale has continued to trim its net debt and virtually achieved the US$ 10 billion net debt target 14 Net debt US$ billion 21, Highlights Cash position on September 30 th, 2018 of US$ billion Net debt has reached the lowest level since 3Q09, reducing by more than US$ 10 billion over the last 12 months 11,519 10,704 Vale can already perceive the benefits of carrying lower indebtedness on its gross interest, which were reduced by 35% to US$ 272 million in 3Q18 from about US$ 417 million in 3Q17 3Q17 2Q18 3Q18 14

15 Leverage was 0.7x and will reduce further as net debt target of US$ 10 bi is reached in the short term 15 Net debt / LTM 1 EBITDA Ratio 1,3 1,2 1,0 0,7 0,7 Net debt in 3Q18: US$ billion LTM EBITDA / LTM gross interest: 12.8x 3Q17 4Q17 1Q18 2Q18 3Q18 Average maturity: 9.1 years Average cost of debt: 5.09% per annum 15 1 LTM last twelve months

16 The decrease in gross debt against the end of last quarter was mainly due to repayments of US$ 1.2 billion¹ in 3Q18 16 Gross debt US$ billion Gross debt amortization schedule² US$ billion 16,6 12,8 25,790 17,906 16,810 0,4 0,9 1,1 1, onwards Gross debt 3Q17 2Q18 3Q18 77% of our debt maturity will occur after Debt 16repayments less debt additions. Include interest payments ² As of September 30 st, Does not include accrued charges.

17 17 Business segment performance

18 Ferrous Minerals EBITDA was higher than Vale s total in 2Q18 mainly due to higher sales volumes, lower unit costs and higher premiums 18 US$ million US$ 620 million EBITDA 2Q18 Reference price 62% Fe¹ FX Bunker & spot freight Volume Premiums & commercial initiatives Unit costs Others EBITDA 3Q Reference price 62% Fe net effect in both revenues (US$ 126 million) and cost (-US$14 million)

19 Vale s iron ore CFR realized price was US$ 9.9/t higher than the market reference for the 62% Fe content, totaling US$ 76.6/t in 3Q18 19 US$/t, 3Q % 2,0 US$ 8.6/t 6,6 0,7 0,1 0, ,0 76,6 5,6 66,7 67,0 Average Reference Price 3Q18 (dmt) Quality Premium / discount and commercial conditions Provisional prices in prior quarter¹ Lagged prices Current Provisional prices in current quarter² CFR reference (dmt) Adjustment for FOB sales Moisture Vale realized price (wmt)³ Impact of pricing system adjustments 1 Adjustment as a result of provisional prices booked in 2Q18 at US$ 64.0/t. 2 Difference 19 between the weighted average of the prices provisionally set at the end of 3Q18 at US$ 68.0/t based on forward curves and US$ 66.7/t from the 3Q18 62% Fe reference price. 3 Vale price is net of taxes.

20 9M18 pellets EBITDA represented 19% of Vale s total EBITDA and being on track to achieve more than US$ 3 billion in US$ billion Highlights 3 9M18 pellets EBITDA reached a record level since 9M14 2,5 2 1,5 2,5 2,1 2,4 3Q18 pellets EBITDA was US$ 800 million, in line with 2Q18, despite lower dividends received, which follow a seasonality of payments in the second and fourth quarters 1 0,5 1,4 1,2 Higher sales volumes and lower costs partially offset the lower dividends received in 3Q18 0 9M14 9M15 9M16 9M17 9M18 20

21 21 As anticipated in 2Q18, our iron ore C1 cash cost decreased to a level distinctly lower than US$ 13.0/t Iron ore fines C1 cash costs US$/t 16,0 14,0 14,5 14,7 12,0 10,0 8,0 6,0 4,0 2,0 12,4 Highlights 3Q18 The reduction of US$ 2.3/t vs. 2Q18 was due to the successful ramp-up of S11D, higher productivity, higher dilution of fixed costs on higher production volumes, exchange rate variations and lower service and demurrage costs as forecasted in 2Q18 Earnings Release C1 cash cost savings contributed with US$ 166 million to EBITDA - 3Q17 2Q18 3Q18 21

22 22 EBITDA breakeven reached the lowest level ever, despite the inflationary pressures of freight and bunker Iron ore and pellets EBITDA breakeven US$/t, 3Q18 3,1 8,6 19,4 2,7 0,8 2,4 29,8 27,4 12,4 C1 cash cost¹ Freight Royalties & expenses Distribution Moisture Quality EBITDA breakeven iron ore fines Pellet adjustment EBITDA breakeven (pellets & fines) 22 1 Ex-ROM Cost landed in China

23 Incoming supply from peers will not replace the quality of current production which is presently being depleted 23 Supply profile¹ 2018 vs Mtpy Higher contaminants Al/Si: 0.51% P: 0.095% Lower contaminants Al/Si: 0.41% P: 0.075% South Flank Koodaideri Eliwana Others Total Yandi Hope Downs 1 Solomon Hub Chichester Hub Brockman 2 Others Net additions until 2025 Additions to the market Depletion 23 ¹ Seaborne excluding Brazil Source: Vale database, info is based on marketing rounds with technical consultants

24 24 3Q18 results represented a tipping point for Base Metals in the process of creating the basis to generate strong cash flow Base Metals EBITDA US$ million Highlights 3Q As previously disclosed, Vale s Base Metals results reflected planned one-off effects derived from Sudbury s scheduled maintenance shutdown and Thompson s transition to a mine-mill operation About 65% of the decrease in 3Q18 is related to the exogenous factor of lower prices of nickel, copper and cobalt, and 35% mainly associated with Sudbury s annual scheduled maintenance shutdown and its effects on lower byproduct volumes and higher costs 3Q17 2Q18 3Q18 24

25 Base Metals EBITDA in 9M18 was significantly higher than 9M17 and 9M16 25 US$ billion Highlights + 54% 2,0 The performance of the Base Metals business will be improved based on the operational stabilization plan of its new management team along with the tailwind of EV demand for battery-suitable nickel as a catalyst in the medium to long term 1,3 1,4 9M16 9M17 9M18 25

26 Nickel realized pricewas 6.2% above LME prices, the highest percentage above the benchmark in the last 10 years 26 Nickel realized price / LME price % 12% +9.6% 10% 8% 6% +5.7% Série % 4% 2% 0% -2% -4% -6% 26

27 Coal EBITDA was mainly impacted by lower realized prices of metallurgical coal 27 Coal Adjusted EBITDA US$ million Highlights 3Q Met coal price realization of 93% of market index in 3Q18, mainly due to lower allocation in September, when market prices were higher, while lagged index sales were priced based on previous months lower prices, increased freight rates to Asia and widening spread between premium and non-premium indices 16 3Q17 2Q18 3Q18 Unit costs were US$ 28 million higher than 2Q18, mainly due to the implementation of initiatives associated with the structural changes in the coal segment, which will ensure a sustainable ramp-up from 2019 onwards 27

28 Additional information 28

29 Production and sales records for a 3Q breaking the emblematic production barrier of 100 Mt of iron ore fines in a quarter 29 % Quarterly record % Fe Pellets Ni Cu Coal Total: Mt Northern System: 53.9 Mt % % % % Total: 13.9 Mt Southeastern System: 8.7 Mt % Oman: 2.6 Mt Sales volumes iron ore & pellets: 98.2 Mt Total: 55.7 kt Total: 94.5 kt Total: 3.2 Mt 29 Note: all figures relate to production, except when otherwise stated

30 As a result of Vale s more rigorous capital allocation approach, capital expenditures decreased by 20% year-on-year 30 Project and sustaining capex US$ million 3Q18 Highlights Total capex of US$ 692 million in 3Q Vale s Board of Directors approvedthe investment of US$ 1.1 billion in the Salobo III copper project and US$ 428 million for the Geladoproject in the Northern System A new governance process in the implementation of sustaining projects led to a reengineering of some projects included in the 2018 investment budget Q17 2Q18 3Q18 Growth projects Sustaining The new governance will lead to a concentration of disbursements in 4Q18, which together with the usual seasonality of disbursements translates in to a very high expenditure in the last quarter 30

31 Vale s portfolio is benefiting from the increase in the flight to quality structural trend 31 Premiums and discounts (daily basis) US$/t 30 Título do Gráfico 65%-62% 58%-62% 62% LA - 62% 20 +US$ 23/t 10 - jan/16 mai/16 set/16 jan/17 mai/17 set/17 jan/18 mai/18 set/18 US$ 54/t (10) (20) (30) -US$ 31/t (40) 31 Source: Platts and Metal Bulletin

32 Vale continues to improve its sales mix composition in 3Q18 32 Iron ore sales product mix (%) Premium products¹ Other products² Nickel sales product mix (%) Class I Class II battery-suitable Class II Intermediates 72% 77% 79% 52% 60% 56% 28% 23% 21% 3Q17 2Q18 3Q18 24% 26% 26% 8% 16% 7% 11% 7% 7% 3Q17 2Q18 3Q Composed by pellets, Carajás, Brazilian Blend Fines (BRBF), pellet feed and Sinter Feed Low Alumina (SFLA) ² Composed by standard sinter feed, lump and high silica

33 33 Iron ore pricing systems Pricing system breakdown (%) Lagged Current Provisional Impact of pricing mechanisms US$/t Provisional - prior quarter Lagged 0,7 0,9 0,1 39% 28% 28% -0,5 2Q18 3Q18 2Q18 3Q18 51% 61% 62% Current 0,2 0,1 Provisional - current quarter 0,4-0,4 10% 11% 10% 3Q17 2Q18 3Q18 2Q18 3Q18 2Q18 3Q18 33

34 Evolution of iron ore fines cash cost, freight and expenses 34 C1 cash cost FOB port 1 US$/t Freight US$/t Expenses 2 & royalties US$/t 14,5 14,7 12,4 15,0 17,2 19,4 2,5 3,3 2,7 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 3Q17 2Q18 3Q Ex-ROM and ex-royalties. 2 Including dividends received. Net of depreciation.

35 Price realization copper operations 35 US$/t, 3Q Average LME copper price 35 Current period price adjustments Copper gross realized price Prior period price adjustments Copper realized price before discounts TC/RCs, penalties, premiums and discounts Average copper realized price

36 Price realization metallurgical coal from Mozambique 36 US$/t, 3Q18,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0 188,5 Average reference price 3Q18 12,5 Portfolio and quality 1,6 0,1 3,8 0,1 2,4 Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential 175,9 Vale price 3Q18 36 Impact of pricing system adjustments

37 Price realization Thermal coal from Mozambique 37 US$/t, 3Q18 101,6 13,7 1,0 0,0 0,9 0,8 0,1 89,2 Average reference price 3Q18 Portfolio and quality Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential Vale price 3Q18 37 Impact of pricing system adjustments

38 Debt position breakdown 38 Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) 15% 20% 7% 17% 65% Development Agencies Bank Loans Capital Markets 75% Hedge to USD USD BRL Others 38

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