Vale: focus on capital allocation and costs

Transcription

1 Vale: focus on capital allocation and costs Fabio Schvartsman Itaú 9th Annual Itaú BBA LatAm Commodities Conference 1 São Paulo, September 27th, 2017

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, 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), and 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. 2isclaimer

3 Vale is focused on internal initiatives to boost cash generation 3 Governance Cash generation Transformation of Vale into a corporation Focus on internal initiatives Operational excellence Nickel: cash positive while preserving optionality Deleveraging Higher FCF, irrespectively of prices Changes in the Board of Directors for better decisionmaking Re-rating? Strict capital allocation Integration & meritocracy Innovation, automation and cost management Price realization Copper: cash cow with growth options Coal: opportunities in infrastructure Iron ore: blending/ integrated operation as competitive advantages 3

4 Stricter capital allocation policy will lead to a lower capex profile, thus improving returns and shareholder remuneration 4 Capex US$ billion Capital allocation initiatives 1. Challenge growth and replacement projects aprice assumptions Postpone replacement projects with no returns Optimization of sustaining investments 4. Foster post investment reviews E 2018E 2019E 2020E 2021E BRL/USD Exchange rate of BRL/USD 3.37 from 2017 onwards. Does not include investments in Fertilizers and projects not approved by the Board of Directors. Estimates may change before completion of current planning cycle and are subject to Board s approval

5 Company integration to foster a results oriented culture based on innovation and relentless cost management 5 Company integration Cost management program Implement a Matrix cost management Innovation and automation Catch up with competition by increasing investments Pilot project at Vale s pelletizing plants started Roll out the methodology across all Vale s units Do it properly! Coordination through Partners In Performance (PIP) Elimination of silos Focus on the company s overall results instead of a single managerial unit

6 Price realization is improving as Vale optimized its product s portfolio to capture the flight to quality in iron ore market 6 Quality has become a key component in iron ore pricing 65% Fe iron ore premium Vale has responded to rising discounts for silica by reducing 19 Mt of high-silica production Contaminants discount (US$/t) 7.0 1% SiO2 ( %) 6.0 1% SiO2 ( %) 1% Al2O3 ( %) % Phos ( %) Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Improvement in price realization is expected to result in an additional US$ million in 2H17 adjusted EBITDA 1 Metal Bulletin 65% index, compared to Platts IODEX 62%, US$/t 2 Premium over the index Platts IODEX 62% Fe content (includes VIU and premium/discount, does not include pellets)

7 7 Nickel is being adapted to current market conditions while copper is a strong cash generator and coal follows in the same path Nickel Evaluation of nickel operations and projects at current prices Challenge in operational costs at VNC with potential partnership as an option for future investments Optionality to capture EV s revolution Copper Excellent operational performance in copper South Atlantic Industry-leading cost structure in Salobo Salobo 3 expansion under evaluation Alternatives to replace Sossego under analysis Coal Priority in the conclusion of the Project Finance Ramp-up of Moatize and Nacala Leverage rail and port infrastructure Exploration potential for reserves increase and/or mine expansion Nickel will deploy lower capex and improve overall performance Copper will leverage on its high performance and cash generation Moatize operations are similar to Carajás, fostering potential growth 7

8 Iron ore operational performance along with its unique blending strategy will increase EBITDA per ton¹ by US$ 4 to 6/t 8 US$/t, 2016 x S11D Integrated supply chain optimization Global recovery Cost Management Project Innovation and automation Total 1 Assuming no change in Platts IODEX 62% reference price, bunker oil prices, and exchange rate of BRL 3.37 / USD

9 Strong balance sheet is a mandatory priority 9 Net debt, US$ billion Zero? Q E 2018 & beyond

10 A qualified Board of Directors challenges, builds consensus and improves the decision making process 10 Election of two independent board members in October 18 th Preliminary Meeting vs. establishment of Committees Board s performance closely monitored and evaluated 10

11 Re-rating of Vale s shares is already happening on the back of the new corporate structure and deleveraging 11 Share performance, Jan 2nd, 2017 = 100 EV/EBITDA¹ Vale Rio Tinto BHP FMG 150% 140% 130% 120% 110% % 90% % 70% Jan-17 Mar-17 May-17 Jul-17 Sep-17 ¹ Current enterprise value / last twelve months EBITDA Source: Bloomberg data on 09/15/2017

12 A leaner and stronger company will allow future growth 12 Enablers Better Governance Lower leverage Better performance Better capital allocation Future growth centered on Vale s core competencies: Quality and flexibility of its assets Operational technical knowledge Outstanding project implementation skills Unparalleled bulk logistics expertise Capacity for doing business in Brazil

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