Addressing the challenges. Credit Suisse Latam Commodities CEO/CFO Conference São Paulo, March 25, 2015

Transcription

1 0 Addressing the challenges Credit Suisse Latam Commodities CEO/CFO Conference São Paulo, March 25, 2015

2 1 Disclaimer 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 The Stock Exchange of Hong Kong Limited, and in particular the factors discussed under Forward- Looking Statements and Risk Factors in Vale s annual report on Form 20-F.

3 2 DOCUMENT CONTENT The iron ore and nickel markets Vale s short-term competitive levers Vale s cash flow in

4 3 DOCUMENT CONTENT The iron ore and nickel markets Vale s short-term competitive levers Vale s cash flow in

5 4 VALE S PERSPECTIVE ON THE IRON ORE MARKET Cash Cost Curve¹ Total Supply² growth Mt 1, , Austrralia Brazil China Others Inventory consumption 2015 Cost reductions and oversupply will keep on pressuring the iron ore prices in the short term. Chinese SOEs and Seaborne Junior Miners are cutting capacity. ¹ Source: Macquarie ² Total Supply = seaborne + China domestic - pellets

6 5 VALE S PERSPECTIVE ON THE NICKEL MARKET NPI supply Some misconceptions NPI supply is inelastic Vale s views NPI producers will not shut down completely and/or immediately when the price is below their cost structure but: There has been more muted NPI production in February and March as a result of prices below the cost structure There have been a number of environmental shutdowns for NPI producers in the past couple of weeks. Supply of Nickel ore Imports of lower grade nickel ore from the Philippines will replace ore imports from Indonesia High grade nickel ore stocks helped to support NPI production in 2014 but also helped to maintain a lower cost structure In 2015, as NPI producers are forced to utilize lower grade ores they will be faced with a rising cost structure. Nickel market LME stocks are increasing The nickel market is oversupplied across the value chain The increase of LME inventories are linked to credit conditions in China, which led to an outflow of nickel from Chinese warehouses towards the LME. Considering this outflow along with the nickel drawdown across the value chain in China, the market actually shifted into deficit in 2014.

7 DOCUMENT CONTENT 6 The iron ore and nickel markets Vale s short-term competitive levers Vale s cash flow in

8 7 LEVER 1: SIGNIFICANT VOLUME INCREASES Iron Ore¹ Nickel Mt Kt E 2016E 2017E 2018E 2019E E 2016E Coal² Copper Mt Kt E 2016E 2017E 2018E 2019E ¹ Including third party purchases and excluding Samarco s attributable production ² Mozambique production only E 2016E

9 8 EVOLUTION OF SALOBO PRODUCTION AND NORMALIZED EBITDA Production Kt Normalized EBITDA¹ US$ million LME Copper prices US$ k/t Tie ins Salobo I and II 1,000 21,1 19,7 25,9 31,6 1Q14 2Q14 3Q14 4Q14 FY15E² Q14 2Q14 3Q14 4Q14 FY after full ramp up² 71 Still a lot of room to increase Salobo s EBITDA, even at lower copper prices. ¹ Normalized by 4Q14 Salobo realized prices ² As per guidance given at the last Vale Day, with copper prices at US$6,800/t

10 9 EBITDA BREAKEVEN IN NEW CALEDONIA (VNC)? Production Kt 37 EBITDA US$ million E E VNC 2015 EBITDA may range from breakeven¹ to a 50% reduction in 2014 loss² ¹ Considering LME Ni prices at US$21,000/t ² Considering LME Ni prices at US$14,000/t

11 10 ADJUSTED EBITDA¹ OF THE FERTILIZER BUSINESS US$ million EBITDA after PRC expenses² SSP prices Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Improvement in the fertilizer business with positive EBITDA generation after the losses registered by the stoppage for the Project Rio Coloardo in 2013 in spite of price reductions of about 20% for the fertilizer products ¹ Adjusted EBITDA excludes gains and/or losses on sales of assets and non-recurring expenses and includes dividends received from non-consolidated affiliates. ² PRC Expenses (US$ million): 7 in 1Q13, 76 in 2Q13, 213 in 3Q13, 102 in 4Q13, 5 in 1Q14, 5 in 2Q14, -5 in 3Q14, 17 in 4Q14.

12 11 IMPACT OF BRL DEPRECIATION ON THE BALANCE SHEET Simulation Projects 2015 CAPEX BRL denominated US$ bi 7.7 x CAPEX 2015 US$ bi 10.2 BRL denominated % + US$ bi Sustaining 2015 US$ bi Potential gains in 2015 US$ bi 0.78 x BRL denominated US$ bi 20.3 BRL depreciation¹ + Cost + Expenses BRL denominated US$ bi 12.6 x Cost + Expenses US$ bi 75 BRL denominated % Costs LTM14² US$ bi 21.2 Expenses LTM14² % 0, US$ bi 3.5 Each 0.10 R$/US$ devaluation offsets the cash flow impact of about US$ 2/t of iron ore price reduction ¹ 0,10 R$/US$ Depreciation of the BRL, against 4Q14 average, equates to 3.8% ² Net of depreciation, LTM14 = Last twelve months ended on December 31, 2014

13 12 COST AND EXPENSES REDUCTION LEVERS IN 2015 High Low Our goal Deliver cost and expenses reductions beyond the exchange rate benefit Levers in 2015 Bunker and freight Renegotiation of service and supply contracts Review of organizational structures Reduction in general overhead Valemaxes in China Lower strip ratios and lower average transportation distances (N4WS) Fixed costs dilution Financial impact in 2015 Timing of initial impact 1Q 2Q 2Q 2Q 3Q 3Q 3Q

14 13 REALIZED IRON ORE PRICE LEVERS IN 2015 Levers in 2015 Financial impact in 2015 High Low Timing of initial impact Our goal Reduction of the high silica ore supply 2Q Reduce the difference between realized price and iron ore Platts index (IODEX) Renegotiation of the freight component in the pricing of the FOB contracts Bunker impact of the FOB contracts Quality improvement (N4WS and Itabirites projects) 3Q 1Q 2Q

15 14 REALIZED PELLET PRICES US$/t IODEX 147 Pellet Realized Price Q14 2Q14 3Q14 4Q pellet premiums smoothed the IODEX impact in the Pellet realized prices. Same pattern may be expected in 2015.

16 15 OTHER LEVERS IN 2015 High Low Levers in 2015 Financial impact in 2015 Timing of initial impact Reduction in growth Capex 1Q Reduction in sustaining Capex 1Q Improvement of Australia EBITDA, driven by the stoppage of the Integra and Isaac Plains mines, as well as cost savings in Carborough Downs 1Q Optimization of product portfolio Whenever required

17 16 DOCUMENT CONTENT The iron ore and nickel markets Vale s short-term competitive levers Vale s cash flow in

18 17 ESTIMATE ON CASH UNLOCKED FROM 2015 DIVESTITURES Initiatives Cash Impact in 2015 Update Timing Goldstream Completed: US$ 900 million is being paid today. 1Q Redeemable shares Company structure and contracts being adjusted 3Q VLOCs 4 vessels from COSCO + 2 vessels from undisclosed partners + financial structure 3Q Mozambique Coal Project Finance: transaction structure in advanced stage of discussion Government authorizations and direct agreements with lenders under discussion 4Q Total Potential from US$6 bi to US$7 bi

19 18 EVOLUTION OF WORKING CAPITAL US$ billion, year end Levers Accounts receivable 10,7 8,5 6,9 4,0 3, (Target) Accounts payable Parts inventory Advances to suppliers Finished products inventory

20 19 DEBT PROFILE AND LIQUIDITY US$ billion Debt amortization schedule¹ Committed Credit Facilities² 28,8 2,7 8,9 19,0 5,0 1,2 1,4 2,0 2,4 4, onwards Total Gross debt Revolving credit lines Non-project financing related³ Project financing related 4 Total 80% of our debt settlement will occur after 2018 US$ 8.9 billion available in credit lines ¹ As of December 31, Including hedge transactions. ² Amount not yet withdrawn. ³ Export Import Bank of China and Bank of China Limited: related to the construction of 12 Valemaxes at the Rongsheng shipyard. 4 BNDES: related to several projects in Brazil

21 20 RISK AGENCIES RATING A/A2 S&P Moody s Fitch A-/A3 Baa1/BBB+ Baa2/BBB BBB+ BBB+ Baa2 Baa3/BBB- IG Non-IG Ba1/BB+ jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15

22 21 RISK AGENCIES PERCEPTIONS S&P We continue to assess Vale's business risk profile as "strong" ( ) Debt refinancing and good access to capital markets have led to a very smooth amortization schedule. The company has consistently tapped international debt markets, which we believe has resulted in a well-structured debt profile. The outlook is stable, reflecting our view that the industry's cash cost curve and Vale's business resilience will limit the risk from lower iron prices. Moody s Despite the weaker price environment ( ), we expect that Vale will continue to exhibit adequate metrics relative to its rating category. The stable outlook reflects our view that Vale s credit profile and operations will remain solid for its Baa2 ratings Fitch Commodity producing companies credit profiles are analyzed though the cycle, providing tolerance for peaks in leverage over one or two years as a result of large investments. Vale displays sufficient liquidity in the peak leverage year of 2015 and exhibits swift deleveraging and strong FCF generation post-2016 Fitch does not consider a rating downgrade for Vale to be warranted under any of the four scenarios presented.

23 22 STRONG FREE CASH FLOW AND DIVIDEND YIELD AS OF 2017 Capex will be less than US$ 5 billion Volumes will increase by about 40% in iron ore, 20% in nickel and 20% in copper Costs will decrease with higher productivity, further dilution of fixed costs and expenses and organizational restructuring Iron ore quality will support an increase in price realization Freight costs will decrease Free cash flow and dividends will reach unprecedented levels and debt will reduce gradually

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