Ricardo Teles / Agência Vale Vale s Performance in 2Q17 Rio de Janeiro, July 27 th, 2017 1
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 http://http://us.sec.gov/edgar.shtml.
Agenda Agenda 1. Vale s performance in 2Q17 2. Capital expenditures 3. Capital structure 4. Business segment performance 3
4 Vale s performance in 2Q17
5 Performance highlights 2Q17 US$ 2.729 bi Total EBITDA US$ 157 mi Coal EBITDA US$ 894 mi Capital Expenditures US$ 2.151 bi Free Cash Flow US$ 1.459 bi Dividends Paid US$ 655 mi Net Debt Reduction 5
6 Record production performance in Iron Ore Northern System and Mozambique Production highlights 2Q17 % Quarterly record & Record for a second quarter Fe Pellets Ni Cu Coal & Total: 91.8 Mt % N. System: 41.5 Mt Total: 12.2 Mt Total: 65.9 kt Total: 100.8 kt & Salobo: 46.0 kt % Mozambique: 3.0 Mt 6
7 Lower prices led to lower q-o-q revenues, partially offset by higher volumes Net operating revenues by destination in 2Q17 7 10% 3% 5% 7% 18% China Europe North America Rest of the World 21% 35% Other Asia Brazil Middle East Highlights 2Q17 Net operating revenues of US$ 7.235 billion Revenues were 15.0% lower vs. 1Q17 mainly due to lower prices of Ferrous Minerals and Base Metals Lower prices were partially offset by higher sales volumes of Ferrous Minerals and sales price and volumes of Coal 56% sales to Asia and 10% in Brazil Ferrous Minerals accounted for 71% of revenues Base Metals accounted for 21% of revenues
8 Vale is consolidating a systemic and sustainable approach to cost management Costs and expenses 2Q17 vs. 1Q17 US$ million 5,115 1Q17 205 Sales volumes 220 58 Higher costs 10 5,492 FX Expenses 2Q17 Highlights Total costs and expenses increased by US$ 377 million vs. 1Q17 COGS increased as a result of higher sales volumes, higher freight costs in iron ore fines and pellets, higher leasing costs from the pelletizing plants and higher services and material costs Total expenses were only marginally higher than 1Q17, mainly due to higher R&D expenses Higher costs were partially offset by the positive effect of exchange rate variations 8
9 EBITDA was mainly impacted by a reduction of iron ore price EBITDA, q-o-q Highlights 2Q17 US$ billion 16% Overall EBITDA increased 16% vs. 2Q16; and decreased 37% vs. 1Q17 2.351 4.308 2.729 EBITDA decreased vs. 1Q17 mainly as a result of the 27% reduction of Platts IODEX (US$ 1.867 billion), partially offset by higher sales volumes of Ferrous Minerals and Coal (US$ 356 million) 2Q16 1Q17 2Q17 Adjusted EBITDA for Ferrous represented 82% of total adjusted EBITDA 9
10 Capital expenditures
11 Breaking through the sub US$ 1 billion capex mark and the lowest for a quarter since 3Q06 Project and sustaining capex US$ million Highlights 2Q17 Total capex was US$ 894 billion in 2Q17, decreasing US$ 219 million vs. 1Q17 1,300 409 891 1,113 526 894 507 Investments in project execution totaled US$ 388 million in 2Q17, decreasing 33.9% due to the purchase of wagons and locomotives for the S11D project in 1Q17 587 388 2Q16 1Q17 2Q17 Ferrous Minerals accounted for about 95% of the total investment in project execution in 2Q17 Growth projects Sustaining 11
With further reduction in S11D expenditures Vale s free cash flows can continue to increase 12 Highlights 90% of combined physical progress in 2Q17 with 99% progress at the mine site and 83% at the logistic infrastructure sites The duplication of the railway reached 71% physical progress with 397 km duplicated S11D Mine Truckless system in operation Onshore expansion reached 90% physical progress 12
13 Capital structure
14 Net Debt decreased by US$ 655 million despite lower prices and the payment of dividends US$ billion Net debt Cash position on June 30 th, 2017 US$ 5.730 billion 27.508 22.777 22.122 2Q16 1Q17 2Q17 14
15 By the end of 2017 Vale will reach a comfortable leverage level Net debt / LTM 1 EBITDA Ratio 3.8 3.0 Net debt in 2Q17: US$ 22.122 billion Cash position in 2Q17: US$ 5.730 billion 2.1 1.6 1.5 2Q16 3Q16 4Q16 1Q17 2Q17 Average maturity: 8.1 years Average cost of debt: 4.88% per annum 15 1 LTM last twelve months.
16 Gross Debt decreased US$ 1.7 billion mainly due to our liability management program US$ billion Gross debt amortization schedule 1 27.3 US$ million Gross debt 31,814 17.7 29,570 27,852 0.5 1.6 3.5 4.0 2017 2018 2019 2020 2021 onwards Gross debt 65% of our debt settlement will occur after 2020 2Q16 1Q17 2Q17 16 1 As of June 30 th, 2017. Does not include accrued charges.
17 Business segment performance
18 Ferrous Minerals EBITDA was lower mainly as a result of the 27% reduction of IODEX 62%Fe price US$ million, 2Q17 vs. 1Q17 3,967 1,867 33 7 327 50 91 148 46 2,232 EBITDA 1Q17 IODEX 62% Fe FX Bunker Volume Commercial initiatives CFR Freight Sales Unit costs Others EBITDA 2Q17 18
19 Despite the 6.9% increase, C1 cash cost FOB port is expected to decrease to the range of R$ 46-47/t in 2H17 R$/t -1.4% Non-recurring costs 6.9% 50.0 46.9 0.7 46.3 47.5 46.1 3.0 44.8 46.1 49.3 42.2 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 19 1 2015 figures were adjusted to the new allocation criteria, as reported in the 4Q15, and include acquisition costs of third party purchased ore
20 Price realization was impacted by provisional price set in 1Q17 and by discounts on high silica material US$/t, 2Q17 62.9 1.4 0.2 4.2-2.2% 1.8 0.8 0.3 60.7 4.0 5.4 51.3 Average Platts 2Q17 (dmt) Quality Premium / discount and commercial conditions Provisional prices in prior quarter¹ Lagged prices Current Provisional prices in current quarter² Impact of pricing system adjustments CFR reference price (dmt) Adjustment for FOB sales Moisture Vale CFR/FOB price (wmt)³ Vale will reduce production of high silica products by an annualized rate of 19 Mt from 2H17 onwards and will limit the silica content of its BRBF 4 to 5%; Vale is the player with the highest flexibility in the market to adjust its product quality output. 20 1 Adjustment as a result of provisional prices booked in 1Q17 at US$ 77.9/t. 2 Difference between the weighted average of the prices provisionally set at the end of 2Q17 at US$ 62.1/t based on forward curves and US$ 62.9/t from the 2Q17 IODEX. 3 Vale price is net of taxes. 4 Brazilian Blend Fines.
21 Base Metals EBITDA decreased as a result of lower nickel and copper prices Quarterly EBITDA comparison US$ million 29 11 10 4 410 112 34 386 Highlights 2Q17 Base Metals EBITDA decreased US$ 24 million q-o-q EBITDA was mainly impacted by lower nickel and copper prices (US$ 112 million) Lower prices were partially offset by lower expenses, favourable volume impacts of copper and by-products and exchange rate variation 1Q17 Ni & Cu prices Expenses Cu & by-products volume FX By-product prices Others 2Q17 21
22 Coal EBITDA recorded a positive result for a third consecutive quarter Quarterly EBITDA comparison US$ million 156 157 Highlights 2Q17 Coal EBITDA increased US$ 96 million q-o-q, as a result of higher prices, higher volumes and lower costs at the mine and processing plants -7 61 Costs at the mine and processing plants decreased by 16% in 2Q17 vs. 1Q17, as a result of the successful ramp-up of Moatize II and the strong performance of the processing plants. -110 2Q16 3Q16 4Q16 1Q17 2Q17 Production cost per ton of coal shipped through Nacala increased 6%, due to the impact of tariff, despite being 67% offset by lower costs at the mine and processing plants. 22
Additional information 23
24 Evolution of iron ore fines cash cost, freight and expenses US$/t C1 Cash Cost FOB Port 1 Freight Expenses 2 & Royalties Positive one-off impact 3 13.2 14.7 15.2 14.2 14.9 4.0 1.3 3.9 11.8 2.5 2Q16 1Q17 2Q17 2Q16 1Q17 2Q17 2Q16 1Q17 2Q17 24 1 Ex-ROM and ex-royalties. 2 Net of depreciation. 3 Positive one-off impact of insurance recoveries of US$ 85 million in 1Q17.
25 2Q17 cash break-even cost landed in China for iron ore and pellets US$/t, 2Q17 3.9 0.7 3.1 1.2 36.6 1.9 34.7 2.8 37.5 14.9 15.2 C1 cash cost¹ Freight Royalties & expenses 25 1 Ex-ROM Distribution Moisture Quality EBITDA breakeven iron ore fines Pellet adjustment EBITDA breakeven (pellets & fines) Cost landed in China Sustaining Iron ore & pellets cash breakeven
26 Iron ore pricing systems Pricing system breakdown Lagged Current Provisional Impact of pricing mechanisms US$/t Provisional - prior quarter Lagged 4.1 1.8 34% 41% 37% -4.2-2.1 52% 49% 55% 1Q17 Current 2Q17 1Q17 2Q17 Provisional - current quarter 14% 10% 8% 2Q16 1Q17 2Q17-0.1-0.8-3.2-0.3 1Q17 2Q17 1Q17 2Q17 26
27 Price realization nickel US$/t, 2Q17 613 235 9,603 9,225 Average LME nickel price Price premium on refined products Price discount on intermediate products Average nickel realized price 27
28 Price realization copper US$/t, 2Q17 5,662 171 5,833 80 5,753 553 5,200 Average LME copper price 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 28
29 Unit cash cost of sales per operation, net of by-product credits 1 Operation (US$ / t) 2Q17 1Q17 2Q16 4 North Atlantic Operations (nickel) 2 5,388 6,699 4,632 PTVI (nickel) 2 6,827 6,821 4,680 VNC (nickel) 3 11,222 11,232 11,879 Onça Puma (nickel) 10,164 9,341 7,804 Sossego (copper) 2,611 2,941 2,809 Salobo (copper) 1,274 1,406 954 29 1 North Atlantic figures includes Clydach and Acton refining costs. 2 Prior periods restated to include royalties, freight and other period costs. 3 Unit cash cost restated for periods prior to 1Q17 to exclude pre-operating and other operating expenses. 4 We realigned our unit cash cost of sales methodology in 1Q17 to include all freight, royalty and other costs reported as cost of goods sold and to exclude other operating expenses and pre-operating expenses for certain operations. Considering the previous criteria, the unit cash cost figures in prior periods would be: North Atlantic, US$ 3,582/t in 2Q16; PTVI, US$ 5,825/t in 2Q16, and VNC, US$ 12,208/t in 2Q16.
30 Price realization metallurgical coal from Mozambique US$/t, 2Q17 190.3 4.6 2.1 7.2 9.3 0.2 3.0 201.1 201.1 Average reference price 2Q17 30 Quality Current Fixed price lagged price benchmark price Provisional price Impact of pricing system adjustments Freight differential Others Vale price
31 0.0 Price realization thermal coal from Mozambique US$/t, 2Q17 0.0 0.0 76.0 11.1 4.5 2.8 0.6 0.2 0.7 62.7 63.4 0.0 0.0 0.0 0.0 Average reference price 2Q17 31 Quality Current Fixed price lagged price Provisional price Impact of pricing system adjustments Freight differential Others Vale price
32 Debt position breakdown by currency Debt position breakdown by currency (before hedge) Debt position breakdown by currency (after hedge) 4% 7% 18% 21% 74% 74% USD BRL EUR Others Hedge to USD USD BRL Others 32
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