Vale S.a. · BMFBOVESPA:VALE3
Vale — Corporate Update (September 2017)
49 slides from Vale's corporate update, Sep 21, 2017
Slide 1: Disclaimer
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 uncertain
Slide 2: Agenda
3 1. Ferrous Minerals Update 2. S11D Operations Overview 3. Video 4. S11D Project Status 5. Closing Remarks 6. Q&A Session Agenda
Slide 3: Ferrous Minerals Update
Ferrous Minerals Update $11D Operations Overview Video $11D Project Status Closing Remarks Q&A Session
Slide 4: First wave of competitiveness recovery in 2015-16 improved efficiency
5 In its first wave of competitiveness recovery in 2015 – 2016, Vale took important steps to improve efficiency • Increase the Global Recovery • Increase the proportion of CFR sales • Increase sales to China • Renegotiate FOB netback component • Increase the efficiency of iron ore shipping • Reduce
Slide 5: Productivity gains and better price realization
6 These initiatives resulted in productivity gains and better price realization Global Recovery1 Price Realization % 55 Premium/discount over Platts 62% Fe, US$/t² 5 0 50 -5 45 -10 40 -15 35 30 -20 25 -25 2014 2015 2016 1H17 2014 2015 2016 1H17 Vale Peer1 Peer2 Peer3 1 Global recovery = total produc
Slide 6: Ferrous Minerals EBITDA improved by US$ 3.3 billion
7 Thus improving Ferrous Minerals EBITDA¹ by US$ 3.3 billion US$ million in 2016 vs. 2014 US$ 3.3 Bi EBITDA 2014 Price Exchange rate Bunker oil Commercial initiatives Volume Freight COGS Others EBITDA 2016 1 Adjusted EBITDA of iron ore, pellets, ROM, manganese and other ferrous. 11.321 87 10.476 2.9
Slide 7: Second wave of competitiveness improvement based on five levers
8 In 2017 Vale started its second wave of competitiveness improvement based on five main interconnected levers • Improve productivity by increasing the ratio of final product to total mass • Improve strip ratio • Increase of dry processing • Increase efficiency through an integrated supply chain • O
Slide 8: Goal of highest global recovery among peers
9 Goal of achieving highest global recovery among peers as a result of higher share of dry processing and optimization of strip ratio Global recovery1 rate Levers %, 2020 • Strip ratio improvement by grinding and concentrating compact itabirites and by allowing for some flexibility in the alumina an
Slide 9: Vale positioned for the flight to quality in iron ore
10 Vale is best positioned to reap the benefits of the “flight to quality” in the iron ore market Contaminants’ discount 65% Fe iron ore premium¹ US$/t compared to Platts IODEX 62%, US$/t 1% SiO2 Discount (6.5-9.0%) 1% SiO2 Discount (4.5-6.5%) 1% Al2O3 Discount (1.0-2.5%) 26 24 22 20 18 16 14 12 10
Slide 10: Initiatives to improve price realization
11 Vale has several initiatives to improve price realization Initiatives Sales composition¹ 2Q17 Carajás Blend Southern Southeastern Others • Reduce High Silica production by 19 Mtpy • Limit the Silica content to 5% in the Brazilian Blend Fines (BRBF) 18% • Adjust 100% of Carajás sales contracts to
Slide 11: Average price premium expected to increase
12 As a result, Vale’s average price premium is expected to increase in the short-medium term Vale’s average price premium¹ US$/t 3.7-4.7 2016 1Q17 2Q17 2H17 1 Premium over the index Platts IODEX 62% Fe content (includes VIU and premium/discount, does not include pellets) •The improvement in price r
Slide 12: S11D will decrease costs and sustaining capex
13 S11D wil decrease Vale’s costs and sustaining capex C1 cash cost1 Sustaining capex US$/t US$/t - 49% - 36% - 40% - 25% 15,2 2,8 2,4 Current Vale² Current Carajás² Expected S11D³ Current Vale² Current Carajás² Expected S11D³ 1 C1 cash cost at the port (mine, plant, railroad and port, excluding roy
Slide 13: Technological solutions to enhance supply chain productivity
14 Development and implementation of technological solutions will enhance the productivity of the supply chain Autonomous mine • • • Truck Drill Blasting truck Autonomous plant • Optimization systems of production process Robotization Process automation Autonomous expedition • • • Stacker Reclaimer
Slide 14: EBITDA per ton expected to increase by US$ 4-6/t by 2020
15 Therefore, EBITDA per ton¹ of Ferrous Minerals is expected to increase by US$ 4-6/t by 2020 US$/t, 2016 x 2020 4.0 – 6.0 0.5 S11D Integrated supply chain optimization Global recovery Structured Cost Management Project Innovation and automation Total 1 Assuming no change in Platts IODEX 62% refere
Slide 15: EBITDA per ton expected to increase by US$ 4-6/t by 2020
15 Therefore, EBITDA per ton’ of Ferrous Minerals is expected to increase by US$ 4-6/t by 2020 USSit, 2016 x 2020 05 40-60 | 0.5 120 10-15 St1D Integrated supply Global recovery Structured Cost. Innovation and Total chain optimization Management automation Project + Assuming no change in Platts IODE
Slide 16: S11D is a landmark in Vale's history
17 511D is a landmark in Vale's history VALE
Slide 17: S11D milestones and challenges ahead
18 S11D reached important milestones but there are still some challenges ahead Positive achievements Main challenges •Delivery and commissioning of project ahead schedule •Production of individual truckless system higher than planned •Implementation of high level of automation and technology •Traini
Slide 18: S11D mine layout with four mine systems
19 511D mine layout encompasses four mine systems operating independently eStarted up eOperating until Dec/17 0Commissioning - BEflct. Conn Conve)« - ConnectiOO COOVI!10r -O't'i!naoo C0011eyor - LDCe VALE
Slide 19: All mine systems initiated operations ahead of schedule
20 All mine systems initiated operations ahead of schedule System 3 System 4 Start up in July 2017 (scheduled for Nov-17) Start up in March 2017 (scheduled for Jul-17) System 1 System 2 Start up in August 2017 (scheduled for Dec-17) Start up planned for October 2017 (originally scheduled forJan-18)
Slide 20: S11D plant layout simple and high throughput
21 S11D plant layout is based on a simple concept and high throughput Long Distance Conveyor Belt Plant Start up in Sept-16 and commissioned with 17kt (nominal capacity) All areas commissioned and operating Train Loading Terminal Product Stockyard Already moved more than 12Mt of ore More than 310 tr
Slide 21: S11D ramp-up expected to end by 2020
22 S11D ramp-up is expected to end by 2020 Aug/16 – Mine hot comissioning Sep/16 – Plant hot comissioning Mar/17 – 1st truckless system start up Jul/17 – 2nd truckless system start up Aug/17 – 3rd truckless system start up Oct/17 – 4th truckless system start up Dec/17 – 25% of capacity will be reach
Slide 22: S11D ramp-up performing as planned
23 The ramp-up of S11D is performing as planned S11D production in Mt 21-23 9-11 Jan-Aug 2017 Realized Sept-Dec 2017E 2017E 12
Slide 23: Truckless system achieved 81% of nominal capacity
24 Truckless system productivity already achieved 81% of its nominal capacity Truckless system productivity Highlights Tons per hour, Jan-Aug 2017 • The truckless system operated with higher productivity, thus mining more ore than planned 8.000 • Total production with truckless system reached 2.3 Mt
Slide 24: S11D will increase logistics capacity in the Northern System
25 S11D will increase logistics capacity in the Northern System Mtpy 230 1 1 1 1 2016 2017E 2018E 2019E 2020E 1 Estimates may change before completion of current planning cycle and are subject to Board’s approval 217 200 171 151
Slide 25: S11D will increase logistics capacity in the Northern System
$11D will increase logistics capacity in the Northern System Mtpy 230 217 200 171 : i 2016 2017E" 2018E" 20196" 2020E' + Estimates may change before completion of current planning cycle and are subject to Board's approval v VALE
Slide 26: S11D Project Status
S11D Project Status
Slide 27: S11D project: new mine, railway and port structures
28 S11D project included the development of a new mine, railway and port structures Mine and plant Railway Port • Mine capacity of 90 Mtpy with a truckless mining system Minimal environmental impact with waste pile and plant built outside the protected area and the use of a dry screening process 99%
Slide 28: Railway spur started up in 4Q16
29 Railway spur started up in 4Q16 Railway loop Train passage in Carajas National Forest Bridge over Rio Verde Tunnel
Slide 29: Railway duplication progressing as planned
30 The duplication of the railway is progressing as planned Status EFC duplication • 75% of physical progress - 470 km1 of 570 km duplicated - 43 out of 46 bridges & viaducts delivered - 26 out of 46 bridges over railway delivered • Current railway capacity of 171 Mtpy 1 As of September 8th, 2017
Slide 30: km of the EFC have been duplicated
31 470 km of the EFC have been duplicated Segment 41-42 Segment 02-03 Segment 16-17 Segment 44-45
Slide 31: Bridges of the EFC duplication delivered
32 69 bridges of the EFC duplication have been already delivered Bridge Mineirão Bridge Estreito dos Mosquitos Bridge over railway Km 616 Railway bridge km 014
Slide 32: Port structures almost completed
33 Port structures are almost completed Port Onshore Status • • 91% of physical progress Major assets completed and in operation: - - - - 2 car dumpers 2 reclaimers 1 stacker conveyor belts • 2 stacker-reclaimers to be delivered in 2Q18 Port Offshore Status • Offshore port and maritime terminal conc
Slide 33: Port onshore developed according to plan
34 Port onshore is being developed according to plan Onshore overview Conveyors Stackers and reclaimer Stockyard
Slide 34: Port offshore and railway terminal delivered in 2016
35 Port offshore and railway terminal were delivered in 2016 Port offshore Wheelset change and maintenance center Locomotive inspection & fuel supply Port offshore – night vision
Slide 35: S11D expected on time and below original budget
36 S11D Project is expected to be delivered on time and below the original budget US$ billion Logistics Mine and Plant 1.8 19.7 Sep-Dec 20171 20181 20191 Original Budget Total Cumulative (until Aug-17) 1 Exchange rate used: BRL / USD 3.35. About 90% of future expenditure in S11D is BRL denominated 1
Slide 36: S11D is already benefiting local communities
37 S11D is already benefiting local communities Construction of health centers & municipal hospital renovation Investments • Implementation of infrastructure and urbanization civil construction works in Pará and Maranhão, including schools, hospitals, health centers, court of justice, fire departmen
Slide 37: S11D is already benefiting local communities
S11D is already benefiting local communities Construction of health centers & municipal hospital renovation = / + Implementation of infrastructure and urbanization civil construction works in Para and Maranhao, including schools, hospitals, health centers, court of justice, fire department and commu
Slide 38: Value generation strategy based on four pillars
39 Value generation strategy will be based on four main pillars • Transformation of Vale into a corporation • Changes in the Board of Directors for better decision-making • Develop a broader strategy for communities and environment • Turnaround of assets with low returns • Deleveraging and derisking
Slide 39: Changing approach on nickel
40 Vale is changing its approach on nickel given challenging market conditions and high capital investments Priority actions Forecasts for 2018 @ US$ 10,500/t¹ US$ million 900 – 1,000 800 – 900 partnership Capex EBITDA Simplified Cash Flow 1 LME price forecast. Estimates may change before completion
Slide 40: Copper business delivering positive returns
41 The copper business is delivering positive returns and has options to increase its share in Vale’s cash generation Priority actions Forecasts in 2018 @ US$ 5,600/t¹ US$ million 700 – 800 150 – 180 EBITDA Capex Simplified Cash Flow 1 LME price forecast. Estimates may change before completion of cu
Slide 41: Moatize operations and coal growth options
42 Moatize operations are similar to Carajás thus enabling the coal business to successfully explore growth options Priority actions Forecasts in 2018 @ Met Coal US$ 128/t¹ US$ million 200 – 400 100 – 150 conclude ramp-up 2 EBITDA Capex Simplified Cash Flow 1 Platts Premium Hard Coking Coal Low Vola
Slide 42: New corporate structure empowers the Board of Directors
43 The new approved corporate structure will result in a Board of Directors empowered to make better decisions • More active participation of the Board in the strategic planning process • Empowerment of the Board in the decision process • Focus on more relevant themes for Board discussions • Impleme
Slide 43: Re-rating of Vale's shares already happening
44 Re-rating of Vale’s shares is already happening on the back of the new corporate structure, but expect more to come Share performance, Jan 2nd, 2017 = 100 EV/EBITDA¹ Vale Rio Tinto BHP FMG 150% 140% 6.0 130% 6.6 120% 6.6 110% 100% 3.4 90% 80% 70% Jan-17 Mar-17 May-17 Jul-17 Sep-17 ¹ Current enter
Slide 44: Deleveraging is another lever to boost re-rating
45 Deleveraging is another important lever to boost Vale’s re-rating Net debt, US$ billion 25,0 2016 year end 2Q17 2017E year end 2018 22,1 14 - 16 ?
Slide 45: FCF generation creates optionality for dividend distribution
46 FCF¹ generation will be strong enough to create optionality of dividend distribution beyond debt reduction Net debt, US$ billion Debt scenarios for 2018¹ 1 Considers that the following events will be concluded: Fertilizers sales, vessels sales and Coal Project Finance. Assumes nickel price of US$
Slide 46: Stricter capital allocation policy leads to lower capex
47 Stricter capital allocation policy will lead to a lower Capex profile Capex Initiatives US$ billion • Improve governance for capital allocation • Challenge growth and replacement projects price assumptions 5,5 • Postpone replacement projects with low returns 2.9 – 3.5 2.6 – 3.2 • Improve decision
Slide 47: A leaner and stronger company will allow future growth
48 A leaner and stronger company will allow future growth Enablers and nickel Higher multiples Lower leverage Future equity-based diversification centered on Vale’s core competencies: •Quality and flexibility of its assets •Technical knowledge in iron ore •Outstanding project implementation skills •
Slide 48: A leaner and stronger company will allow future growth
A leaner and stronger company will allow future growth Enablers Future equity-based diversification ] centered on Vale’s core competencies: | + Quality and flexibility of its assets Technical knowledge in iron ore | and nickel Outstanding project implementation skills Unparalleled bulk logis experti
Slide 49: Signatures
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Vale S.A. (Registrant) By: /s/ André Figueiredo Date: September 20, 2017 Director of Investor Relations