Vale S.a. · BMFBOVESPA:VALE3
Vale — Investor Day (September 2018)
57 slides from Vale's investor day presentation, Sep 7, 2018
Slide 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
Slide 2: “Flight to quality” is the new normal with alumina, silica and phosphorous driving prices
3 “Flight to quality” is the new normal with alumina, silica and phosphorous driving market prices on top of Fe content Premiums and discounts Silica, Alumina and Phosphorous discounts US$/t US$/t MB 62% IOCJ Fe Low Alumina MB Silica (3.5-9.0%) LHS¹ MB Alumina (1.0-3.5%) LHS¹ MB Phos (0.04-0.13%) RH
Slide 3: Vale positioned to benefit from two mutually reinforcing macro trends
4 After investing in its competitive advantages,Vale is well positioned to benefitfrom twomutually reinforcingmacro trends De m and: Supply Side Reform Relative gap % Capacity closures for environmental and competitiveness reasons IOCJ / MB58 IOCJ / IO DEX62 160% - - Higher steel prices/margins High
Slide 4: Higher steel demand and supply restrictions led to higher steel prices and need for quality ores
5 Higher steel demand and supply restrictions led to higher steel prices, to higher need for productivity, thus higher quality ores Historical rebar prices in China US$/t Yearly average prices Steel industry capacity utilization in China % Actual Forecast 95% 387 578 619 90% 800 85% 600 80% 75% 400
Slide 5: Investment in mining has decreased and mine depletion rate is poised to go up
6 Investment in mining has decreased and mine depletion rate is now poised to go up FAI1 in ferrous mining industry in China RMB billion Iron ore CAPEX by major Australian players US$ billion 20 200 15 150 10 100 5 50 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 201
Slide 6: IO anchor prices defined by costs and discounts on low grade ores
7 IO anchor prices aredefinednot only by costs but alsoby discounts on low grade ores in scenarios of high productivity requirements 2024, Iron Cost (cash cost + sustaining) CFR China, 62% Fe normalized Premiums/discounts Low grade High/Medium grade Seaborne volume ex-pellets, including chinese dome
Slide 7: Vale optimized its portfolio and quality to benefit from new market dynamics
8 Vale optimized its portfolio and quality to benefit from new market dynamics and consolidated its differentiation strategy Sales composition % Premium products¹ Other products² 2015 2016 2017 2018E ¹ Premium products: pellets, Carajás, Brazilian Blend Fines (BRBF), pellet f eed and Sinter Feed Low
Slide 8: Brazilian Blend Fines (BRBF) has established itself as a strong brand
9 Vale’s Brazilian a strong brand BRBF specification1 Blend Fines (BRBF) has established itself as BRBF vs. Pilbara vs. Reference price US$/t BRBF PBF Reference price 62% Fe 76 .0 74 .0 72 .0 70 .0 68 .0 66 .0 64 .0 62 .0 60 .0 Apr-18 May-18 Jun-18 Jul-18 Jul-18 Aug-18 ¹ Average specs of next years
Slide 9: Sinter Feed Low Alumina (SFLA) is another premium product
10 Sinter Feed Low Alumina (SFLA) is another premium product which was tailored to specific clients’ needs in Asia minor changes in fines from discussions to first August of 12 Mt 2Q18 of US$ 11.5-¹ Using f ines f rom the Southeastern System ² Average specs of next years (w et basis) No investments,
Slide 10: Initiatives to maximize value from Vale's unique position in the market
11 Initiatives to maximize value from Vale’s unique position the market were delivered, with yet more to come in Examples Delivered initiatives Ongoing initiatives base through the new Metal Bulletin worldwide • Expand market capillarity and customer • Expose and capture the value of ores with a low
Slide 11: Vale's ability to adapt products boosted price realization to a new sustainable level
12 Vale’s ability to adapt and position its products like no other player has boosted price realization to a new sustainable level Vale’s average price premium¹ US$/t Price Realization Pellets Adjustment 10.0 - 10.5 5.4 3.2 7.0 – 7.5 3.5 1.7 2016 2017 2018E ¹ Premium over the 62% Fe content ref eren
Slide 12: The unique product portfolio
XVIII Analyst & Investor Tour The unique product portfolio Rogério Carneiro September 6th, 2018
Slide 13: Contents
14 Contents The distinctiveness of Vale’s products Main iron ore quality attributes and impacts in iron and steelmaking Vale’s Ferrous Technology Center (CTF)
Slide 14: Vale leverages its know-how into the steelmaking chain through the CTF
15 Vale leverages its know-how in Iron Ore and Coal into the steelmaking production chain through the CTF g g Coke ng model cost and its quality PHYSICAL SIMULATION NUMERICAL SIMULATION STEELMAKING CHAIN STEELMAKING CHAIN Agglomeration Lumps BF and DR Sinte r Sinte rin fe e d Pe lle t Pe lle tizin f
Slide 15: Attributes to be taken into account in the steelmaking process
16 Attributes to be taken into account in the steelmaking process Al2O3 / SiO2 Alumina (Al2O3) Silica (SiO2) Phosphorous (P) Loss on ignition (LOI) Reducibility (RI) Main iron ore quality attributes and impacts in iron and steelmaking
Slide 16: Higher reducibility in the blast furnace improves efficiency of Fe formation
17 Higher reducibility in the blast furnace improves efficiency of Fe formation, measured by metalization degree Efficiency of Fe formation vs. crystal size Fuel consumption vs. reducibility1 (directly correlated with metallization degree) 98 495 Increase in 96 crystal size 94 490 92 90 485 88 86 48
Slide 17: Loss on ignition increases fuel consumption during sintering
18 Loss on ignition (LOI) increases fuel consumption sintering during Fuel consumption vs. LOI 70 68 66 64 62 60 58 0 1 2 3 4 5 6 7 8 9 10 Loss on ignition (%) Coke breeze consumption (kg/t sinter) Costs, productivity and emissions are affected in the sintering process Vale’s ores have lower LOI, wh
Slide 18: Phosphorous worsens steel mechanical properties
19 Phosphorous (P) worsens steel mechanical properties, leading to steel failures and cracking Costs vs. P content Single basic oxygen furnace with advanced de-phosphorization1 Furnace Iron ore sintering P content (%) 0.010 0.020 0.030 0.040 0.050 0.060 0.070 0.080 0.090 14 12 10 8 6 4 2 0 0.06 0.07
Slide 19: Silica impacts operational stability and permeability
20 Silica (SiO2) impacts operational stability/permeability, affecting sintering and blast furnace performance Sinter plant Blast furnace 501 500 499 498 497 496 495 <4.5% 494 493 492 491 >6.0% 230 240 250 260 270 280 290 reducibility Slag rate (kg/t) consumption, slag production, fuel emission at t
Slide 20: Alumina impacts slag quality
21 Alumina (Al2O3) impacts slag quality Impact of Al2 O3 in the slag and viscosity °C 1390 1 Melting tem perature - LHS 1 Vis c os ity - R HS Poise 4.2 1385 4.1 1380 1375 4 1370 3.9 1365 1360 3.8 1355 3.7 1350 1345 3.6 15 15.5 16 17 18 % Al2O3 1 LHS stands f or Lef t Hand Side axis and RHS stands f
Slide 21: An optimum Al2O3/SiO2 relation exists for ironmaking operations
22 Considering slag volume and quality, an optimum Al2O3/SiO2 relation exists for ironmaking operations 3.5 3.2 2.9 MG FB 2.6 2.3 2.0 1.7 1.4 1.1 0.8 0.5 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 % SiO2 calcined 1 Limit proportion betw een Al2O3 and SiO2 percentages f or an ef f icient
Slide 22: CTF simulations emphasize superior performance of Vale's ores
23 Simulations1 realized in the CTF emphasize the superior performance of Vale’s ores in the steelmaking process Zero level = specs IODEX62 SiO2 +AAll22O3 Fe All22OO33 LOI PHOS SIZE 1 At current steel margins and coke prices IOCJ IOCJ BRBF BRBF Newman Newman Pilbara Blend Pilbara Blend Yandi BHP Yan
Slide 23: CTF simulations demonstrate superior performance of Vale's ores
24 Simulations¹ realized in the CTF demonstrate the superior performance of Vale’s ores in steelmaking Sum of previously presented effects IOCJ BRBF Newman PB YANDI BHP FMG SBSlend Specs IODEX62 (zero level) 1 At current steel margins and coke prices PREMIUM PENALTIES
Slide 24: Capturing the intrinsic value of Vale's ore
XVIII Analyst & Investor Tour Capturing the intrinsic value of Vale’s ore Rogério Nogueira September 6th, 2018
Slide 25: Iron ore is not a commodity, bringing many opportunities for Vale
26 Iron ore is not a commodity, bringing many opportunities for Vale Managing product portfolio actively Monitoring and anticipating global market trends Capturing intrinsic value of Vale’s ore in product pricing Establishing the relative economic value of high grade ores
Slide 26: Iron ore is not a commodity, bringing many opportunities for Vale
27 Iron ore is not a commodity, bringing many opportunities for Vale Managing product portfolio actively Monitoring and anticipating global market trends Capturing intrinsic value of Vale’s ore in product pricing Establishing the relative economic value of high grade ores
Slide 27: Cost reduction from using high grade ores is significant
28 The cost reduction associated with the use of high is significant grade ores Impact on hot metal costs¹ (high x low grade ores²) US$/t Slag rate RDI (Reduction degradation index) Flux and burnt lime consumption Coke breeze consumption BF metallic burden consumption Metallic burden impact Coke con
Slide 28: High grade ores increase blast furnace productivity
29 Additionally, the use of high grade ores increases blast furnace productivity Schematics of a blast furnace Impact on productivity¹ reduction COKE SINTER x COHESIVE ZONE + HEATED AIR blast furnace Increase in slag reduces blast furnace productivity effect ¹ High grade ore: Fe: 64.5~65%; Low grade
Slide 29: High grade ores have a significant financial impact even in stringent steel margins
30 High grade ores have a significant financial scenarios of more stringent steel margins impact even in Productivity value of high vs low-grade ores1 US$/dmt of high grade iron ore 50 100 150 Steel margin ranges (US$/t) 1 High grade ore: Fe: 65%; Low grade ore: Fe: 56.6%. 27.8 19.7 11.7
Slide 30: Combined benefits of higher versus lower grade ores in every scenario
31 Leading to combined benefits of using higher x lower grade ores in every scenario of coke prices and steel margins Relative values of high to low grade ores Assumptions US$/dmt of iron ore Low demand scenarios High demand scenarios Blast furnace capacity as the bottleneck for the calculation of p
Slide 31: Iron ore is not a commodity, bringing many opportunities for Vale
32 Iron ore is not a commodity, bringing many opportunities for Vale Managing product portfolio actively Monitoring and anticipating global market trends Capturing intrinsic value of Vale’s ore in product pricing Establishing the relative economic value of high grade ores
Slide 32: Clear market opportunity to improve pricing of Vale's blended product
33 There was a clear market opportunity to improve pricing of Vale’s blended product Main market indexes and products Products pricing the 62% Fe reference¹ Product Index Aussie share PBF NEW MAC Others BRBF 2.5 2Q18 IODEX MAC BF 1Q18 0.4 2017 12% 2.0 MBIO 2016 2015 10% 1.5 2014 2013 11% 2012 1.0 0%
Slide 33: BRBF pricing strategy improved its value perception relative to PBF
34 BRBF pricing strategy improved its value perception relative to the Pilbara Blend Fines (PBF) BRBF vs. PBF differential US$/t 12.0 10.0 8.0 6.0 4.0 2.0 - 3-Apr-18 18-Apr-18 3-May-18 18-May-18 2-Jun-18 17-Jun-182-Jul-18 17-Jul-181-Aug-18 16-Aug-18 Source: Vale and PRAs (Price Reporting Agency) dat
Slide 34: Recently launched index better captures intrinsic value of BRBF
35 The recently launched index better captures the intrinsic of Vale’s BRBF value 5-Month Comparison MBIOI-62 to MBIOI-62-LA US$/t MBIOI-62 MBIOI-62-LA 76 74 72 70 68 66 64 62 60 Apr/18 May/18 Jun/18 Jul/18 Aug/18 Source: Metal Bulletin
Slide 35: Iron ore is not a commodity, bringing many opportunities for Vale
36 Iron ore is not a commodity, bringing many opportunities for Vale Managing product portfolio actively Monitoring and anticipating global market trends Capturing intrinsic value of Vale’s ore in product pricing Establishing the relative economic value of high grade ores
Slide 36: Long term supply quality trends reaffirm uniqueness of Vale's products
37 Long term trends for supply quality reaffirm the uniqueness of Vale’s iron ore products Al/Si P % Seaborne average¹ Vale average Seaborne average¹ Vale average 0.44 0.42 0.41 0.08 0.37 0.07 0.07 2018 2020 2025 2018 2020 2025 ¹ Seaborne average excluding Vale Source: Vale database, inf o is based
Slide 37: Incoming peer supply will not replace quality of depleting production
38 Incoming supply from peers will not replace the quality of current production which is presently being depleted Supply profile¹ 2018 vs. 2025 Mtpy Lowe r contaminants Highe r contaminants 251 71 72 Al/Si: 0.51% P: 0.095% Al/Si: 0.41% P: 0.075% 45 180 32 30 55 15 14 South Flank Koodaideri Eliwana
Slide 38: Iron ore is not a commodity, bringing many opportunities for Vale
39 Iron ore is not a commodity, bringing many opportunities for Vale Managing product portfolio actively Monitoring and anticipating global market trends Capturing intrinsic value of Vale’s ore in product pricing Establishing the relative economic value of high grade ores
Slide 39: Vale will dynamically leverage its product portfolio
40 Vale will dynamically leverage its product portfolio in order to respond to clients’ requirements and market conditions Profile of Vale’s iron ore products1 Seaborne average2 Al Si % % 4.95 2.04 6.3 5.7 5.0 5.0 2.1 1.8 1.5 2.4 1.0 2.1 0.9 0.5 IOCJ BRBF SFLA PFFT SSFT SSFG IOCJ BRBF SFLA PFFT SSFT
Slide 40: Supply chain management
XVIII Analyst & Investor Tour Supply chain management Vagner Loyola September 6th, 2018
Slide 41: Extensive, flexible and dynamically managed supply chain
42 An extensive, flexible and dynamically managed supply chain results in higher competitiveness and margin optimization Extensive Flexible Dynamic product portfolio and Direct reduction) Margin optimization • Pellets (Blast furnace • Pellet feed • IOCJ • BRBF • SFLA • Standard sinter feed • High si
Slide 42: Value over volume model is a new management process
43 Value over volume model is more than words, it is a new management Process Strategic instrument lever for supply chain management COI Global COI System COI Center of Excellence (CE) • Leverage the performance and capacity of main assets and processes • Develop solutions to optimize performance of
Slide 43: New management model allows dynamic response to market demand
44 This new management model allows Vale to respond dynamically to developments in market demand Example Reduction of ~20Mtpy of high silica fines from 3Q17 onwards es revisited in the heastern Systems inventory used to quality 2017 Mine Plant Logistics in Brazil Offshore May 2nd half of the month D
Slide 44: Shipping initiatives offsetting the impact of IMO
45 Shipping initiatives are offsetting the impact of IMO 2020 US$/t Combined effect of more efficient engines and competitive conditions market Theoretical impact of US$ 200/t spread for replacing HSFO with Marine Diesel at the entire fleet Net effect of scrubbers on costs and savings from use of HS
Slide 45: Supply chain management captured US$ billions by adjusting to customer demands
46 Supply chain management captured US$ 3 billion1 until 2018 by adjusting to customer demands and market conditions Vale’s average price premium2 US$/t Main accomplishments Price realization Pellets adjustment 10.0 – 10.5 5.4 3.2 1.5 1.7 7.0 – 7.5 3.5 2016 2017 2018E ¹ Does not include % Fe dif f e
Slide 46: Supply chain management will further contribute to margins
47 Supply chain management will further contribute to margins Examples number of voyages, and increase dynamics • Increase price realization through optimizing the product mix given market • Increase capillarity through portside sales in RMB and smaller lots • Leverage sales price realization and op
Slide 47: Closing remarks
XVIII Analyst & Investor Tour Closing remarks Luciano Siani Pires September 6th, 2018
Slide 48: Premium portfolio and flexibility boosted cash flow generation in 2018
49 Premium product portfolio, flexibility and predictability boosted cash flow generation in 2018 % FCF Yield US$ billion 0.8 16.2 19.9% 13.9 1.2 1.0 4.2 3.6 Analysts' average EBITDA 2018¹ Working Capital Interest on loans Income tax & REFIS Investment Others² Free cash flow, net of disposals Cobalt
Slide 49: Nickel business initiatives to improve operational efficiency
50 The nickel business will implement improve operational efficiency several initiatives to 2Q18 EBITDA Breakeven US$/t 2019 EBITDA Breakeven levers COGS By-productCOGS after Expenses and others¹ Premium / discounts EBITDA break even 2Q18 revenues by-product revenues 1 Sales expenses, R&D, Pre-opera
Slide 50: Copper operations in Brazil continue to be a cash cow
51 Copper operations in Brazil will continue to be a cash cow for our Base Metals division in 2019 2Q18 EBITDA Breakeven – Salobo US$/t 2Q18 EBITDA Breakeven – Sossego US$/t COGS By-productCOGSExpenses Premium / EBITDA break even 2Q18 COGS By-productCOGSExpenses Premium / EBITDA break even 2Q18 reve
Slide 51: Coal business priority was stabilization of Moatize
52 In the coal business, the priority was the stabilization of Moatize in 2018 to guarantee a sustainable ramp-up 2Q18 Pro-forma C1 Cash Cost US$/t Full ramp-up pro-forma C1 Cash Cost Guidance US$/t 4 0 25-30 85-95 3 - 6 82-89 PrPor-of-oforrmaa NaNcalacanolan-Oththerer CCoosttaatt NNLLCC's ’dsebt PP
Slide 52: In 2019 robust cash flow can be generated at current breakeven levels
53 In 2019, robust cash flow can be generated even considering current breakeven levels Breakeven EBITDA2 - - - = X Price1 Volume3 Investment Others5 FCF Pellets 1 Analysts average, US$/t, as of Sep 3, 2018 2 US$/t as of 2Q18 3 As of Vale Day 2017 4 Considers 400 Mt iron ore production and the usual
Slide 53: Strong balance sheet sets basis for new era of shareholder remuneration
54 Strong balance sheet set the basis for starting a new era of shareholder remuneration Net Debt US$ billion Shareholder remuneration US$ billion Buyback New Remuneration Policy Former Remuneration Policy 4.5 2016 2017 2018 2019 2Q17 1Q18 2Q18 Target 1.0 2.1 1.5 1.4 0.3 22.1 14.9 11.5 10.0
Slide 54: Rigorous growth capital allocation will pave the way for future
55 Rigorous growth capital allocation will pave the way for future • Up to 13.7 Mtpy of pellet capacity Delivered ahead of schedule and on budget • Cobalt stream is equivalent to 40% of the estimated VBME nominal capex of US$ 1.7 billion Vale remains exposed to approximately 40% of future cobalt pro
Slide 55: On top of minimum dividend Vale will explore shareholder return options
56 On top of minimum dividend Vale will explore options for shareholder return in a disciplined way • Equivalent to ~50% of FCF1 • Additional return to shareholders • Upside for share appreciation • Salobo III ~8,000 US$/ton2 • 2nd Furnace Onça Puma ~11,000 US$/ton Marginal Capex • Oman Expansion ~
Slide 56: On top of minimum dividend Vale will explore shareholder return options
56 On top of minimum dividend Vale will explore options for shareholder return in a disciplined way Minimum Dividend (30% of EBITDA -Sust.)' [im Equivalentto ~50% of FCF* Fy | Extraordinary Dividends t . additional retum to shareholders or + Upside for share appreciation Buybacks SN Aeg + Salobo lll
Slide 57: Signatures
Table of Contents 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. Date: September 06, 2018 Vale S.A. (Registrant) By: /s/ André Figueiredo Director of