Slide 1: Vale: ready for the new steel making era
1 Vale: ready for the new steel making era Fabio Schvartsman, CEO, Vale FT Commodities Americas Summit October 16, 2018
Slide 2: The supply side reform is reshaping the Chinese steel industry…
2 The supply side reform is reshaping the Chinese steel industry… Chinese installed capacity reduction goal Mtpy Official target for capacity curtailment Official steelmaking capacity 65 50 1,130 35 1,065 1,015 980 2015 2016 2017 2018-20 Source: Local governments, MIIT, Wood Mackenzie
Slide 3: … thus increasing capacity utilization and prices in China
3 … thus increasing capacity utilization and prices in China Capacity utilization of Chinese steel mills Historical rebar prices in China US$/t Yearly average prices 95% 800 387 578 619 90% 85% 600 80% 400 75% 70% 200 65% 60% 0 2014 2015 2016 2017 2018 2019 2020 2021 2016 2017 2018 Source: NBS, CRU
Slide 4: Investment in mining has decreased and mine depletion rate is now poised to go up
4 Investment in mining has decreased and mine depletion rate is now poised to go up FAI1 in ferrous mining industry in China Lack of supply for major Australian players RMB billion 200 of Australian ore needs 127Mt replacement now 150 Additional of Australian ore needs 100 127Mt replacement by 2030
Slide 5: Pollution is a major concern in China leading to stricter enforcement of emission standards
5 Pollution is a major concern in China leading to stricter enforcement of emission standards Steel capacity meeting new emissions standards Mtpy % of installed capacity ~95% 900 ~60% ~50% 580 480 2020 2022 2025 Source: NBS, CRU
Slide 6: All these factors are structurally increasing the demand for high quality ore
6 All these factors are structurally increasing the demand for high quality ore Higher quality iron ore Steel making process impacts Fe grade Emissions Fuel consumption Impurities • Alumina Productivity • Silica • Phosphorous • Among others Margins
Slide 7: High quality ore captures premiums above the benchmark
7 High quality ore captures premiums above the benchmark Título do Gráfico Premiums and discounts US$/t 65%-62% 58%-62% 62% LA - 62% 30 20 10 - US$ 56/t Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 (10) (20) (30) (40) Source: Platts e Metal Bulletin
Slide 8: Vale is the supplier of choice of high quality products…
8 Vale is the supplier of choice of high quality products… Iron Ore – Sales break-down % Premium products¹ Other products² 53% 66% 73% 82% 47% 34% 27% 18% 2015 2016 2017 2018E ¹ Premium products: pellets, Carajás, Brazilian Blend Fines (BRBF), pellet feed and Sinter Feed Low Alumina (SFLA) ² Other p
Slide 9: …with the purpose of producing 400 mtpy
9 …with the purpose of producing 400 mtpy Iron Ore production1 Mtpy Northern System Nominal capacity 450 ~390 ~400 ~400 200 217 230 2018E 2019E 2020E 1 Includes third-party ore purchases
Slide 10: An extensive, flexible and dynamically managed supply chain results in higher competitiveness and…
10 An extensive, flexible and dynamically managed supply chain results in higher competitiveness and… Onshore Offshore Pellets 4 Integrated Production ~320 Mt/year 13 pelletizing Systems in Brazil (mine- plants railroad-port) 22 mines ~350 ships 4 railroads and 1 waterway 1 distribution center in 4
Slide 11: ... allows us to increase our presence in China and built inventories close to our clients
11 ... allows us to increase our presence in China and built inventories close to our clients • Strategic partnership with 16 ports in China • Sales at ports are made in smaller batches • BRBF blended at Chinese ports and Malaysia
Slide 12: Up to US$ 4 billions is the value of a premium and unique portfolio of products
12 Up to US$ 4 billions is the value of a premium and unique portfolio of products Vale’s average price premium¹ US$/t 10.0 - 10.5 5.4 3.2 2016 2017 2018E Vale’s product portfolio will capture up to US$ 4.0 billions in 2018 ¹ Premium over the 62% Fe content reference price (includes % Fe differentia
Slide 13: There is a growing consensus that Electrical Vehicle production will grow exponentially
13 There is a growing consensus that Electrical Vehicle production will grow exponentially Number of electric vehicles1 Millions of EVs 17%-38% of market 50 share by 2030 Vale EV Upside Case 8%-20% of market 45 Vale EV Conservative Case share by 2025 BofA 40 Berstein 35 30 Barclays World Bank McKins
Slide 14: We are ready to meet the EV revolution
14 We are ready to meet the EV revolution Breakdown of Ni demand 2017 vs. 2030 Vale’s nickel sales distribution % % Class I Class I + Class II battery-suitable Class II Class II + Intermediaries 29% 54% 78% 85% 86% 71% 46% 22% 15% 14% 2017 2030E 4Q17 1Q18 2Q18
Slide 15: A sound cash flow will be generated in the coming years…
15 A sound cash flow will be generated in the coming years… Vale’s free cash flow (excluding divestments) from 2012 to 2019 US$ billion 11.5 7.8 ~10.0 0.3 2.1 0.7 1.5 -4.8 2012 2013 2014 2015 2016 2017 2018E 2019E
Slide 16: …enabling us to slash debt and setting the foundation for a new era of shareholders remuneration
16 …enabling us to slash debt and setting the foundation for a new era of shareholders remuneration Net debt Shareholders remuneration US$ billion US$ billion Dividend Share buy-back 22.1 4,5 1.0 14.9 11.5 3.5 10.0 1.5 0.3 2Q17 1Q18 2Q18 Target 2016 2017 2018 2019
Slide 17: Historically capital allocation has been the biggest trap for mining companies
17 Historically capital allocation has been the biggest trap for mining companies Mining industry: cumulative cash flow from 2003 to 2014 US$ billion 1,600 -400 1,200 -800 -300 100 Operating cash Tax, Financial Operating Capex M&A Free generation1 Expenses and cash flow cash flow 1 Measured by EBITD
Slide 18: Vale will deploy its free cash flow wisely
18 Vale will deploy its free cash flow wisely Minimum dividend (30% of EBITDA – Sust.)1 Extraordinary Dividends Accumulated FCF or Buybacks Bolt-on Opportunities Marginal Cash 1 30% x (adjusted EBITDA– Sustaining Investments). Approximately 50% of FCF.
Slide 19: A new governance enhance shareholders' confidence…
19 A new governance enhance shareholders' confidence… Single class of shares Dilution of control Election of two independent board members Ahead of expectations in the evolution of governance (Novo Mercado listing)
Slide 20: … thus improving our share price performance
20 … thus improving our share price performance Share price base (Jun/17 = 100) 220 +111% 200 180 160 +61% +46% 140 120 +22% 100 jun-17 nov-17 abr-18 set-18 Vale Glencore Rio Tinto BHP
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