Vale S.a. · BMFBOVESPA:VALE3
Vale — Q3 2018 Earnings Presentation
39 slides from Vale's earnings presentation, Oct 25, 2018
Slide 1: Vale's Performance in 3Q18
Truckless system – S11D Vale’s Performance in 3Q18 Rio 1 de Janeiro, October 25th, 2018
Slide 2: Forward-looking statements and cautionary note
“This presentation may include statements that present Vale's expectations about Agend 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 c
Slide 3: Agenda
Agenda Agend 1. Highlights of Vale’s performance in 3Q18 2. Capital Allocation 3. Business segment performance 3
Slide 4: Highlights of Vale's performance in 3Q18
Highlights of Vale’s performance in 3Q18 4
Slide 5: Delivering in every meaningful way
5 Delivering in every meaningful way US$ 4.4 bi US$ 3.1 bi US$ 10.7 bi 12% 2% 8% Total EBITDA Free cash flow Net Debt US$ 27.4/t US$ 11/t US$ 2.4 bi Iron ore EBITDA US$1.4/t Iron ore and pellet 7% Pellets EBITDA 10% breakeven premiums in 9M18 Chief Executive Officer, Mr. Fabio Schvartsman, commented
Slide 6: Record production for iron ore and pellets
6 Record production for iron ore and pellets supported by S11D ramp-up and by the decision to restart the three idle pellet plants Iron ore1 production volumes Pellet production Mt Mt 104,9 13,9 95,1 96,8 12,8 12,8 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 6 1 Including third party purchases, run-of-mine and fe
Slide 7: Record sales and increased share of premium products
7 The flexible supply chain along with S11D and pellet plants ramp-ups led to record sales and increased share of premium products Iron ore1 and pellets sales volumes Sales composition Mt % Pellets Premium products² Iron ore Other products³ 98 90 86 14 13 13 84 77 73 72% 77% 79% 28% 23% 21% 3Q17 2Q1
Slide 8: Record premium of US$ 11/t
8 Record premium of US$ 11/t, due to the active optimization of the supply chain and the premium product portfolio Average premiums of iron ore fines and Highlights 3Q18 pellets1 US$/t Pellets weighted average Value over volume contribution Iron ore fines premiums Differentiation strategy capturing
Slide 9: Consistent quarterly EBITDA growth year-on-year
9 Consistent quarterly EBITDA growth year-on-year, irrespective of reference price variation Adjusted EBITDA Iron ore 62% reference price (US$/t) US$ billion + 43% + 4% 4,192 4,374 3,902 2,729 2Q17 2Q18 3Q17 3Q18 63 65 71 67 +3% -6% 9
Slide 10: Strong cash flow generation and net debt target
10 The strong cash flow generation led Vale to virtually achieve its net debt target of US$ 10 bi while returning US$ 2.4 bi to shareholders US$ million 197 248 324 4,374 692 194 3,113 958 2,365 -210 1 EBITDA Working Interests Income taxes Capex Others Free Debt Shareholders Increase 3Q18 capital on
Slide 11: New era of shareholder remuneration
11 Strong balance sheet sets the basis for starting a new era of shareholder remuneration Shareholder remuneration Highlights US$ billion First payment pursuant to the new dividend policy that was Dividend / Interest on capital designed to be predictable, Share buyback aggressive and sustainable ove
Slide 12: Capital allocation
Capital allocation 12
Slide 13: Two high return investments approved
13 Consistent with the rigorous capital allocation strategy, Vale approved two high return investments Copper: Salobo III Capex Pellet feed: Gelado Capex US$ millions US$ millions 230 - 240 460 - 480 370 - 380 200 - 210 70 - 80 100 - 110 70 - 80 600 - 700 10 - 20 3 2019 2020 2021 2022 Wheaton Precio
Slide 14: Net debt trimmed toward US$ 10 billion target
14 Vale has continued to trim its net debt and virtually achieved the US$ 10 billion net debt target Net debt Highlights US$ billion Cash position on September 30th, 2018 of US$ 6.106 billion - 10.362 Net debt has reached the lowest level since 3Q09, reducing by more than US$ 21,066 10 billion over
Slide 15: Leverage was 0.7x
15 Leverage was 0.7x and will reduce further as net debt target of US$ 10 bi is reached in the short term Net debt / LTM1 EBITDA Ratio 1,3 1,2 Net debt in LTM EBITDA / 3Q18: LTM gross 1,0 US$ 10.704 interest: billion 12.8x 0,7 0,7 Average Average cost of maturity: debt: 3Q17 4Q17 1Q18 2Q18 3Q18 9.1
Slide 16: Gross debt decrease and amortization schedule
16 The decrease in gross debt against the end of last quarter was mainly due to repayments of US$ 1.2 billion¹ in 3Q18 Gross debt Gross debt amortization schedule² US$ billion US$ billion 16,6 12,8 25,790 0,9 1,1 1,3 0,4 17,906 16,810 2018 2019 2020 2021 2022 Gross onwards debt 77% of our debt matur
Slide 17: Business segment performance
Business segment performance 17
Slide 18: Ferrous Minerals EBITDA variation
18 Ferrous Minerals EBITDA was higher than Vale’s total in 2Q18 mainly due to higher sales volumes, lower unit costs and higher premiums US$ million US$ 620 million 166 76 158 372 3.960 129 129 112 3.228 EBITDA Reference FX Bunker & Volume Premiums & Unit costs Others EBITDA 2Q18 price spot freight
Slide 19: Iron ore CFR realized price
19 Vale’s iron ore CFR realized price was US$ 9.9/t higher than the market reference for the 62% Fe content, totaling US$ 76.6/t in 3Q18 US$/t, 3Q18 + 14.8% US$ 8.6/t 0,7 0,1 0,1 0.4 4,0 6,6 76,6 5,6 2,0 66,7 67,0 Average Quality Premium / Provisional Lagged Current Provisional CFR Adjustment Moistu
Slide 20: 9M18 pellets EBITDA
20 9M18 pellets EBITDA represented 19% of Vale’s total EBITDA and being on track to achieve more than US$ 3 billion in 2018 US$ billion Highlights 9M18 pellets EBITDA reached a record level since 9M14 3 3Q18 pellets EBITDA was US$ 800 2,5 2,5 million, in line with 2Q18, despite 2,4 2 lower dividends
Slide 21: Iron ore C1 cash cost decreased
21 As anticipated in 2Q18, our iron ore C1 cash cost decreased to a level distinctly lower than US$ 13.0/t Iron ore fines C1 cash costs Highlights 3Q18 US$/t The reduction of US$ 2.3/t vs. 2Q18 was due to the successful 16,0 ramp-up of S11D, higher 14,0 14,5 14,7 productivity, higher dilution of fix
Slide 22: EBITDA breakeven reached lowest level ever
22 EBITDA breakeven reached the lowest level ever, despite the inflationary pressures of freight and bunker Iron ore and pellets EBITDA breakeven US$/t, 3Q18 3,1 8,6 2,7 0,8 19,4 2,4 29,8 27,4 12,4 C1 cash cost¹ Freight Royalties & Distribution Moisture Quality EBITDA Pellet EBITDA expenses breakeve
Slide 23: Incoming supply from peers vs. current production quality
23 Incoming supply from peers will not replace the quality of current production which is presently being depleted Supply profile¹ 2018 vs. 2025 Mtpy Higher contaminants Lower contaminants 71 251 72 Al/Si: 0.51% Al/Si: 0.41% P: 0.095% P: 0.075% 45 180 32 30 55 15 14 80 63 24 24 South Flank Koodaider
Slide 24: Base Metals EBITDA tipping point
24 3Q18 results represented a tipping point for Base Metals in the process of creating the basis to generate strong cash flow Base Metals EBITDA Highlights 3Q18 US$ million As previously disclosed, Vale’s Base Metals results reflected planned one-off effects derived from Sudbury’s scheduled 778 main
Slide 25: Base Metals EBITDA 9M18 vs 9M17
25 Base Metals EBITDA in 9M18 was significantly higher than 9M17 and 9M16 US$ billion Highlights The performance of the Base Metals + 54% business will be improved based on the operational stabilization plan of its new management team along with the tailwind 2,0 of EV demand for battery-suitable nic
Slide 26: Nickel realized price above LME prices
26 Nickel realized pricewas 6.2% above LME prices, the highest percentage above the benchmark in the last 10 years Nickel realized price / LME price % 12%+9.6% 10% Série 1 8% +6.2% +5.7% 6% 4% 2% 0% -2% -4% -6% 26
Slide 27: Coal EBITDA impacted by lower realized prices
27 Coal EBITDA was mainly impacted by lower realized prices of metallurgical coal Coal Adjusted EBITDA Highlights 3Q18 US$ million Met coal price realization of 93% of market index in 3Q18, mainly due to lower allocation in September, when market 53 prices were higher, while lagged index sales were
Slide 28: Additional information
Additional information 28
Slide 29: Production and sales records for a 3Q
29 Production and sales records for a 3Q breaking the emblematic production barrier of 100 Mt of iron ore fines in a quarter % Quarterly record Fe Pellets Ni Cu Coal % % Total: 104.9 Mt Total: 13.9 Mt Total: 55.7 kt Total: 94.5 kt Total: 3.2 Mt % % Northern System: Southeastern 53.9 Mt System: 8.7 M
Slide 30: Capital expenditures decreased by 20% year-on-year
30 As a result of Vale’s more rigorous capital allocation approach, capital expenditures decreased by 20% year-on-year Project and sustaining capex 3Q18 Highlights US$ million Total capex of US$ 692 million in 3Q18 Vale’s Board of Directors approvedthe investment of US$ 863 1.1 billion in the Salobo
Slide 31: Flight to quality structural trend
31 Vale’s portfolio is benefiting from the increase in the flight to quality structural trend Premiums and discounts (daily basis) US$/t Título do Gráfico 65%-62% 58%-62% 62% LA - 62% 30 +US$ 23/t 20 10 - jan/16 mai/16 set/16 jan/17 mai/17 set/17 jan/18 mai/18 set/18 US$ 54/t (10) (20) (30) -US$ 31/
Slide 32: Improving sales mix composition
32 Vale continues to improve its sales mix composition in 3Q18 Iron ore sales product mix (%) Nickel sales product mix (%) Class I Premium products¹ Class II battery-suitable Other products² Class II Intermediates 52% 56% 60% 72% 77% 79% 24% 26% 26% 8% 28% 23% 11% 21% 16% 7% 7% 7% 3Q17 2Q18 3Q18 3Q1
Slide 33: Iron ore pricing systems
33 Iron ore pricing systems Pricing system breakdown (%) Impact of pricing mechanisms US$/t Lagged Provisional - prior quarter Lagged Current Provisional 0,7 0,9 0,1 28% 28% -0,5 39% 2Q18 3Q18 2Q18 3Q18 Current Provisional - current quarter 61% 62% 51% 0,2 0,1 0,4 -0,4 10% 11% 10% 3Q17 2Q18 3Q18 2Q1
Slide 34: Evolution of iron ore fines cash cost, freight and expenses
34 Evolution of iron ore fines cash cost, freight and expenses C1 cash cost FOB port1 Freight Expenses2 & royalties US$/t US$/t US$/t 19,4 3,3 14,5 14,7 17,2 12,4 15,0 2,7 2,5 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 34 1 Ex-ROM and ex-royalties. 2 Including dividends received. Net of depreciati
Slide 35: Price realization copper operations
35 Price realization copper operations US$/t, 3Q18 47 6.105 6.058 468 5.590 602 4.988 Average LME Current period Copper gross Prior period price Copper realized TC/RCs, penalties, Average copper copper price price adjustments realized price adjustments price before premiums and realized price discou
Slide 36: Price realization metallurgical coal from Mozambique
36 Price realization – metallurgical coal from Mozambique US$/t, 3Q18 0,0 0,0 0,0 0,0 12,5 0,0 1,6 0,1 3,8 0,1 2,4 0,0 188,5 0,0 175,9 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Average Portfolio and Premium, Provisional Lagged and Provisional Freight Vale reference price quality discounts & pr
Slide 37: Price realization thermal coal from Mozambique
37 Price realization – Thermal coal from Mozambique US$/t, 3Q18 101,6 13,7 1,0 0,9 0,8 0,1 0,0 89,2 Average Portfolio and Premium, Provisional Lagged Provisional Freight Vale reference quality discounts & prices in and prices in differential price price commercial prior current current 3Q18 3Q18 con
Slide 38: Debt position breakdown
38 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) 7% 15% 17% 20% 65% 75% Development Agencies Capital Markets Hedge to USD USD BRL Others Bank Loans 38
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