Vale S.a. · BMFBOVESPA:VALE3
Vale — Investor Day (December 2017)
69 slides from Vale's investor day presentation, Dec 7, 2017
Slide 1: Forward-looking statements and cautionary note
““This presentation may include statements that presenting 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 co
Slide 2: Forward-looking statements and cautionary note
“This presentation may include statements that presenting 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 cor
Slide 3: Vale will generate more value for shareholders than peers
Vale will generate more value for shareholders than its global mining peers 4 Strategic pillars Performance Improvement Governance Enhancement Clear Strategy Sustainability Benchmark
Slide 4: Performance Improvement: enhancing performance while improving capital allocation
Capital allocation Rigorous capital allocation process based on returns Cost efficiency Integration and meritocracy Automation and cost management Price realization Product portfolio to capture “flight to quality” 5 Performance Improvement Enhancing performance while improving capital allocation
Slide 5: Nickel capex reduction
6 Nickel capex US$ billion -53% Vale is using spot nickel prices to approve capital projects resulting in a capex reduction of US$ 1.6 billion in 2017-2018 -40% Updated production plan Previous production plan VNC dry stacking Voisey’s Bay mine expansion Thompson mine extension Indonesia growth plan
Slide 6: Ferrous Minerals EBITDA gain from competitiveness focus
7 EBITDA/t¹, US$/t, 2017E vs. 2020E The US$ 3.0 - 5.0/t gain will come on top of the US$ 1.0/t in supply chain optimization already captured in 2017 Focus on competitiveness is expected to increase EBITDA of Ferrous Minerals by US$ 1.2 - 2.0 billion by 2020 vs. 2017 1 Assuming no change in Platts IO
Slide 7: Clear Strategy
Iron ore: margins, premium products and flexibility Base Metals Preserve optionality in nickel (Electric Vehicles) Increase copper production (Salobo III, Victor and Hu’u) Coal: leverage mine and logistics Deleverage: US$ 10 billion 8 Clear Strategy Focus on a strong balance sheet while leveraging t
Slide 8: Iron ore production volumes and nickel production
Iron ore production volumes¹ Mtpy 9 Nominal capacity 1 Including third party purchases Vale has adapted its production plan in order to maximize cash flow generation and reinforce supply discipline Updated production plan Previous production plan Nickel production volume kt -45 -54 -33 -15 -15 171 2
Slide 9: Nickel unit cash cost by operation
10 Operation1 2017E 2018E Sudbury 3,287 2,983 Thompson 10,488 8,094 Voisey’s Bay 3,206 4,680 VNC 10,153 9,717 PTVI 6,463 6,329 Onça Puma 8,622 7,704 1 Costs per operation based on site view / standalone companies Unit cash cost after by-product credits US$/t Despite lower volumes, Vale will become c
Slide 10: Governance Enhancement: Novo Mercado
December 22nd, 2017: important date for Vale Transformation of Vale into a corporation Two independent board members Re-rating 11 Governance Enhancement Better governance and Novo Mercado
Slide 11: Sustainability Benchmark
Focus on systematic planning and execution Beyond Vale’s operations 12 Sustainability Benchmark Sustainability
Slide 12: Paving the way to create value
13 Paving the way to create value
Slide 13: Luiz Eduardo Osorio, Sustainability and Institutional Relations
Luiz Eduardo Osorio Executive Officer, Sustainability and Institutional Relations
Slide 14: Progress required to become a reference in sustainability
Progress required to become a reference in sustainability 15 Reduction in total injury time² from 11.2 in 2007 to 2.1 in 2017 Creation of Renova Foundation in July 2016 Reduction of 7% in greenhouse gas direct emissions Main progress in key areas Vale’s Pulse Reputation Index¹ ¹ Pulse Reputation Ind
Slide 15: Renova Foundation initiatives are on track
8.2 thousand families with financial assistance 1.5 thousand families from traditional communities and indigenous people are assisted under Renova Project scope: food, water and economic security 101 tributaries were rehabilitated 800 hectares were replanted Since 1H16 the level of metals along the
Slide 16: Rebuilding villages and compensation programs
Reconstruction of Bento Rodrigues, Paracatu de Baixo and Gesteira Design of new urban plans based on public hearings Initiation of construction in 2018 and expected delivery in 2019 In 2018, the Renova Foundation will focus on the compensation for the affected families and on rebuilding the villages
Slide 17: Coming next: new approach and goals for sustainability
Sustainability areas with very good initiatives and ideas but not interconnected, leading to suboptimal results for Vale’s stakeholders 18 Coming next: new approach and goals for sustainability Systematic planning and execution Dispersed initiatives Redefinition of purpose, operational and organizat
Slide 18: Global Business Support drivers
Implement a global, integrated and streamlined procurement model Implement strong portfolio management to deliver all capital projects globally, with disciplined capital allocation Shape competitiveness through a strong management model and a culture of performance Secure a sustainable energy model
Slide 19: Global Business Support will drive the digital revolution
21 Asset performance > 8-10% Maintenance > 11-14% Workforce effectiveness > 5-15% Supply chain > 4-6% Autonomous trucks Advanced and predictive analytics Smart planning and process optimization Automated inspection and maintenance Real-time performance monitoring and optimization Focus areas Example
Slide 20: Building the Vale of the future
22 Develop effective use of data Unlock new productivity levels Integrate functions, expand best practices and leverage scale Foster strong management model and a culture of excellence Engage workforce and share expertise Drive a cultural change Examples of contributions Globally connected Digital r
Slide 21: Peter Poppinga, Ferrous Minerals and Coal
Peter Poppinga Executive Officer, Ferrous Minerals and Coal
Slide 22: First wave of competitiveness improvement gains
24 US$ million Initiatives from the first wave of competitiveness improvement, ending 2016, generated gains of US$ 3.3 billion vs 2014 US$ 3.3 bi 11,321 8,536 2,969 1,393 1,037 608 735 861 87 10,476 EBITDA 2014 Price Exchange rate Bunker oil Commercial initiatives Volume Freight COGS Others EBITDA 2
Slide 23: Second wave of competitiveness
S11D ramp-up Innovation and automation development Structured cost management program implementation 1 2 3 1 25 Performance Improvement Clear Strategy Operational yield¹ improvement Supply chain optimization (efficiency and price realization) Pellet production increase 2 3 In 2017, Vale started its
Slide 24: Truckless system productivity and S11D production
27 Truckless system productivity Tons per hour, Jan-Nov 2017 S11D production in 2017 Mt 1 2 3 The four truckless systems are operating at over 80% capacity, enabling good performance of the S11D ramp-up 8,000 6,500 Nominal Capacity Realized 19.5 ~ 2.5 ~ 22 .0 Jan-Nov 2017 Realized Dec 2017E 2017E
Slide 25: S11D ramp-up will further decrease costs
Production volumes Mt 1 C1 cash cost at the port (mine, plant, railroad and port, excluding royalties) 2 Current Vale based on 3Q17 3 Carajás (ex-S11D) based on 3Q17 4 S11D fully ramped up, normalized to the exchange rate of BRL/USD 3.35 C1 cash cost1 US$/t - 31% - 47% 28 4 1 2 3 S11D ramp-up will f
Slide 26: Innovation and automation investments
29 Autonomous trucks and drills Fully automatic stackers and reclaimers Modernization of dispatch system Equipment management 1 2 3 Train control optimization Semi-autonomous locomotives Automated maintenance and inspection Equipment management MINE AND PLANT US$ 0.3/t US$ 0.2/t Investments in innov
Slide 27: Structured cost management program
30 Methodology Mapping processes Gap and goal definition Action plan implementation Improve maintenance productivity Reduce consumption of raw materials and consumables Process and structure synergies Pilot project for pellets Expected pellets costs reduction US$/t 1 2 3 After the pilot project in t
Slide 28: Operational yield versus peers
31 1 Operational yield measured by global recovery rate. Global recovery = total production / (waste + ROM) Source: Vale, WoodMac and peers’ public reports Operational yield1, % 2015 2014 2016 2017E Peer average Vale +4bps 2020E +17bps Highest operational yield¹ among peers as a result of increased
Slide 29: Production volumes and blended volumes
Production volumes¹ Mtpy 32 Nominal capacity 1 Including third party purchases The increase of Northern System production will allow higher blended product volumes, therefore increasing the inventory level offshore (Malaysia and China) in 2018 Vale has adapted its production plan in order to maximiz
Slide 30: Sales composition by product
33 Sales composition1, % 2 Vale has adjusted its product portfolio and quality according to market demand 1 Does not include pellets and pellet feed for pelletizing 2 Mid Western System and Lump 1 2 3 23% 19% 18% 16% 25% 22% 19% 8% 5% 14% 25% 35% 40% 42% 37% 40% 2015 2016 2017E 2018E Carajás Blend S
Slide 31: Supply chain value creation opportunities
34 Value creation opportunities Better sales price realization and product quality management Improvements in the planning process for sales and operations from mine to port Optimization of ship distribution and response to client’s demands Future opportunities Excellence Center: improvements in ass
Slide 32: Price premium over index
35 1 Premium over the index Platts IODEX 62% Fe content (includes VIU and premium, does not include pellets) Vale’s average price premium¹, US$/t The improvement in price realization is expected to add up to US$ 350 million in 2018 EBITDA Price realization will progressively improve based on constan
Slide 33: China iron ore imports and declining Fe content
36 China iron ore imports average Fe content % On the iron ore supply side, there are continuous declines in iron ore grades and in investments in new mines to maintain quality FAI1 in ferrous mining industry in China RMB billion 1 FAI = Fixed Asset Investments Source: NBS, Metal Bulletin and Vale F
Slide 34: Flight to quality trend
37 Changes in the Steel Industry and declines in iron ore grades are leading to a consistent and structural “flight to quality” trend 1 Source: NBS, Metal Bulletin and Vale Contaminants discount US$/t Price spread 65% and 58% Fe iron ore US$/t, net of Fe % adjustment 1 2 3 0 2 4 6 8 Oct-16 Dec-16 Fe
Slide 35: Pellets production volumes
Pellets production volumes Mtpy 38 Highlights Restart of São Luis and Tubarão I/II pellet plants scheduled for 1H18 São Luis production capacity of 7.5 Mtpy Tubarão plants I and II production capacity of 6.2 Mtpy Total investments of US$ 150 million Vale is continuously looking for opportunities, in
Slide 36: Normalized EBITDA per ton
39 US$/t 1 Adjusted EBITDA of Ferrous Minerals (excluding manganese and ferroalloys) normalized by the 3Q17 Platts IODEX 62% of US$ 70.9/t, exchange rate of 3.35 BRL/USD and bunker oil of US$ 308/t Vale’s competitiveness measured by normalized EBITDA/t1 is expected to increase by another US$ 3-5/t i
Slide 37: Peter Poppinga, Ferrous Minerals and Coal
Peter Poppinga Executive Officer, Ferrous Minerals and Coal
Slide 38: Coal business strategy
Successfully conclude the ramp-ups of Moatize and Nacala Consolidate margin improvement 1 2 41 Performance Improvement Clear Strategy Project Finance signed on November 27th, 2017 Leverage mine and logistics Foster mineral exploration 1 2 3 Coal business will generate solid results by concluding the
Slide 39: 2017 Vale coal transactions and Project Finance
42 2017 Vale coal transactions Proforma production costs through NLC – 2017E US$/t US$ million Net Nacala tariff US$ 15/t 1 Production cost includes mine, plant, railway, port and royalties of coal shipped through Nacala, excluding inventory movement 2 Nacala tariff is composed of debt service, taxe
Slide 40: Coal production and shipment volumes
43 Production volume1,2 Mt Shipment volume1,2 Mt 1 Includes only Mozambique operations 2 Due to prioritization of higher margin metallurgical coal sales, thermal coal inventories built up until 2016. Nacala corridor stepped up Vale’s logistics capacity and enabled the drawdown of the material +113%
Slide 41: Proforma production cash cost at the port
44 Proforma production cash cost at the port US$/t 2 1 1 Net Nacala tariff is composed of investments, working capital, debt service, amortization, taxes and others, net of interest received by Vale related to shareholder loans 2 Production cost includes mine, plant, railway, port and royalties of c
Slide 42: Mozambique operations EBITDA
45 Mozambique operations EBITDA 2016 vs. 2017E 1 1 Reported -US$ 54 million EBITDA adjusted for the positive effect of thermal coal inventory adjustment recorded in 2016 (US$ 267 million) 2 Effect of the positive US$ 56 million EBITDA from the Australian operations in 2016 EBITDA 3 Considers 2018 av
Slide 43: Jennifer Maki, Base Metals
Jennifer Maki Executive officer, Base Metals
Slide 44: Base Metals strategy
Enhancing current performance while consolidating Vale’s position for potential upside Improve competitiveness of operations Transition to a smaller footprint in nickel 1 2 47 Performance Improvement Clear Strategy Align investments and production based on the market conditions Preserve optionality
Slide 45: Copper and nickel asset optimization
Changes to ensure all assets contribute to positive cash flow 48 Copper asset optimization Divestment of the stake in Lubambe mine, Zambia Asset reviews Detailed review across all operations, especially nickel Reviewed at mine level within Canadian integrated operations Positive cash generation at l
Slide 46: Initiatives across nickel operations
Initiatives across all operations to increase competitiveness under current challenging market conditions Thompson Sudbury Voisey’s Bay Develop ‘fit for purpose’ organization Implement structured cost management program Achieve CAD$ 200 million challenge by 2022 Ramp up the Long Harbour Processing P
Slide 47: Reduction of nickel production forecast
50 Reduction of nickel production forecast1 kt -45kt 1 PTVI includes reduction of volumes for in-process inventory shipped to Vale’s Clydach refinery in United Kingdom Transitioning to a smaller footprint in nickel by calibrating investments and production to reflect current market conditions 1 2 In
Slide 48: Benefits from single furnace operation in Sudbury
Benefits from a single furnace operation in Sudbury 51 Surface plant unit cost US$, total finished nickel CCNR¹ + FMW² to Clydach AER/SFU³ project capex US$, million Capital requirements for the flowsheet change will decrease in the coming years 1 2 1 Copper Cliff Nickel Refinery 2 Nickel feed from
Slide 49: Vale New Caledonia
Focus continues to be on improving stability of VNC operations and bringing a partner to close funding gap in the next few years 52 Vale New Caledonia Value generation opportunities Operational improvements to address bottlenecks¹ to increase production Reduction of over US$ 150 million in cost annu
Slide 50: Electric vehicles bring upside to nickel market
Electric vehicles bring upside to the market longer-term 53 1 “Market news” refers to public commitments by various auto manufacturers as well as governments (such as UK/France committing to no ICE sales by 2040, and other announcements by California, China, etc.) Source: Public announcements, media
Slide 51: Targeted investments and growth options in nickel
Targeted investments and options for growth under the right nickel market conditions Replacement ore with full production by 2021 Poly-metallic ore body (nickel, copper and PGMS) Potential for further phases Well positioned on prospective land in Sudbury Significant land yet to be explored at operat
Slide 52: Increase copper production
Increase copper production Second expansion to 36 Mtpy Production of 50 ktpy¹ of copper concentrate by processing lower grade material currently being stockpiled Economic feasibility aided by a bonus² to be paid by Wheaton Precious Metals High grade polymetallic project in Sudbury basin Potential fo
Slide 53: Smaller nickel business and copper quality assets
Vale plans to consolidate around a smaller nickel business and leverage the quality of the copper assets Nickel kt Copper1 kt 287 263 262 268 438 422 424 433 266 438 56 1 Not including Lubambe 2017E 2018E 2019E 2020E 2021E Sudbury Thompson Voisey's Bay Sorowako Onça Puma VNC 2017E 2018E 2019E 2020E
Slide 54: EBITDA sensitivity to nickel and copper prices
EBITDA will directly respond to positive price movements from increased demand by electric vehicles With a transformed business, Vale’s nickel operations will readily absorb any upside potential for nickel prices, with amplified impact on EBITDA Copper price (US$/t) 5,500 6,000 6,500 7,000 7,500 Nic
Slide 55: EBITDA sensitivity to nickel and copper prices
EBITDA will directly respond to positive price movements from increased demand by electric vehicles EBITDA 2020, USS billion Copper price (USSIt) With a transformed 10,000 JRE 20 22 24 27 puainesssVale's) nickel operations 12,000 Ja 2.6 28 3.0 3.2 will readily absorb 3 5 14,000 JP 3.4 33 35 37 any u
Slide 56: A glimpse of Vale in 2020
1 Forecast asset base does not include growth projects not approved 2 Others include R&D expenses and energy segment Total assets¹ EBITDA less sustaining scenarios (prices in US$) Return on Assets Pre-tax Iron ore 400 Mt 37.2 Nickel operations Ni 268 kt, Cu 140 kt 19.8 Copper operations Cu 293 kt 2.
Slide 57: Total shareholder return levers
1 60 Improved Cash Flows Low-debt Balance sheet 1 2 3 Multiple re-rating Optimized capital expenditures Streamlined and optimized asset portfolio Reduced cash flow drags 4 Total shareholder return will improve significantly based on several levers Better governance Predictable performance and capita
Slide 58: Novo Mercado listing and multiples convergence
61 Highlights Migrating to Novo Mercado ahead of schedule on December 22nd, 2017 Benchmark transaction in the Brazilian Market, with a participation of 80% of retail investors Dissolution of the current control block and consequent diversification of the shareholder base to give more independence to
Slide 59: Consistent track record enhancing investor confidence
Capex Nickel operations cash costs after by-products Consistent track record enhancing investor confidence and enabling a higher multiple Iron ore and pellets EBITDA breakeven landed-in-China South Atlantic copper cash costs after by-products US$/t US$/t US$/t US$ billion 2 1 62 16.2 14.2 12.0 8.4 5
Slide 60: Vale's asset portfolio will be further simplified
1 2 3 4 Vale’s asset portfolio will be further simplified Cubatão Eagle Downs Biopalma CSP Aliança Mosaic VLI MRS Manga nese Iron ore Coal Nickel Copper Pellets Core Adjacent Non-core Samarco REFIS Pre-Op Expenses Financial Expenses Cash Flow Drags MRN CSI 63
Slide 61: Core assets have low-cost growth options
Vale’s core assets have low-cost options to increase production and returns Coal Copper Nickel Pellets Volume IRR Size of investments Project Moatize Expansion (2020’s) Salobo III Onça Puma 2nd furnace Indonesia expansion São Luís Tubarão plants I and II 5 Mtpy¹ ~50 Ktpy² 15 Ktpy² 10-40 Ktpy4 7.5 Mt
Slide 62: Assets adjacent to the core
Mosaic VLI MRS Manganese and Ferroalloys Aliança Geração de Energia Assets adjacent to the core present potential opportunities Total 65 1 Market estimate 1 2 3 4 Potential strategy After lock in, decide to increase exposure or divest Expansion – huge pent-up demand for logistics in Brazil Leverage
Slide 63: Non-core assets have an exit plan
Potential proceeds Potential strategy Divestiture 2018-2019 2018 2H18 Sale after asset turnaround Ongoing sales process Deal signed in Nov-17 Expected closing in 2H18 1 2 3 4 Biopalma Eagle Downs Cubatão 2018-2020 Under review MRN CSI 2018-2020 Search for strategic opportunities and leverage perform
Slide 64: Capital expenditures will remain low
US$ billion 1 2 3 4 Capital expenditures will remain low even incorporating new growth projects 67 1.7 0.9 0.4 2.4 2.6 2.6 2.6 2.2 2.2 0.3 0.5 0.6 0.6 0.3 0.1 0.5 0.9 0.9 0.7 4.1 3.8 4.0 4.2 3.7 3.2 2017E 2018E 2019E 2020E 2021E 2022E Growth Sustaining Replacement Growth non-approved
Slide 65: Cash flow drags are expected to decline
2018E 2019E 2017E 2020E Reduction 470 490 250 1,600 - 1,700 393 490 110 1,000 - 1,100 215 35 600 - 700 144 25 550 - 650 ~69% ~90% ~ 60 - 65% 1 2017 includes the contributions to The Renova Foundation and working capital to Samarco. 2018 onwards include only Renova Foundation contributions as working
Slide 66: Accumulated free cash flow 2018-2020
Free Cash Flow accumulated¹ 2018-2020, US$ billion 10,000 12,000 14,000 55 ~13 ~14 15 - 16 60 17 - 18 ~19 20 - 21 65 22 - 23 ~24 ~25 ¹ Assumes US$ 1.5 billion in divestment proceeds Note: BRL/USD exchange rate of BRL/USD 3.35 from 2017 onwards. Copper prices fixed at US$ 6,000/t 1 2 3 4 As a result,
Slide 67: Value vision 2020: significant shareholder return
Enterprise Value 13 16 19 6.0x 78 96 114 6.5x 84 104 124 7.0x 91 112 133 Net debt 10 Market cap 68 - 81 86 - 102 104 - 123 Accumulated dividends 8 14 20 Total Shareholder Return2 (%) 9 - 15 19 - 25 28 - 34 ¹ EBITDA scenarios from slide 59 ² Total shareholder return per year measured as the gain betw
Slide 68: Value vision 2020: significant shareholder return
Resulting in significant shareholder retum Value vision 2020, USS billion EBITDA’ ° Enterprise Value . 3 78 96 114 ° 2 a 84 104 | 124 3 32 91 112 133 Net debt 10 Market cap 68-81 | 86-102 | 104-123 + Accumulated dividends 8 14 20 Total Shareholder Retum? (%) [ERMINE mers “EBITDA scare fm she 2 “Toad
Slide 69: 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. Vale S.A. (Registrant) By: /s/ André Figueiredo Date: December 06, 2017 Director of I