Vale S.a. · BMFBOVESPA:VALE3
Vale — Investor Day (2017)
71 slides from Vale's investor day presentation, 2017
Slide 1: Vale Day New York 2017: The premium mining player
Vale Day VALE New York 2017 The premium mining player a>) ae ao 0 © 90 ~G- o> CoD YY
Slide 2: Disclaimer
isclaime ““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
Slide 3: Fabio Schvartsman, CEO
Fabio Schvartsman CEO
Slide 4: Vale will generate more value for shareholders than its global mining peers
4 Vale will generate more value for shareholders than its global mining peers Strategic pillars Performance Clear Governance Sustainability Improvement Strategy Enhancement Benchmark
Slide 5: Enhancing performance while improving capital allocation
5 Enhancing performance while improving capital allocation • Capital allocation – Rigorous capital allocation process based on returns • Cost efficiency – Integration and meritocracy Performance Improvement – Automation and cost management • Price realization – Product portfolio to capture “flight t
Slide 6: Vale is using spot nickel prices to approve capital projects
6 Vale is using spot nickel prices to approve capital projects resulting in a capex reduction of US$ 1.6 billion in 2017-2018 Nickel capex Projects reviewed and capex deferrals US$ billion Updated production plan Previous production plan -40% -53% • VNC dry stacking 1.9 1.5 • Voisey’s Bay mine expan
Slide 7: Focus on competitiveness to increase Ferrous Minerals EBITDA by 2020
7 Focus on competitiveness is expected to increase EBITDA of Ferrous Minerals by US$ 1.2 - 2.0 billion by 2020 vs. 2017 EBITDA/t¹, US$/t, 2017E vs. 2020E 0.5 – 1.0 3.0 – 5.0 0.5 0.5 – 1.5 0.5 1.0 – 1.5 S11D Innovation and Structured cost Operational Supply chain Total automation management yield 2 o
Slide 8: Strong balance sheet while leveraging assets and fostering EBITDA growth
8 Focus on a strong balance sheet while leveraging the assets and fostering EBITDA growth • Iron ore: margins, premium products and flexibility • Base Metals – Preserve optionality in nickel (Electric Vehicles) Clear – Increase copper production (Salobo III, Victor and Hu’u) Strategy • Coal: leverag
Slide 9: Adapted production plan to maximize cash flow and supply discipline
9 Vale has adapted its production plan in order to maximize cash flow generation and reinforce supply discipline Iron ore production volumes¹ Nickel production volume Mtpy Northern System kt Updated production plan Nominal capacity Previous production plan 450 -45 -54 -33 -15 -15 ~390 ~400 ~400 ~400
Slide 10: Vale will become cash flow positive in all nickel operations
10 Despite lower volumes, Vale will become cash flow positive in all nickel operations Unit cash cost after by-product credits US$/t Operation1 2017E 2018E Sudbury 3,287 2,983 US$ 1,621 per ton in 2019E 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
Slide 11: Better governance and Novo Mercado
11 Better governance and Novo Mercado • December 22nd, 2017: important date for Vale • Transformation of Vale into a corporation Governance • Two independent board members Enhancement • Re-rating
Slide 12: Sustainability
12 Sustainability • Focus on systematic planning and execution Sustainability Benchmark • Beyond Vale’s operations
Slide 13: Paving the way to create value
13 Paving the way to create value
Slide 14: Luiz Eduardo Osorio
Luiz Eduardo Osorio Executive Officer, Sustainability and Institutional Relations
Slide 15: Progress required to become a reference in sustainability
15 Progress required to become a reference in sustainability Vale’s Pulse Reputation Index¹ Main progress in key areas >80 >70 >60 >40 <39 Excellent Strong Median Weak Poor 65 • Reduction in total injury time² from 11.2 in 2007 to 2.1 in 2017 60 • Creation of Renova Foundation in July 55 2016 50 • R
Slide 16: Renova Foundation initiatives are on track
16 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 we
Slide 17: In 2018, Renova will focus on compensation and rebuilding villages
17 In 2018, the Renova Foundation will focus on the compensation for the affected families and on rebuilding the villages Recovered tributary Rebuilding villages • Reconstruction of Bento Rodrigues, Paracatu de Baixo and Gesteira • Design of new urban plans based on public hearings • Initiation of c
Slide 18: Coming next: new approach and goals for sustainability
18 Coming next: new approach and goals for sustainability Dispersed initiatives Systematic planning and execution Redefinition of purpose, operational and Sustainability areas with very good initiatives and organizational models aligning the Sustainability, ideas but not interconnected, leading to V
Slide 19: Alexandre Pereira
Alexandre Pereira Executive Officer, Global Business Support
Slide 20: Global Business Support as driver to integrate the organization
20 Global Business Support is the main driver to connect and integrate the entire organization Procurement Operations Energy Capital Digital excellence projects technology Implement a Shape Secure a Implement strong Integrate global, integrated competitiveness sustainable portfolio technologies and
Slide 21: Global Business Support will drive the digital revolution across Vale
21 Global Business Support will drive the digital revolution across Vale to transform the performance of our core business Focus areas Productivity increase Examples of technologies Asset performance > 8-10% 1 • Autonomous trucks • Advanced and predictive analytics 2 Maintenance > 11-14% • Smart pla
Slide 22: Global Business Support building the Vale of the future
22 Global Business Support will play a key role in building the Vale of the future, increasing the competitiveness of all businesses Globally connected Examples of contributions • Develop effective use of data • Unlock new productivity levels • Integrate functions, expand best practices and leverage
Slide 23: Peter Poppinga
Peter Poppinga Executive Officer, Ferrous Minerals and Coal
Slide 24: First wave of competitiveness generated gains of US$ 3.3 billion
24 Initiatives from the first wave of competitiveness improvement, ending 2016, generated gains of US$ 3.3 billion vs 2014 US$ million US$ 3.3 bi 11,321 8,536 87 861 10,476 735 608 1,037 1,393 2,969 EBITDA Price Exchange Bunker Commercial Volume Freight COGS Others EBITDA 2014 rate oil initiatives 2
Slide 25: Second wave of competitiveness based on further integration
25 In 2017, Vale started its second wave of competitiveness based on further integration, capturing the structural "flight to quality” trend 1 S11D ramp-up 2 Innovation and automation development Performance Improvement 3 Structured cost management program implementation 1 Operational yield¹ improve
Slide 26: All S11D truckless systems are operating
26 All of S11D truckless systems are operating, with their start-ups ahead of schedule 1 2 3 System 3
Slide 27: Truckless systems operating at over 80% capacity
27 The four truckless systems are operating at over 80% capacity, enabling good performance of the S11D ramp-up 1 2 Truckless system productivity S11D production in 2017 3 Tons per hour, Jan-Nov 2017 Mt ~2.5 ~22.0 19.5 8,000 6,500 Nominal Capacity Realized Jan-Nov 2017 Dec 2017E 2017E Realized
Slide 28: S11D ramp-up will further decrease Vale's costs
28 S11D ramp-up will further decrease Vale’s costs 1 Production volumes C1 cash cost1 2 Mt US$/t 3 90 - 47% 70 - 80 - 31% 14.5 50 - 55 11.2 7.7 ~22 2017E 2018E 2019E 2020E Current Current Expected Vale² Carajás³ S11D 4 1 C1 cash cost at the port (mine, plant, railroad and port, excluding royalties)
Slide 29: Innovation and automation will reduce costs by US$ 0.5/t
29 Investments in innovation and automation will improve operational efficiency and reduce costs by US$ 0.5/t in 2020 1 2 3 US$ 0.3/t US$ 0.2/t MINE AND PLANT LOGISTICS • Autonomous trucks and drills • Train control optimization • Fully automatic stackers and • Semi-autonomous locomotives reclaimers
Slide 30: Structured cost management pilot in pelletizing plants
30 The structured cost management pilot project in the pelletizing plants will be rolled out to the entire iron ore business 1 2 Pilot project for pellets Expected pellets costs reduction 3 US$/t • Methodology - Mapping processes - Gap and goal definition - Action plan implementation 1.0 - 1.5 • Imp
Slide 31: Highest operational yield among peers
31 Highest operational yield¹ among peers as a result of increased share of dry processing and strip ratio optimization 1 2 Operational yield1, % Peer average Vale 3 +17bps +10bps 54 +4bps 50 51 46 41 40 41 41 37 37 2014 2015 2016 2017E 2020E 1 Operational yield measured by global recovery rate. Glo
Slide 32: Production plan adapted to maximize margins
32 Vale has adapted its production plan in order to maximize margins 1 Production volumes¹ Global blended volumes 2 Mtpy Northern System Mt 3 Nominal capacity 450 ~390 ~400 ~400 ~400 ~400 ~365 > 100 ~75 217 230 230 230 200 171 40 16 2017E 2018E 2019E 2020E 2021E 2022E 2015 2016 2017E 2018E The incre
Slide 33: Product portfolio adjusted to market demand
33 Vale has adjusted its product portfolio and quality according to market demand 1 Sales composition1, % 2 2 3 Carajás Blend Southern Southeastern Others 37% 40% 42% 40% 5% 14% 25% 25% 35% 22% 19% 23% 8% 19% 18% 16% 2015 2016 2017E 2018E 1 Does not include pellets and pellet feed for pelletizing 2
Slide 34: Integrated Operations Center to support supply chain management
34 The Integrated Operations Center (COI) will support supply chain management, maximizing iron ore business margins 1 2 Value creation opportunities 3 • Better sales price realization and product quality management • Improvements in the planning process for sales and operations from mine to port •
Slide 35: Price realization will progressively improve
35 Price realization will progressively improve based on constant supply chain optimization and the structural "flight to quality” trend 1 2 Vale’s average price premium¹, US$/t 3 3.5 – 4.5 ~3.5 1.7 2016 2017E 2018E The improvement in price realization is expected to add up to US$ 350 million in 201
Slide 36: Continuous declines in iron ore grades on the supply side
36 On the iron ore supply side, there are continuous declines in iron ore grades and in investments in new mines to maintain quality 1 2 China iron ore imports average Fe content FAI1 in ferrous mining industry in China 3 % RMB billion 62 200 61.7 Fe content imported ore into China Fe content ex-Car
Slide 37: Structural 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 2 3 Contaminants discount Price spread 65% and 58% Fe iron ore US$/t US$/t, net of Fe % adjustment 1% SiO2 Discount (4.5-6.5%) 50 1% SiO2 Discount (6.5-9.0%) 8 1% A
Slide 38: Increasing pellet production to respond to strong demand
38 Vale is increasing its pellet production to respond to a strong market demand 1 Pellets production volumes Highlights 2 Mtpy 3 Nominal capacity1 • Restart of São Luis and Tubarão I/II pellet plants 65 scheduled for 1H18 ~60 ~60 - São Luis production capacity of 7.5 Mtpy ~55 - Tubarão plants I and
Slide 39: Competitiveness measured by normalized EBITDA/t to increase
39 Vale’s competitiveness measured by normalized EBITDA/t1 is expected to increase by another US$ 3-5/t in 2020 US$/t 41% 41 - 43 38 37 34 27 2014 2015 2016 2017E 2020E In 2017, Vale already captured US$ 1.0/t in supply chain optimization 1 Adjusted EBITDA of Ferrous Minerals (excluding manganese an
Slide 40: Peter Poppinga
Peter Poppinga Executive Officer, Ferrous Minerals and Coal
Slide 41: Coal business to generate solid results
41 Coal business will generate solid results by concluding the ramp-up and exploring growth options 1 Project Finance signed on November 27th, 2017 2 Leverage mine and logistics Clear 3 Foster mineral exploration Strategy 1 Successfully conclude the ramp-ups of Moatize and Nacala 2 Consolidate margi
Slide 42: US$ 2.7 billion Project Finance concludes restructuring
42 US$ 2.7 billion Project Finance concludes the restructuring and optimization of the business portfolio 1 2 2017 Vale coal transactions Proforma production costs through NLC – 2017E 3 US$ million US$/t Net Nacala tariff US$ 15/t 2,730 3,500 30 15 93 78 770 1 Equity transaction Project Finance Tota
Slide 43: Sound ramp-ups of Moatize and Nacala Logistic Corridor
43 Sound ramp-ups of Moatize and Nacala Logistic Corridor increased production and sales volumes in 2017 1 2 Production volume1,2 Shipment volume1,2 Mt Thermal Mt Beira Metallurgical Nacala +113% +44% 11.7 12.4 4.5 1.3 8.6 11.1 5.5 7.2 2.2 4.9 5.0 2.0 6.4 1.8 1.6 3.7 3.7 3.1 3.4 3.5 2014 2015 2016 2
Slide 44: Moatize more competitively positioned on the cost curve
44 The conclusion of the ramp-up will enable Moatize to be more competitively positioned in the industry cost curve 1 2 Moatize production volume Proforma production cash cost at the port Mtpy US$/t Non-recurring 1 Net Nacala tariff Production cost 2 109 4 20 20 18 18 15 26 20 20 16 78 19 21 70 67 1
Slide 45: Greater volumes and prices support EBITDA improvement
45 Greater volumes and higher market prices support the improvement of the business EBITDA 1 2 EBITDA 2016 vs. 2017E EBITDA 2017E vs. 2018E – Stable price scenario 3 US$ million US$ million 4 212 56 3 353 71 481 127 60 353 320 395 1 2016 Sales Volumes Cost Others Australian 2017E 2017E Volumes Cost
Slide 46: Jennifer Maki
Jennifer Maki Executive officer, Base Metals
Slide 47: Enhancing current performance while consolidating position for upside
47 Enhancing current performance while consolidating Vale’s position for potential upside 1 Improve competitiveness of operations 2 Transition to a smaller footprint in nickel Performance Improvement 1 Align investments and production based on the market conditions 2 Preserve optionality in nickel (
Slide 48: Changes to ensure all assets contribute to positive cash flow
48 Changes to ensure all assets contribute to positive cash flow Asset reviews 1 • Detailed review across all operations, especially nickel 2 – Reviewed at mine level within Canadian integrated operations • Positive cash generation at low prices and reduction of non-value adding nickel units with li
Slide 49: Initiatives across all operations to increase competitiveness
49 Initiatives across all operations to increase competitiveness under current challenging market conditions 1 ‐ Develop ‘fit for purpose’ organization ‐ Reduce C1 cost reaching US$ 7,600/t in 2018 2 ‐ Implement structured cost management with plan to achieve US$ 7,000/t by 2019 program ‐ Solve stak
Slide 50: Transitioning to a smaller footprint in nickel
50 Transitioning to a smaller footprint in nickel by calibrating investments and production to reflect current market conditions 1 2 Reduction of nickel production forecast1 kt In 2017: -45kt • Successful transition to single furnace in Sudbury – Completed with no impact on production 310 • Ramp-up
Slide 51: Benefits from a single furnace operation in Sudbury
51 Benefits from a single furnace operation in Sudbury 1 2 Surface plant unit cost AER/SFU³ project capex US$, total finished nickel CCNR¹ + FMW² to Clydach US$, million 3,161 182 2,584 153 2,498 2,405 141 93 19 2016 2017E 2018E 2020 Target 2016 2017E 2018E 2019E 2020E Following the 2017 flowsheet t
Slide 52: Improving stability of VNC operations and bringing a partner
52 Focus continues to be on improving stability of VNC operations and bringing a partner to close funding gap in the next few years 1 2 Vale New Caledonia Value generation opportunities 3 • Operational improvements to address bottlenecks¹ to increase production • Reduction of over US$ 150 million in
Slide 53: Electric vehicles bring upside to the market longer-term
53 Electric vehicles bring upside to the market longer-term Market share of electric passenger vehicles Nickel demand for the battery market 1 Battery electric and plug-in hybrids only Battery electric and plug-in hybrids only 2 Internal Combustion Engines (ICE) Nickel in non-EV batteries 3 Nickel i
Slide 54: Targeted investments and options for growth in nickel
54 Targeted investments and options for growth under the right nickel market conditions 1 2 3 Copper Cliff Mine Project – Phase 1 Sudbury exploration Indonesian growth options • Replacement ore with full • Well positioned on prospective • World class laterite ore deposits production by 2021 land in
Slide 55: Increase copper production
55 Increase copper production 1 Salobo III Victor Hu’u 2 3 • Second expansion to 36 Mtpy • High grade polymetallic project • Project located in Indonesia and • Production of 50 ktpy¹ of copper in Sudbury basin 80% owned by Vale concentrate by processing lower • Potential for over 500 kt of • FEL I t
Slide 56: Consolidate around smaller nickel business and quality copper assets
56 Vale plans to consolidate around a smaller nickel business and leverage the quality of the copper assets Nickel Copper1 kt kt Sudbury Sudbury Thompson Thompson Voisey's Bay Voisey's Bay Sorowako Salobo Onça Puma VNC Sossego 438 422 424 433 438 287 263 262 268 266 2017E 2018E 2019E 2020E 2021E 201
Slide 57: EBITDA will respond to positive price movements from EV demand
57 EBITDA will directly respond to positive price movements from increased demand by electric vehicles EBITDA 2020, US$ billion Copper price (US$/t) 5,500 6,000 6,500 7,000 7,500 With a transformed 10,000 1.8 2.0 2.2 2.4 2.7 business, Vale’s nickel operations 12,000 2.3 2.6 2.8 3.0 3.2 Nickel price
Slide 58: Luciano Siani Pires, CFO
Luciano Siani Pires CFO
Slide 59: A glimpse of Vale in 2020
59 A glimpse of “Vale in 2020” US$ billion EBITDA less sustaining scenarios Return on Assets Total assets¹ (prices in US$) Pre-tax I II III I II III 55/t 60/t 65/t Iron ore 37.2 9.3 11.1 13.0 25% 30% 35% 400 Mt 10,000/t 12,000/t 14,000/t Nickel operations 19.8 0.6 1.2 1.8 3% 6% 10% Ni 268 kt, Cu 140
Slide 60: Total shareholder return will improve based on several levers
60 Total shareholder return will improve significantly based on several levers Multiple re-rating 1 Better governance 2 Predictable performance and capital allocation Governance Improved Cash Flows 1 Streamlined and optimized asset portfolio 2 Optimized capital expenditures Clear Strategy 3 Reduced
Slide 61: Novo Mercado listing on December 22nd should bear fruit
61 Novo Mercado listing on December 22nd should bear fruit in the near future 1 2 2018E EV/EBITDA¹ Highlights 6.3x • Migrating to Novo Mercado ahead of schedule on December 22nd, 2017 6.1x • Benchmark transaction in the Brazilian Market, with Median of Peers: 5.9x a participation of 80% of retail in
Slide 62: Consistent track record enhancing investor confidence
62 Consistent track record enhancing investor confidence and enabling a higher multiple 1 Iron ore and pellets EBITDA breakeven landed-in-China Nickel operations cash costs after by-products 2 US$/t US$/t 9,681 60.7 55.8 54.3 6,715 7,145 7,243 34.6 5,726 28.9 2012 2013 2014 2015 2016 2017 2018 2019
Slide 63: Vale's asset portfolio will be further simplified
63 Vale’s asset portfolio will be further simplified 1 Non-core 2 3 Adjacent 4 Cubatão Eagle MRS VLI Downs Iron ore Pellets CSI MRN Core Cash Flow Drags Coal Copper Manga Mosaic nese Samarco Pre-Op Nickel Expenses CSP Biopalma Aliança REFIS Financial Expenses
Slide 64: Core assets have low-cost options to increase production
64 Vale’s core assets have low-cost options to increase production and returns 1 Project Volume IRR Size of investments 2 3 4 Moatize Expansion Coal 5 Mtpy¹ TBD TBD (2020’s) Copper Salobo III ~50 Ktpy² 15% - 17% ~US$ 400 million³ Onça Puma 2nd furnace 15 Ktpy² over 15% ~US$ 250 million Nickel Indone
Slide 65: Assets adjacent to the core present potential opportunities
65 Assets adjacent to the core present potential opportunities 1 Normalized EBITDA 2020 2 Vale’s share (Vale’s share) Potential strategy 3 4 11.0% US$ 240 million1 After lock in, decide to increase Mosaic exposure or divest VLI 37.6% US$ 425 million Expansion – huge pent-up demand for logistics in B
Slide 66: Non-core assets have an exit plan
66 Non-core assets have an exit plan Reference: US$ 1 billion 1 2 Divestiture Potential proceeds Potential strategy 3 4 Biopalma 2018-2019 Sale after asset turnaround Eagle Downs 2018 Ongoing sales process Deal signed in Nov-17 Cubatão 2H18 Expected closing in 2H18 Search for strategic opportunities
Slide 67: Capital expenditures will remain low
67 Capital expenditures will remain low even incorporating new growth projects 1 2 US$ billion 3 Growth 4 Sustaining Replacement Growth non-approved 4.1 3.8 4.2 4.0 0.1 0.5 3.7 0.3 0.9 3.2 0.5 0.9 2.4 0.6 0.7 0.6 0.3 2.6 2.6 2.6 2.2 2.2 1.7 0.9 0.4 2017E 2018E 2019E 2020E 2021E 2022E
Slide 68: Cash Flow Drags are expected to decline
68 Cash Flow Drags are expected to decline 1 2 US$ million 2017E 2018E 2019E 2020E Reduction 3 4 Samarco¹ 470 393 215 144 ~69% Potential decision in REFIS 490 490 Brazilian Supreme Court Pre-operating 250 110 35 25 ~90% expenses Financial 1,600 - 1,700 1,000 - 1,100 600 - 700 550 - 650 ~ 60 - 65% Ex
Slide 69: Vale will generate substantial cash flow over the next 3 years
69 As a result, Vale will generate substantial cash flow over the next 3 years 1 Free Cash Flow accumulated¹ 2018-2020, US$ billion 2 3 Nickel price (US$/t) 4 10,000 12,000 14,000 Iron ore price (US$/t) 55 ~13 ~14 15 - 16 60 17 - 18 ~19 20 - 21 65 22 - 23 ~24 ~25 ¹ Assumes US$ 1.5 billion in divestm
Slide 70: Resulting in significant shareholder return
70 Resulting in significant shareholder return Value vision 2020, US$ billion EBITDA1 1 2 Enterprise Value 13 16 19 3 6.0x 78 96 114 Normalized 4 multiples 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
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