Vale S.a. · BMFBOVESPA:VALE3
Vale — Investor Day (September 2016)
49 slides from Vale's investor day presentation, Sep 2, 2016
Slide 1: XVI Analyst & Investor Tour: The comeback of a leader
XVI Analyst & Investor Tour The comeback of a leader
Slide 2: Disclaimer
2 This presentation may include statements that present Vale’s expectations about future events or results. All statements, when based upon expectations about the future, involve various risks and uncertainties. Vale cannot guarantee that such statements will prove correct. These risks and uncertain
Slide 3: Agenda
3 1. Market outlook 2. Ferrous minerals competitiveness 3. Closing remarks 4. Q&A session Agenda
Slide 4: Market outlook
4 Market outlook Peter Poppinga
Slide 5: Credit easing and public FAI have helped kick-start the property market
5 Credit easing and public FAI have helped kick-start the property market Monthly overall credit Fixed Asset Investment Share in GDP %y/y 3mma with seasonal adjustment Growth, %y/y 3 mma Total Infrastructure Real Estate Industry Local Government Bonds Corporate bonds 50 25 40 20 30 15 20 10 10 5 0 0
Slide 6: Property has responded to government stimulus and should continue stable
6 Property has responded to government stimulus and should continue stable, as a result of the inventory reduction Property sales and new construction Property inventory in China % y/y, 3 mma Months of sales T1 Cities T2 Cities T3 Cities Property sales Property new starts 50 35 g 40 30 30 25 20 20 1
Slide 7: Steel inventory throughout the supply chain is at a low level
8 Steel inventory throughout the supply chain is at a low level, despite the increase in steel production Steel inventory held by mills Steel trader inventory Mt Mt CISA mill inventory 24 19 12 22 11 17 20 10 15 18 9 16 13 8 14 11 7 12 9 6 10 8 7 5 Jan Apr Jul Oct Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Slide 8: Total iron ore stock remained stable throughout the chain
9 The total iron ore stock remained stable throughout the chain, despite the increase in port inventories Iron ore inventory throughout the supply chain Iron ore inventory throughout the supply chain Million tons Days of consumption Mill owned stock Trader stock Domestic mines stock Mill owned stock
Slide 9: Chinese domestic concentrate in 2016 expected to drop ~20%
10 On the supply side, Chinese domestic concentrate in 2016 is expected to drop ~20% vs. 2015 based on seaborne ore competitiveness Domestic Iron ore concentrate production1 Highlights Million tons • Vale estimates a reduction of 44 Mt of Chinese domestic production in 2016 vs. 2015 -22% - More than
Slide 10: Expectations for Chinese steel production improved
11 Looking ahead, the expectations for Chinese steel production improved, potentially absorbing additional iron ore supply Seaborne1 & Chinese iron ore supply Crude steel production Mt Mt Ex-China crude steel production Chinese crude steel production Chinese Domestic Production Iron Ore Seaborne Tra
Slide 11: Maintaining the current balance of supply and demand
12 Maintaining the current balance of supply and demand Iron ore supply/demand balance expected for 2017 Supply change in iron ore seaborne market, 2017 Mt Mt Percentage of seaborne and Chinese supply Net addition in the seaborne market Australia 48 18 Change in Chinese domestic supply Brazil -8 28
Slide 12: Ferrous minerals competitiveness
13 Ferrous minerals competitiveness Peter Poppinga
Slide 13: Ferrous Minerals competitiveness: Operational overview
14 Ferrous Minerals competitiveness Operational overview Future developments •Ferrous minerals overview •Vale Day commitment accomplishment •Key initiatives for further enhancing competitiveness •Expected outcome
Slide 14: Ferrous Minerals competitiveness: Operational overview
15 Ferrous Minerals competitiveness Operational overview Future developments •Ferrous minerals overview •Vale Day commitment accomplishment •Key initiatives for further enhancing competitiveness •Expected outcome
Slide 15: Sustainability is a major factor in Vale's decisions
16 Sustainability is a major factor in Vale’s company and business decisions Health and Safety1 Environment1 Local development2 Safety management 21% reduction in the number of accidents Water resources 85% of recycle and reuse in the process Social and environmental investment US$ 800 million of fu
Slide 16: Vale's integrated supply chain offers operational flexibility
17 Vale’s integrated supply chain offers operational flexibility to maximize margins 22 mines in 4 integrated production systems 12 pelletizing plants (Brazil and Oman) 2 DCs and 5 blending ports and 124 ships (90% chartered) 3 railways and 4 ports in Brazil
Slide 17: Current mineral reserves sustain 2020 production for more than 30 years
18 Current mineral reserves sustain 2020’s production level for more than 30 years Iron ore reserves, proven and probable1, in billion tons 17.5 5.5 5.0 Southeastern Southern Northern Total ¹ Tonnages are stated as of December 2015 and in billions of metric wet tons of run-of-mine. Moisture contents
Slide 18: Vale has a lower depletion rate than its main peers
19 Vale has a lower depletion rate than its main peers, needing lower replacement capex in the future project Vale will not invest in replacement projects until 2022 and has enough brownfield options to replace its production, with the lowest capital intensity of the industry ¹ Considering productio
Slide 19: Vale progressed on key initiatives presented at 2015 Vale Day
20 Vale progressed significantly on the 5 key initiatives presented at its 2015 Vale Day Ramp-up of N4WS, N5S extension and construction of S11D 1 2 Further reduction of all-in costs landed in China Broadening of the “Brazilian Blend Fines” commercial opportunities 3 Blending and investment deferral
Slide 20: Initiatives boosted Ferrous Minerals EBITDA by US$2.1 billion
21 Vale’s initiatives boosted Ferrous Minerals EBITDA by US$ 2.1 billion in 1H16 vs. 1H14, partly offsetting lower prices Ferrous Minerals EBITDA 1H14 X 1H16, US$ million 7,208 7,836 US$ 2.1 bi 698 1,068 641 72 3,873 1,057 784 1,607 EBITDA 1H14 Price FX Bunker Commercial initiatives Volume CFR Freig
Slide 21: Costs reduced with new mines ramp-up and productivity gains
22 Costs reduced significantly with the ramp-up of new mines and productivity gains and will decrease further with the start-up of S11D 1 2 Northern system production cost1 S11D mine and plant physical progress 3 R$ / t % 4 5 -10% 92 37.8 78 1H15 1H16 Oct 31, 2015 Dec 31, 2015 Jul 31, 2016 1 Include
Slide 22: Indicators improved, optimizing operations and cost reduction
23 Vale’s indicators improved, optimizing the operations and enhancing the cost reduction 1 2 Operational indicators evolution 1H16 vs. 2014, % 3 4 5 Operational efficiency at 1 Off-highway trucks 2 Mean-time between failures 3 Pelletizing: impact on operational efficiency of 1H16 due to stop at Fáb
Slide 23: Iron ore and pellets cash breakeven further reduced
24 The iron ore fines and pellets cash breakeven1 on a landed in China basis were further reduced 1 2 Iron ore and pellets cash breakeven1 C1 cash cost2 in BRL 3 US$ / dmt R$ / t 4 5 Breakeven EBITDA Sustaining -15% -54% 65.6 54.5 4Q14 4Q15 2Q16 4Q14 4Q15 2Q16 1 Including sustaining investment 2 C1
Slide 24: Adjusting quality and blending capabilities to maximize premiums
25 Vale is adjusting quality and blending capabilities to maximize premiums, thus shaping its supply to any market scenario 1 2 Product premiums and discounts evolution¹ Sales volumes of Brazilian Blend Fines 3 Million tons US$/t 4 5 IOCJ 16 12 8 4 0 -4 -8 -12 -16 +90% 17 2H15 1H16 perceived value a
Slide 25: Adjusting production to market conditions to maximize margins
26 Vale has been adjusting its production to market conditions in order to maximize margins 1 2 Iron ore production guidance for 2016 Iron ore production guidance for 2017 3 Million tons Million tons 4 5 Production range Production range 411 380 - 400 376 2014 Vale Day guidance 2015 Vale Day guidanc
Slide 26: Productivity and cost efforts placed Vale in a new competitive position
27 These productivity and cost reduction efforts have placed the company in a new competitive position Iron ore and pellets cash breakeven landed in China1 , US$/dmt C1 costs Freight and Distribution Others² Sustaining 2014 2015 +33% 71.2 38.0 34.1 32.1 Peer 1 Peer 2 Vale Peer 3 Peer 1 Peer 2Vale Pe
Slide 27: Highest EBITDA generation in the iron ore business in 1H16
28 Making Vale the company with the highest EBITDA generation in the iron ore business in 1H16 Iron ore – EBITDA¹, US$ billion Vale Peer 1 Peer 2 Peer 3 Platts IODEX iron ore price average (US$/t) 8.1 6.2 6.1 4.8 4.1 3.9 3.7 3.4 2.8 1.9 1H14 2H14 1H15 2H15 1H16 111.5 50.7 52.1 82.4 60.4 ¹ Underlying
Slide 28: Iron ore operations delivered consistent improvement in EBITDA per ton
29 As a result of all the initiatives, Vale’s iron ore operations delivered a consistent improvement Iron ore – EBITDA¹ per ton, US$/t Vale Peer 1 Peer 2 Peer 3 Gap to most 21.2 18.3 67.9 13.9 1H14 2H14 1H15 2H15 1H16 1 Underlying EBITDA of iron ore, pellets, ROM and other ferrous for Vale’s figures
Slide 29: Ferrous Minerals competitiveness: Future developments
30 Ferrous Minerals competitiveness Operational overview Future developments •Ferrous minerals overview •Vale Day commitment accomplishment •Key initiatives for further enhancing competitiveness •Expected outcome
Slide 30: Key initiatives to remain competitive in any price scenario
31 Vale will deliver on 5 key initiatives to remain competitive in a sustainable way in any price scenario Increase operational efficiency thus further reducing costs 1 2 Enhance price realization Optimize its integrated global supply chain 3 Review mine and production plan, increasing the proportio
Slide 31: Initiatives to increase operational efficiency and productivity
32 Initiatives are underway to increase operational efficiency and productivity, to reduce costs and to extend life cycle of equipment 1 2 Impact on: C1 cash cost Sustaining capex Freight and Distribution costs 3 4 5 Testing/Concept Implementation of system to schedule operations Semi-automation of
Slide 32: Impact of initiatives tracked by key performance indicators
33 The impact of these initiatives will be tracked by key performance indicators 1 2 3 4 5 + / / + 1 Strip ratio: (waste / ROM) Port (USD / t) Railway (USD / t) Metallic recovery (%) Plant (USD / t) Strip ratio1 + 1 (waste + ROM / ROM) C1 cash cost (USD / t) Mass recovery (t prod / t ROM) Global rec
Slide 33: Growing share in new markets and portfolio management in mature ones
35 Growing share in new markets and portfolio management in mature ones will absorb the production growth with improved price realization 1 2 3 Initiatives 4 5 • Develop the option to sell in RMB from distribution centers in China, increasing capillarity into smaller plants • Adjust pellet product p
Slide 34: Supply chain integration allows flexibility and margin improvements
36 Supply chain integration allows flexibility and its continuous optimization will bring further margin improvements 1 2 3 4 Benefits 5 • Productivity improvement in Brazil operations, as the quality of final product is adjusted downstream • Freight reductions as a result of the increase of Valemax
Slide 35: Other initiatives aim to reduce geographic disadvantage
37 Other initiatives aim to reduce Vale’s geographic disadvantage 1 2 3 4 5 • Increase spot and short tem chartering, taking advantage of the current low freight market rate Ongoing • Renew old contracts at competitive rates, as they expire • Cease operations of FTS (Floating Transfer Stations) in t
Slide 36: Vale will increase the proportion of dry processing
38 Vale will increase the proportion integrated supply chain of dry processing through its 1 2 3 4 5 Iron ore production breakdown Impacts • Avoids major capex to adapt the plants, as the new process will use two phases of the existing concentration plants (crushing and screening) Dry processing Wet
Slide 37: Operational flexibility allows a review of the mine plan
39 Operational flexibility also allows a review of Vale’s mine plan 1 2 Impacts vs. previous mine plan Fe Content 3 % 66.5 4 5 • Lower production costs 66.0 • Postponement of replacement investments 65.5 • Adjustment of quality according to market - Volumes of lower quality ore from Southern and Sou
Slide 38: Discipline in capital allocation, mostly sustaining investment
40 Vale will continue to maintain discipline in capital concentrating mostly on sustaining investment Ferrous business segment capital expenditures, US$ billion allocation 1 2 Colunas1 3 Sustaining Others¹ S11D Sustaining per ton 4 5 -85% 8.5 2011 2015 2022E <3.0 3.8 10.1 1 Includes growth and repla
Slide 39: S11D hot commissioning on track for first shipment in January 2017
41 S11D hot commissioning is on track with first commercial ore due to be shipped in January 2017 1 2 S11D Mine – Excavation, crushing and conveyor S11D – Hot commissioning on truckless system 3 4 5 S11D Plant S11D Port – Test berthing vessels
Slide 40: S11D will increase full-year logistics capacity in the Northern System
42 S11D will System Mtpy increase full-year logistics capacity in the Northern 1 2 3 4 5 230 1 1 1 1 2016E 2017E 2018E 2019E 2020E 1 Estimates may change until completion of current planning cycle and are subject to Board’s approval 218 206 175 153
Slide 41: Vale will maintain its competitiveness in iron ore and pellets
43 Vale will maintain its competitiveness future in iron ore and pellets in the Iron ore and pellets cash margin in the future, US$/dmt 25 45 - 60 Iron ore price Iron ore and pellets cash break-even¹ Cash margin 1 Iron ore and pellets cash break-even on a landed-in-China basis considers: [Cash cost
Slide 42: Closing remarks
44 Closing remarks Luciano Siani Pires
Slide 43: Focus and discipline allowed a substantial reduction in costs and expenses
45 Vale’s focus and managerial discipline allowed a substantial reduction in costs and expenses, despite the increase in volumes Costs¹ Expenses1,2 US$ billion US$ billion -80% -31% 22.7 6.9 21.2 20.5 17.0 15.6 – 15.8 4.5 3 3.5 4 1.9 1.3 – 1.4 5 5 2012 2013 2014 2015 2016E 2012 2013 2014 2015 2016E
Slide 44: Stabilized prices and cost discipline boosted Vale's EBITDA
46 Stabilized prices and continuous cost discipline boosted Vale’s EBITDA1 in Adjusted US$ billion 2016 LME Cash Nominal Nickel Prices (US$/t) Platts IODEX Iron Ore Price Average (US$/t) Adjusted EBITDA 17,188 16,554 13,698 111.5 10,500 10,005 82.3 8,661 60.5 8.2 50.8 50 – 55 51.9 5.2 4.5 – 5.4 4.4
Slide 45: Discipline in capital allocation with significant reduction in capex
47 Vale increased its discipline in capital allocation with significant reduction in Capex, US$ billion capital expenditures Sustaining Growth Projects 16.3 16.2 14.2 4.6 4.6 12.0 4.6 4.1 8.4 2.9 5.8 11.7 11.6 < 4.5 9.6 7.9 5.5 2011 2012 2013 2014 2015 2016E¹ 2017E 1 Considers exchange rate of BRL/U
Slide 46: Potential divestments will help balance free cash flow
48 Potential divestments and strategic transactions will help balance free cash flow and strengthen the balance sheet Divestments 2016-2017, US$ billion 5 - 7 Already concluded in 2016 Previously announced Potential transactions • • • • Coal JV Vessels Energy assets Fertilizers • Core assets 3 VLOCs
Slide 47: Vale will decrease its debt going forward
49 Vale will decrease its debt going forward, on track to reach the target of US$ Net Debt, US$ billion 15 - 17 billion of net debt 27.5 2015 year-end 2Q16 2016E year-end 2016E year-end 2017E without previously announced transactions with previously announced transactions 25.2 26 - 27 19 - 22 15 - 1
Slide 48: Free cash flow generation will be positive in the next years
51 Free cash flow¹ generation will be positive in the next years, adverse price scenarios even in FCF accumulated 2017-2020E (before divestments, dividends and debt amortization), US$ billion Iron ore price US$45/t Iron ore price US$60/t 27.5 – 28.0 5.9 – 6.1 Accumulated 2017-2020 Accumulated 2017-2
Slide 49: Vale
52 VALE 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: September 02, 2016 Dire