Vale S.a. · BMFBOVESPA:VALE3
Vale — Q2 2019 Earnings Presentation
35 slides from Vale's earnings presentation, Aug 1, 2019
Slide 1: Vale's Performance in 2Q19
Truckless system – S11D Ferro Carvão Fluvial Water Treatment Plant (ETAF, Estação de Tratamento de Água Fluvial) Vale’s Performance in 2Q19 Rio 1 de Janeiro, August 1st, 2019
Slide 2: Agend
“This presentation may include statements that present Vale's expectations about future events or results. All statements, when based upon expectations about the Agend 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. Opening remarks 2. Highlights of Vale’s performance in 2Q19 3. Capital Allocation 4. Business segment performance 3
Slide 4: Opening remarks
Opening remarks 4
Slide 5: 2Q19 Results: A transitional quarter
5 2Q19 Results: A transitional quarter Eduardo Bartolomeo, Chief Executive Officer, commented: "As we progress towards full and effective reparation, 2Q19 has been a transitional quarter for the business, with the Brumadinho dam rupture still impacting volumes, costs and expenses, however our respon
Slide 6: Vale is committed to repairing damages
6 Vale is committed to repairing damages People • We established an agreement with the Public Ministry of Labor of Minas Gerais for the quick and fair indemnification of families of workers deceased. • In 2Q19, around US$ 200 million was paid in legal agreements, as well as financial contributions t
Slide 7: Our safety and risk management has been strengthened
7 Our safety and risk management has been strengthened • New Safety and Operational Excellence Executive Director, acting independently with direct report to the CEO. • Decharacterization of 2 dams in the first half of 2020 - Fernandinho and 8B. • The emergency level was reduced for the Vargem Grand
Slide 8: We move forward with our strategic pillars
8 We move forward with our strategic pillars Vale Day 2018 New Pillars Maximize flight to Resumption of the Brucutu mine operation and part of the dry quality in Iron Ore processing production in Vargem Grande. Discipline in Our cash generation enabled the resumption of our debt capital allocation r
Slide 9: We move towards greater reliability
9 We move towards greater reliability Reduction of uncertainties is ongoing ▪ Better safety and risk management ▪ Resuming production ▪ Increased predictability of expenses with Brumadinho Capital allocation ▪ Strengthen our balance sheet further 9
Slide 10: Highlights of Vale's performance in 2Q19
Highlights of Vale’s performance in 2Q19 10
Slide 11: Progress was made in 2Q19 for reducing uncertainties
11 Progress was made in 2Q19 for reducing uncertainties Production volumes Provisions for all categories of Brumadinho Mt Total provision of US$ 1.374 billion recorded in 2Q19 93 (i) US$ 1.190 billion related to 30 environmental measures and related agreements (ii) US$ 98 million related to the 63 1
Slide 12: EBITDA proforma increased in 2Q19 due to higher prices and volumes
12 EBITDA proforma increased in 2Q19 due to higher prices and higher Ferrous sales volumes US$ millions Chart Title 187 742 1,532 4,101 644 204 822 4,630 ~ 50 3,098 Proforma Increase in Increase in Prices Ferrous offset Others Proforma Provisions and EBITDA 2Q19 1Q19 Brumadinho Brumadinho volumes 4
Slide 13: FCF in 2Q19 was driven by higher prices and volumes
13 FCF in 2Q19 was driven by higher prices and by the impact of higher sales volumes on revenues and costs US$ million 87 237 1,093 359 730 222 335 2,221 1,181 3,098 1,040 EBITDA Provisions, Working Interest Income Capex Brumadinho Others² Free cash Debt Free cash 2Q19 non-cash¹ capital on loans tax
Slide 14: Capital allocation
Capital allocation 14
Slide 15: Cash generation enabled resuming debt reduction to US$ 9.7 billion
15 Cash generation in the quarter enabled to resume the trajectory of debt reduction reaching US$ 9.7 billion in 2Q19 Net debt / LTM1 EBITDA Ratio 1.0 LTM EBITDA / 0.9 Net debt in LTM gross 2Q19: interest: 0.7 0.7 US$ 9.726 billion 10.4x 0.6 Average Average cost of maturity: debt: 2Q18 3Q18 4Q18 1Q1
Slide 16: Recent decisions authorized replacing frozen funds with other guarantees
16 Recent decisions authorized Vale to replace the R$ 5 billion that were frozen by other financial guarantees and to release R$ 1.6 billion Chart Title R$ billion Total blocked funds 18 16.8 Other financial guarantees Blocked cash + judicial deposits¹ 16 1.0 14 2.9 12 11.3 1.6 10 13.0 Replacement 8
Slide 17: Gross debt reduced by US$ 1.3 billion
17 Gross debt reduced by US$ 1.3 billion as a result of net debt repayments of US$ 1.3 billion primarily related to new credit lines raised in 1Q19 Gross debt Gross debt amortization schedule1 US$ billion US$ billion 15.6 10.2 17.051 2.5 0.4 1.2 1.2 15.790 2019 2020 2021 2022 2023 Gross 15.466 onwar
Slide 18: Business segment performance
Business segment performance 18
Slide 19: Ferrous Minerals EBITDA was higher than 1Q19
18 Ferrous Minerals EBITDA was higher than 1Q19 despite the impacts of abnormal rains and events following the Brumadinho dam rupture US$ million Chart Title 309 132 742 4,091 4,091 4,223 3,602 644 904 3,658 204 2,958 2,754 2,754 EBITDA Increase in Increase in Prices Ferrous Unit cash Others EBITDA
Slide 20: Vale's iron ore CFR realized price was US$ 106.8/t
20 Vale’s iron ore CFR realized price was US$ 6.7/t higher than the market reference for the 62% Fe content, totaling US$ 106.8/t in 2Q19 US$/t, 2Q19 3.0 3.0 3.2 1.2 2.1 4.0 2.5 8.2 106.8 100.1 94.6 Average Quality Premium / discount Provisional prices Lagged Prices Current Provisional prices CFR re
Slide 21: C1 increased to US$ 17.6/t, expected to decrease in 3Q19
21 C1 increased to US$ 17.6/t, but are expected to decrease about US$ 2.5/t in 3Q19 Iron ore fines cash cost US$/t, 2Q19 0.4 1.0 1.2 17.6 0.4 1.4 14.0 C1 1Q19 Consumption of FX Demurrage Third party prices & Others C1 2Q19 Inventories volumes The normalized line-up of vessels at the Ponta da Madeira
Slide 22: Stoppage and extraordinary logistics expenses related to Brumadinho
22 Stoppage and extraordinary logistics expenses related to Brumadinho amounted to US$ 5.7/t, but are expected to decrease by US$ 1.5/t in 3Q19 Stoppage expenses US$/t, 2Q19 Stoppage and extraordinary logistics expenses related to the Brumadinho dam rupture were US$ 3.0/t higher than 1Q19 5.7 mainly
Slide 23: EBITDA break-even still affected by Brumadinho
23 EBITDA break-even was still affected by the unfolding of Brumadinho, but it is expected to decrease in 3Q19 following C1 and expenses reductions Iron ore and pellets EBITDA break-even US$/t, 2Q19 4.0 5.7 1.0 5.7 42.6 5.7 3.5 36.8 16.5 17.6 C1 cash cost¹ Freight Royalties & Distribution Stoppage M
Slide 24: Base Metals EBITDA impacted by lower copper prices
24 Base Metals EBITDA was impacted mainly by lower copper prices, as well as by lower VNC production resulting in lower fixed costs dilution Base Metals EBITDA Highlights 2Q19 US$ million Base Metals operations in the North Atlantic achieved solid performance in 778 the mine-mill-smelting activities
Slide 25: Coal EBITDA impacted by lower volumes and prices
25 Coal EBITDA was mainly impacted by lower sales volumes and prices for metallurgical and thermal coal Coal Adjusted EBITDA Highlights 2Q19 US$ million 2019 has been a challenging year for the Coal business. Despite some initiatives 45 that resulted in a better availability of mine equipment and an
Slide 26: Additional information
Additional information 26
Slide 27: Capex
27 Capex Project execution and sustaining 2Q19 Highlights capex US$ million Investments totaled US$ 730 million in 2Q19, consisting of US$ 130 million in project execution and US$ 600 million in maintenance of operations 730 The Northern System 240 Mtpy project continued to 705 progress with hiring
Slide 28: Iron ore and pellets sales volumes and sales mix
28 Iron ore and pellets sales volumes and sales mix composition Iron ore¹ and pellets sales volumes (Mt) Iron ore sales product mix (%) Pellets Premium products² Iron Ore Other products³ 13.2 8.8 12.3 77% 81% 86% 73.3 61.9 55.4 23% 19% 14% 2Q18 1Q19 2Q19 2Q18 1Q19 2Q19 1 Iron ore fines including ROM
Slide 29: Iron ore pricing systems
29 Iron ore pricing systems Pricing system breakdown (%) Impact of pricing mechanisms US$/t Lagged Provisional - prior quarter Lagged Current 4.2 3.0 Provisional 13% 28% 22% -1.1 -3.0 1Q19 2Q19 1Q19 2Q19 78% Current Provisional - current quarter 61% 67% 2.1 0.3 -0.1 -1.2 11% 9% 11% 2Q18 1Q19 2Q19 1Q
Slide 30: Nickel premium/discount by product and sales product mix
30 Nickel premium/discount by product and sales product mix Nickel premium/discount by product and Nickel sales product mix (%) average aggregate premiums (US$/t) Class I Class II battery-suitable Class II Intermediates 1,090 100 619 519 60% 58% 66% -70 -200 26% 25% 21% -2,550 7% 10% 6% Class I Clas
Slide 31: Price realization – copper operations
31 Price realization – copper operations US$/t, 2Q19 61 6,113 6,174 409 5,765 566 5,199 Average LME Current period price Copper gross Prior period price Copper realized price TC/RCs, penalties, Average copper copper price adjustments realized price adjustments before discounts premiums and realized
Slide 32: Price realization – metallurgical coal
32 Price realization – metallurgical coal US$/t, 2Q19 0.0 0.0 0.0 0.0 1.9 3.8 3.8 14.6 0.0 203.2 - - 0.0 186.7 0.0 0.0 0.0 0.0 0.0 0.0 188.6 186.7 186.7 186.7 186.7 186.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Average Portfolio Premium, Provisional Lagged and Provisional Freight Vale reference price & quality
Slide 33: Price realization – thermal coal
33 Price realization – thermal coal US$/t, 2Q19 4.6 0.3 0.4 2.3 66.0 - 0.1 59.1 61.41 61.68 61.68 61.25 58.98 59.07 Average Portfolio Premium, Provisional Lagged and Provisional Freight Vale reference price & quality discounts & prices in prior current prices prices in current differential price 2Q1
Slide 34: Debt position breakdown
34 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) 10% 18% 18% 18% 64% 71% Development Agencies Capital Markets Hedge to USD USD BRL Others Bank Loans 34
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