Vale S.a. · BMFBOVESPA:VALE3
Vale — Q2 2018 Earnings Presentation
42 slides from Vale's earnings presentation, Jul 26, 2018
Slide 1: Disclaimer
“This presentation may include statements that present 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 correct
Slide 2: Agenda
1. Vale’s performance in 2Q18 2. Predictability 3. Flexibility 4. Cost management 5. Capital allocation 6. Diversification through own assets 7. Business segment performance Agendaa
Slide 3: Agenda
ao fF fF MP DN Vale’s performance in 2Q18 Predictability Flexibility Cost management Capital allocation Diversification through own assets Business segment performance
Slide 4: Performance highlights in 2Q18
5 Performance highlights in 2Q18 21% Base Metals 23% Net Debt Chief Executive Officer Mr. Fabio Schvartsman commented on the 2Q18 results: “I am pleased that several of the main aspects of our strategy were highlighted in the last quarter. We have shown significant progress in predictability, flexib
Slide 5: Performance highlights in 2Q18
Performance highlights in 2Q18 US$3.9bi US$778 mi Total =» Base Metals B2% EBITDA it EBITDA US$ 28 Bit : ron Ore EBTDA = USS 1.7" a on gees yx breakeven Chief Executive Officer Mr. Fabio Schvartsman commented on the 2Q18 results: “/ am pleased that several of the main aspects of our strategy were hi
Slide 6: 2Q18 EBITDA was in line with 1Q18 as anticipated
7 2Q18 EBITDAwas in line with1Q18 as anticipated, overcoming the challenges of lower prices and supply disruptions in Brazil Adjusted EBITDA Highlights 2Q18 Adjusted EBITDA was US$ 3.902 billion in 2Q18, remaining practically in line with 1Q18, despite lower iron ore and metallurgical coal market re
Slide 7: 2Q18 EBITDA was in line with 1Q18 as anticipated
2Q18 EBITDA was in line with 1Q18 as anticipated, overcoming the challenges of lower prices and supply disruptions in Brazil Adjusted EBITDA USS pion Oe an 3,971 3,902 i i 2Q17 , 1Q18 , 2Q18 , Highlights 2Q18 Adjusted EBITDA was US$ 3.902 billion in 2Q18, remaining practically in line with 1Q18, des
Slide 8: Production and sales records for a 2Q
9 Production and sales records for a 2Q, overcoming the challenges of truck drivers’strike in Brazil % Quarterly record & Record for a second quarter & Total: 96.8 Mt & N. System: 46.2 Mt Total: 12.8 Mt Total: 66.2 kt % Long Harbour: 8.9 kt Total: 97.9 kt Total: 2.9 Mt & Sales volumes IO & Pel: 86.5
Slide 9: Record premium of US$ 7.1/t for iron ore fines
10 Record premium of US$ 7.1/t, due to the active optimization of the supply chain and the premium product portfolio Average Premiums1 of iron ore fines Highlights 2Q18 US$/t Value over volume Differentiation strategy capturing the benefits of the structural “flight to quality” trend Record was a re
Slide 10: Continuous growth in nickel quality premiums
11 Continuous growth in nickel quality premiums over the last quarters Class I nickel products premium Nickel premium/discount by product and average aggregate realized premiums US$/t, 2Q18 US$/t 81% Class I premium Class II battery-suitable discount Class II premium Intermediates Vale's average agg
Slide 11: Continuous growth in nickel quality premiums
1 Continuous growth in nickel quality premiums over the last quarters Class | nickel products premium USS/t 790 1,390 2Q17 1Q18 2Q18 Nickel premium/discount by product and average aggregate realized premiums US$/t, 2Q18 1,430 652 420 180 a Class! Class IIbattery- Class Il_—_ Intermediates Vale's ave
Slide 12: C1 cash cost in line with previous quarters
13 Vale managed to overcome the challenges faced in 2Q18 and delivered a C1 cash cost in line with previous quarters Iron ore fines C1 cash costs Highlights 2Q18 Effects of the BRL depreciation and higher dilution of fixed costs on higher production volumes were offset by: US$/t • Impact of the truc
Slide 13: EBITDA breakeven decreased by US$ 1.7/t
14 EBITDAbreakeven decreased by US$ 1.7/t and broke the US$ 30/t barrier US$/t, 2Q18 7,1 3,2 0,7 3,3 3,2 17,2 C1 cash cost¹ Freight Royalties & expenses Distribution Moisture Quality EBITDA breakeven iron ore fines Pellet adjustment EBITDA breakeven (pellets & fines) Cost landed in China 1 Ex-ROM 14
Slide 14: EBITDA breakeven decreased by US$ 1.7/t
14 EBITDA breakeven decreased by US$ 1.7/t and broke the US$ 30/t barrier USS/t, 2Q18 3,2 7.4 337 _, a 3.2 320 | 28,8 14,7 a eee C1 cash cost* Freight Royalties& Distribution Moisture Quality EBITDA Pellet EBITDA expenses breakeveniron adjustment breakeven ore fines (pellets & fines) Cost landed in
Slide 15: New era of shareholder remuneration
16 2Q18 marked the beginning of a new era of shareholder remuneration Shareholder remuneration Highlights Pursuant to the new dividend policy, US$ 2.054 billion will be paid in September, the highest remuneration for a semester since 2014 US$ million 3.054 Announcement of a share buyback program of
Slide 16: Voisey's Bay underground and cobalt stream transaction
17 Voisey’s Bay underground (VBME) was transformed into a high return investment of more than 35% p.a. by the cobalt stream transaction Voisey’s Bay Underground (VBME) sustaining capex US$ million Cobalt stream Highlights Sale of 75% of the cobalt stream from Voisey’s Bay for a total upfront payment
Slide 17: Highest 2Q FCF enabled US$ 1.8 bi debt repayment
18 The highest FCF for a 2Q in 10 years enabled US$ 1.8 bi of debt repayment and a simultaneous cash increase of US$ 1.3 bi US$ million (363) 3.902 (274) (72) (176) (159) 259 3.096 (1.834) (711) 690 1.262 Others1 EBITDA 2Q18 Working capital Interests on loans Participative Income taxes Capex Cobalt
Slide 18: Significant reduction in net debt of US$ 3.4 billion
19 Significant reduction in net debt of US$ 3.4 billion, the highest decrease on a quarterly basis Highlights Net debt Cash position on June 30th, 2018 of US$ 6.387 billion US$ billion - 10.603 Net debt has reached the lowest level since 2Q11, reducing by almost US$ 11 billion over the last 12 month
Slide 19: Leverage decreased to 0.7x
20 Leverage decreased to 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 2Q17 3Q174Q17 1Q18 2Q18 1 LTM – last twelve months Average cost of debt: 4.96% per annum Average maturity: 8.9 years 1,5 1,3 1,2 1,0 0,7 LTM EBITDA / LTM gr
Slide 20: Gross debt and amortization schedule
21 The decrease in gross debt against the end of last quarter was mainly due to repayments of US$ 2.1 billion in 2Q18 Gross debt Gross debt amortization schedule1 US$ billion US$ billion 17,5 1,6 1,3 0,5 2018 2019 2020 2021 2022Gross onwards debt 72% of our debt settlement will occur after 2022 2Q17
Slide 21: Diversification through own assets
Diversification through own assets
Slide 22: Base Metals EBITDA amounted to 20% of EBITDA
23 Base Metals EBITDAamounted to 20% of the company’s EBITDA Base Metals EBITDA share of Vale’s EBITDA Highlights 2Q18 Base Metals EBITDA totaled US$ 778 million, anchored in higher volumes of nickel, copper and gold and higher realized premiums for nickel Optimization in nickel and the overall good
Slide 23: Business segment performance
Business segment performance
Slide 24: Ferrous Minerals EBITDA practically in line with 1Q18
18 Ferrous Minerals EBITDAwas practically in line with 1Q18, mainly due to record premiums and higher volumes US$ million 482 150 101 82 3.408 80 137 46 3.228 EBITDA 1Q18 Reference price 62% Fe¹ FX Bunker & Spot Freight Volume Premiums & commercial initiatives Unit costs Others EBITDA 2Q18 ¹ 62% Fe
Slide 25: Realized premiums supported by stronger market premiums
26 Vale’s realized premiums were also supported by stronger market premiums, especially by spot sales of the Brazilian Blend Fines Brazilian Blend Fines (BRBF) premiums (spot sales) US$/t, 2Q18 14 12 10 8 6 4 2 - 14-May-18 24-May-18 3-Jun-18 13-Jun-18 23-Jun-18 3-Jul-18 13-Jul-18 Gap between BRBF an
Slide 26: Higher premiums led to CFR price 11% higher
27 Higher premiums led to a CFR price 11% higher than the 62% reference price US$/t, 2Q18 + 11.3% 0,2 0,9 0.4 5,0 0,5 4,5 5,6 2,1 72,7 Average ReferencePrice 2Q18(dmt) Quality Premium/ discount and commercial conditions Provisional pricesin prior quarter¹ Lagged prices Current Provisional prices in
Slide 27: Base Metals EBITDA up 21% q-o-q
28 Optimization in nickel and the overall good performance of copper drove EBITDAup to 21% q-o-q Base Metals EBITDA Highlights 2Q18 US$ million Base Metals EBITDA increased US$ 134 million vs. 1Q18, mainly as a result of higher nickel and copper realized prices, higher by-product volumes and higher
Slide 28: Coal EBITDA impacted by lower NLC debt service and prices
29 Coal EBITDAwas impacted by lower NLC1 debt service, as anticipated, and lower prices, partly offset by lower operational costs Coal Adjusted EBITDA Highlights 2Q18 US$ million The effect of lower market prices on revenues was partially offset by higher metallurgical coal price realization from 89
Slide 29: Coal EBITDA impacted by lower NLC debt service and prices
Coal EBITDA was impacted by lower NLC’ debt service, as anticipated, and lower prices, partly offset by lower operational costs Coal Adjusted EBITDA Highlights 2Q18 US$ million The effect of lower market prices on revenues was partially offset by higher metallurgical coal price realization from 89.5
Slide 30: Revenues in line with 1Q18 despite truck drivers' strike
31 Even in the adverse environment caused by the truck drivers’ strike, Vale managed to bring in revenues in line with 1Q18 Net operating revenues by destination in 2Q18 Highlights 2Q18 Net operating revenues of US$ 8.616 billion Revenues were in line with 1Q18, mainly due to higher sales volumes fo
Slide 31: Capital expenditures lowest for a second quarter in 13 years
32 Capital expenditures have reached the lowest level for a second quarter in the last 13 years Project and sustaining capex 2Q18 Highlights US$ million Capex totaled US$ 705 million in 2Q18, mainly due to lower project execution, already planned for the quarter 895 890 2018 Capex guidance has been
Slide 32: Sustaining capex segmentation
33 Sustaining capex segmentation is consistent with the rigorous capital allocation process Highlights 2Q18 US$ million Coal Copper Nickel Ferrous Minerals Ferrous Minerals and Base Metals business segments represented 58% and 38% of sustaining capex, respectively Total Sustaining 507 568 631 529 50
Slide 33: Portfolio benefiting from flight to quality trend
34 Vale’s portfolio is benefiting from the increase in the “flight to quality” trend with rising market premiums Premiums and discounts (daily basis) 65%-62% 58%-62% US$/t 30 +US$ 28/t 20 10 US$ 54/t - jan /16 jul/16 out/16 jan/17 abr/17 jul/17 out/17 jan/18 abr/18 jul/18 (10) (20) -US$ 26/t (30) (4
Slide 34: Improved sales mix composition in 2Q18
35 Vale continues to improve its sales mix composition in 2Q18 Iron ore sales product mix (%) Nickel sales product mix (%) Class I Class II battery-suitable Class II Intermediates Premium products¹ Other products² 2Q17 1Q18 2Q18 2Q17 1Q18 2Q18 1 Composed by pellets, Carajás, Brazilian Blend Fines (B
Slide 35: Iron ore pricing systems
36 Iron ore pricing systems Impact of pricing mechanisms US$/t Pricing system breakdown (%) Lagged Current Provisional Provisional - prior quarter 1,2 Lagged 0,9 -0,5 -0,8 1Q18 2Q18 1Q18 2Q18 Current Provisional - current quarter 0,2 -0,4 -0,2 -3,3 1Q18 2Q17 1Q18 2Q18 2Q18 1Q18 2Q18 37% 35% 28% 61%
Slide 36: Evolution of iron ore fines cash cost, freight and expenses
37 Evolution of iron ore fines cash cost, freight and expenses US$/t C1 cash cost FOB port1 Expenses2 & royalties Freight 17,2 15,2 16,4 14,8 14,7 14,9 2Q17 1Q18 2Q18 2Q17 1Q18 2Q18 2Q17 1Q18 2Q18 1 Ex-ROM and ex-royalties. 2 Including dividends received. Net of depreciation. 3,3 3,2 2,9
Slide 37: Price realization copper
38 Price realization copper US$/t, 2Q18 270 Average LME copper Currentperiod price Copper gross realized Prior periodpriceCopper realizedprice TC/RCs, penalties, Average copper realizedprice price adjustments price adjustments beforediscounts premiumsand discounts 6.872 23559 6.6026.579 6,020
Slide 38: Price realization – Metallurgical Coal from Mozambique
40 Price realization – Metallurgical Coal from Mozambique US$/t, 2Q18 8.8 0.3 0.2 5.9 1.9 - Average reference price 2Q18 Quality Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential Vale
Slide 39: Price realization – Thermal Coal from Mozambique
41 Price realization – Thermal Coal from Mozambique US$/t, 2Q18 14,1 Average reference price 2Q18 Quality Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential Vale price 2Q18 Impact of pr
Slide 40: Debt position breakdown
42 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) 7% 17% 17% 22% 75% 61% Development Agencies Bank Loans Capital Markets Hedge to USD USD BRL Others
Slide 41: Debt position breakdown
42 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) mDevelopment Agencies m Capital Markets Hedge to USD #USD @ BRL mOthers mBank Loans Wa
Slide 42: 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: July 25, 2018 Director of Inves