Vale S.a. · BMFBOVESPA:VALE3
Vale — Q2 2019 Earnings Presentation
35 slides from Vale's earnings presentation, Aug 1, 2019
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. Opening remarks 2. Highlights of Vale’s performance in 2Q19 3. Capital Allocation 4. Business segment performance Agendaa
Slide 3: Opening remarks
= © Opening remarks Highlights of Vale’s performance in 2Q19 Capital Allocation Business segment performance
Slide 4: 2Q19 Results: A transitional quarter
5 2Q19 Results: A transitional quarter EduardoBartolomeo, Chief and Executive Officer, commented: "As we progress towardsfull effective reparation, 2Q19 has been a transitional quarter for the business, with the Brumadinho dam rupture stillimpactingvolumes,costsandexpenses,howeverourresponse started
Slide 5: 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 6: 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 7: We move forward with our strategic pillars
8 We move forward with our strategic pillars Vale Day 2018 New Pillars Maximize flight to quality in Iron Ore Resumption of the Brucutu mine operation and part of the dry processing production in Vargem Grande. Discipline in capital allocation Our cash generation enabled the resumption of our debt r
Slide 8: 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
Slide 9: Highlights of Vale's performance in 2Q19
Highlights of Vale’s performance in 2Q19
Slide 10: 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 Total provision of US$ 1.374 billion recorded in 2Q19 Mt (i) US$ 1.190 billion related to environmental measures and related agreements (ii) US$ 98 million related to the decommissi
Slide 11: 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 187 Proforma 1Q19 EBITDA¹ Increase in Brumadinho lost sales² Increase in Brumadinho stoppage expenses³ Prices Ferrous offset volumes 4 Others Proforma Provisions and EBITDA 2Q19 2Q19 EBITDA¹repara
Slide 12: 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 2Q19 Provisions, non-cash¹ Working capital Interest on loans Income taxes & Refis settlement program Capex Brumadinho exp
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 87 237 222 EBITDA Provisions, Working Interest Income © Capex Brumadinho Others* Free cash Debt —_Free cash 2Q19 non-cash" capital © onloans taxes & expenses, flowfrom repayment flo
Slide 14: Cash generation enabled resumption of debt reduction
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 2Q18 3Q18 4Q18 1Q19 2Q19 1 LTM – last twelve months As a result of recent court decisions and agreements, R$ 5 billion that were frozen were replaced by
Slide 15: Recent decisions authorized replacement of frozen funds by 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 R$ billion Total blocked funds Other financial guarantees Blocked cash + judicial deposits¹ 16.8 1Q19 MPMG² - Evacuation in Macacos community MP³, Federal Gove
Slide 16: 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 US$ billion Gross debt amortization schedule1 US$ billion 15.6 1.2 1.2 0.4 2019 2020 2021 20222023 onwards Gross debt 65% of our debt settlem
Slide 17: Business segment performance
Business segment performance
Slide 18: 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 309 132 EBITDA 1Q19 Increase inIncrease in Brumadinho Brumadinho Prices Ferrous offset volumes³ Unit cash cost Others EBITDA 2Q19 lost sales¹ stoppage exp
Slide 19: Vale's iron ore CFR realized price above market reference
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$/t, 2Q19 3.0 3.0 4.0 3.2 2.1 1.2 8.2 2.5 106.8 Average Platts 2Q19 (dmt) Quality Premium / discount and commercial conditions Provisional prices in prior quart
Slide 20: C1 increased to US$ 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$/t, 2Q19 0.4 1.0 0.4 C1 1Q19 Consumption of Inventories FX Demurrage Third party prices & volumes Others C1 2Q19 1 Considering Exchange rate of BRL 3.85/USD in 3Q19. The normalized line-up
Slide 21: Stoppage and extraordinary logistics expenses related to Brumadinho
22 Stoppage and extraordinary logistics expenses related to Brumadinho amounted to US$ 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 mainly as
Slide 22: EBITDA break-even still affected by Brumadinho
23 EBITDA break-even was still affected by the unfolding ofBrumadinho, but it is expected to decrease in 3Q19 following C1 and expenses reductions Iron ore and pellets EBITDA break-even US$/t, 2Q19 C1 cash cost¹ Freight Royalties & expenses² DistributionStoppage expenses² related to Brumadinho Moist
Slide 23: Base Metals EBITDA impacted by lower copper prices
24 Base Metals EBITDA was impacted mainly by lower copper prices, as well as by lower VNC production resulting in lower fixed costs dilution Base Metals EBITDA US$ million Highlights 2Q19 Base Metals operations in the North Atlantic achieved solid performance in the mine-mill-smelting activities in
Slide 24: Coal EBITDA impacted by lower sales volumes and prices
25 Coal EBITDA was mainly impacted by lower sales volumes and prices for metallurgical and thermal coal Coal Adjusted EBITDA US$ million Highlights 2Q19 2019 has been a challenging year for the Coal business. Despite some initiatives that resulted in a better availability of mine equipment and an in
Slide 25: Coal EBITDA impacted by lower sales 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 USS million 2019 has been a challenging year for the Coal business. Despite some initiatives * that resulted in a better availability of mine equipment and an
Slide 26: Capex: project execution and sustaining capex
27 Capex Project execution and sustaining capex US$ million 2Q19 Highlights Investments totaled US$ 730 million in 2Q19, consisting of US$ 130 million in project execution and US$ 600 million in maintenance of operations The Northern System 240 Mtpy project continued to progress with hiring of contr
Slide 27: 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 (%) Premium products² Other products³ Pellets Iron Ore 2Q18 1Q19 2Q19 2Q18 1Q19 2Q19 1 Iron ore fines including ROM ² Composed by pellets, Carajás, Brazilian Blend Fine
Slide 28: Iron ore pricing systems
29 Iron ore pricing systems Impact of pricing mechanisms US$/t Pricing system breakdown (%) Lagged Current Provisional Provisional - prior quarter Lagged 4.2 3.0 -1.1 -3.0 2Q19 1Q19 2Q19 1Q19 Current Provisional - current quarter 2.1 0.3 -0.1 -1.2 1Q19 2Q19 1Q19 2Q19 2Q18 1Q19 2Q19 28% 13% 22% 78% 6
Slide 29: Nickel premium/discount by product and sales mix
30 Nickel premium/discount by product and sales product mix Nickel premium/discount by product and average aggregate premiums (US$/t) Nickel sales product mix (%) Class I Class II battery-suitable Class II Intermediates Class I Class II Battery-suitable Class II Intermediates Vale's average Other ti
Slide 30: Price realization – copper operations
31 Price realization – copper operations US$/t, 2Q19 61 Average LME copper price Current period price adjustments Copper gross realized price Prior period price Copper realized price TC/RCs, penalties, premiums and discounts Average copper realized price adjustments before discounts 6,113 6,174409 5
Slide 31: Price realization – metallurgical coal
32 Price realization – metallurgical coal US$/t, 2Q19 1.9 3.8 - - Average reference price 2Q19 Portfolio & quality Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential Vale price 2Q19 Imp
Slide 32: Price realization – thermal coal
33 Price realization – thermal coal US$/t, 2Q19 4.6 0.4 0.3 2.3 0.1 Average reference price 2Q19 Portfolio & quality Premium, discounts & commercial conditions Provisional prices in prior quarters Lagged and current prices Provisional prices in current quarters Freight differential Vale price 2Q19 I
Slide 33: Debt position breakdown
34 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) 10% 18% 18% 18% 71% 64% Development Agencies Bank Loans Capital Markets Hedge to USD USD BRL Others
Slide 34: Debt position breakdown
34 Debt position breakdown Debt breakdown by instrument (%) Debt breakdown by currency (after hedge) (%) mDevelopment Agencies Capital Markets mHedge to USD mUSD = BRL = Others mBank Loans Wve
Slide 35: 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: August 1 st , 2019 Director of