Vale SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Cultural Transformation: Accelerate cultural transformation, focus on safety and operational excellence, aim to be more agile and efficient, and drive cost efficiency to lower C1 below $20.
• Superior Portfolio: Accelerate execution of premium iron ore strategy, aiming for 350 million tons of iron ore production with 80%-90% high-quality products. Focus on growing Vale Base Metals, particularly copper.
• Stakeholder Relationships: Work closely with stakeholders to create responsible and trustworthy relationships, with the signing of the binding terms for Samarco's Fundão dam collapse reparation as a significant step.
• Operational Milestones: Eliminated 16th upstream dam in Brazil ahead of schedule, reduced dams in emergency levels, and made progress on initiatives like the Gelado plant in Carajás.

Segment Performance

• Iron Ore: This quarter achieved the highest iron ore production since 2018. Pellet production reached its highest level since 2019, up 13% year-on-year. C1 cash costs excluding third-party purchase were $28.6 per ton in Q3 2024, 17% lower quarter-on-quarter and 6% lower year-on-year. Guidance for 2024 C1 cost is $21.5 to $23 per ton, with expectation to reach the low end. Iron ore sales in the quarter had quality improvement with higher BRBF sales and reduced direct sales of high-silica ore.
• Base Metals (Vale Base Metals): Energy Transition Metals business saw strong production. Copper all-in costs decreased 13% year-on-year, with guidance revised down to $2,900 to $3,300 per ton. Nickel all-in costs decreased 3% year-on-year, on track to meet guidance. Ore processed at Salobo 1 and 2 plants increased 30% year-on-year, and Sudbury mines had 20% increase in mill throughput year-on-year.

Guidance

• Iron Ore: Confident to deliver iron ore production at the top end of the 323-330 million tons range for 2024. C1 cost guidance for 2024 is $21.5 to $23 per ton, expecting to reach the low end.
• Base Metals (Vale Base Metals): Copper all-in cost guidance revised down to $2,900 to $3,300 per ton. Nickel remains on track to meet cost guidance.
• Capital Expenditures: Capital expenditures steady at $1.3 billion, below 2024 guidance of approximately $6.5 billion.

Risks

• Samarco Dam Collapse Reparation: Ongoing obligations and cash disbursements related to the reparation could impact free cash flow generation.
• Regulatory and Concession Renewal: Uncertainties around renewal of railway concessions and legal procedures in U.K. and Netherlands related to Samarco.

Question and Answer

• Q: Short-term focus and iron ore portfolio strategy A: Gustavo mentioned short-term focus on portfolio optimization, performance-driven culture, and stakeholder relationships. Rogério discussed short-term focus on optimizing product portfolio and maximizing value, long-term on decarbonization and being a primary supplier for decarbonized steelmaking.
• Q: Samarco legal proceedings, railway concessions, and expanded net debt A: Gustavo and Alexandre D'Ambrosio discussed the settlement in Brazil as the right jurisdiction, progress on railway concession renewal, and maintaining the expanded net debt target of $10 billion to $20 billion.
• Q: Cash return perspectives and partnerships for iron ore A: Gustavo stated free cash flow considered in cash return decisions, and partnerships for iron ore are less likely compared to base metals.
• Q: Regulatory environment and base metals vision A: Gustavo and Shaun Usmar discussed positive outlook on Brazil's mining regulatory environment evolution and Shaun's view on Vale Base Metals' potential and growth opportunities.
• Q: Inorganic growth and portfolio satisfaction A: Gustavo and Shaun Usmar indicated focus on internal growth opportunities but openness to inorganic growth, and satisfaction with current portfolio of iron ore, nickel, and copper.