Vale S.A. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Direction: Focus on Vale 2030 vision, building a leading mining platform with right asset portfolio, gaining competitiveness across commodities, and talent development. New arrivals of Sami Arap and Grazielle Parenti strengthen the executive committee.
• Safety: Clear progress towards accident-free work environment, with 55% reduction in high-potential recordable injuries indicator in first half of 2025.
• Operational Performance: Solid performance across all business segments. Iron ore production growth driven by new assets ramp-up. Energy Transition Metals saw nickel and copper production growth. New Carajás program advanced with preliminary license for Bacaba granted in June.
• Efficiency Program: Fourth consecutive quarter of year-on-year reduction in C1 cash cost, enabling cost reduction and moving towards 2025 guidance.
• Sustainability: Published first sustainability-related financial information report, leading in transparency and sustainable mining initiatives.

Segment Performance

• Iron Ore: Production reached 84 million tons this quarter, 4% higher year-on-year and the highest second quarter output since 2018. C1 cash cost reached $22.2 per ton in Q2, down 11% year-on-year, marking the fourth consecutive quarter of year-on-year decline, on track to meet the 2025 guidance of $20.5 to $22 per ton.
• Energy Transition Metals: Nickel production rose 44% year-on-year driven by productivity initiatives and Voisey's Bay underground mine ramp-up. Copper production increased 18% compared to the same period last year, its best second quarter since 2019. Nickel all-in cost decreased by 30% year-on-year due to operating improvements and higher byproduct revenues. Copper all-in costs decreased by 60%, with a revised 2025 guidance range of $1,500 to $2,000 per ton.
• Base Metals (VBM): Strong performance with nickel and copper showing robust growth, and Onça Puma's second furnace commissioning started, which will contribute to nickel production when fully ramped up.

Guidance

• Iron Ore: On track to meet 2025 guidance of $20.5 to $22 per ton for C1 cash cost.
• Copper: Revised 2025 all-in cost guidance to $1,500 to $2,000 per ton, implying $300 million EBITDA improvement for the year.
• Nickel: All-in cost decreased 30% year-on-year, with robust operating improvements.
• CapEx: Confident in delivering $5.9 billion CapEx guidance for the year.
• Dividend: Board approved $1.4 billion distribution of interest on capital to be paid in September.

Risks

• Market Price Volatility: Fluctuations in iron ore, copper, and nickel prices can impact financial performance.
• Operational Project Risks: Delays or issues in ramping up new projects like Onça Puma's furnace or Voisey's Bay underground mine can affect production and costs.
• Regulatory Changes: Uncertainties related to regulations such as the caves decree can impact project approvals and operations.

Question and Answer

Q: Marcio Farid asked about product portfolio and Base Metals side. On product portfolio, focus on value optimization, adjusting product offering dynamically, and working on supply chain flexibility. On Base Metals, nickel was robust with EBITDA increase, and asked if it's a new recurring level and if more cost savings and profitability improvement can be expected.

A: Rogério Nogueira said focus on value, adjusting product portfolio dynamically, and working on supply chain flexibility. Shaun Usmar said Base Metals business has seen cash flow improvements from efficiency programs, with nickel and copper showing continued improvement and expected continuation of focusing on increased volumes, fixed cost dilution, and productivity improvements.

Q: Rodolfo De Angele inquired about cost structure and shareholder return. On cost, confident in delivering guidance, with stable operational performance and new operations coming in well. On shareholder return, will decide on additional dividends and/or buybacks during the second half based on cash flow and net debt policy.

A: Marcelo Bacci said confident in iron ore cost guidance, and will consider additional shareholder returns in the second half depending on cash flow and net debt situation.

Q: Amos Fletcher asked about use of financial instruments for buyback and change in strategy for Vale Base Metals. Marcelo Bacci explained use of derivatives for cash flow management and decision on buybacks depending on market performance. Gustavo Pimenta said no change in strategy for VBM, Mark Cutifani's departure was part of the design to set up the team.

Q: Leonardo Correa asked about cash returns and CapEx guidance. On cash returns, potential for additional payouts in second half depending on iron ore prices and cash flow. On CapEx, $5.9 billion guidance is confident, with seasonal effect in Q2.

A: Marcelo Bacci said potential for additional payouts in second half, and CapEx guidance is confident with seasonal Q2 effect.

Q: Daniel Sasson asked about pellets strategy and gold streaming transactions. Rogério Nogueira said pellets demand affected by steel exports from China, but medium to long term demand expected to increase. Shaun Usmar said streaming transactions are contractual, focus on optimizing production and honoring contracts, with proceeds received so far about $4.1 billion.

A: Rogério Nogueira discussed pellets demand dynamics, and Shaun Usmar explained streaming transaction contracts and focus on production optimization.

Q: Carlos De Alba asked about briquettes project and copper second half performance. Carlos Medeiros said briquettes line stabilizing with ramping up. Rogério Nogueira talked about briquettes testing and positive results. Shaun Usmar said second half may have planned maintenance impacting volumes, with H2 back-end loaded and ramping of several operations.

A: Carlos Medeiros and Rogério Nogueira discussed briquettes project status, and Shaun Usmar provided outlook on copper second half performance.

Q: Rafael Barcellos asked about iron ore production outlook and caves decree. Carlos Medeiros said Capanema and Serra Sul part of portfolio optimization. Gustavo Pimenta said continue to play value over volume, with low capital intensity of projects, and working on caves decree to improve licensing process.

A: Carlos Medeiros and Gustavo Pimenta discussed iron ore production outlook and caves decree status.

Q: Caio Greiner asked about copper project preference and Thompson asset review. Shaun Usmar said focus on value and execution, with smaller deposits in Brazil having lower capital intensity and better risk-return profile. Thompson asset review is in advanced stage, with multiple futures being considered and update expected in next quarter.

A: Shaun Usmar explained copper project preference and Thompson asset review status