Vale SA Q3 FY2026 earnings call

• Iron Ore Production & Strategy: Global production declined 6% YoY, primarily due to challenges at Serra Norte (older mine with declining run-of-mine availability and processing constraints). Despite lower production, sales remained solid at 86.3 million tons. The company maintains a 'value over volume' strategy, focusing on profitability rather than sheer tonnage.
• Freight Risk Management: A robust freight strategy protected margins despite rising spot rates. Approximately 75% of shipping needs are covered by long-term fixed-rate contracts, with Q4 fully covered and 2027 coverage exceeding 80%. Hedging programs for fuel further reduced volatility. This strategy generated a benefit of over $3 billion versus the spot market in 2026.
• Base Metals Growth: VBM copper production rose 4% YoY, with Salobo achieving record Q3 output. Nickel production increased 6%, aided by strong performance at Sudbury Refinery and Sapuma. The company is confident in reaching the upper half of its production guidance for both metals.
• Copper Expansion Projects: The Coarse Particle Flotation (CPF) project at Salobo was approved and is advancing ahead of schedule, adding 6 million tons/year of processing capacity. This supports the goal of producing ~500,000 tons of copper by 2030 and doubling capacity to 700 kilotons by 2035.
• Cost Competitiveness: C1 cash cost for iron ore was $23.1/ton (+12% YoY), while all-in cost was $60.4/ton (+21% YoY). VBM copper all-in cost improved significantly to negative $200/ton due to by-product revenues. A new company-wide productivity program was launched to structurally improve cost bases.

Proforma EBITDA totaled $3.5 billion, a 20% year-on-year decline. Iron Ore was the primary driver of this decrease due to a 10% drop in realized prices, higher bunker costs, and BRL appreciation. Vale Base Metals (VBM) reported an EBITDA of $1.1 billion, up over 60% year-on-year, representing 31% of total company EBITDA. This growth was supported by higher realized metal prices and consistent operational execution.

• Iron Ore Costs: Management expects both C1 and all-in costs to finish 2026 within their respective guidance ranges, though Q4 all-in costs may be slightly higher than Q3.
• Base Metals Production: Confident in reaching the upper half of production guidance for both copper and nickel for 2026.
• Nickel Costs: Expects nickel all-in costs to decline in Q4 as maintenance completes, returning to levels aligned with Q2. Full-year 2026 guidance remains $10,000–$11,500/ton.
• Capital Expenditures: CAPEX is expected to finish 2026 toward the lower end of the $5.4 billion–$5.7 billion range.
• Net Debt: Target range maintained at $10 billion–$20 billion; net debt decreased to $16.4 billion.
• Forward-Looking: Specific 2027 cost and production details will be provided at the upcoming Vale Day in December.

• Serra Norte Operational Constraints: Depletion of the ore body, mechanical fleet issues, and high manganese/alumina content causing hopper clogs have impacted production. Regulatory restrictions on mining near the FLONA national forest also pose long-term risks.
• Market Volatility: Exposure to fluctuating iron ore prices, freight rates, and currency fluctuations (BRL). While hedging mitigates some risk, external pressures continue to impact margins.
• Supply Rationalization: Approximately 10% of seaborne supply (160 million tons) is currently loss-making. There is a risk that major producers might also need to adjust volumes if Chinese steel demand weakens further, though marginal producers are expected to exit first.
• Geopolitical & Regulatory Risks: Uncertainty surrounding Brazilian mining regulations (CAVES decree) and geopolitical tensions affecting fuel markets and freight routes.

Q: Analyst asked about Serra Norte's multi-year degradation, cave restrictions, and whether Vale would rationalize production or cut third-party purchases in a weak market.

A: CEO Pimenta clarified that all sold vessels remain margin-positive, adhering to a value-over-volume strategy. While ~5 million tons of third-party/on-production volume could be adjusted down, no immediate large-scale cuts are planned. Ops Exec Medeiros noted October production is 15% higher than September, recovering from Q3 issues like autonomous truck startups and high-clay ore. Long-term recovery relies on Serra Leste expansion and new ore bodies, assuming regulatory clarity.

Q: Analyst inquired if the accelerated Salobo CPF project signals broader copper pipeline acceleration and how freight costs might move in 2027 given current market conditions.

A: VBM CEO Osmar emphasized that operational excellence and exploration success (quadrupled drilling) underpin growth, not just project timing. He highlighted significant untapped copper potential in polymetallic deposits. CFO Bacci stated that if Vale hired remaining 2027 freight exposure at current spot rates, costs would rise 24-25%. However, they expect market imbalances to create better hiring opportunities later, avoiding locking in high rates now.

Q: Analyst questioned capital allocation priorities, asking if cheap share buybacks are preferable to M&A, and asked about product mix optimization amid challenging iron ore margins.

A: CFO Bacci acknowledged shares are inexpensive and buybacks are attractive; future capital generation will be balanced between dividends and buybacks. M&A is viewed strategically, potentially offering undervalued assets. Commercial EVP Nogueira explained product mix adjustments optimize total contribution, not just price. With competitors running thin margins, selling more mid-grade Carajás ore is more profitable than forcing high-grade premiums, leveraging supply chain flexibility.

Q: Analyst asked about the impact of Simandou’s ramp-up on Vale’s Carajás premium and the outlook for China’s construction demand post-policy reforms.

A: Commercial EVP Nogueira noted global steel production is stable, with China’s crude steel down 3% but imports up 4.1% due to domestic ore shutdowns. Simandou’s high-alumina ore requires blending, creating demand for Vale’s high-silica products. Vale’s flexible supply chain allows it to maintain premiums. Regarding housing, management sees little immediate change in construction demand, maintaining a stable view on seaborne iron ore balance.

Q: Analyst sought clarification on Serra Norte’s base volume expectations for 2027 and the composition of the 2027 product mix portfolio.

A: Ops Exec Medeiros confirmed Serra Norte’s annual reference is ~64 million tons, part of a 164 million-ton northern corridor total. Production is expected to run sideways in 2027 before expanding via Serra Leste. Commercial EVP Nogueira outlined the base case for 2027: focus on mid-grade products (PFC1 and BRBF) which command premiums over MB61. IOCJ will be used flexibly based on market conditions and productivity requirements.