Vale S.A.

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the fourth quarter of 2021 results. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at the time. If you should require assistance during the call, please press the star followed by zero. As a reminder, this conference is being recorded and the recording will be available on the company's website at vale.com at investors link. This conference call is accompanied by slide presentation, also available at investors link at the company's website and is transmitted via internet as well. The broadcasting via internet, both the audio and the slides change, has a few seconds delay in relation to the audio transmitted via phone. Before proceedings, Let me mention the forward-looking statements are being made under the safe harbor of the Security Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comment as a result of macroeconomic conditions, market risks, and other factors. With us today are Mr. Eduardo de Sales Bartolomeu, Chief Executive Officer, Mr. Gustavo Pimenta, Executive Vice President, Finance and Investors Relations Mr. Marcelo Spinelli, Executive Vice President, IRR and Mrs. Dashni Naidoo, Executive Vice President, Base Medeiros First, Mr. Eduardo Bartolomeu will proceed to the presentation on Vale's 4th quarter of 2021 performance and after that, he will be available for questions and answers It's now my pleasure to turn the call over to Mr. Eduardo Bartolomeu. Sir, you may now begin.

Good morning, everyone. I hope you are fine. Keeping people, safety, and reparation as priorities, we performed well in 2021 in our business, in safety, in the Brumadinho reparation, and in our sustainability agenda. We are glad about the progress and confident in delivering increasingly consistent results. I would like to start our conversation by reinforcing our roadmap to build a better value. We are reducing risks associated with our operations and resizing our company, focusing on key businesses, cost optimization, and organic growth. We have updated our roadmap, moving our ESG agenda From values de-risking to re-rating, as we understand that is an important lever to push our ambitions. We remain committed to making Vale a safer and more reliable company, a benchmark in value creation and sharing, supported by a robust cash generation and disciplined capital allocation. The year Thank you very much. We had the highest sales volume of iron ore for a fourth quarter in our history, with 82.5 million tons. And as well, we have advanced with the actions to reduce the use of dams, starting operations of tailings filtration plants in Vargem Grande and Itabira. Base Metals, even with big challenges ahead, we have started 2022 with good prospects, with the conclusion of Ontario's Operations Rampart after the Sudbury stoppage, and with the resumption of the activities at the Totten Mine earlier this month. As you know, we want to make Vale each day safer. To that end, our cultural transformation continues to advance. We have increased the maturity of implementation of our management model, the VPS, with a good improvement in our operational stability. That helped us to prevent accidents. We ended 2021 with the lowest recordable injury rate in our history. Finally, we have made significant progress in optimizing our portfolio and in the disciplined capital allocation. I'll talk a little bit more about this later, but first, I'd like to update you on the progress of the Brumadinho Reservation. We ended 2021 with disbursements of $1.3 billion, including the full payment of the income transfer program. For 2022, we estimate a disbursement of around $1 billion under the reparation settlement. We have also advanced in the compensation of individual damages within the minification agreements for around 12,800 people, totaling around R$ 3 billion. As already said, we will never forget Brumadinho. We are repairing Brumadinho with active listening and in a fair, fast and agile way. In their management, we underwent an importment test earlier this year, with rains much higher than expected in Minas Gerais. About 30% of rain forecasts for the year were seen in just 12 days. In this very difficult scenario, our dams and operations showed resilience and a very good performance. A key measure to reduce values risks is our program to eliminate upstream dams in Brazil. Out of 30 structures, we have already eliminated seven, and in 2022, we will eliminate five more. By 2025, we will have eliminated Gustavo Pimenta will address this later. In conclusion, I reaffirm our commitment to the implementation of the Global Industry Standard on Tailings Management, the GISTM. Speaking now about our ESG agenda, we have made bold commitments since 2019, in line with the great challenges of society. We are delivering what we promised and disclosing our results with greater transparency. On this slide, you can see the deliveries in each of these dimensions. We have a goal of zeroing accidents with high potential injuries by 2025. In 2021, we have seen an important reduction in the injury rate, as I have already mentioned. I draw your attention to our climate agenda towards carbon neutrality by 2050. In 2021, we announced investments between $4 to $6 billion for actions in Scope 1 and 2 until 2030. In Scope 3 emissions, We are engaging with customers who already represent 40% of our emissions for partnerships in decarbonization solutions. We also launched the Green Brickette in 2021, which is essential for reducing CO2 emissions in the steel industry. More importantly, Palis is strategically positioned to face the climate challenge with a differentiated portfolio of high-quality iron ore, Which we will start now calling Class 1, Copping the Nicomar Concept, and our differentiated reserves of nickel and copper. Still on the ESG agenda, it's essential to strengthen our social performance. On the last Valley Day, we launched our social ambition with clear targets, which included 15,500,000 people out of extreme poverty, helping to develop resilient communities. We have also performed well in our commitment to double the female share in our workforce, from 13% to 26%, to the point that we have anticipated its completion forecast to 2025 from 2030, since we have already increased that share to around 19%. And to expand our ethnic racial diversity, we have made a commitment to achieve a 40% stake of black leadership by 2026. As you can see, with that, we are seeking a significant positive long-term impact on society and building a more diverse and inclusive company. In portfolio optimization, we have made substantial progress. We have entered into a binding agreement for the sale of coal business, with closing expected for the first half. We also completed the sale of the stake in CSI for over $400 million this month. Portfolio optimization solved cash drains and monetized non-strategic assets such as, for example, VNC, Mosaic, and the Manganese Ferro Alloys operations. We continue to work on the investments to focus on assets and initiatives that actually create value for the company and push us towards leadership in sustainable mining. To conclude, speaking of creating and sharing value, we distributed 95% of our 2021 cash generation to our shareholders between dividends and buyback. And yesterday, we announced the distribution of $3.5 billion in dividends. With our buyback program, we have also increased by 6% the stake of our shareholders in our future earnings. In other words, with good operational performance and capital discipline, we are returning the good results to our shareholders and allowing us to build a value-sharing agenda with the society as a whole. 2021 was a year of good deliveries. So, I would like to thank our employees, partners, customers, and suppliers for their resilience and strong commitment to the various work fronts. Now, I would like to turn the floor over to our new Vice President of Base Metals, Daphne Naidoo, and I wish her much success in her challenge and thank Mark Travers for his contributions while at the helm of the business. Thank you.

Thank you Eduardo. Good morning everyone. It is a pleasure to be talking to you today as the head of the base metals business. This is truly an exciting time for base metals. Nickel, copper and cobalt are starting a renaissance due to the global low carbon energy transition. Increased demand coupled with a lack of supply will attract significant interest across the industry. Thank you for watching. As we know, renewable energy generation consumes more copper than the traditional energy supply. We have the right assets and an unmatched resource base in strong jurisdictions with technical expertise to unlock the value chain to deliver into this demand growth. With the fundamentals of the Class I market remaining strong, our North Atlantic operations are very well positioned to respond and meet the required demand. Our Canadian nickel resources are high quality and polymetallic, With well-established downstream facilities that are capable to supply not only premium nickel products, but also cobalt and copper that are so important to the energy transition. In South Atlantic, we have a platform to growing copper in Carajas, an unparalleled mineral province that Vale knows and operates well in. We have an advanced projects pipeline with Alamal, which will allow us to grow in copper and the extension of the Sosego plant life through the development of the South Harp mines starting with Cristolino. Also, we have advanced in our drilling campaigns on the North Harp's deposits and studies to potentially expand the Saloba capacity through a fourth line processing plant. Additionally, we are also studying the expansion capacity in Ansapuma with the construction of the second furnace. In Indonesia, we have a long history of operating over several decades. In our project portfolio, Biodopi is advancing well and we are close to an FID decision that we will take in the first half of the year. Thank you very much. Production potential, possibly around 350,000 tons of copper and 220,000 ounces of gold. This is a game changer. The next slide. So our focus is clear. We need to continue towards zero harm. We have decreased our thrift rate by 20% to 0.39% over the last three years. We will continue to focus on our control effectiveness as part of our HERA program. We will look to continue to advance our resource potential and increase our reserves and resources to support the future replacement and growth plans we have. In 2021 alone, we drilled over 450,000 meters, more than we've executed over the last 25 years, and we are planning to increase that by another 20% in 2022 to 550,000 meters. We have a disciplined program to improve our mining cycle times across all mines to increase productivity. We are pivoting our products into EV supply. We signed last year a long-term contract with a global OEM for 5% of our nickel powders, and we are in discussions with several other EV supply chain participants, leveraging our resource base to further add value to business and to society. Along those lines, we take our commitment to society seriously, starting with the progress on our low-carbon agenda. This has included the third-party verification of our Long Harbour Nickel Rounds, which supports our commitment to transparency and our ambition to be a leader in low carbon. Admittedly, however, 2021 was not a good year. In terms of our planned compliance, primarily as a result of the Sudbury strike, the mine maintenance and the long-distance conveyor belt fire in Silovo. We, however, closed the fourth quarter on a more positive note and hence are confident that we are better set up to deliver 2022. Sudbury operations largely concluded the ramp-up following the strike. Totten resumed activities earlier this month as we have started to hoist ore. The Long Harbour Refinery achieved the best-to-date annual production of 38,000 tonnes. Matosaka Refinery and Onsapuma had a strong fourth quarter after significant maintenance. In copper, Saloba Mine Movement had achieved A run rate of 11 to 12 million tons in the fourth quarter and in fact in December achieving close to 12 million tons. With that, we have increased our nickel production by almost 60% in the fourth quarter and 12% of our copper production. I now hand over to Marcelo to take us through the I&O performance.

Good morning. Thank you, Dishni. It's a pleasure to have you here for the first time. So, you will use it to see our framework to track the resumption plan. So, my last update was in the Valley Day. Let me remind you some information that we have in this slide. Firstly, we left 22H1 with 340 million tons of capacity, and we expect to add another 30 million tons this year, but mainly by the end of this year. with Tortodem and Itabiru Su coming online. Second information here, during the year we expect to bring more quality with the filtration replacing the high silica ores to transforming to high grade ores. The filtration are coming online and so we expect fewer impact in volumes and more in quality. Finally, some information about the NORTH system. In S11D, we are dealing better with the audible knowledge, addressing the capacity to crush just the light with the installation of the remaining able crushers. We will have a busy year in the NORTH system with all the projects that are under construction. Remember that we have in the last 11D the Plus 10, the Plus 20, we have Gelado in North Range. All of them will be really important to bring capacity to 2023. Well, I want to reinforce our production guidance for 2022. It's a range between 320 and 335 million tons. And despite the heavy rainy season that we faced in this Q1 and the losses that we had in January, we are confident that we can compensate during the year and deliver the guidance. Now, moving forward, I want to bring your attention to the fly-to-quality trend. We all know about this strategy that we have in Vale, but now with some actual examples. Well, we've been talking about the energy transition, the decarbonization process, and many times we talk about the transition metals, nickel and copper, that we have in our portfolio, but we should consider two information here to put this to you in this top list of metals that will be really important for the transition in energy. First information, steel is fundamental to all the infrastructure that we need for the energy transition. We have a lot of examples in this slide coming from the energy sector. And second, we have a clear pathway, a clear tech roadmap for the steelmaking transition that will support the competitiveness of the steel business in a greener world. Another information, there's a common sense, as we mentioned in the Valley Day, that the pathway to decarbonize the steelmaking will come from the reduction of the use of the blast furnace and the increase of the direct reduction roads. In the first moment, using more natural gas and later the hydrogen. For all of these roads, we will need More and more high-grade ores. In the beginning, to reduce the use of the coke, and in the second moment, you need more pellets for direct reduction or briquettes. And just to remind you, there is a limited supply for the high-grade ores that can make valley in a very competitive level. So, all of this together, I want to summarize showing the last slide that we have a graph with the premiums for the high-grade ores, the low aluminum, and the gap when you compare with the low-grade ores. We are decoupling more and more from the traditional competitors for iron ore. We have growth and better price in the market that we are competing, the high-grade ores. We're going to talk a lot about this during the year. We are in the market that we can call the class one iron ore. Now I hand over to Gustavo Pimenta.

Thanks, Marcelo. I would like to start with a review of the main drivers for EBITDA performance on slide 23. As you can see, Our fourth quarter EBITDA was very much in line with our Q3 performance at about $7 billion. The main negative effect was caused by realized prices in Arnor, as the 62% reference price dropped at $53 in the quarter. This was mostly offset by record sales volume for a fourth quarter of 82 million tons, combined with better pricing and volume at base metals, as we resumed operations at Sudbury. Now turn to our cash flow generation on the next slide. Our EBITDA to cash conversion this quarter was impacted by working capital effects, payment of Brumadinho obligations, and seasonally higher capex. On working capital, the main drivers were, first, about $1.5 billion of cash returned to clients for volumes collected in Q3, But effectively delivered in Q4 at lower reference prices. So as per the agreement with clients, we adjust the final pricing once this cargo is delivered, as we had talked about in our previous call. The second effect, about a billion dollars, is related to higher accrual sales volume in the quarter when compared to the prior quarter, which increases the account's receivable balance. These invoices will be collected in Q1 this year. Also in the fourth quarter of last year, we accelerated payments related to the integral reparation agreement of Brumadinho, including the implementation of the income transfer program, all in line with our expectations. Finally, the $780 million you see on the right green bar are mainly the proceeds from the sale of our Mosaic shares, offset by the use of cash to the share buyback program. Now turning to net income on the next slide. Here we bring the main drivers reconciling our EBITDA to net income in the quarter. As you can see, we added about 1.7 billion in new provisions for the de-characterization of our upstream dams. The adjustment was necessary after we concluded a thorough review of the engineering and geotechnical solutions needed to perform the de-characterization plan. With this revision, we now expect associated cash disbursement to move from about $300 million to $450 million per year on average from 2022 until 2026. It is important to highlight that we have not changed any of the de-characterization goals presented in Valide and continue to expect to have no dams classified at Emergence Level 3 by 2025. Second, our equity results were $1.1 billion lower as we complemented additional provision related to Fundação Renova. This was done after new court decisions on the compensation to residents of impacted cities that changed and expanded the concept of damage, categories, indemnifiable amounts, and affected municipalities. Lastly, during the quarter, we returned $3 billion of capital from a few of our subsidiaries, and as a result, recognized a gain for accumulated FX translation on these investments. Now turning to our cost-efficiency initiatives on the next slide. As we have laid out during Valley Day, this is one of our key strategic priorities, which we see even more relevant today, given the continuous acceleration of global inflation, which is affecting everyone including us. Our key objective for 2022 is to keep our total fixed costs and sustaining CAPEX flat, implementing initiatives that will offset all the inflation pressure in the year. As you can see on the left-hand side of the slide, we have already identified a series of initiatives to deliver on this goal. Such as the redesign of the organization structure, improvements in strategic sourcing, overhead optimization, and implementation of technology to drive field productivity. These initiatives and our continued focus on increasing the level of efficiency and productivity across Vale, without jeopardizing the resilience of our operations, will set the stage for us to deliver the $1 billion goal from 2023 onwards. Another important driver is the inflation on variable costs. In our industry, the most direct impact comes from oil prices, currently under pressure due to the latest geopolitical developments. As you can see on the right-hand side of the slide, this has an impact on our bunker and diesel costs, and we provide some sensitivities related to our C1 and all lean impacts. On the other hand, as Espinel explained, we are seeing higher quality premiums in 2022, which we expected to have a positive effect in our all-in cash cost, offsetting the negative impact of oil prices. To conclude on costs, we remain focused on delivering a long-term C1 cost, ex-third-party purchase, of $14 to $15 per ton, in line with what we presented in Validea. So, in summary, we are very confident about delivering on our strategic and financial objectives. We remain obsessed with safety while working hard to recover our production capacity in iron ore and base metals. We are leading the transformation to a low-carbon emission industry in iron ore, and we leverage our well-positioned portfolio of assets in nickel and copper to support the energy transition. Finally, and as Eduardo highlighted, we remain committed to delivering superior returns to our shareholders. With that, I would like to open up the call for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key followed by the one key on your touchstone phone now. If at any time you would like to remove yourself from the questioning queue, press star 2. Please restrict your questions to two at a time. Our first question comes from Carlos de Alba with Morgan Stanley.

Carlos, your audio is available. Thank you very much, everyone. So the first question, maybe continue the discussion on cost and cost pressures. So if I understood correct, how should I understand the comments on cost for iron ore? So basically, you expect to offset the pressure on fixed cost, but variable will increase. And therefore, it is possibly that cost will increase in the coming quarters. And then over time, Get back to that target that was mentioned of $14 to $15 per ton excluding third-party purchases. Is that a right way to understand the progression towards that? That would be my first question. And if I may ask the second question, it has to do with the increase in provisions and the extended net debt now around $15 billion. What does that mean for future payments of dividends and share buybacks? Thank you.

Thanks, Carlos. This is Gustavo. So let me walk you through both the two questions that you raised. So in terms of cost, what we've laid out is that we expect to have fixed costs plus sustaining capex flattened despite inflation. So we talked about that in Valley Day. We saw this coming, and we've taken a series of actions over the last couple of months to make sure that we can deliver fixed costs plus sustaining flat. Now, we do realize that both on diesel and bunker, we are having pressure, right? The rent is above $100, which is going to impact especially the all-in cost. But what we said during the presentation, as Spinelli highlighted, that premiums are better than last year. So, our expectation is that premium will offset the impact that you're going to have from fuel costs this year. So, at a high level, then, it's fixed cost flat and the impact from fuel being offset by premium, right? So in terms of the provision, yes, we are at the target, the $15 billion target at the expanded net debt. But what I'd like to clarify here, this is not a quarterly goal, right? What we want to achieve is by the year end to be within that framework, within the limit of $15 billion. But we may have some fluctuations throughout the year. So if you model, given at very conservative prices for iron ore, if you model our cash projection for the year, you're going to see we have a lot of space within that threshold to perform on the program, execute the buyback, and eventually even do more. So we are feeling very good about it. Again, it's not a quarterly target. I wouldn't be very focused on that. We expect it to get within the 15-by-year end, but during the quarters, we may fluctuate around that.

The next question comes from Jonathan Prentice with HSBC. Mr. Jonathan, your audio is available.

Hi, morning, good afternoon. Thanks for the opportunity. I just wanted to follow up on Carlos' question as it relates to provisions. I understand Simarco has made, you know, They made a thing to their creditors asking or stating that they would propose a cap of $2.4 billion in payments for their dam disaster and that they would ask you and BHP for an additional $3.1 billion. I'm just wondering if that's in the provisions, if that is a potential additional Liability that you could be facing at some point and sort of what your views are on that. And then my second question is on the base metal side. I guess, you know, given the robust scenario that you laid out for demand, is there anything you can do to speed up some of these projects? Are there any obstacles that are in your way? And sort of, you know, you spoke about your projects. Thank you.

So, Jonathan, I'll get started and then I'll send the second question to Dishini. So, no impact regarding the conversations and discussions with the creditors. And the reason being, from an accounting perspective, we are provisioning 100% from the sponsor side. So, there is no whatsoever impact, you know, as the conversation evolves with the creditors. So, hopefully, we'll be able to reach a constructive outcome there. But the result is not necessarily affecting the level of provisions that we have.

Thank you, Jonathan. I have to say in the last couple of weeks, this question has been preoccupying my mind. You know, there's two ways of creating a value, especially in the short to medium term. We have to focus on volume and margin. On volume and turning to nickel. The team and I are looking at how do we increase the mines productivity and mines production more reliably because the good news about Canada is that we have downstream capacity. So Alfredo and the team, they are really looking at that. But like you said, it is about margin. and what we are looking at with Juan's team is how do we pivot some of that the current class one into into EV faster. Currently as we said we've got five percent directly tied we are talking to quite a few of the EV supply chain producers right now to look at how we can pivot that further but on copper We have a beautiful old body in Salobo. The job there is to try and get some consistency out of Salobo 1 and 2, and also to look at how do we create this dream start for the Salobo 3 plant, which will give us another 30 to 40. So, you know, in the short term, focus on the current portfolio, Thank you very much. Thank you. So, Jonathan, I'm hoping, you know, in the next few months, we'll have some good news for you in terms of progress on some of that fast tracking.

Just to add, Jonathan, about monetizing, because you bring a very important question around the jurisdiction, right? Geopolitically speaking now, as we see after COVID and now with the Ukraine issue, I think being placed in Canada, being able to supply Europe and North America on the EV, We are, as I think is what's behind your question, is the discussion about spinning off, carving out. As we said, there's no decision taken. There's no action. All actions will precede necessarily what Tati just mentioned about doing the homework. But they are on the table, obviously. We're always thinking about ways. and who knows. But it's an optionality that we want you to take attention to. It's the most important reshaping that value will do now after we almost finish our cleaning up of the assets that were destroying value. Now we are now willing to put the assets that has huge values on the best way to the market pricing. Thank you for your question.

The next question comes from Mr. Andreas Buchenhauser with UBS. Mr. Andreas, your audio is available.

Well, thank you very much. I hope you're all safe and well. Just two questions from me, follow up on Jonathan's question. Can you give us a quick update just on how conversations with creditors are going? In particular, one question investors are asking at the moment is kind of whether there's a viable risk here Thank you very much for joining us. So can you talk a little bit around what management strategy and initiatives are to basically re-rate the shares and narrow that discount going forward? Those are my two questions. Thank you very much.

Thanks, Andrea. I'll take a shot at both and eventually Eduardo can compliment on the second one. So with the creditors, we are in the process, right? So this is still uncertain in terms of what is the final outcome. What I can tell you is that, you know, Samarco has potential. It is generating cash flow. So our expectation and hope is to find a constructive outcome that works for everyone, right, for Samarco, for the creditors, and for the sponsors. So you've seen in the press and some of the releases with ideas that were presented by Samarco. Of course, there's just a process that we'll have to go through, and hopefully at the end, We will find a constructive outcome that is good for everyone. And especially because, as I said, San Marco has potential to continue to generate a strong cash flow. In terms of re-rating, I think it's the overall story of value, right? We clearly understand that there was a perception of a higher risk platform, especially post the tragedies. We've been working hard on this. The assets performed extremely well early this year, despite all the heavy rains. So the story around the risking and making sure that The market perceives, as we do perceive, that value today substantially less risky than it was three years ago is fundamental. There is clearly an element of reshaping the portfolio, which Eduardo talked about with, you know, just to put in perspective. At some point in time, the assets that we've sold were costing us $2 billion of cash per year. They are all gone, right? So that is also fundamental. And then the third one is our position in terms of ESG. We're able to bring the volume both in our NOR and base metals, as we've said. I think Sometimes we feel the market doesn't appreciate all the growth potential we have at value with limited equity needs, right? So just bringing volumes back to where we were, it is a fundamental opportunity for us to create EBITDA. We're working hard to get there. And one of the, you know, for you guys to see how we feel about it is our action in terms of buying back our own shares. We've been very active and we expect it to continue to be active given our value or Our view that the company is not well reflected in terms of its share price.

You spoiled my comment. I was going to say exactly that. Why? We don't get the right pricing. There is no better investment than to buy value. So we will continue to do that as quick as we can. We already gave 6% back to our shareholders. And if the market still appreciates because there are risks, there are reshapes, there are The next question comes from Tina Teners with Wolf Research. Yeah, hey, good day. Happy Friday, everyone.

Just wanted to start out by following up on the comments around working capital because it took a big bite out of free cash flow. And I just wanted to make sure I understood how much of that to consider reversing into the first quarter. And then for my second question, you know, there's a lot of noise since the last time we spoke to you about upstream dams that were supposed to have been eliminated with, I guess, a debate about the deadline or a difference of view there. And has Valley applied for an extension or is there – Thanks a lot. Hey, Tim. Let me get started with the working capital. So what happened in Q2, the main effect was, as I believe we highlighted in Q3,

We've monetized some of the cargoes, and as per the agreement with the clients, once the cargo is effectively delivered, we have to get to the settlement based on that price. So as we had in Q4 some reduction on pricing, we were impacted through a networking capital standpoint. What's going to drive better cash flow in Q2 this year is the fact that we ended up with higher accruals. Probably 10 million tons, you can do the math, of higher accruals in Q4, which will effectively monetize and will get paid in Q1 this year. So you see likely a strong Q1 as a result of these higher accruals not yet received. With that, I'll ask Eduardo to cover the second one.

Hi, Tim. Good Friday for you, too. The upstream dams were supposed to be eliminated by the law that was created just after Brumadinho in two years. Obviously, it's not possible, and we asked for a extension, but fortunately, all the constituencies come together. They came together since the beginning of the month, the prosecutors, the government agents, the state agents, the federal agents, the national agents of mining, and we came up with a... How do you translate it? An agreement that will allow us to exert the time that is needed to do the works. There are some rules for that, so it's a more comprehensive agreement. But there will be, how can I say, no penalty. There will be a fund. that will be created to help sustain some environmental actions, but not immaterial. It's going to be in the timing of the, more or less following the time of the characterization of each dams. As I mentioned in my speech, around 25, 20 of these dams are going to be eliminated, but there are some that will take more. So I think we found a good solution with all the constituencies and we are good to go.

The next question comes from Alex Hacking with Seat. Your auto is available.

Thanks, and thanks for the call. First question, any guidance on C1 costs for nickel and copper in 2022? And then secondly, on Sapuma with a second furnace, is there any estimate on CapEx there? And then what's What's driving the decision to revisit the second furnace? If I remember correctly, it was originally built with two furnaces. It failed. You rebuilt one but not the other. Is this just a function of the higher nickel price that's driving that decision, or has something else changed on Sapuma that you're revisiting that second furnace?

Thank you very much. Thank you for the questions, Alex. So firstly, on cost guidance, we typically don't give the cost guidance, but let me tell you how I see the margins in the business. If I look at an all-in number for nickel, excluding sustaining capital, if I look at the trend over the last two years, that number against these values should be in the order of magnitude around $8,000 per ton. We add back some of the sustaining capital, we're looking at maybe $7,000 to $7,400 per ton. I think that's a good enough guidance in terms of current volumes, and if you look at Current price, I mean, that's still a pretty healthy situation. The excitement, of course, for us is in copper. And if I look at Solobo, last year we were slightly positive. In previous years, of course, our Solobo costs were negative. So the way to look at our copper cost in total, when I include Sasego as part of the copper operations, just under, you know, $2,000 per ton before sustaining capital, if I add back that, Thank you very much. In terms of how we're now matching our kiln capacity to the furnace capacity, etc. So the second furnace now, the scope has actually creeped a bit because we've, of course, learned from operating the first furnace. And the order of magnitude on the capital there is just under $400 million to $450 million. But, of course, we are working on refining that estimate in order to approve the project sooner. From a capacity point of view as well, Furnace 2 will not add as much as Furnace 1 because of how the furnaces are configured. So Furnace 1 should give us as much as 25,000 tons. Furnace 2 will add maybe another 12,000 to 15,000 tons. I hope that helps, Alex.

The next question comes from Alfonso Salazar with Scotiabank. Your audio is available.

Thank you, everyone. I have one question, and it's regarding the self-scrap market. I want to split it into two questions. The first one is on the short term. We hear that there is some type of scrap shortages in China. So I'm just wondering if you can provide some color on what's happening and what are the implications in the short term for our northern land. And in the long term, what are the expectations regarding scrap supply increase? Especially in China, we're talking about end of life in scrap. And what is going to change in the dynamics of the scrap market? How do you see them evolving in time? For example, developed markets use more scrap domestically and then that means there is less to export to other countries. But then you have China increasing domestic supply. What are the implications that you see, or how do you see the balance in the iron market, not in the iron ore silver market, but in the iron unit market going forward? If you can provide some color and some thoughts on how do you see this evolving?

I think Alfonso is going to be here. Well, in short term, What we see in the supply-demand balance is that we have more demand compared to supply. The supply side is we have some disruptions in Brazil. We all know about the losses that we had relating to the rainy season in the south of Brazil. It's a seasonal moment, as usual, but we had some extra problems with higher rainy season. And also some news coming from Australia with lower shipments. On the other hand, the demand side, we have China sending strong message that they have They want a GDP growth rate between 5 to 5.5%. That deploying to the steel demand, we see a production, CSP production of a billion, 10, a billion, 20 million tons. That is after all the Olympics and the holidays in China, is increasing the demand. So that's the scenario for short term. We see an unbalanced market, tight market in this first half and more balance in the second half. Moving forward to the future, what I said in the beginning of the presentation, we are decoupling the market. We need to educate ourselves. We need to do this as Vale and show you Show to you that we have a different market when we are talking now about high-grade ores. We need to deploy this demand for direct reduction ropes. There are a lot of announcements coming from every place that will support an increase for the pellets, direct reduction pellets and also briquettes. There's a new market that is coming now. Also, we have the necessity during this next decade to increase the efficiency of the blast furnace and bringing more and more high-grade ores to the blast furnace. So, we need to educate ourselves to understand that this part of the demand, we're going to have growth and higher price compared to the average that you see today. Despite the increase of this crap in China, we see a strong demand for high-grade ores. That's the reason why we are going to educate ourselves during this year.

The next question comes from Tyler Broda with RBC. Your audio is available.

Great, thanks very much for the call today. Daphne, welcome to Vale. My first question is for you. There's been a few CEOs, I'll excuse Eduardo for his brief tenure as head of base metals, but a few CEOs who have been sort of struggling with the same issues and sort of the underperformance of the assets. You mentioned they're older, there's a lot of sort of challenges you went through this year. How are you approaching this job differently than maybe your predecessors have? And then the second question, Spinelli, I guess there's discussions about Anglo-American and potential for some form of JV around Minas Rio or some form of partnership there. I was just wondering if you could provide any colour on that at all, if possible. And thanks very much.

Carla, thank you so much for the easy question. Thank you so much for having me. In terms of the execution of the plans. So one of the first things I've done as a CEO is to look at the leadership team and how do I better structure the team to deliver the critical priorities that we have that I've already outlined in the presentation. But I'm a firm believer, Tyler, that what gets measured gets done. and one of the second things I did in the business was to set up an activist TMO office that actually is just focused on four pillars. Safe minds performance is pillar one. Pillar two, to really look at the overhead structure from an operational efficiency and an effectiveness point of view. And the third pillar was around reducing the third party spend that the business had. And the last pillar was all around people. and the engagement that we need. Stakeholders are probably the reason why we've not been as successful because we've not managed to take all or everyone around. I think last year's strike, as Ward has mentioned in the previous call, was one of the reasons that perhaps we've not been as successful. So I've been very hard at work for the last few weeks, actively listening to the various stakeholder groups and setting up workshops to try and understand how we can both collaborate together and try and have a shared vision for the business. So, Tyler, in no ways underestimating the challenge, but I remain so positive about the quality of the assets we have, the quality of the resources we have in the ground, and how if we bring the rest of these four pillars together, we can really make some magic happen at Base Metals. Thank you. Over to you, Spinelli.

Thank you, Dushnir. So, Tyler, we always evaluate... Opportunities and strategic alternatives for our business. So, we have an iron ore resource that is called Sepentina. It's close to Minas Rio operations from Anglo. And we can leverage from the existing processing and logistics that they have there. These assets that we have. So that was the main idea. And we don't have any news about this. That's very preliminary discussions, and we don't have any commitment to this idea.

The next question comes from Christian George with Societe Genial.

Thank you very much for your time. Two questions on the industry. Just to clarify on the pellets, I think you've highlighted you expect a positive impact on the premiums from the situation in Ukraine and Russia. If both Metal Reinvest and Fair Expo are unable to export, do you actually think there may be a problem of shortage of pellets for some of the European steel mills? Is this something which we should be taking into account over and above The potential impact on prices. And my second question is on nickel. You're relating, you expect the market to double in the next decade or so. I think you remember last time you were explaining that in Canada, only like 5% of your production, Class 1, goes to batteries, and medium term you expect about 20%. In general, do you think we are near a shortage of Class 1 nickel, justifying the current elevated prices, or do you think there is sufficient supply in the market for some time?

Christian, thank you for your question. Well, we talked about this question in the Portuguese conference call. Well, just to figure out, the pellet market is about 120 million tons. The blast furnace is 80 million tons in Russia and Ukraine. are responsible for 25 million tons, almost 30% of the market. We are, you all know that we have a shortage in the supply for directory and blast furnace. And it depends on how long the conflicts last, we can have some impact coming from the suppliers in this region. So

My first reaction is that we don't have extra supply to support a shortage coming from this region.

And the first impact will probably be in the pallet premium. We've been hearing and receiving calls from our clients in Europe, in East Europe, to support them, but we are trying to arrange our supply chain to help them, but there is a limited action for these contractors in short term.

Thank you, Christian. Maybe just the short answer is that I don't think it's going to be enough. So although we're seeing primary nickel increase, well, double over the next decade, 30% of that growth we see is coming from the EV space. In base metals, 70% of our production is Class I. So what we think is going to be needed is not just pivoting our 70% into more EV growth, which should be around 25% to 35% as we have guided previously. But this sector continues to surprise us. So as we saw last year on the doubling of EVs year on year, I know it's not going to be enough. So this is something that the industry needs to think about is how do we accelerate supply to make sure that we do keep up with an evolving, growing EV sector demand. Christian, thank you.

The next question comes from John Tumazes with John Tumazes Independence Research. Your audio is available.

Thank you very much. Concerning the Indonesian copper gold deposit, has the tailings disposal method been determined to be on land where all the other Projects in that part of the world, you know, dump it deep in the sea. And concerning Valet's board, how could your board do a project with the ocean dumping? And please describe what the CapEx and design could be with and without the ocean dumping.

Thank you, John. I'll start and maybe Eduardo might want to add something, but very quickly. That was the start of the project in FAL 1, where like with some of the other producers to look at deep sea tailings dumping, that is definitely not the design as part of the FAL 2A study work that we are in now. And if you look at, you know, we've been very conservative in our ramp up to concluding these FAL 2, FAL 3 studies over the next four to five years for exactly this reason, John, to look at how do we balance Some of the geothermal work that we're seeing in the ore body, as well as the tailings dumping, as well as possible tailings treatment. Bede and the team that are basically driving the project on the ground. Are we looking at this? It's still early for me to commit to the exact processing route, but I can categorically tell you that that will not be the route that we will be looking for. And we are looking at across this project, given the remoteness and the deepness of the ore body, different ways of using technology to extract this safer and better.

This concludes today's question and answer session. Mr. Eduardo Bartolomeu, at this time you may proceed with your closing statement.

Okay, thank you. Thank you all for your presence, attention, interest in Vale. As we mentioned, we had a good year in Brazil. and I would say some some people would say an exception what we say like here we like to say is a good because we think we could do much better as we always say this is a marathon it's not a sprint as Gustavo mentioned the risk is ongoing we're much much safer comp today reshaping we have to extract value from base metals then the re-rating will come and more importantly I think from the robust results that we had Just to have an idea, we're not only talking about our shareholders. As a matter of fact, we contributed to society with 40 billion reais, more exactly 42 billion reais in royalties and taxes. It's our obligation for sure, but it's a way to contribute to development in countries like Brazil, Indonesia, and even Canada. So with that said, I believe that we are on the right track and thanks again a lot for your attention and interest in our company and I hope to see you in the next call.

That does conclude Vale's conference call for today. Thank you very much for your participation. You may now disconnect your lines.