Vale S.A.

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the first quarter of 2022 results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at the time. This call is being simultaneously translated to Portuguese. 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 vali.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 chains, has a few seconds delay in relation to the audio transmitted via phone. Before proceeding, 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 comments 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 Investor Relations, Mr. Marcelo Spinelli, Executive Vice-President, IOR and Mrs. Destiny Naidu, Executive Vice-President, BASE Metals. First, Mr. Eduardo Bartolomeu will proceed to the presentation on Vale's first quarter of 2022 performance and after that, he'll 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.

Thank you. Good morning, everyone. I hope you are all well. Let me start our conversation with a familiar slide to you and reinforce that we remain focused on re-rating value by de-risking and reshaping our company. On the reparation front, actions provided in the Brumadinho Reparation Agreement are progressing well. Payment obligations are in full swing, and we are now detailing social economic projects in Brumadinho and other 25 municipalities in the Paraupeba Basin. These projects were selected based on popular consultation and they cover health, social development, infrastructure and agriculture within a fast responsive package. In dam safety, we began the de-characterization of Dicauxiliar, one of the five upstream structures to be eliminated in 2022. which will total 12 by the end of this year. The de-characterization program has its schedule agreed with the Brazilian authorities in February this year through a term of commitment. This brings more legal and technical certainty to the elimination of our 23 remaining upstream dams in Brazil. On production resumption, despite a few challenges, we are on plan to deliver the two most important milestones for this year, Torre do Drem and Itaipira do Sul de Henrique. As we have been saying, we are building a better Vale with capital discipline and creating value for all of our stakeholders. This first quarter is seasonally the lowest in production. In addition, we had further operational challenges. Despite that, We managed to reach some important milestones towards increased production stability and value creation. In iron ore, we achieved a solid premium of $9 per ton, the highest since the second quarter of 19. That's evidence of our high-quality portfolio in a tight market for high-quality products. On the other hand, production was down year on year. A result of operational constraints, which will be covered in detail by Spinetti later. But we are overcoming those obstacles. In the Southern Eastern System, performance increased by 11% year on year, despite the strong rainfall in January. With that, I'm confident that production levels will increase as planned in the coming quarters to meet our annual production guidance. In base metals, we gave another important step, reinforcing Vale's position as a supplier of choice by the EV market, a multi-year agreement with Northvolt to supply low-carbon nickel products for batteries. On production stability, the Sotheby's mines achieved three strike run rates, supportive of a recovery in production for the upcoming quarters. Tashny will provide more details later. Finally, In capital allocation, we paid $3.5 billion in dividends and advanced very well with the execution of our buyback program. Talking now about the integration between business and ESG strategy, as you know, our product portfolio is shaped to foster the development and diffusion of environmentally friendly technologies by our clients. One example of that is the start The technology is innovative, enabling the production of green pig iron from the substitution of metallurgical coal by biomass. This means up to 100% reduction in CO2 emission and 10 to 15% lower operating cost and capex intensity. This is in line with our strategy to provide steelmakers with viable solutions for their decarbonization investments, also contributing to Vale's net scope 3 emissions reduction target of 15% by 2035. This is one of the initiatives that differentiates Vale's portfolio and strategically positions the company to face the climate challenge. On our roadmap to build a better Vale, reshaping means optimizing portfolio, Solving cash drains and focusing on our core businesses. In this sense, we have made substantial progress this quarter by completing the divestment from our core business and also closing the sale of our stake at CSI. Finally, we reached a binding agreement for the sale of our Midwestern system for $150 million In addition to transferring take-or-pay obligations, which priced the transaction at $1.2 billion in enterprise value. Those were major steps that create value for the company and drive us towards a much more focused and leaner portfolio of assets. Speaking of creating and sharing value, based on the successful progress of our two share-buy-back programs, We announced the launching of a third one for up to 500 million shares to be repurchased within 18 months. Combined, the two first programs comprised almost 10% of Alice's outstanding shares. After the completion of the third buyback program, we will have repurchased almost 20% of the company's outstanding shares. This means that For shareholders with positions, since before our first program, without expanding any additional dollar, their participation in future earnings would have increased by almost 25% when we have completed this program. This is one of the results of our commitment to create value and share it with our shareholders. I now turn the floor over to Daphne for her remarks on the core results for base metals. Thank you.

Thank you, Eduardo. Good morning, everyone. I would like to start by talking about the progress we have made towards our strategic agenda. During this quarter, we signed a multi-year agreement to supply our low carbon nickel to Northvolt, a partner who values producing batteries from low carbon sources. We have also successfully added further carbon certification for some of our other nickel This is an addition to the certification we have previously received for our Long Harbor Nickel Rounds. This is an important achievement that reinforces our position to supply low-carbon products to support the energy transition, especially for the growing EV market. Secondly, we have just announced locally in Indonesia the signing of a framework agreement with YU Cobalt to jointly develop our Pomela HPAL project to produce up to 120,000 tons of nickel in MHP. YU's technical experience, expertise, and track record is a perfect complement to our world-class Pomela deposit and our multi-decade This is a significant milestone that reflects our longstanding commitment to developing this world-class resource in Indonesia to further deliver into a growing nickel demand. In nickel, the year-on-year lower volumes were largely explained by the pace of the ramp-up of Sudbury Mines and the ramp-up of the VBME project. However, our Sudbury mines by the end of quarter one achieved pre-labor disruption mining rates and Onsopuma operation had a stable production performance. In copper, we had planned for a lower production quarter as a result of a scheduled sosego sagmul maintenance and the lower mine grades from Solobo in H1. We were impacted by the decision we took to extend the sosego We were also impacted by the increased seismicity at our Coleman mine in Sudbury, which impacted mining a high-grade copper section in the quarter. This can still be accessed. There are several initiatives underway that will continue to de-risk our copper production going forward. Sosego mining performance for the quarter is slightly ahead of plan, which enables the plant to run at maximum capacity after the restart. We achieved 25,000 tons run rate in quarter three and quarter four last year, and I am certain That we can achieve similar if not slightly higher run rates once the maintenance is completed. So Lobo Mining is on plan as we are seeing the benefit of the mine maintenance work from last year and are on track to deliver 30% more mine movement this year. The So Lobo plant has just completed a planned maintenance too and will assist with improved reliability. The Salobo plant has previously achieved the required 48 to 50,000 tonne quarterly run rates. Finally, in North Atlantic, with the increasing production rates and the additional opportunities being worked on, we are confident that we can offset some of the losses from quarter one. The next slide. Finally, moving to the nickel prices, which has attracted a lot of attention recently. Our nickel price realization was up 16% in the quarter. This price realization can be split into three main factors. First, the aggregate premium and discount for nickel that is taking into account our entire product portfolio. In this quarter, we've achieved strong price realization from our class one products. However, The product mix was impacted by the higher sales of the intermediates, mostly nickel mat, which is typically sold at a 20 to 25% discount to LME. The second factor is the market pricing, that is, how sales are distributed along the quarter and the quotational price for the contracts. So despite the high LME price in March and in the quarter, The lower previous period prices affected the quarter's price. Our typical monthly QP is split about half in the current month and half in the past month. This explains the $2,000 difference between LME and the realized price. And lastly, we have some fixed pricing. We typically hedge a smaller portion of our sales. Our hedge contracts are not subject to margin calls. As we apply hedge accounting to those contracts, the only effect we see is the equivalent to a fixed price sale at about $20,000 with no issues on liquidity or mark-to-market for those contracts. Given the soaring prices in the quarter, we have had a negative impact on our hedge results. I now hand over to Marcelo to take us through the I&O performance.

Thank you, Dishni. Well, in our last conference call, I finished my presentation talking about the flight to quality trend. We highlighted that in that decarbonization path, the optimization of the blast furnace in the short term and the massive use of directed reduction in the future will support a strong demand for high-quality ores. On the other hand, there's a limited supply of the high silica ores. And we said that we have many signs that this trend is becoming a reality. So we can see this chart that we have a gap between this 58 index and the 65 index now over $70. That's the class one iron ore that we've been talking about. Vali performed a great prize realization in the first quarter, driven by four main reasons. The first one, the cost of the coke. We have a necessity to optimize the cost of energy in the blast furnace. Second, the lack of quality that are coming from our competitors. We have high silica aluminum, high aluminum, less concentrate coming from CIS, and even the domestic market, we have a lower production for the concentrate. Third, pallet premiums. And finally, We are taking advantage of our portfolio. We've been improving the quality through the filtration plants, the BRBF, and now we are reducing the high silica ores also concentrated in China. Moving to next slide. Let's talk about the production plan for 2022. I want to reinforce our production guidance for this year. It's a range between Nogueira, Marcelo Feriozzi from the asset that we were ramping up last year coming from the Salton system. We are also facing the reflect of the delays of what we call the rolling license process in the North Range. That made our strip ratio increase in the North Range. In spite of many challenges, we can say that we have some good news here. We improved more than 12% The waste movement in the north branch. And we could plan and execute the major maintenance activities in the S11D in the first quarter. There are others in the second quarter. So on the first half, we can say that we have less impact in the production, annual production due to the seasonality. As an example, we are installing the ABIC rushes the first half and we already In April, we are adding more than 2 million tons compared to last year. We can say that we prepared the North Range for more availability in the second half, and we will have the same effect of the annualized production coming from the South and the Southeastern system that we resumed last year. Finally, we're going to have the Gelado project in the second half, and we are expecting some license for small pits in the North Ranch. Now moving to the third slide, we want to track our plan to bring over the 50 million tons in mid-term to support, to supply the market if the market needs. So, following system by system. In the north range, we want to also track the new audit bodies that are under-licensed, the N3 and N2, N1. S11D, keep the evolution of the learning curve of the OBK We have also to install in two years the new waste crusher, but we also have the plus 10 and the plus 20 project, big projects that are coming in the future. In Itabira, Itabira Sul, we have a good news here. We resumed the raising works. We expect The first phase for this year and the second phase for next year. So in the end of the year, we will be able to improve the capacity in Itabira. And finally, Brukutu, Tortodem Works are concluded. We are in the last phase going after the final permits to operate this asset and we need to keep On Track, the license process for the stock piling for tailing. I'll be here for further questions, and I'll hand over to Gustavo.

Thanks, Marcelo, and good morning, everyone. I'd like to start with the review of the main drivers for EBITDA performance in the quarter. As you can see, our first quarter EBITDA was about $6.4 billion. This decline was caused mainly by the 33 million tons decline in sales of iron ore fines and pellets, given our normal seasonality with lower sales in the beginning of the year. This was mostly offset by better realized prices for iron ore, reflecting the $32 per ton higher reference price and higher quality premiums in Q1. Now on to our cost performance. As discussed since Valley Day, this is one of our strategic priorities, which we see even more relevant today given the very high inflationary environment we are all living in. Just as a reminder, our goal for the year is to keep our fixed costs plus sustaining in local currents in line with the 2021 levels. For that, we have been working on a series of initiatives over the last several months with real benefits being already captured in our financials. Resulting in a very limited fixed cost variation on a quarter-over-quarter basis. Now, how does that translate into our C1 and all lean costs for the quarter and full-year forecast? As you can see in the next slide, our C1X third-party purchase for the first quarter 2022 was $18.7 per ton, higher than our Q4 by $2.2 per ton, mostly driven by lower volume In the effect of fuel prices and effects, with all the inflationary pressure being offset by the initiatives I just highlighted. Looking into our full year forecast for C1X third-party purchases, if we were to assume average rent for the year at around $100 per barrel and effects rate at $5 per dollar, Will would be around $18.5 to $19 per ton versus last year, full year at $16.5 per ton. In terms of all lean cost and assuming similar parameters, including average bunker at $600 per ton, Will would be running 2022 at a pace similar to 2021, with premium offsetting the effect of inflationary pressures. Just note that all these numbers already exclude the Midwestern system for which the sale was recently announced. Now turning to cash generation on the next slide. The EB debt to cash conversion for this quarter was mainly affected by greater tax payment. Per our tax regime, our monthly income tax payments are calculated based on revenues generated and any necessary adjustment is made in the first quarter of the following year. So what you see here is seasonally higher disbursement for the first quarter given better results last year. On working capital, we had the usual impact of increasing accounts payable in Q1 following the higher investments in Q4. Also, there was an impact of the profit sharing distribution in the beginning of the year. Finally, and most important, on the capital allocation front, we returned $5.3 billion in dividends and share buyback. We remain committed in reverting an important share of our cash generation to our shareholders, supported by our strong balance sheet. These outflows were slightly offset by the inflows of around $500 million from the sale of our stake in California Steel. Now let me turn to our expanded net debt evolution in the next slide. We ended up Q1 with an expanded net debt of $19.4 billion. Compared with a $15.1 billion for Q4. Part of this increase is a result of the outflows presented in the prior slide and were very much aligned with our expectation for the quarter as I had anticipated in our last call. Another drive is the effect of a fax rate on the BRL denominated obligations that composed our expanded net debt commitments. During the quarter, the Brazilian Real appreciated by around 15%, which caused our commitments, denominated in Reais, to increase in dollar terms by around $2.2 billion. This was partially offset by the market-to-market of our hedge positions, with a positive impact of $813 million. We expect our expanded net debt to benefit in the next quarters from higher sales and lower one-time cash outflows, such as tax payments. During this quarter, we also revealed with our board a change in our optimal leverage from $15 billion to a range of $10 to $20 billion under the same expanded net debt concept. This provided us with greater flexibility and it's a reflection of a proactive liability management performed in the last several months with no relevant financial amortizations due by 2024. A sustainable increase in our production capacity and a very disciplined cost and capex management. So before opening up for Q&A, I'd like to reinforce the key takeaways from today's call. We remain laser focused on delivering on our strategic and financial objectives. Our uniquely positioned portfolio of assets will benefit substantially from the energy transition. On production, we are confident in delivering the volumes within the previously disclosed guidance ranges. And finally, we'll continue to maintain a very disciplined capital allocation process, as evidenced by our announcement today of a new share repurchase program of 500 million shares. With that, I'd like to open the call for questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. We have devised that the questions should be asked in English. If you have a question, please press the star key followed by the 1 key on your touch-tone phone now. If at any time you would like to remove yourself from the questioning queue, press star 2. Please restrict your questions to 2 at a time. Our first question comes from Mr. Leonardo Correa with Banco BTG Pactual. Mr. Leonardo, your audio is available.

Yes, can you hear me? Hello?

Yes, yes, yes, Leonardo.

Okay, perfect, guys. So, good morning to everyone. Thank you. My first question to Gustavo. Gustavo, on the cash returns, right, I think the big news of the day was the buyback. I think no one was really expecting the level of increase that you guys announced, right, from $200 million to $500 million. The question we've been choosing over the past hours has been on how this or if this changes the way you treat dividends, and more particularly, if this changes the way you treat the extraordinary dividends. Because if we look at Vale's cash returns over the past couple of years, it's been mainly focused on dividends. The bulk of cash flows have been returned via dividends. With this much higher level of buybacks, I think the question is, will you potentially leave the extraordinary dividend aside and just focus on the minimum plus this buyback or you think you can do the three together? So that's my first question. The second one to Spinelli, if I may, of course, it's a very volatile and very difficult environment to try to understand in China, right? We're seeing all the lockdowns. We're seeing all the logistics bottlenecks. We're seeing some ports locked down, shut down. We don't know exactly how this can evolve going forward. My question to you is whether the order books that you're seeing over April and May in China, are you seeing any weakness? I mean, any temporary issues on selling your iron ore into China? I mean, how can you Are sales normal to China? Are you experiencing any delays or any potential shipments that could be rolled over into the third quarter? That would be both of my questions, guys. Thank you very much.

Leo, I'm going to use the new world, the new normal to answer your question. Gustavo is in front of me here, so he'll add up because I think it's a very important question. Question that you poised, because as you understand, we always talked about the pockets, right? We generate cash. Last year, we returned 95% of the cash flow. First of all, we need to keep our commitments obliged. That's why we did the extended debt concept. An obligation to execute them, our growth, our safety, and what's coming after. First is our policy, our dividend policy. That's sacred. We want to keep this as a concept. When you look five years from now and look back, Vale has been consistently, predictably playing its policy. What is above that? That's your question. We're going to treat it in a very specific way for the moment that we are undergoing. Obviously we prefer buybacks because they are permanent.

The next question comes from Mr. Caio Ribeiro with Bank of America. Mr. Caio, your audio is available.

Yeah, I think Eduardo covered well, right? So given where the stocks are trading, we continue to believe this is probably one of the best, if not the best investments that we have, is to buy back our own share. We've been very active, as we've seen in our prep remarks. We've purchased almost 10% of Vale shares. The last 12 months, so that would take us to another almost 20%. So this is certainly very accretive for our shareholders, and we will continue to put a lot of effort on that, as you saw in our announcement last year. It doesn't mean we cannot do extraordinary dividends. I think we will assess at its due time. Of course, it will depend on our cash flow for the year. We are very constructive for the year, despite some of the challenges that we are all seeing. We continue to be very constructive. Thank you for your question.

Well, this is, I think it's one of the most important questions for today, right? So China is dealing with the COVID and how is the impact for our goal for this year? So in short term, just answering your question directly, we don't see any problem with our clients. I think it's the opposite. The liquidity in the market is getting higher and higher. Last week, this week, They have now a weekend and a holiday, but the liquidity is really high. Our inventory is declining, and also the whole inventory is declining. And there's strong support, and if you see the numbers to support that, all the viability, the use of the blast furnace, As a whole increase in this week to 83%, 84%, 86% compared to 85% last week. So all the signs we see that there is a support for downstream demand. And definitely they seem to be committed to their goal of 5.5 GDP growth. And we have all the deployment after that infrastructure, very heated. You see the FAI, more than the 8% growing. New projects are coming. So everything is, you can see in the numbers, but the sentiment at the same time, we see they are struggling in Shanghai. Other information for you, we don't have any problem in our supply chain. All of our lineups are in the same level that used to be in the same period of the year, and the operations are flowing very well. So we are happy to see the numbers going on.

The next question comes from Mr. Caio Ribeiro with Bank of America. Mr. Caio, your audio is available.

All right. Good morning, all. Thank you for the opportunity. So my first question is on divestments. I just wanted to ask, you know, after VNC, Mochizzi, the Midwestern system, which other assets are still candidates for divestments? And then my second question, you know, the company has been talking a lot about, you know, several value unlocking avenues for the base metals division. You know, one of them is setting up a potential partnership. I just wanted to ask if you do choose to go down this road, what would be the main angles that you're looking to exploit to unlock this value? You know, whether it is through synergies via logistics, SG&A, or, you know, if it is consolidating the nickel class one market further or anything else that you see as potential here. Thank you.

Hey, Caio. Good morning. Gustavo here. So I'll get started with the divestments and then I'll pass to Eduardo to cover base metals. So, yeah, we've done a lot. Thanks, Caio.

It's a very good question and a complex to answer. I'll try to be objective, okay? But we need to start because of obvious reasons. There's no decision taking that direction, okay? What we have, I think this brings to your question, is an asset that nobody else has it, okay? In NICO, fundamentally speaking. We're talking about an asset that is OCDE-based in Canada. ESG totally aligned in Indonesia because we have operated there for more than 50 years and the best resources in the world. So nobody has it. So we need to extract value from it. So that's the main angle. If you ask me what is the angle, it's uncovering value from this extremely high quality asset that has one of the best resources and reserves in the world. So that's the first angle that we need to be mindful of. I think we have, as in your first question, a track record of delivering what we say that we are going to do. We said that we're going to exit VNC. We exited. We said that we're going to exit Moatis responsibly, and we did. And I think with that track record, we are going to uncover the value that we have at base metals. That is unique, as I already mentioned. What kind of options can we have? Again, reminding again about my first comment. There is no decision taken whatsoever. There are several. There are several avenues that we can choose to go. You can partner. You can spin, you can skip as it is, because if we execute well, because that's the part I jumped, we need to execute well. I would even ask Gretchen to comment a little bit, because she's here with us in Brazil as well today. And I think she's going tomorrow to Saloubo, by the way. So there are huge efforts to transform the business, execute well. It's our first quarter. That's not a very good one. So we need to prove that we are a reliable operator, predictable operator. We can do that. We did that in the railways in Vale. We are doing that in Iron Ore. And we are going to do that in base metals as well. So the path to choose and to uncover this value passes, first of all, in building reliability, building a credible business. Keeping our growth projects online like VBME, sustaining and growth projects like VBME or CCM in nickel and Alemão, for instance, like in copper. And obviously, if option A is extracting this value inside value is not enough, we're going to analyze other options. Some of those I just mentioned before. But the angle, if I can be objective to you, is to uncover value. And we have been doing that with the other assets that we reshape. And I agree with you, this is the last reshape that a body has to do.

Thank you, Eduardo. Exactly. All parts to unlocking value for base metal starts off with a solid execution. I have mentioned this in the previous call. There were four work streams that the base metals teams and I are working on. Starting off with the mines productivity and linking to that safety, we have plans for every asset across the business and it's good to see some of these quicker wins coming through as is reflected by the 22% increase we've seen from January until March in assets. In our daily production rates at Sudbury. The focus, of course, has to increase in South Atlantic, which is very much the downstream focus on making sure that the assets are better maintained and that we can improve reliability. But we know to be successful, it's not just by getting to safe, reliable production, but we have to get down the cost curve. and that is why the next initiative we have is focusing on our third party spend and that we are hoping to at least offset the inflation for this year but start to look for structural changes there. But it all comes together making sure that we are improving our engagement with all of our stakeholders and that's where the third piece of work sits. So Eduardo, we are focusing in base metals on execution and whatever that path for value unlock will come It will be of a far more efficient base in the company. Thank you.

The next question comes from Mr. Carlos de Alba with Morgan Stanley. Mr. Carlos, your audio is available.

All right, great. Thank you very much. Good morning, everyone. So my questions are, one is on Salobo. Can you comment a little bit more on how Salobo 3, that is, a little bit more on how the project is unfolding after the situation that it faced in January? And also, it caught my attention that the capex was kept at around $1.1 billion total capex. Despite this setback, if you could elaborate a little bit more, if you are seeing efficiency somewhere else or if the overall cost of the incident is just not that relevant. And then the other, maybe Marcelo, if you could elaborate a little bit on the pellet price and the premium. We were expecting a little bit bigger multiple and obviously we were mistaken. But it could be just a lagging effect, maybe the increase in metallic prices and higher value iron ore products increase in price that we saw recently happen after you had signed your contracts for the quarter. So if you can elaborate a little bit more about the first quarter. Better Price Premium and what you expect in the second quarter and going forward that will be very useful. Thank you very much.

Thank you, Paras, for the question regarding Silobo 3. So just so that we all align, Silobo 3 will deliver at least 30,000 to 40,000 tons of metal. And in terms of where we are in progress, that project is almost 70% complete. So as we previously guided, we are on track to start our first production at the end of November this year. In terms of the capital, we are still holding on to the $1.1 billion of capital. In fact, in terms of the progress on physical, and I think Eduardo mentioned at the start of the call that we will be on site over the next day to actually talk to Olga and the team on that. In terms of the work that the teams and I are doing now is making sure that we are de-risking the operational readiness in terms of commissioning as well as the ramp up. So, Sylobo 3, as it stands, we are maintaining the guidance from the beginning of the year. We're still on track for the end of the year startup.

And about the efficiency that you asked, Carlos, we were really benefited by the exchange rate in this case. There were some COVID impacts and the accident was minor, was not relevant. But it's going to be on track for the dollar-wise, $1.1 billion.

Hi, Carlos. Thank you for your question. Well, we have a shortfall in the market. It's very tight. We mentioned in the last conference call the impact coming from the conflict in Russia and Ukraine. For blast furnace and direct reduction, there's pressure coming from the demand side in Middle West. So in Q2, we settled the premiums before the conflict. So the numbers now are for blast furnace 60.6, 65.8 for direct reduction. And we see an upside risk for next quarter.

The next question comes from Mr. Thiago Lofiego with Bradesco BBI. Mr. Thiago, your audio is available.

Thank you, gentlemen. Two questions here. The first one to Gustavo. Gustavo, about the expanded net debt guidance range, that's a big range, right? So can you give us more color on, maybe at least for now, what number should we be working with In terms of the expended net debt, is it maybe closer to the top of the range for now? I'm asking because this obviously makes a big difference for dividend calculations on the extraordinary side. The second question about the Midwestern system sale, could the counterparties of the takeover pay agreements block the deal at all or that's not a possibility? But if it is, What would be Vale's options here? Thank you.

Thanks, Thiago. So on the expanded net debt, look, I think what we were able to do and the revision that we just conducted with our board is to essentially have more flexibility throughout the year because we do have some seasonality on our cash flow, right? We have tax payments, as we just saw in the first queue, dividend payments, even our sales have some seasonality. So that gave us, I think this new range gave us some flexibility throughout the year to operate around that $15 billion that we had before. But eventually, like we did in Q1, being able to operate above that level. So that was the main reason for it. And we think now it provides again more flexibility and it's a better way to communicate those leverage ratios to the market. Regarding the transaction that we just signed to sell the Midwestern, no, we don't think it's going to be an issue. I mean, we have ways to accommodate any potential discussion with the counterparty. So we think we're feeling very good about alternatives to be able to conclude that transaction.

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

Thank you very much. Just a couple of questions on iron ore production. Maybe just kind of looking at this year, obviously your range is 320 to 335. Is it too early to say whether you think we're going to end up in the high or low end of that range? Obviously it was a bit of a wet first year. First quarter of the year. But you have had the crushes coming online. So is the high end of the range still in play? Is that still realistic? Or should we be thinking like more low end of the range at this point in time? That's the first question. And related to that, the second question, when we think a little bit more medium, longer term, obviously, you're still looking to get licenses to ramp up production further. Can you give us an update? about what regulators are really looking for in those licenses and any progress that's been made there to get those licenses. That is my second question. Thank you very much.

Thank you, Andreas. First question, I think it's early to say, but what can I say is that we prepare the systems to work with more availability in the dry season. That's a main message here. And we're going to have the full operations Coming from the southeastern system, that's another important gap. So if you compare to last year, these are two very important components to consider in the volume for the whole year. Mid-term, I can see that we have two main actions here. First one in the north, as I mentioned in the presentation, we rely on permits. We have some delay for what we call the rolling license period. are related to small pits that we can add 5 to 10 million tons that will replace and keep the volumes in the north range. We had some delays, but we expect to have this in the second quarter, in the second half. And for mid-term, we rely on the expansion for the north range. and three and two and one and even the S11D. So if you have any problem in these systems, that can be a headwind for to reach 200, 400, We have a backup or a fallback position in the southern system with other projects that are coming online like Capanema. and the recovery of the food production in Itabira that will come after Itabira Sul. So we have a set of initiatives to bring more volumes. But all of this, remember that we have that mantra is the value of volume. So we're going to bring this If we see that the market needs. So we are going to say and talk about our production next year only in the end of the year.

The next question comes from Mr. Rodolfo Angele with JP Morgan. Mr. Rodolfo, Your audio is available now.

Okay, thanks. Good morning, everyone. Good afternoon for those in Europe. My two questions are quite simple. First one, we're seeing in the industry cost pressures all around. So I just wanted to ask you if there is a renewed focus on this, you know, if there's any opportunity, anything we can So basically just a few thoughts on the plans. And my second question is more about how should we think about Vale in the medium to long term. I think the fact that you're announcing a large buyback is very important, very well received by investors. But could we assume that there is also an implicit message that Vale is going to be, you know, aside from focusing on the recovery of the volumes in iron ore and getting the, you know, the expansions that we discussed here, such as Salvo III up and running, should we think about Vale more as a cash cow towards the future, or is there also still a discussion on a growth agenda? Thank you.

Good morning, Gustavo here. So on the cost, as you've been seeing pretty much across all industries, right, everybody is having challenges. We are all facing very high inflationary pressure. I think the good thing in our case is we've been working on this since last year. You may recall in Valley Day we came to announce a program to reduce inflation. Our cost base, a series of initiatives across the board that we are taking to optimize our cost base. And what we are seeing C1 today, just talking specific about C1, is the impact that we are having is basically effects and fuel cost, right? So we've been able in the Q1 already to offset all of the inflationary pressures in labor services and so on with initiatives that we've been working on since last year. I think the other bright side here is on the all-in side. Given the better premiums this year that we're expecting, we are seeing our all-in for the year very much in line with last year, which we think it's a big win given, again, all the inflationary effect that we are having. So to your point, I think we've been able to accommodate and manage and offset all of the pressure that Thanks, Rodolfo. Maybe the answer is a growing cash cow, a big, big cash cow.

Because I think nobody has the opportunities of growth that Vale has, right? I won't go back to the rationale about the share buybacks because we believe that's permanent. That's the best investment that we can have. So we are buying back Vale at iron ore prices of 60, whatever you price where we are today. So we are buying iron ore company at $60. So that's the rationale about the buyback. But when you look at iron ore itself, when we talk about high quality, we don't buy the story that iron ore is a mature, dying business. We are a growing, class one iron ore business. We can grow up to 400 million tons with high quality. Nobody can do that. So we're going to need cash. We're going to use the cash for that. So number one use of cash is to grow in quality within iron ore. It goes back to André's question. We have to grow copper. You know that we have to grow copper. We have the Carajás province. It's not well explored. It's a homework that we have to do. We are looking at it with more and each more careful now that we are We can grow nickel. That's a very important message here. We can grow nickel. We can live with a lot of discipline, thinking something around sulfates, by the way. But that, I think, was the first question. The second question about the angles. of Base Metals. Fundamentally, we're talking about nickel, right? And nickel has an optionality to grow to 300,000 to 400,000 tons. When you look at the gap that's going to happen in the market, and there's the use of cash for that as well. But still, VAR is going to generate a huge amount of cash. So I think it's fair to say, we can say it is a cash cow, but a cash cow that will grow a lot. It's a growth, how can I say, it's a growth cow. I don't know how to answer this specific, but I don't see conflict on that. I think that we are going to generate cash. We're going to shrink our share base. And the ones that buy in the store now will be very happy in five years from now.

The next question comes from Mr. Daniel Sasson with Itaú BBA. Mr. Daniel, Your audio is available.

Thank you, gentlemen. Thank you, everyone. Most of my questions have been answered. I was just wondering if you have any expectation as to the next steps of the SEC's procedures in regards to what they claim was misinformation that Vale provided about the conditions of the tailing dams or the dams prior to the Brumadinho event. If you could comment on the expected timeline for this investigation to continue to move forward. I know that you have already disclosed that you do not agree with those findings, but if you could give us more color, that would be great. And my second question in regards to, you just talked a bit about costs. I remember that a few years ago, you used to say that your expectations for long-term prices in this industry were around $70 per ton, which was a level that you would generate decent returns and would not stimulate new supply coming to the market. But cost inflation has been significant over the past few quarters and probably will continue this way over the quarters to come. Do you have any new expectations or updated expectations in regards to the long-term prices that you work with, maybe even to Thank you.

Thanks, Daniel. Gustavo here. I'll get started, and then Spinelli will go over your second question. So, look, regarding the SEC, the suit was expected, right, following last year's well notice. We certainly disagree, but we are reviewing. We just received the email and the information around it, and we'll certainly contest the allegations. So it's going to take its own time, and we'll certainly keep the market updated.

Thank you, Daniel. Well, good question. The first number, 70, is not 70 anymore, right? So that's, even if you don't consider the supply-demand trend in the future, the 70 is not a 70 anymore when you put inflation and all the impact that will be to stay. Second point, the transition to a greener world, Thank you very much. Third component here, supply-demand. So, supply-demand will be tighter than before. From the supply side, all the projects and the possibilities to come to the market are And finally, we need to educate ourselves to talk about what we call this Class I Iron War. Our number is from the 70 up, but we need to add another 30 or six or eight when we talk about the BRBF, or we need to add another 30 or so. Thank you. Thank you.

The next question comes from Mr. Liam Fitzpatrick with Deutsche Bank. Mr. Liam, your audio is available.

Good morning, good afternoon, everyone. I'll stick to the two questions. First of all, just on the iron ore side, in terms of the value of the volume, I guess we all hope that Chinese steel output will recover into H2, but if it doesn't you know what's more important kind of getting to your guidance range or will you continue this approach of just supplying the market if the demand is there because looking at the chart in the pack you are guiding to a pretty steep pick up in volumes into Q2 and into Q3. My second question I appreciate there's probably not much you can say but on this SE Have you got any color in terms of how long this could go on for and the sort of timing that we could be looking at on that?

Thank you. Thank you, Liam, for the question. So yeah, value of volume, that's the name of the game. and that we expect the downstream demand in China. Our numbers is about 1 billion tons for crude steel production And we'll go to the market and supply the market with this trend. We see this stability in the economy in China as a key trend for this year. And we see a tight market and supply-demand balance. For the first time in the year, after the first quarter, we can see as a whole in the year shortfall compared to supply and demand. And a small one, but it's a shortfall. And there will be a tight market for Q2 and Q3 that are more balanced in the last quarter.

Hey, Leon Gustavo here on the SEC. Look, as I said before, we strongly disagree with the With the claim and with the suit, we will certainly contest all the allegations, but it will take its own time. So we'll make sure that the market is updated, but it will take its time.

The next question comes from Mr. Tyler Broda with RBC. Mr. Tyler, your audio is available now.

Thanks very much for the call today. Most of my questions have been asked. I was just curious, you did change the guidance that was given at valet day for the 2023 cost between $15.50 to $16 a ton. Is that still a realistic target, assuming that we are to stay in this current higher energy cost, higher base level of inflationary And then my second question would be is that you seem to have built up a lot of inventory over the last six months in the value chain within 2021. And it sort of did nothing really came out during early 2022, I guess. How do you expect to see that evolve over the course of the year? Just thinking in terms of sales versus production. Thanks very much.

Hey, Tyler, let me go over the first one. So, yeah, on cost, certainly there is, if you were to maintain the current FX rate, for example, and the pressure on a few prices, we could have an effect in 2023 on our C1. But I think it's early to say. I think we'll have to see. That's why we haven't revealed and provided any incremental data point. I think it's early to say. We'll have to see where the energy prices saddles, where FX saddles. So once we have more clarity, we'll then update the market on 23. But I think based on the variance we see in 21 or in 22, in the first Q22, you kind of have a sense of the delta that we could see in 23 for those two variables.

Hi, Tyler. Spinelli here. You're right, we had some gaps in inventory in 2021, but remember that we were recovering our supply chain after 2019, after Brumadinho, that we... We used our inventory to keep the sales and to keep the operations in our clients, mostly in China. So we did this in 2021 to keep the supply chain and the operation for blending. So what we expect for this year is the same pattern of last year with an additional and the small part that we are concentrating some high silica ores in China that's a small gap that we can consider that in 10 million tons for this material we have a mass recover of 70 percent 65 to 70 percent so that the only

The next question comes from Mr. John Tumazos with John Tumazos Independent Research. Mr. John, your audio is available now.

Thank you for taking my questions. Why not build five or more of the Technared plants since they're so much better? Second, could you describe the second quarter and third quarter rebounds in the northern system and the southern system from the first quarter? Are the problems only weather, et cetera?

Thank you.

Thank you, John. Spinelli here. So TechnoRad, you're right. That's a great solution, but we need to prove the technology with an industrial scale. So that's what we're doing now. It's a technology that we can use in a small furnace. We can use biomass and that can be used as a smelter also in the furnace. and our clients. So we can co-locate in our clients or use as industrial plant for Pig Iron as we are developing now. But we need to prove this. We are really confident. We already have a small plant working, but we want to prove this firstly. And about a balance in Q2 and Q3, Yeah, the North Range, now is the wet season, so we still have a lower share as expected in this quarter, the second quarter. But they come with more than 70% when they return to the second quarter. So that's what we expect. And as I mentioned, in the first quarter, we suffer more with some delays, but we are preparing the North Ranch. That's the most important site for us to be more available in the second half.

The next question comes from Mr. John Brandon with HSBC. Mr. John, your audio is available.

Hi, morning, good afternoon. Thanks for taking my questions. Spinelli, I first wanted to ask you about demand in Europe. Just given the challenges that they face with higher energy costs and taking down some EAF production, what are you seeing in terms of iron ore demand there? My second question was on nickel. So, Destiny, you mentioned a lot of the low-carbon nickel products that you have, and obviously there's value in that. But I'm just wondering, does that translate into higher realized prices, or is that something that could potentially translate into higher realized prices in the future? Thank you.

Thank you, Jonathan. It's a tough answer about Europe. Well, we have some numbers. We are not counting the full operation for CIS. We see a decline between 20-25% this year. In Europe, we have a forecast for minus one or minus three if you expand the view for the whole Europe. The main thing, when you are talking about this with our clients, they are full now, you know, not CIS, but the other part of Europe. They are full, they are buying, but they are in a kind of short-term mode. So they expect to have some impact coming from energy. At the end of the year, they can have some restrictions, the use of coal. They have concerns, but they don't have answers now for the whole thing. So they are in a short-term mode. We are selling the same. Actually, there's a lot of pressure coming from the pallet side, but we expect there will be some decline for the whole year, as I mentioned.

Thank you, John. I'll be very, very quick. In keeping with our strategy, we try and pivot at least 25 to 30 percent of our production into EV. We know that in order for us to be ready for transition metals and what's happening on the critical mineral side, we have to show the world that we do have one of the lowest carbon intensity products. And that's the reason that we started the certification process. Thank you, John.

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

Thank you. Again, thanks a lot for your interest and attention and questions. They're very helpful even to guide our focus here. Just as a conclusion, I will reiterate or repeat what Gustavo said in the end of his introduction. We are laser focused on our objectives. I think we are uniquely positioned to the ESG world. What we see a climate challenge, we see a business opportunity. Iron ore, class one, nickel, as we just mentioned, copper. So I don't think there's any other company in the world that has what we do have. I'm extremely confident about our targets. Spinelli didn't say, but we are not on the lower end. For sure, guidance is guidance. The only one that we are lowering the guidance to the lower end is copper because of the challenge. And we are being realistic, but we are extremely confident that we are going to get to our guidance. And lastly, we are showing with actions. We are putting our money where our mouth is. Our capital discipline is extremely disciplined and we are not letting by any opportunity to grow. So we are going to keep as much as needed cash inside the company with discipline to grow our business that again, I don't believe any other mining company in the world has such a suite of opportunities inside. So again, thanks a lot for your attention. Hope to see or listen to you in the next call. And again, the ones that are in this marathon with us will truly benefit. Thanks a lot and keep safe.

That does conclude Vale's conference call for today. Thank you very much for your participation and have a nice day.