Vale S.A.

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss fourth quarter 22 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 a 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 vale.com at the investor's link. This conference call is accompanied by a slide presentation, also available at the investor's 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 that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comment as a result of macroeconomic conditions With us today are Mr. Eduardo de Sales Bartolomeu, Chief Executive Officer, Mr. Gustavo Pimenta, Executive Vice President of Finance and Investor Relations, Mr. Marcelo Spinelli, Executive Vice President of Aero Solutions, Mr. Carlos Medeiros, Executive Vice President of Operations, Ms. Dashini Naidu, Executive Vice President of Energy Transition Materials. First, Mr. Eduardo Bartolomeu will proceed to the presentation on Vale's fourth quarter 22 performance. And after that, he will be available for questions and answers. It is now my pleasure to turn the call over to Mr. Eduardo Bartolomeu. Sir, you may now begin.

Thank you very much. Good morning, everyone. I hope you're all doing well. 2022, we substantially de-risked and reshaped Bali. We had strong deliveries in dam management and decommissioning. We advanced as expected with the Brumadinho reparation. We created leverage for operational stability and flexibility. And we are simplifying our business portfolio, enabling a greater focus on our core business. On top of that, we drew up a plan for the Vale of the future, a company that promotes sustainable mining, fosters low-carbon solutions, and remains capital disciplined. Next slide. Before going to our performance in Q4, let me just reinforce that we just announced a new organization designed for Vale's executive committee, which will strengthen our core business I'm also very happy to announce the appointment of Jerome Guillen as our first independent director for our energy transition materials business, in line with the new management model that we had laid out during Valley Day. Jerome is a former president of Tesla Automotive Inc., and has played a key role in developing the EV market as we know today. He is a very innovative and purpose-driven individual that will certainly add tremendous value to our energy transition materials strategy. As well, we continue to make substantial progress on the minority sale and expect to share additional details with you still in the first half of this year. Moving on to our operations, in our solutions, we delivered strong results. We find sales up 24%, combined with a strong price realization. Our all-in cost decreased, benefited by lower freight rates. On the project side, the Gelado project is now under commissioning, and that helps us make us very confident about our production guidance. In our energy transition material business, our nickel production was steady, with sales up 30% and production up by 6%, mainly due to the excellent performance of our Sudbury mines, which delivered the highest production rates since 2019. Also, Onsapuma had the best annual production in the last five years. In copper, It was a quarter of important maintenance activities in Salobo and Sossego to ensure asset integrity, which is paving the way for a higher production rate in 2023. We successfully completed the start-up of Salobo III, which will add 30 to 40 kilotons per year of copper at peak production capacity. On product strategy, I would highlight Vale's long-term agreement with General Motors to supply battery-grade nickel sulfate. This reinforces Vale's unique strategic position to be the supplier of choice to the EV industry. In our quest to become a leader in sustainable mining, we continue to deliver in many of our public commitments, such as in human rights, Amazon forest protection, and the safety of our dams. Finally, we walk the talk on cash return to our shareholders. We just announced a $1.8 billion dividend for payment in March while remaining committed to our buyback program, about 42% completed. Next slide, please. The redesign of our executive team is E. to ensure a fit-for-purpose organization with greater focus on its core business and on delivering our strategic goals. We now have a dedicated structure led by Spinelli to accelerate the development of innovative products and solutions in iron ore and the improvement of our marketing strategy. Carlos Medeiros now has the challenge of accelerating the implementation of Vale's management model, which will promote greater safety and reliability on Vale's operations. Rafael Bittar was promoted to the executive team. He implemented with excellence our tailings and dams management model, and now will lead our technical office, which incorporates safety and operational excellence Mineral Exploration and Operational Innovation Alexandre Pereira will be entirely focused on implementing a state-of-the-art project planning execution from end-to-end to secure our long-term growth ambitions. As you can see, we designed our organization structure for the efficient management of our operations and the development of innovative solutions for a carbon-neutral society. Next slide, please. We are seeing unprecedented opportunities for segmentation and demand growth for high-quality products. Quality is key for the decarbonization of steelmaking and a game-changing transformation for the high-quality suppliers like Vale. There is no other company like Vale, which combines volume and quality, innovative products and supply chain. To deliver the decarbonization solutions that the steel industry needs. Our iron solution strategy is designed precisely for this purpose. With those differentiators, we are a partner of choice for our clients. We are establishing partnerships with steel mills to find new solutions to decarbonize the industry. We have signed with clients representing almost 50% of our scope 3 emissions. As you can see on the chart, we are projecting a higher average iron content in our iron ore portfolio starting in 2023. This would give us much higher quality premium on prices. It's a quality and a price gain. Just as a reference of how much value we can generate on quality, each one percentage point increases, In average, iron content corresponds to around $550 million of incremental EBITDA. The commissioning of the PLUS 20 project in the SLF-ND and the Gelado project, which I already mentioned, will help us achieve growth, higher quality, and better prices. In the Southern Eastern and the Southern systems, we are increasing the concentration process to deliver high-quality feedstock. With the four filtration plants in Itabira, Vagem Grande, Embrucutu that we delivered recently. And, concentration is key to a high-quality, low-carbon supply. Reason why we signed up for the development of mega-hubs in the Middle East. And finally, we are also about to start up our first green beecat plant in the first half of 2023 with a 6 million tons production capacity as originally planned. Next slide, please. In our energy transition material business, we have the right assets in the right jurisdictions, making us the ideal partner for delivering high-quality products to our customers. In 2022, we entered into strategic nickel supply agreements with Northvolt and with General Motors, in addition to an MOU for nickel processing between PTVI, YU, and Ford Motor Company. We are developing a first-of-its-kind plant in Canada and North America to produce nickel sulfate from high-purite, low-carbon nickel from our Canadian refineries. This project is a natural extension to our business, offering diversified sales with a greater footprint in the North American EV market. Nickel production increased 6% in 2022, mainly due to the stabilization of surgery operations and the consistent and strong performance at Onsapuma. Copper production declined by 15% to 253,000 tons in 2022 due to extended maintenance at the Susego mill during the first half of the year and additional maintenance required at Susego and Salobo. With the maintenance completion, and a startup of Salobu Tree, our copper production should grow materially in 2023. In short, we have the assets, we have the innovative technology, and we are building the client engagement and the supply chain. With that, we have the will and the conditions to take value to the leadership of a sustainable mining on the critical minerals world. Next slide, please. Safety is the basis of our work and culture, and we are proud to have achieved historic results in 2022. We reduced more than 80% the number of high-potential injuries since 2019 in key critical activities. Vale has now the lowest drift rate in 15 years. We are also 40% completed in our goal to eliminate all our upstream dams. The B3 before them had its emergency level reduced from high to medium after successful safety improvements, an important milestone in the journey to eliminate critical safety conditions in dams by 2025. Bali is around 90% adherent to the requirements of the Global Industry Standard for Tailings Management, which gives us confidence that we will be 100% compliant by 2025. And we will continue to pursue the high safety standards and operational excellence, making sure safety is incorporated into the company's culture. Next slide, please. At Vale, we are making sure that sustainable mining is at the core of all our actions. On our journey to reduce Scope 1 and 2 emissions, we established a natural gas supply agreement for the pelletizing plant in São Luís. We are also testing biochar in our metallurgical and pelletizing processes, while progressing with the conversion of the two pelletizing plants to green briquettes in Tubarão, as mentioned before. We have a voluntary commitment to protect and restore additional 500,000 hectares of forest by 2030. We protected and recovered 51,000 hectares in 2022, bringing the total to 172,000 hectares since 2019, or about 34.4% of the long-term goal. On human rights, 100% of values operations in Brazil are covered by human rights due diligence. As you know, we have a goal of taking 500,000 people out of extreme poverty by 2030. In 2022, we detail our action plan. In 2023, We will start a pilot project to benefit 30,000 people from areas neighboring Vale's operation and in other locations. In Brumadinho, we delivered 58% of the commitments set by the reparation agreement. We didn't establish deadlines. In Mariana, the Renova Foundation provided 315 housing solutions in 2022. This means Renova provided a total of 441 housing solutions so far. or about 60% of the resettlement requirement. In conclusion, we have materially the risk value and we are delivering on our commitments to a safer and more sustainable company. With that, I am sure we are building a better value. Now, I'll pass the floor to Gustavo who will detail our financial results and I'll get back to a Q&A at the end. Thank you.

Thank you, Eduardo, and good morning, everyone. Let me start with our EBITDA performance for the quarter. As you can see, we delivered a solid $5 billion EBITDA in Q4, $1 billion higher than Q3 2022. This $1 billion increase is mainly explained by our strong sales performance in the quarter, with iron ore fines up by 15.8 million tons and nickel up by 13.9 kilotons. Price realization for iron ore finds also contributed to our better performance, and I'll provide more details about that on the next slide. Bunker and oil cost was positively affected by $250 million due to lower freight cost, mainly as a result of lower bunker prices. In others, the main driver was the $224 million one-off tax agreement in Pará, which I will cover later in my presentation. So back to iron ore price realization. The average reference price for the quarter was $190 per ton. Our average premium was $1.6 per ton, up $1 versus Q3 as a result of better sales mix. The pricing mechanism effect had also a positive impact on our final realized prices. This is largely explained by the higher forward prices at the end of December. Around 31% of sales were booked at an average price of $116 per ton. You can see this effect on provisional prices in current quarter, which contributed with $5.3 per ton. Before the adjustments for moisture and FOB sales, price realization was about $107 per ton, 8.5% above the benchmark price. So in summary, we delivered a realized price of $95.6 per ton, up $3 per ton versus Q3, despite a decrease in benchmark prices of $3.3 per ton. Now moving to iron ore oiling costs. As you can see at the bottom of the table, our EBW given cost came down by $2.8 per ton to $48.5 per ton. This is explained by three main factors. First, the 18% decrease in sales from third-party purchases, which contributed to $1.2 per ton in our C1. Second, our freight performance, which contributed with a cost reduction of $3.6 per ton due to lower bunker prices and better freight rates. And $1 per ton resulting from higher finance premium due to a better mix. On royalties, Vale joined a program with the government of Pará in relation to the increase of TFRN, which is a fee to fund the government's supervision of mineral production activities. This agreement, which covers the entire 2022 fiscal year, was fully recorded in Q4. Excluding this one-off event, the royalties line in Q4 would have been $2.7 per ton lower, with all-in EBITDA break-even of $45.8 per ton. versus the $48.5 per ton recorded. For 2023, we forecast a decrease of $2 per ton in the EBITDA break-even due to higher average quality of our product portfolio and lower fuel costs. Now turning to energy transition materials, our EBITDA more than doubled quarter on quarter, reaching $775 million. This was mainly driven by better price realization for both nickel and copper, as well as a 30% growth in nickel sales and a decrease in nickel unit costs by 16% in the quarter. Now looking at all lean costs. In nickel, all lean unit costs dropped by $2,600 per ton, mainly driven by lower cost of goods sold. As you may recall, in Q3, we had a carryover of high-cost inventories. which was a one-off impact to our Q3 cost of sales. For 2023, we project nickel unit cost to be relatively flat as we don't expect to change our purchase feed strategy in the short term despite higher expected productivity in Sudbury. In the midterm, we expect a reduction in nickel cost as we ramp up BBME. Now moving on to copper. Copper only unit cost was up due to lower volumes from South Atlantic operations after maintenance at Salobo and Sossego plants. We expected unit costs to go down on the back of higher volumes associated with better operational performance at Salobo and Sossego in the ramp-up of Salobo III. Now moving to cash generation. As you can see, free cash flow generation was largely impacted by a working cap on CapEx, which are usually higher in Q4. The working capital variation is largely explained by the $2.1 billion increase in accounts receivable, mainly due to higher accrual sales volume for iron ore, together with the positive effect of $21 per ton on higher iron ore provisional prices. These invoices will be collected in Q1 this year, and we expect the effect on working capital to revert in the following quarters. We also repurchased around $1 billion in body shares in Q4, which is aligned with our capital allocation strategy. So let me talk more about our capital allocation strategy in the next slide. Since April 2021, we bought back 683 million shares, or 13% of the initial number of outstanding shares. This means a 15% increase in concentration of earnings and dividends on a per share basis. Also yesterday, we announced the $1.8 billion in dividends to be paid in March 2023. So before opening up for questions, I'd like to reinforce the key takeaways from today's call. As Eduardo mentioned, Vale redesigned its executive committee to ensure a fit-for-purpose organization with greater focus on our operations and on delivering solutions for the global energy transition. In that sense, we are taking actions to serve a growing market demand for quality products, leveraging on our unique mineral endowment and innovation capabilities. For example, the high-grade pellets and recats, the mega hubs initiatives, and the low-carbon nickel products. We also remain focused on delivering new projects to meet our production guidance and to make sure we sustain the unique competitive advantage of Vale. And finally, We remain highly committed to a disciplined capital allocation process, as evidenced by our highly accretive buyback program and dividend payout. Now, I would like to open the call for questions. Thank you.