Vale S.A.

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss first quarter 23 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 that 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 broadcast via internet, both the audio and the slide changes, 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 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 of Finance and Investor Relations, Mr. Marcelo Spinelli, Executive Vice President of Iron Solutions, Mr. Carlos Medeiros, Executive Vice President of Operations, Mr. Destiny Nadeau, Executive Vice President of Energy Transition Metals. First, Mr. Eduardo Bartolomeu will proceed to the presentation on Vale's first quarter 23 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 are doing well. We started 2023 with great confidence in delivering our goals for the year. In our solutions, iron ore production was solid, especially at S11D, thanks to a better performance of our truck glass system and the installation of the new crushers in 2022. In addition, our pallet production increased by 20% Nogueira, Marcelo Feriozzi Bacci, Marcelo Feriozzi Our average iron content and quality was slightly lower, impacted by the port restrictions and opportunistic sales of low rate, which add value to the company. In energy transition methods, copper production grew over 18% year on year, supported by Salob startup and with sales up to 25%. Finished nickel production was impacted by the ongoing transitional period between the depletion of a void mine and the full ramp up of Voices Bay. On a very high note, our solid-barrier mines continue to deliver remarkable performance, with record ore production rates since 2017. Also, we continue to make progress on the EV supply chain, with two important milestones for Pomala and Moroali in Indonesia, which I will cover later. Moving on to sustainability, we are steadily making progress with our dam safety management. This year, we upgraded our dam safety management. This year, we upgraded the safety levels of two more dams, removing their emergency protocols. Our improvements in health and safety practice López-Morales, and Javier López-Morales. We are walking the talk and returning value to shareholders. In March, We distributed $1.8 billion in dividends while completing 47% of the third buyback program launched since 2020. So, let's see our performance in detail in the next slides, please. We are well positioned to deliver the production guidance for iron ore this year. We already produced 4 million tons more than the same period of last year, and we expect to continue with a steady performance as the seasonal challenges fade away. In the northern system, asset availability increased S11D with lower non-scheduled maintenance and solid production output. The achievement aligns with our intensive efforts to standardize process and ensure adherence to best operational practice. In the southern and southeastern systems, the heavy rains did not prevent us from delivering a strong production, contrasting with what we experienced last year. The loading restrictions mentioned caused the production-to-sale gap and the lower average rate, which are temporary, and we should be able to compensate it in the second half of this year. In addition, We are close to obtaining the operating license for Toto DEM since we had its emergency plan approved in March. The DEM will support pallet quality and volume, as well as product mix and average price premium. Another project that's moving well is the commissioning of Gelato, which will produce high-quality pallet feed by reusing the tailings that have been deposited in the Gelato DEM. In this context, we are confident that we will reach our volume guidance and average grade for the year of 2023. Next slide, please. In iron solutions, tests in clients' furnaces are confirming the benefits of iron ore break-ins. We shipped the first cargo for international tests in April. So far, eight industrial tests in six furnaces are under execution. with another nine tests expected this year. Our first two industrial plants we start up this year in Tubarão. I believe we are facing unprecedented opportunities for segmentation and demand growth for high quality. 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 launched the Green Brigade. Therefore, Vale is uniquely positioned to be the supplier of choice in that scenario. We combine volume, quality, innovative portfolio, and a well-structured supply chain for a decarbonizing world. Next slide, please. In the energy transition metals business, I call your attention to our copper production growth, up 18% year-on-year, which allowed For a sales growth of 25% year-on-year. This was mainly the result of Salobotri ramp-up and Susebo's improved asset availability, benefiting from the extended side mill maintenance in 2022. In nickel, Sudry delivered the highest production in the past five years, following another production record in the last quarter. As I mentioned before, the lower finished production for the quarter was expected and was mainly due to the ongoing transitional period between the depletion of a void mine and the production ramp-up of Voices Bay. For the second quarter, We have planned maintenance for Voices Bay and Long Harbor operations as well, which should impact Voices Bay and Thompson production. Next slide, please. As I said, we are steadily ramping up Salobotree. Both lines are operating, which is an important milestone for the site. We expect to reach full capacity within 20 months. With all that, we are confident On both guidance for copper and nickel for this year. Next slide, please. We continue to engage with clients and partners in the EV supply chain. We are setting the stage to pivot in nickel. In that direction, together with our Chinese partner, PTVI signed a definitive agreement with global automaker Ford Motor Company for the Pomona HPAL project developed in Indonesia. The three-party collaboration fosters conditions for a more sustainable nickel production in Indonesia. We also launched the project construction in Moroali in February. This is an integrated nickel mining and processing plant powered by natural gas with startup expected in 2025. As you can see, we have unique assets, innovative technology, We continue to make significant progress on several fronts, including on the minority sale. And today, I am happy to announce that we have advanced on bringing Marco Tifani as the chairman of our newly formed Energy Transition Method Board, starting July this year. Marco needs no introduction, and we are certain he will be a valuable partner as we bring our Tier 1 portfolio of assets to the next level, unlocking significant value to our shareholders. We are moving safely towards leadership in sustainable mining. That starts with reducing the risks associated with dams. Since 2020, our approach allowed 10 dams to be stated safe and stable by external independent reviewers. With that, those geotechnical structures had their emergency level removed. By August, we are on track to be adherent to the GISTM, the Global Industry Standards for Tailings Managers for Critical Structures. That gives us confidence that we will be 100% compliant by 2025 to all other structures. With more robust safety practice, the SG risk perception on value improved considerably. The company has been re-rated by important ESG risk raters, with Sustainalytics providing the latest rate improvement for our company. That decision came with an assessment of critical controversy and improved practices in health and safety, putting value in the industry first quartile. We are seeking leadership in sustainable mining. For that, We continue to deliver on many of our public commitments, such as in human rights, Amazon forest protection, and community relations. Finally, on Brumadinho reparation, we reached 59% of commitments delivered per the conditions and deadlines set by the Integral Reparation Agreement. Next slide, please. There is one thing I make sure to emphasize every single time. We substantially de-risked and reshaped Bali. On the de-risking, we had strong delivers in dam management and de-characterization, besides advancing with the Brumadinho operation. On the reshaping, we simplified our business in a major way. We diversified from more than 10 businesses in 5 different countries. Tapping Cash Trends and allowing ourselves to laser focus on our core business, on safety and on production stability. The last milestone to finally say we completed the reshaping program is the divestment from MRM. We moved a lot in building Vale of the Future, a company that promotes sustainable mining, fosters low-carbon solutions, and remains disciplined in allocating capital. Now, I pass the floor to Gustavo who will give you more details about our financial results. I'll get back at the end for our Q&A section. Thank you.

Thanks, Eduardo, and good morning, everyone. Let me start with our EBITDA performance for the quarter. As you can see, we delivered a $3.7 billion pro forma EBITDA in Q1. This decrease is mainly explained by $1.5 billion lower price realization for iron ore finds. On volumes, we had an impact of $574 million from lower sales of iron ore finds, which was down 5.5 million tons year-over-year, despite a 3.7 million tons production increase. This is a transitory effect due to loading restrictions at Ponta da Madeira Terminal during the rainy season and supply chain rebalance after strong sales in Q4. We expect to offset this impact in the second half of the year, keeping the annual sales plan unchanged. The $435 million increase in costs and expenses will be detailed later in my presentation. So back to iron ore price realizations. Our final realized price was $108.6 per ton, 23% or $32.8 per ton lower when compared to Q1 2022, mainly due to the decline in benchmark price of $16.1 per ton. Our average premium also contributed to lower price realization as our average sales quality was impacted by temporary shipment restrictions at Ponta da Madeira port and the opportunistic sale of high silica products, as discounts for these products were low due to steelmakers' negative margins. The pricing mechanism had a negative impact of $2.4 per ton on our final realized price. This is largely explained by the negative effect from realized legged prices at $96 per ton which was partially offset by better sales prices in the quarter as compared to the provisional prices accrued in Q4. Moving to our cost performance in the next slide. As you can see, our C1 cash cost x third-party purchase increased to $23.6 per ton in the quarter. This is explained by three main factors. First, one-off events, which include profit sharing in Q1, and the anticipation of maintenance activities, taking advantage of the lower volumes in the first semester. Second, the volume mix and inventory effect. The lower production from our northern system, where we had the lowest C1, together with higher third-party purchases, had a negative effect on volume mix and fixed cost dilution. We expect these transitory effects to be normalized in the year to go. The remaining packs were related with the geological inflation in Serra Norte and higher fuel costs in our operations. We remain confident in achieving our C1 guidance for the year of $20 to $21 per ton, mainly due to the production recovery in the northern system and the rollout of our productivity program, with gains in asset reliability and procurement initiatives with suppliers. Moving to all-in costs in the next slide. As you can see at the bottom of the table, our EBITDA break-even cost reached $58.2 per ton. Besides the C1 cash cost increase, which I just explained, there were two other drivers. First, our distribution cost, which increased by $1.5 per ton, mainly due to a higher share of beneficiated products in third-party concentrators, improving returns and margins. And second, lower market-padded premiums. As we reduce our CO1 cost and improve the average quality of our portfolio with higher production from Carajás and more pallet feed production in Minas Gerais, we expected our break-even to improve in the year to go. Now turning to our energy transition metals business, starting with copper oiling costs. There was a year-over-year decrease in cost of goods sold per ton due to higher fixed cost dilution, largely attributed to the improved operational performance at Sossego. This was offset by a decrease in our by-product revenue due to higher proportion of copper concentrate from Sossego. Also, benchmark treatment and refining charts have increased this year. All in all, our EBITDA break-even, excluding Hulu, Richard, $4,464 per ton, which should gradually reduce throughout the year as we continue to ramp up production at Salobo III. Now looking at nickel oiling costs, cost of goods sold ex-third-party purchases was impacted primarily by lower dilution of fixed costs and inflationary pressure, including higher fuel costs. In addition, volumes from third-party fees increased year on year, as we had anticipated. Although this increases our costs, it is aimed at maximizing the utilization and performance of our downstream operations, especially as Voices Bay open pit is depleting, and we progress on the ramp-up of the underground mine. Now moving to cash generation. As you can see, we delivered a 62% EBITDA to cash conversion in the quarter, Compared to 19% in Q1 2022. Free cash flow generation was positively impacted by working capital as we had a strong cash collection from Q4 sales as we had anticipated last quarter. This effect was partially offset by transitory inventory buildup and seasonal disbursement related to profit sharing in the first quarter. We also paid around $1.8 billion in dividends and repurchased almost $800 million in shares in Q1, aligned with our capital allocation strategy. So let me talk more about our capital allocation strategy and more specifically about our buyback program. We are close to reaching 50% completion of our third buyback program, and we expect to conclude it in Q4. We continue to see the repurchase of our shares as one of the best ways to create long-term value for our shareholders. After the completion of the third buyback program, we will have repurchased almost 20% of the company's outstanding shares. This means that for our shareholders with positions since the start of the program, without spending any additional dollar, their participation in future earnings would have increased by almost 25%. So before opening up for questions, I would like to reinforce the key takeaways from today's call. As Eduardo mentioned, we are very encouraged with the leading indicators coming out of our key operational sites, and the solid operational performance in Key 1 only reinforces we are moving in the right direction. We are also focused on delivering value through accretive growth projects, such as Salobo 3, leveraging Onvali's unique endowment. On portfolio redesign, we are happy with the progress to date and strongly believe the current portfolio of assets and the recently announced organization will position us to successfully deliver on our key strategic objectives. And finally, we remain highly committed to disciplined capital allocation, as evidenced by our highly accretive buyback program. Now, I'd like to open the call for questions. Thank you.