Vale S.A.

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the 23 second quarter results. All participants are currently in a listen-only mode. At the end of the presentations, we will provide instructions on how to participate in the question and answer session. This call is being translated simultaneously to Portuguese. If you should require assistance during the call, please press the star key 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 in the area for investors. The slide presentation that accompanies this call is being broadcast on the Internet and is also available in the investors' area of the company's website. There is a slight two-second delay between the audio and slide changes compared to the audio transmitted via phone. Before proceeding, let me mention that forward-looking statements may be provided in this presentation, including valid expectations about future events or results, encompassing those matters listed in the respective presentation. We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. To obtain information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale's files with the U.S. Securities and Exchange Commission, SEC, the Brazilian Comissão de Valores Mobiliários, CVM, and in particular, the factors discussed under forward-looking statements and risk factors in Vale's annual report on form Plenty F. With us today are Mr. Eduardo de Sales Bartolomeu, Chief Executive Officer, Mr. Gustavo Pimenta, Executive Vice President of Finance and Investor Relations, Mrs. Dashni Naidoo, CEO Vale Base Metals, Mr. Carlos Medeiros, Executive Vice President of Operations. Mr. Eduardo Bartolomeu will begin the presentation on Vale's second quarter 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 all well. Let me start With the very significant milestone that we delivered and announced last night, we signed a strategic partnership with world-class diversified investors for the energy transition metal business. This partnership attributed a very attractive valuation for our ETM business, which shows that our partners recognize the value generation potential and many more. Thank you very much. We are growing quarterly output year-on-year, while our all-in costs declined yearly and quarterly. We are so commissioning TOTODEM, which will increase availability of pallet seeds for BRUCO II operations and improve the average quality of our portfolio. In any transition methods, Salobo 3 is ramping up ahead of schedule with a solid contribution to our corporate growth year-to-date. In nickel, we are firmly marching towards our annual guidance. Moving on to debt management, we reached the first deadline for implementing the Global Industry Standard for Tailing Management, the GISTM, with a positive outlook. All of our prioritized structures are in conformance with the standard with ongoing action plans to assure that the best practices are in place. This is part of our commitment to being a safer company for our employees, communities, and society. On top of that, our discipline in capital allocation remains pristine. We announced the distribution of $1.74 billion in shareholder remuneration with payment in September. Since 2021, the total amount distributed in dividends and interest on capital translated into a 27% yield to our shareholders. This shows Vale's solid track record in creating and sharing value. In addition, Our third share buyback program is now 69% complete. Since launching our first share buyback program in 2021, Buddy has repurchased about 16% of its share base, representing a concentration in shareholder future earnings of almost 20%. With that, we are walking the talk, delivering in our commitments. So, let me go now over some details of our performance. Next slide. We reached the end of the first half of 2023 with strong results and a positive outlook, being well positioned to deliver the production guidance for 2023. In our solutions, asset reliability initiatives have started to bear fruits this quarter, and driving the solid performance across our three systems. We set a new production record for a second quarter at S11D. It's a beer and Vagem Grande performed very well as well, and our mix improved substantially. As I mentioned, Torto is finally commissioned, which should allow for more pellet production, improving our mix and average price premium. In energy transition metals, copper production in the second quarter grew 41% year on year. Mainly to the successful ramp-up of Salobu III and improved performance at Susebu, benefiting from the extended side-bill maintenance done last year. Copper sales were exceptional for the period, growing 43% year-on-year. Finished nickel production grew 8% year-on-year. Given continued solid performance from our Sudbury mines, and improved production sourced from Indonesia. With planned maintenance in the quarter, Voices Bay and Long Harbor operations had a lower output. Onsa Pulmona Furnace is currently operating at a lower rate, in preparation for the furnace rebuild later this year. Despite that, our outlook for 2023 nickel production remains solid. Next slide. We are ramping up Salobo III ahead of schedule with strong production rates. We had an increment of 10 kilotons this quarter versus the first quarter, with a total output of 16 kilotons in the first half of 2023, meaning 9% of our total copper output in the same period. Once that peak capacity In 2020, we committed to implement the GISTM, the global industry standard for tailoring management, within the industry timeframe. I'm glad to inform Pimenta, Marcelo Feriozzi Bacci, Marcelo Feriozzi Thank you very much. We will continue to deliver on our ESG commitments so that Bali becomes a leader in sustainable mining and a benchmark in safety. Next slide. Finally, talking about our ETM business. As you all know, we have been working over the last 18 months on a series of initiatives to position our ETM business for success. We have completely redesigned our organization, re-infested the business into a single vehicle, a linear structure, and a dedicated governance. We attracted industry experts for the board, top talents like Jerome Guillen and Mark Kutfany, who needs no introduction. In addition, we defined management incentive plans tailored to foster business development. All of that to establish a more fit for purpose organization that will allow us to unlock the ETM business value over the next several years. Today, I am very proud to announce the formation of a partnership with world-class strategic investors to ETM, which I am confident will create substantial long-term value to all of our shareholders. I am honored to partner with Manara Minerals Investment Company, a new venture between Madden and PIF, the Public Investment Fund, that brings in experience and help us in accessing strategic geographies from up, including the iron ore business with our mega hubs. I am also honored to partner with Engine No. 1, a reference in sustainability-focused investments with solid ESG credentials. The future ahead of us is very promising. The need for a lower carbon economy is a generational challenge, but at the same time is an enormous opportunity as this simply will not be achieved without a significant increase in the supply of critical minerals. We see ETM uniquely positioned to play a relevant role in this process, not only because we have a tremendous mineral endowment, but also because we are building the leading ESG future-facing minerals platform in our space, one that pursues long-term value creation to all stakeholders. We all share the same vision for long-term growth and value creation. And the terms of our partnership is a validation of that. I said we would close a deal only at the right value and with the right partners. That is exactly what we achieved today. So, now I pass the floor to Gustavo, who will detail the transaction and our financial results. And I'll get back to you on our Q&A at the end, and thank you for your attention.

Thanks, Eduardo, and good morning, everyone. As Eduardo explained, this partnership is another important milestone in building a leading future-facing commodities platform with significant mineral endowment and resources, inclusive of reserves, amounting over 30 million tons for copper and 90 million tons for nickel. We see potential for ETM to invest $25 to $30 billion in highly accretive projects over the next decade. Growing its copper production from approximately 350 kilotons per year to 900 kilotons per year. And its nickel production from around 175 kilotons per year to 300 kilotons per year. With this exciting outlook, I now turn to the transaction details in the next slide. Given the strong interest to partner with ETM and the high caliber of potential partners, We, together with our board, decided to accommodate a greater share of investors and increased the equity capitalization to 13%, considering an enterprise value of $26 billion. The implied pre-money equity value for Vale was $25.1 billion. The total net proceeds are expected to reach $3.4 billion. Out of which 1 billion will stay with BBM and the balance will be returned to the parent company for future use as per our capital allocation framework. Now moving to our financial performance in the second quarter. Let's start with our EBITDA. As you can see, we delivered an EBITDA of $4.1 billion, $1.4 billion below the same period in 2022. This decrease is explained by $15 per ton lower iron ore fines realized price and by the $3,000 per ton lower nickel realized prices, following the decline in the reference prices since Q2 2022. The impact of costs and expenses on EBITDA was relatively small at $96 million. mainly from transitory effects in the nickel business related to the maintenance and higher third-party nickel feed purchases. In iron ore and copper, despite the year-on-year inflationary pressure, costs and expenses improved EBITDA by $218 million. I will go into more details on costs later in my presentation. Sales volumes and byproducts helped increase our EBITDA by $154 million as a result of initiatives to improve asset reliability, and we expect to continue seeing these positive results in the second half of 2023. Now on to iron ore costs. Our C1 cash cost ex-third-party purchases came down slightly to $23.5 per ton quarter-on-quarter. Even considering a 70 cents per ton negative effect from the Brazilian currency appreciation. Given the significant appreciation of the Brazilian real and now considering an average exchange rate of 4.95 for the year versus our previous assumption of 5.20 reais per dollar, we have adjusted our C1 guidance for the year to 21.5 to 22.5 dollars per ton. This means an expected C1 below $22 per ton in the second half of this year, driven by more northern system production in the mix and the continuous rollout of our productivity program with gains in asset reliability and procurement initiatives. With regards to all in costs, our EBITDA break-even reached $53 per ton, roughly flat year-on-year. and $5.2 per ton lower quarter on quarter. This can be attributed to the improved product portfolio mix with more northern system ore and lower high silic product sales in addition to greater volumes. We also adjusted our iron ore all-in cost guidance to $52 to $54 per ton for the year. This change is essentially a result of external factors such as the lower all-in premiums due to market conditions and the adjustments in C1 due to the Brazilian Real appreciation. Just to give a sensitivity, a $0.10 appreciation of the Brazilian Real converts into a $0.30 per ton increase in C1 cash costs, extra party purchases. and a 50 cent per ton increase in oiling costs in 2023. In copper, we continue to see gains from higher production at both Salogo and Sossego, which supports the dilution of fixed costs at our operations. Higher gold prices and the one-off effect on tax credits contributed to reducing our total costs in the quarter. As a result, our all-in cost was just over $3,000 per ton, approximately $1,800 per ton lower than in the first quarter, which is in line with our expectations with the continued run path of Saludo 3. At our NICO operations, our COGS X third-party feed increased about 5,000 year-on-year due to lower availability of our own feed, which we were already expecting with the ongoing transition in Voices Bay Mine and the relatively longer planned maintenance period at Long Harbor. Also, in connection with Voices Bay transition and Long Harbor maintenance, this quarter, we have recognized a one-off decrease and the recoverable value of inventories, which were produced at higher costs. As a result, our all-in costs increased year on year, but stayed essentially flat quarter on quarter at just over $17,000 per ton. The all-in cost guide for nickel in 2023 has been adjusted to $15,500 to $16,000 per ton, mostly reflecting lower-than-expected by-product prices and volumes, which we expected to For the second half, we expected all-in costs to decline as production increases and no other one-off event materializes. Now moving to cash generation, as you can see, Q2 free cash flow was negatively impacted by working capital, as we had 7 million tons higher accrual sales volumes in our norm, in addition to higher Brumadinho-related commitments. Also in the second quarter, Vale raised $1.5 billion from bonds issuance, whose proceeds were mostly used to repurchase $500 million of higher-cost debt and to repurchase $1.4 billion of shares as part of our buyback program. Looking specifically at our capital allocation strategy, yesterday, our Board of Directors approved a distribution of $1.7 billion in interest on capital, to be paid in September, based on financial results from the first half of the year. Since 2021, Vale generated 27% of dividend yield. Additionally, we continue to see the repurchase of our shares as one of the best ways to create long-term value for our shareholders. Since the beginning of our share buyback program, Vale has repurchased 16% of our share base, representing a concentration in shareholder future earnings So, before we move on to the Q&A session, I'd like to reinforce the key messages from today's call. We continue to make substantial progress in our operational performance and are extremely confident in delivering our production targets for the year. At our energy transition metals business, we are thrilled with today's announcement and believe the actions we have taken over the last 18 months We will position the business to be a winner in the global energy transition. At the same time, we have been taking immediate and consistent actions to improve dam safety, being now adherent to the GISTM for all critical structures. And finally, we remain highly committed to a disciplined capital allocation process, as evidenced by today's dividend announcement and the continuous execution of our highly accretive buyback program. Now I would like to open the call for questions. Thank you.