Vale S.A. (VALE) Earnings

Management highlights

- Strategic Priorities - Core focus areas are operational excellence, disciplined capital allocation, and advancing high-return growth projects, particularly in copper and iron ore, to build a cycle-resilient business that delivers sustainable shareholder returns. - Long-term ambition is to double annual copper production to approximately 700,000 tons by 2035, with potential to exceed this target based on recent drilling success and project execution improvements. - Operational Milestones - In July 2026, the Serra Sul Plus 20 project at S11D started operation, adding increased operational flexibility. The Compact Crusher project, which will resolve jaspalite ore operational constraints and improve production consistency, is expected to start commissioning in Q4 2026. Together these projects add 20 million tons of incremental capacity, expanding Vale's high-grade product portfolio. - Copper production hit a nine-year Q2 high, with record output at Salobo; iron ore production reached its highest Q2 level since 2018, supported by ramp-up of Capanema and Vargem Grande projects and record output at SLM&D. - The Bacaba copper project, the first of six planned growth projects, is now expected to start commissioning in Q3 2027, six months ahead of the original first half 2028 schedule, with 40% construction progress completed to date. - Fabricão and Viga are operationally ready to resume production, with all municipal authorizations obtained; Vale is working to secure state and federal approvals and expects no impact to 2026 full-year guidance. The Oman pellet plant remains operational despite Middle East conflict escalation, with only a planned October stoppage for a tie-in work on the new concentration plant. - Shareholder Returns - The board of directors approved a $1.7 billion dividend and interest on capital distribution to be paid in September 2026. - The board approved an extension of the share buyback program for up to 2.3% of outstanding shares (100 million shares over 18 months), reflecting management's confidence in Vale's long-term outlook. - Year-to-date share buybacks totaled $214 million as of Q2 end, with $140 million repurchased during the quarter. - Innovation Agenda - Vale published its first research, development and innovation report, outlining a five-pillar strategy for future mining focused on improving efficiency, safety, environmental performance and competitiveness. A successful 25% productivity improvement project at the Conceição 2 concentration plant has already delivered results, and this technology is being rolled out to other facilities.

Guidance

- Iron ore cost guidance for 2026 has been revised upward to reflect changes in assumed average exchange rates (5.13 BRL per USD vs. 5.60 previously) and average Brent oil prices ($86 per barrel vs. $68 previously): - C1 cash cost guidance revised to $22.5–$23.5 per ton, up from the prior range of $20–$21.5 per ton, with ~70% of the increase driven by external FX and diesel cost effects. - All-in cost guidance revised to $58–$62 per ton, up from the prior range of $52–$56 per ton, with $5 per ton of the increase driven by oil, FX and iron ore premium changes. - Copper and nickel production guidance ranges have been narrowed, with higher midpoints, reflecting continued strong operational performance. Full year 2026 cost guidance for base metals has been revised downward: - Copper all-in cost guidance revised to $0–$500 per ton, down from the prior range of $1,000–$1,500 per ton. - Nickel all-in cost guidance revised to $10,000–$11,500 per ton, down from the prior range of $12,000–$13,500 per ton. - Management reaffirmed confidence in achieving all full-year 2026 production guidance, following strong first half 2026 operational performance. - Expanded Net Debt is expected to continue converging toward the $15 billion target level by the end of 2026.

Segment performance

1. Iron Ore (Aionor): Q2 2026 production reached its highest second quarter level since 2018, with sales volumes up 3% year-on-year. Segment EBITDA exceeded $3 billion, supported by higher realized prices and increased sales volumes that offset higher freight costs and Brazilian Real appreciation. C1 cash cost (excluding third-party purchases) was $24.1 per ton, up 9% year-on-year, and all-in costs reached $61.6 per ton, up 18% year-on-year, with increases driven by external currency, diesel and freight cost pressures. 2. Vale Base Metals (VBM): Q2 2026 segment EBITDA totaled $1.3 billion, an increase of nearly 80% year-on-year, driven by stronger realized prices and solid operational execution. - Copper: Q2 2026 production hit a nine-year high, up 6% year-on-year, with sales volumes growing 10% year-on-year. Growth came from record Q2 output at Salobo and strong performance at Sossego. C1 cash costs reached negative $300 per ton, an improvement of $1,700 per ton year-on-year. - Nickel: Q2 2026 production increased 4% year-on-year, sales volumes grew 7% year-on-year, supported by additional volumes from Nancy Puma and Voices Bay. C1 cash costs declined 17% year-on-year to $10,300 per ton. Overall company pro forma EBITDA was $4.1 billion in Q2 2026, a 19% year-on-year increase. Free cash flow totaled $1.5 billion, with CAPEX of $1.1 billion. Expanded Net Debt closed the quarter at $16.7 billion, a $1.1 billion reduction quarter-over-quarter.

Risks & headwinds

- External cost pressures from Brazilian Real appreciation, elevated diesel prices, and high seaborne freight rates have increased near-term costs for Vale's iron ore segment, with cost guidance revised upward to reflect these factors. - Escalation of the Middle East conflict introduces uncertainty for the Oman pellet plant operations and regional logistics, though the plant is currently operating normally with only a planned stoppage scheduled for October 2026. - Final terms of the revised Brazilian CAVE conservation decree are still unknown, and changes could impact production expansion in the Carajás northern system, though Vale is monitoring the process and expects a balanced outcome that supports sustainable development. - High near-term oil and freight price volatility creates near-term cash flow uncertainty, though Vale's hedging and long-term contracting strategies mitigate most of this exposure.

Analyst Q&A

• Q: What has driven Vale's success in keeping freight costs far below benchmark levels, and how sustainable is this advantage going forward, including for the second half of 2026 and over the mid-term? /

  A: Vale locks in ~75% of its freight requirements via long-term time-charter contracts for stable costs, and has reduced spot exposure from 25% to under 10% for 2026 using short-term mini-COAs and freight forward agreements. The strategy is being extended to 2027 and 2028, and most of Vale's vessels have scrubber fittings that cut bunker costs by ~$250 per ton compared to spot market rates. Second half 2026 spot exposure remains below 10% despite typical higher volumes in the second half, and the long-term contracted portfolio is well balanced for the next 5 to 10 years, with new contracts rolled over at favorable rates. Vale also hedges ~70% of 2027 Brent requirements at an average of $77 per barrel, locking in fuel cost certainty.

• Q: Bacaba is being brought online six months ahead of schedule after major capital cuts and higher returns. Is the new project execution model replicable across the five remaining copper growth projects, and could Vale reach its 2035 production target early or even exceed it? /

  A: The organizational restructuring of Vale Base Metals (decentralized model, simplified capital allocation and execution processes) that delivered the Bacaba improvements is already being applied to all other pipeline projects. The next project, Salobo coarse particle flotation, will be announced formally in the coming weeks and will already show targeted improvements consistent with the new model. While it is too early to confirm early delivery for all projects, the improved execution framework plus stronger-than-expected drilling results (which have already extended Bacaba's reserve potential and increased regional resource estimates) mean Vale could potentially exceed the 700,000 ton per year 2035 copper production target, with further updates expected at the upcoming Vale Day.

• Q: With revised cost guidance for 2026 and expected future macro-related cash outflows, what is the tradeoff between balance sheet resilience and shareholder returns, and when will decisions on more aggressive buybacks or special dividends be made? /

  A: Most of Vale's annual cash flow is generated in the second half, so second half performance will drive capital allocation decisions for the period. The new cost guidance does not materially change projected 2026 full-year cash flow generation, and all expected future reparation-related cash outflows are already included in the current expanded net debt calculation. Vale remains on track to reach the $15 billion expanded net debt target by year-end, and the level of net debt at year-end will determine the size of additional shareholder remuneration. The reactivated share buyback program provides flexibility, and the choice between additional buybacks or special dividends will depend on the Vale share price and relevant tax considerations, with a decision expected in late Q3 or early Q4 2026.

• Q: What is the outlook for the iron ore market after recent price weakness, even with higher freight and oil costs following the Middle East conflict escalation? Are smaller miners starting to curtail production at current prices? /

  A: Vale sees overall iron ore market fundamentals as resilient: global pig iron production is broadly stable, with demand improving outside China (up 2% year-on-year in H1 2026) offsetting mild slowdown in China, where official production decline data overstates the actual slowdown (real decline is closer to -0.5% year-on-year vs. the official 3% figure). At current Brent prices near $90 per barrel and iron ore prices around $95 per ton, roughly 120 million tons of global iron ore production is uneconomic, which Vale expects will create a natural market stabilizing effect from production curtailments among higher-cost smaller producers.