Vale SA Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Dam Safety: Eliminated the B3/B4 dam ahead of schedule, with two additional structures to be eliminated in 2024. Over 50% of the decharacterization program will be completed by the end of 2024.
• Iron Ore: Achieved third consecutive quarter of year-over-year production increase, with S11D setting a historical production record in Q2. Vargem Grande and Capanema projects are progressing, with combined capacity addition of 30 million tons. Approved the Sohar concentration plant as part of the Mega Hubs strategy.
• Energy Transition Metals: Onça Puma, Sossego, and Salobo plants resumed operations. Appointed Shaun Usmar as CEO of Vale Base Metals to lead value creation.
• ESG: Reinforced commitment to transparent disclosure with adoption of TNFD and ISSB. Focused on protecting 11 hectares for every hectare affected, bioeconomy, and fighting extreme poverty to avoid land exploitation.

Segment Performance

• Iron Ore: Pro forma EBITDA reached $4 billion in Q2, driven by strong operational performance. Third consecutive quarter of year-over-year production increase, with S11D achieving a historical production record in Q2. C1 cash costs were $24.9 per ton in the quarter, on track to reach the guidance of $21.5 to $23 per ton for the year. Vargem Grande is set to start up in the next months, and the Capanema project is on track for mid-2025, with combined capacity addition of 30 million tons. Revenue contribution from iron ore is significant due to its robust operational performance and production growth.
• Energy Transition Metals: Nickel all-in costs were down 12% to $15,000 per ton in Q2, on track for 2024 guidance of $14,500 to $16,000 per ton. Copper all-in costs increased 18% year-on-year to about $3,600 per ton, but remained below 2024 guidance range of $4,000 to $4,500 per ton. Production in Brazil plants saw a 5% increase in copper, while nickel production reflected planned maintenance strategy.

Guidance

• Iron Ore: Production on track to reach the top end of the 310-320 million tons guidance for 2024. C1 costs expected to reach $21.5 to $23 per ton by year-end.
• Energy Transition Metals: Nickel on track for 2024 all-in guidance of $14,500 to $16,000 per ton. Copper all-in costs remained below 2024 guidance range of $4,000 to $4,500 per ton.
• Capital Allocation: Recycled capital, increased debt maturity, and announced $1.6 billion dividend to be paid in September.

Risks

• Market Conditions: Fluctuations in iron ore prices and demand could impact financial performance.
• Regulatory Issues: Uncertainties related to Samarco negotiations and railroad concession renewals may affect operations and costs.
• Inflation and Geopolitics: Inflationary pressures and geopolitical factors could impact input costs and supply chain stability.

Question and Answer

Q: Update on Samarco negotiations?

A: Gustavo Pimenta stated there is momentum from all parties to resolve in the next couple of months.

Q: High silica product strategy?

A: Marcello Spinelli explained gradual reduction with ramp-up of S11D and BRBF production, aiming for 10% of high silica products in the portfolio by year-end.

Q: M&A in nickel?

A: Gustavo Pimenta mentioned preference for developing own endowment rather than targeting specific nickel assets in Brazil.

Q: Production guidance for 2025?

A: Leonardo Correa was told Vargem Grande and Capanema projects are progressing, with production trend positive but precise guidance to be provided at Vale Day.

Q: Railroad concession renewal?

A: Gustavo Pimenta said conversations are advanced, expecting resolution in the next couple of months, with details kept confidential during negotiations