0 Building a Stronger Organization Murilo Ferreira, Vale CEO Bank of America / Merrill Lynch Global Metals, Mining & Steels CEO Conference Barcelona, May 12, 2015
This presentation may include statements that present Vale's expectations about future events or results. All statements, when based upon expectations about the future and not on historical facts, involve various risks and uncertainties. Vale cannot guarantee that such statements will prove correct. These risks and uncertainties include factors related to the following: (a) the countries where we operate, especially Brazil and Canada; (b) the global economy; (c) the capital markets; (d) the mining and metals prices and their dependence on global industrial production, which is cyclical by nature; and (e) global competition in the markets in which Vale operates. To obtain further information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission (SEC), the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF) and The Stock Exchange of Hong Kong Limited, and in particular the factors discussed under Forward-Looking Statements and Risk Factors in Vale s annual report on Form 20-F. 1 isclaimer
We have been working in several dimensions to further improve Vale s highly competitive position in the mining industry 2 Increasing Volumes Reducing Costs and expenses Delivering projects Setting the basis for strong Free Cash Flows Increasing productivity Strengthening our license to operate
We have reduced expenses 1,2 significantly but we are not there yet US$ million 3-50% -21% 7.117 808 638 4 4,521³ 3.547 2012 2013 2014 1Q14 1Q15 ¹ Net of depreciation and amortization. ² Includes SG&A, R&D, Pre-operating and stoppage and Other expenses. ³ Excludes the positive one off impact of US$ 244 million of the goldstream transaction in 1Q13 4 Excludes the positive one off impact of US$ 230 million of the goldstream transaction in 1Q15.
We have also made significant progress on cost reductions but we are still not satisfied 4 Iron ore unit costs and expenses, US$/t Royalties Cash Cost FOB¹ port Brazil Freight Costs Expenses -13% -28% -47% 22.7 19.8 23,9 7,5 17,2 4,0 19,9 18,3 1Q14 1Q15 1Q14 1Q15² 1Q14 1Q15 ¹ Ex-ROM and third party acquisitions. ² Excludes US$ 2,3/t of the bunker oil hedge.
5 We remain committed to delivering additional productivity gains Completed In implementation Example of initiatives Status Mine Improvement in availability of the transportation fleet in the Northern System Resizing of infrastructure, drilling and transportation fleets Optimization of mine plans Beneficiation Ramp up of the Itabirites projects Improvement in the yield of the concentration plants Extension of the natural screening process to older plants in Carajás Logistics corridors Full automatic operation of reclaimers Automated operation of trains Implementation of innovative technology: Distributed traction technology Energy control systems at the ports Reverse routes at the ports
And we are about to operate some of the most competitive assets in the world 6 High quality products will replace lower grade material and improve margins N4WS in Carajás Itabirites Projects N4W Plant 2 Primary Crusher N4E Plant 2 N4WS Waste Dump N5W N5S N4WS licensed in 2014 Pre-stripping completed Already mining the first layer of product ( canga ) Vargem Grande Itabiritos started up in 4Q14 Conceição Itabiritos II and Cauê Itabiritos will start up in 2015
Our differentiated and further improved product quality will drive price realization up 7 Delta premium IOCJ 65% vs. Platts 62% %, premium over Platts Fe Content % +0.9 pp 11,6% 12,6% 64,6 9,5% 8,3% 10,1% 63,7 2014 2018 Silica Content % -1.3 pp Alumina Content % -0.1 pp 4,6 3,3 1,4 1,3 1Q14 2Q14 3Q14 4Q14 1Q15 2014 2018 2014 2018
And our iron ore break-even will reduce even further as early as 2015 US$ / dmt, average costs and expenses landed in China¹ 8 43 2-3 0-1 0-1 0-1 37-41 2 3 3 4 5 2 1Q15 FOB Cash Costs Expenses Quality Freight Average 2015 1 Adjusted for quality (Fe content differential and other elements such as silica, alumina and phosphorus) ² Excludes the impact of the bunker hedge accounting (US$ 2.3 /t at 1Q15) ³ Assumes 3.05 BRL/USD 4 Assumes VIU ranging from US$ 1.0/t to US$ 1.1/t 5 Assumes spot freight rates Brazil-China ranging from US$ 10.5 /t to US$14.0/t
In the coming years our capex will reduce sharply as we complete our investment cycle 9 Status of Vale s project portfolio Vale capex¹ profile @ 3 BRL/USD US$ billion 8 projects delivered in 2014 S11D advancing as planned: mine and logistics physical progress of 64% and 36%, respectively Conceição Itabirites II: 97% of physical progress Cauê Itabirites: 82% of physical progress 14 12 Mozambique: mine and logistics physical progress of 86% and 85%, respectively 9 7 5 4 Investment cycle completed in Base Metals 2013 2014 2015 2016 2017 2018 Forecast ¹ Growth plus sustaining capex
And upon completion of projects our production volumes will grow across all business segments 10 Iron Ore¹ Nickel Mt 319 310 332 340 376 411 453 459 Kt 237 260 275 303 316 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 Coal Copper Mt 22 26 26 Kt 449 450 17 370 380 4 4 5 8 292 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 ¹ Own production only, excluding Samarco s attributable production
Helping us reach our ebitda targets¹ in base metals for 2015 and 2016 US$ billion 11 Increase volumes and reduce cost and expenses in Canada and Indonesia Complete the ramp up of Salobo (200 Ktpa) Reach 37 Ktpa at VNC 0-1.0 3.1-4.6 0.5-0.8 0.1-0.3 2.5 2014 Salobo VNC Canada & PTVI Operations 2015-2016 1 Considering 3,00 BRL/USD, 1,28 CAD/USD, copper prices ranging from US$ 5,800 to 6,800 /t and nickel prices ranging from US$ 14,500 to 21,000 /t
And helping us reach even higher margins in iron ore 12 Increase in EBITDA unit margins (US$/t), 2018 vs. 2015 0,5 1,2 2,0 7,0 3,3 Costs reduction Expenses reduction Quality²/Pricing improvement CFR freight reduction Total 1 Excluding ore from third parties, ROM and pellets ² Based on Fe content differential between 2015 and 2018
Meanwhile, we continue to divest non-core assets and form strategic partnerships Reference US$ 1 billion CADAM Oil & Gas Concessions I Ferroalloy plants in Europe Araucária Oil & Gas Concessions II Tres Valles Fosbrasil Log-in Norsk Hydro Gold streaming I Belo Monte participation Gold streaming II Aluminium Logistics Oil & Gas Gold Copper Fertilizers Kaolin Coal Shipping Manganese Energy 13 Aluminium assets El Hatillo 10 Very Large Ore Carriers VLI Mozambique deal with Mitsui¹ 2011 US$ 1.1 billion 2012 US$ 1.5 billion 2013 US$ 6.0 billion 2015 US$ 5.0 billion ¹ Including the impact of capex avoided by VALE
From these divestments and partnerships we expect to raise US$ 6-7 billion in cash proceeds in 2015 14 Initiatives Transaction details Cash Impact in 2015 Status Timing Goldstream Sale of an additional 25% of the payable gold stream from the Salobo mine Completed with US$ 900 million received in March 2015 Done Non-voting shares Issuance of redeemable nonvoting shares on specific assets Transaction structure and contracts being prepared 2Q/3Q VLOCs Sale of Valemaxes with the signature of long-term, low cost freight agreements Progress on the previously announced negotiation with COSCO and other undisclosed partners and on the development of a financial structure for the sale of vessels 2Q/3Q Mozambique Coal Investment agreement with Mitsui for partnering in the Mozambique coal project Project Finance in advanced stage of discussion Government authorizations and direct agreements with lenders under discussion 4Q
Results from our initiatives are already setting the basis for strong free cash flow generation as of 2018 15 Capex will be around US$ 4 billion Volumes will increase by about 40% in iron ore, 20% in copper and 15% in nickel Costs will decrease with higher productivity, further dilution of fixed costs and expenses, and organizational restructuring Iron ore quality will support an increase in price realization Freight costs will decrease Free cash flow and dividends will reach unprecedented levels and debt will reduce gradually
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