Vale S A : Transcript Conference Call

Local Conference Call

Vale S/A (VALE3)

July 28th, 2023

Operator: Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the 2023 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.COMin 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 Vale's 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 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 20-F.

With us today are:

• Mr. Eduardo de Salles Bartolomeo - Chief Executive Officer;
• Mr. Gustavo Pimenta - Executive Vice President of Finance and Investor Relations;
• Mrs. Deshnee Naidoo - CEO Vale Base Metals;
• Mr. Carlos Medeiros - Executive Vice President of Operations

Mr. Eduardo Bartolomeo will begin his 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 Bartolomeo. Sir, you may now begin.

Eduardo Bartolomeo: Thank you very much. Good morning, everyone. I hope you are all well.

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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 Metals business. This partnership attributed a very attractive valuation for our ETM business, which shows that our partners recognize the value generation potential of our assets and how uniquely positioned they are. This is an encouraging starting point for what we believe is a powerful platform for growth. I will give you more details during the presentation.

Now let me cover our operating results. We delivered a solid production performance for our business this quarter.

In Iron Solutions, we are growing quarterly output year-on-year, while our all-in cost declined yearly and quarterly. We are also commissioning Torto dam which will increase availability of pellet feed for Brucutu operations and improve the average quality of our portfolio.

In Energy Transition Metals, Salobo III is ramping up ahead of schedule with a solid contribution to our copper growth year-to-date. In nickel, we are firmly marching towards our annual guidance.

Moving on to dam management, we reached the first deadline for implementing the Global Industry Standard for Tailings Management, the GISTM, with a positive outlook. All of our prioritized structures are in conformance with the standard with ongoing action plans to ensure 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 location remains pristine. We announced the distribution of US$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, Vale 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 on our commitments.

So, let me go 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 Iron Solutions, asset reliability initiatives have started to bear fruit this quarter and driving the solid performance across our 3 systems. We set a new production record for a second quarter at S11D. Itabira and Vargem 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.

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In Energy Transition Metals, copper production in the second quarter grew 41% year-on-year mainly due to the successful ramp-up of Salobo III and improved performance at Sossego, benefiting from the extended SAG mill 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, Voisey's Bay and Long Harbour operations had a lower output. Onça Puma furnace is currently operating at a lower rate in preparation for the furnace rebuilt 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 at peak capacity expected at the end of 2024, Salobo III will add 30,000 to 40,000 tons per year of copper to our total Salobo complex output.

Next slide. In 2020, we committed to implement the GISTM, the Global Industry Standard for Tailings Management within the industry timeframe. I'm glad to inform that we have implemented this standard for all of our prioritized structures within the first deadline with ongoing action plans to ensure full conformance. This is an important milestone in the evolution of our dam management towards the safety of our employees, neighboring communities and society.

In addition, we are on track to full conformance for all our tailing facilities, not in state of closure by 2025. We are consistently reducing risks associated with our dams and implementing the best international practices in dam management while developing alternative solutions to reduce dam use. So, we will continue to deliver on our ESG commitments so that Vale 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, ring- fenced the business into a single vehicle with a leaner structure, and a dedicated governance. We attracted industry experts for the Board, top talents like Jerome Guillen and Mark Cutifani, 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 Ma'aden and PIF, the

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Public Investment Fund, that brings in experience and helps us in accessing strategic geographies for Vale, 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 it 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.

Gustavo Pimenta: 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 9 million tons for nickel. We see potential for ETM to invest US$ 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 US$26 billion. The implied pre-money equity value for Vale was US$25.1 billion. The total net proceeds are expected to reach US$3.4 billion, out of which US$1 billion will stay with VBM 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, with delivered an EBITDA of US$4.1 billion, US$1.4 billion below the same period in 2022. This decrease is explained by the US$15 per ton lower iron ore fines realized price and by the US$3,000 per ton lower nickel realized prices following the decline in the reference prices since second quarter 2022. The impact of costs and expenses on EBITDA was relatively small at US$96 million, mainly from transitory effects in the nickel business related to the maintenance and higher third-party nickel feed purchases.

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In iron ore and copper, despite the year-on-year inflationary pressure, costs and expenses improved EBITDA by US$218 million. I will go into more details on costs later in my presentation. Sales volumes and by-products helped increase our EBITDA by US$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 US$23.5 per ton quarter-on-quarter even considering a US$0.70 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 R$5.20 per dollar, we have adjusted our C1 guidance for the year to US$ 21.5 to 22.5 per ton. This means an expected C1 below US$22.00 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 breakeven reached US$53 per ton, roughly flat year-on-year, and US$5.2 per ton lower quarter-on-quarter. This can be attributed to the improved product portfolio mix with more Northern System ore and lower high silica product sales in addition to greater volumes. We also adjusted our iron ore all-in cost guidance to US$ 52 to 54 per ton for the year. This change is essentially the result of external factors, such as the lower all-in premiums due to market conditions and the adjustment in C1 due to the Brazilian Real appreciation. Just to give us sensitivity, a 10-cent appreciation of the Brazilian Real converts into a 30 cent per ton increase in C1 cash costs ex-third- party purchases, and a 50 cent per ton increase in all-in costs in 2023.

In copper, we continue to see gains from higher production at both Salobo 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 US$3,000 per ton, approximately US$1,800 per ton lower than in the first quarter, which is in line with our expectations with the continued ramp up of Salobo III.

At our nickel operations, our COGS ex-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 Voisey's Bay mine and the relatively longer planned maintenance period at Long Harbour. Also, in connection with Voisey's Bay transition and Long Harbour maintenance, this quarter we have recognized a one-off decrease in 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 US$ 17,000 per ton.

The all-in cost guide for nickel in 2023 has been adjusted to US$ 15,500 to 16,000 per ton, mostly reflecting lower than expected by-product prices and volumes, which we expect to continue throughout the second half of 2023. For the second half, we expect all-in costs to decline as production increases and no other one- off events materializes.

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