Earnings Call: Q4 2018

Mar 28, 2019

Ladies and gentlemen, welcome to Vale's Conference Call to discuss 4th Quarter and Fiscal Year 2018 Results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded and the recording will be available on the company's website atvale.com@theinvestorslink. This conference call is accompanied by a slide presentation also available at the Investors link at the company's website and transmitted via Internet as well. The broadcasting via Internet, both the audio and the slides changes, has a few second delay in relation to the audio transmitted via phone. Before proceeding, let me mention that forward looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward looking comments as a result of macroeconomic conditions, market risks and other factors. With us today is Mr. Lucia Luciani Piris, CFO and IRO. First, Mr. Luciano Luciani Piris will proceed with proceed to the presentation on Vale's 2018 performance. And after that, he will be available for questions and answers. It is now my pleasure to turn the call over to Mr. Lucia Luciano Perez. Sir, you may now begin. Ladies, gentlemen, we're here in a moment of deep sadness and grief because we lost 131 of our sons and daughters, the employees of Vale, 121 brothers and sisters amongst our working partners, employees of suppliers of Raleigh and 53 brothers and sisters and neighbors from the community. Nothing will bring Nothing will bring back those lives, but everything that we can do now is dedicate ourselves 24 hours a day to alleviate the suffering of the families of the victims and the all the people affected, recover and remediate the environment and the affected areas. Every organization is made by people and valid, this abstract entity, is made up of 70,000 people, which are now suffering. But it is in these moments of suffering that the best within us come out. And I'm here to particularly thank more than 600 colleagues, which are tirelessly within Brumadin and other communities working 24 hours a day, weekends included, organize and deliver the necessary response. We understand that no response can face the losses, but it's our belief that if there's a best that can be delivered, that Vale is capable of delivering this best. And we're here to be accountable to yourselves or partners from the capital markets and our shareholders about the efforts of the organization to support the victims, the affected people, to remediate the environment and hopefully engage ourselves in this road map and path towards revisiting the meaning and the purpose of value as an organization for the future. Today, I'm by myself, my colleagues, which are leading now the businesses, Caldwell, August in Iron Ore and Mark Travers in Base Metals, they wish to be very soon sharing their own ideas with you about the lines of businesses. And Eduardo Bartolomeo, our acting CEO, he's fully dedicated in this moment, 1st and foremost, to ensure the safety of our operations and prepare the organization for the challenges that come. But in due time, he will be with you, sharing his ideas as well. Today, I'm going to speak a little more than usual because I we do want to go through the efforts that I mentioned that we've been doing. So I refer to the webcast presentation on Page 5, starting by the medical support and the help centers, which were established shortly after the tragedy. The picture you see is our knowledge station, is a property of value within Brumadinho, very equipped, very capable, where we organized a very large health center. We mobilized containers very quickly to bring professionals, health professionals from other areas to Brumadin. We also engaged the private health units around the city, not to stress the public hospitals. And we provided everything that was required for the very first aid and first assistance to the affected people. On Page 6, we obviously disrupted the lives of people of the community after the event. People moved to hotels, and we are now working together with them to provide temporary housing as a step towards definitive housing for the people who are displaced from their homes. We're providing portable water for animal consumption, mineral water for consumption for human consumption. We are providing transportation, some more distant communities within the Brumadin town municipality. They had their accesses cut from the main town. So we are recovering those accesses. We're providing alternative roads within our property. We're providing transportation for the public. And we also thank the authorities for the help that they are doing in order to issue documentation and restore the formal lives of those who left their documents behind. We acknowledge that the people who were affected and displaced, they were temporarily housed in hotels, but they also lost part of their economic activities. So the week after, again, the dam breach, we provided donations for many affected people. We provided donation for the families of the victims. Many of them lost their bread making heads of families. We provided donations for those who had their residences affected, those who had their business activities affected, those who had their any type of disturbance in the short term. And this was without any counterpart. We didn't want to characterize this as indemnification whatsoever. We provided help to the public sector, which was had its resources stressed to face the challenges. So for example, 10 days ago, we equipped we're committed to equip the firefighters of the state of Minas Gerais. We received a list of equipment ranging from gloves to uniforms to notebooks to sophisticated equipment, excavators, special vehicles, trained dogs and everything that they needed, they wanted in order to equip the whole of the firefighters corporation of Minas Gerais. We granted them. We are and this is a big thank for the heroes that were recognized by the nation as such because of their efforts following the tragedy. And we're also equipping their training academy, state of the art facilities to make them better and better professionals. We also compensated financially the town of Brumadinho in order to keep the public services in good condition because of the loss of taxes. We help them buying emergency equipment. We helped the Legal Medical Institute of Del Horizonte also with equipment. We compensated the state of Minas Gerais for the extraordinary expenses on the rescue operations. So we're trying to make whole also the public sector for all the disturbances that we caused. We'll talk later about the indemnification process. But internally, our Board of Directors established 3 extraordinary committees to address the key issues in response to the dam breach. We acknowledge that the management of Vale, the Board of Directors of Vale, we have lost credibility. So we're resorting to external prominent specialists in their fields to address supporting recovery, investigation and dam safety. Their work is ongoing. It will last many months. Very careful work. We're receiving a lot of input. And hopefully, in due time, we'll make public their conclusions for the benefit of society as a whole. We also established a crisis organization within Vale. Today, we have approximately 300 professionals fully dedicated to support the activities of everyone which is on the field. It's based in the Ormaltuca mine, which is nearby Brumadin. The Board of Directors also suspended shareholder dividends and variable compensation for executives. We announced, and we'll talk about this, the commissioning of Upstream Vans. We have a comprehensive technical investigation, which is led by the law firm Skadden with the help of a panel of experts from universities in the U. S, Canada and Australia. This has the role of determining the technical causes of the accident, of the tragedy. They will do mathematical modeling. They will go through all the records of measures from all the instruments. They will look at the dam designs. They will use the top notch science that is available in the world in order to uncover what happened and led to the rupture. And this is different from what investigation committees are doing, which is more of a forensic investigation, having access to internal documents, emails, reports and trying to establish conclusions about perhaps individual behaviors. So there's the forensic investigation, and there's a technical investigation ongoing in parallel. In terms of indemnification, we established very quickly an agreement with the public authorities, the public prosecutors at the state and federal level, for a preliminary indemnification. We acknowledge the grief and mourning of the communities. So maybe that's not the best time to engage in discussions about fair compensation. So in order to allow everyone involved the necessary time to make those very important discussions and decisions. We are providing financial support on a monthly basis for we estimate 100,000 people located in the town of Brumadinho and in the vicinity of the Parralpego River. This is a tremendous effort. We have 21, again, help centers being established. So we hire the locations, we equip the health centers, we hire the staff, organize the back office, put in place the systems in order to make the registration of all these 100,000 residents. And we've already paid about 2,000 people as of now, which is just a fraction of the 100,000. But over the next few weeks, we'll go through all of them, all of the communities to make whole all of those people. We're putting the best of Vale's resources and knowledge and personnel in order to make this happen. As a consequence that we will discuss as well of the increased safety standards across the industry for dams, we are now unfortunately disturbing the lives of more communities beyond Brumadin. So we've evacuated a number of communities. Today, we have about 1,000 people affected. And those are communities which are downstream dams about which we have doubts about their security according to those new industry standards. We're providing also drills within the towns that potentially could be reached by an eventual dam rupture several hours downstream. We're doing all of this to ensure the safety. But nevertheless, those about 1,000 people will have their lives disrupted, and we will engage in discussions as well how to we're already we're accommodating them in hotels. We'll provide temporary housing. We'll provide definitive housing. We'll provide amenities for all of those people as well. And this, so you know, isn't constrained and limited to value. Many mining companies within Brazil are going through the same. Because as I rule at Spain, Florida, this is a widespread consequence of this increasing safety standards across the industry. And finally, just so you know, you can read, we are also taking care of the fauna and have a full service campaign hospital to deal to rescue and to treat and to house the animals in the affected regions. I'm going to speak now about a very important issue, which is the environmental impact, especially on the Parralpeva River. I'm not going to follow quite the sequence of slides now, but I do have some important information for you. Of the estimated 12,000,000 cubic meters of tailings, we estimate that around 2,000,000 have been carried by the river. The rest of it either stays within the dam site or in the vicinity of the dam site. We're monitoring water quality on a daily basis and the sediments on a weekly basis through 65 monitoring points everywhere in creeks, in affluence, in the tributaries of the rivers and even in the San Francisco River, which is one of the key rivers within the country. Over 300,000 analyses were performed by 4 special laboratories, which were hired by Vale. 250 professionals are involved. And the post graduation coordination engineering body of the Federal University of Rio de Janeiro is auditing and validating the results. A few key conclusions. First is that the tailings have a composition which is very similar to the soil in the area, which means, yes, the tailings, they have heavy metals above legal limits, the tailings themselves. But this is no different from what happens with the in the soil of the region, which means carrying tailings to the river is no more harmful than carrying, for example, when it rains heavily carrying soil from the river banks to the river. But however, those heavy metals, they are not free, and they will not be absorbed by the biofauna within the river. They are isolated and encapsulated. They won't be assimilated. We know this because we conducted tests, ecological tests with several organisms and natural fauna of the river, including micro crustaceans, bacteria and fish. And between 97% 100% of the sampling that we did indicate that there has been no contamination. And we are now conducting tests with the animals and the plantations nearby the river. And also, we proved through our laboratory tests that once you make the water from the river go through what is called the ultrafiltration, which is the usual kind of treatment that we have in treatment stations for water, for water sourcing for cities, that the water, the heavy metal levels, they stay below the legal limits. So therefore, the water treated through ultrafiltration should be adequate for human consumption. Finally, the Environment Institute of Minas Gerais, together with other agencies and the sanitation company, up to now, have not observed any change in the quality of water downstream, the power dam of the Chirubayo. That's important because downstream this power dam, there's another large power dam called Tres Marias, which connects to the San Francisco River, which is one of the most important river bases in the whole of Brazil. So unlike was reported, this Minas Gerais Institute confirmed and Sao Ibrama, the federal agency, this morning also confirmed that there is no there are no the plum has not reached the Tres Maria's big power dam and therefore not reached the San Francisco River. And even if the Hechilobacho power dam doesn't hold all the remaining tailings, mathematical models show that about 3 quarters of them should stay at the Retiro Bajo power dam, and only a quarter of them should go to Tres Marias. And because of the size of the reservoir at Tres Marias, again, the plump should not reach the San Francisco River. What is that we are doing and that you can read on the several slides? First, we need to stop the carrying of tailings by building dikes, hydraulic barriers, screening structures. We have already a full plan in order to remove the panes, which are today being carried to the liver. We haven't started yet because of the firemen. They are still wrestling for additional bodies. We are working with a sanitation company to reestablish the sourcing from the river, and we are investing in additional water treatment stations. And finally, on the city of Para de Minas, which is the first one downstream from Brumadinho, we're building a new again, a new pipeline in order to increase the sourcing level from other sources. So we will entirely replace the sourcing from Parralpeira River with this new pipeline from other water sources. And as a result, once the Parralpeva River recovers, the city will have a legacy of twice the necessary capacity for water sourcing and treatment. Other municipalities downstream, they have alternatives. So with all of this that I told you, I we believe that the from an environmental perspective, the containment of the impacts is obviously continues to be a challenge, but it's a challenge that can be tackled and addressed and surpassed. Now moving into financial and operational impacts. The first thing you see is a graph currently with the amount of production which is halted across Vale, reaching 93,000,000 tons. We look into 4 complexes. The question that arises from this graph is when is the uncertainty about the production levels of Vale will be removed? And that's what I'll try to address in the next few minutes. The first thing for you to take out of your mind is somehow because of the succession of announcements that we have been doing, all those legal actions and suits from prosecutors and also restrictions from the mining agency and others, may give the impression that the authorities in Vale are adversaries, and they are in different trenches fighting against each other. That is not the case. We all have a common objective. We all want to ensure the safety of the dams and the operations. And the national mining agents and the public prosecutors, they are exercising their role. And from the information they receive, they believe some dams and operations are not safe. And Vale is on the same page. We are also working preventively with respect to, for example, the recent evacuation that we promoted and the stoppage of some operations, for example, in this graph, the mine of Alevirion, we were not treated by any authority to stop this mine, but by our own evaluations and concerns about safety. And what are those concerns? Why has the question that we've posed is, has the safety perception within the industry, the regulators and Vale changed with respect to the upstream dams? The answer is yes. And this is a natural outcome of 2 tragedies within less than 4 years. The perception of safety has changed. The National Mining Agency started to request a minimum safety factor in the undrained condition of 1.3 for upstream dams, and this was not required beforehand. The engineering companies that provide external audits of the safety of the dams, They are changing their methodologies to calculate those safety factors to more conservative methodologies. Within the conservative methodology, they are using more conservative parameters, for example, for materials resistance. We are introducing new methodologies. For example, now, upstream then, they not only have the drained safety factor and the undrained safety factor, but they now also have the post liquefaction safety factor, which is being calculated. So therefore, the safety factors being recalculated according to those new methodology and standards are being reduced. And they now have to overcome a higher standard established by the agency. So for example, in February, Vale had already noticed that according to the new standards, some of its dams would not get the stability certificates. So we decided to put emergency level 2 some of our structures and evacuate some communities as a measure of precaution and safety. We're also including in the priority structures 3 other dams raised by the centerline method and some smaller dikes, which although they are not dams, they locate themselves within dam complexes. And some of them have been built over Cadence. So we are also monitoring those structures very carefully. And as all those information are being available to Vale, to the external auditing companies, they are also being available to the prosecutors. And as I said, in order to fulfill their mandates, they are asking for legal measures against those structures to ensure that they are not operated and they are not put at risk until there's a clear picture about their safety. And this is the priority of Vale, is to ensure the safety of all structures, of all the population, all workers downstream and not the resumption of production. To produce is not our priority. Safety is our priority. March 31 is very close. That's the deadline for all the mining industry in Brazil to present the safety reports on all the dams. So with that proximity, I'd say the good news is that we have now more confidence that we understand under those new standards what is the situation across all of our dams. So therefore, although our goal is not to resume production and safety instead, because we have the duty to inform you what the picture looks like in terms of production. I will provide now the following explanations. If we go to the graph, the Fabric and Vazira and Grady complexes, the first bar, the 40,000,000 tons which are interrupted, they are now interrupted both by an injunction from the public prosecutors and interdiction by the national agency. Because in those complexes, there are dams which we know we are not going to get the stability certificates. Some of those small dikes and dams are going to be decommissioned. Some are going to be reinforced. Some are going to be the commission, some are going to be reinforced. We believe that over the long run, we are able to operate some of the mines using without using explosives because explosives could trigger liquefaction in the nearby structures. We presented a request to the National Mining Agency in this regard. But because of all of this and because of our intent to decommission large dams on those complexes, we believe that we should be conservative and not assume that we will have that production coming back anytime soon, and if we do so, marginal volumes. With respect to Brucutu, the next 30,000,000 tons, the sensitive question now relates to Barajun Sur, the South Dam of Brocouture. That's the one which is inactive. It is a conventional structure. It's been used by Brucoutil until 2013, 2014 approximately, but now is inactive. And we believe this dam will have its stability certificate issued in March 31, even with a very conservative assessment. So therefore, we hope that with this stability certificate that we will be able to sit down with the authorities and negotiate or revert the injunction, which is in place today, not to use Brucke 2. If we cannot do that, the reason why this structure is currently Boucou Tou is currently in stock is because the processing mill sometimes eventually discharge materials in this dam. For example, when there's a maintenance stoppage. So whatever is in the pipelines of all the circuits of the processing plant has to be discharged. And this is discharged very small volumes at this dam. We can build what is called technically a sump, which is basically a protected small pit on the ground in order to receive those discharge from the processing plants, those eventual discharges. And we could run the processing mill in this regard. We could also consider, over time, dry processing at Brucutu. So we believe there are many alternatives for Brucutu. And because of the safety of Baja Din Su, we think we're going to find ways to resume Inbrucoto operations, either in full or partial. So that's the operation where we are most confident about resumption. Tubobepa, 13,000,000 tons, had its safety questioned by the public prosecutors of 3 dams and dikes. We are going to decommission 1 centerline dam, which is called Dotor. And our plan is to license the Timbopeba pit, exhausted pit in order to throw the tailings in there. We might have to use filtration, we might not. So also, we believe that Simbopeba has technical solutions to operate safely, but it may take more time as well. And finally, with regards to Alegria, we still need more information. This has been a valid initiative, and we're undertaking more studies to assess the safety of Alegria right now. And according to our all information that we have to date and our assessment, the remaining sites of all across Vale should not suffer any additional production impact and should have the renewal of their declaration stability certificates going forward. So in summary, we believe we have a more clear picture about the safety of the structures under the new standards. We're working towards technical solutions to all on all the structures that are not meeting the new standards. We believe we have circumscribed the impacts on production, and we believe there's upside, especially in Bracutul. And there's a lot of questions about how much would that upside be. So I'm going to give you some guidance on sales. The total impact on sales on the year, depending on several scenarios about production, especially in Brubutu and uses of inventories should be between 50,000,000 and 75,000,000 tons on sales. And because sales for 2019 was forecast to be less than production, we're talking about anywhere between 307,000,000 and 332,000,000 tons of sales for this year, with a bias towards the conservative side. And again, reinforcing the message one more time, we're not concerned about production. What we want is to operate on a safety manner and ensure the safety of our workers and our communities. Very important as well to address the supply to the domestic market, more a concern to the Brazilian audience. But this is just to say that we're using a lot of logistics alternatives to supply the domestic market because Vazen Granie and Fabrica, especially on the pellet supply, are halted. So this is requiring a lot of creativity. And for the seaborne market, there are questions about what the mix of product of value will look like. Our goal is to stabilize the supply of the Brazilian blend fines, ensure the contractual volumes of Carajas and try to mitigate the impact on pellet production. As a result of that, some of the pellet feed, which formerly was blended to make up some niche products, are being redirected towards the pellet plants. Those niche products are being removed from the market. And also because some of the operations might operate with dry processing and because the quality of the remaining production is lower, we will need to blend more proportionally more Carajas in order to ensure the quality of the Brazilian plant found. And as a result, the supply of Carajas, which would be forecast to increase because of the ramp up of SL 11B, will probably be not increase as much as initially intended. This is a scenario that I'm describing that can have several changes depending on the amount especially depending on the amount of dry processing and the use of inventories of lower quality material. But that's the intent. Moving to the financial implications. Freezing of funds, we today have BRL 16,500,000,000 which are freeze. There are different reasons why they are freeze, But the most recent freezings, they pertain to the evacuations that we made in the communities that do not relate to Brumadin. That acknowledges that almost 1,000 people that we have displaced will have to be indemnified. And also, on those safety drills, evacuation drills at the more downstream communities, maybe some indemnifications also will be required, especially to the handicapped people, to children and to schools and to some structures that will need to be relocated because in an emergency, they present some challenges for evacuation, if need be. So but on the other hand, we're working with the authorities to concentrate all those civil lawsuits within 1 single jurisdiction in order to make sure that the judge, whoever he is, has the bigger picture of everything, which is seized and blocked and everything. So therefore, we can limit the amount of fund seized and even hopefully free all of the funds and replace them letters of credit and surety bonds. So we have indications, for example, that the environmental impact, the very first bar, the BRL 5,000,000,000 which are seized might be the first one to be centralized with the same judge, which is responsible for the BRL1 1,000,000,000 which is seized, where we had the conciliation hearing and the preliminary agreement. So this might be a piece of good news for the following weeks. On indebtedness, obviously, to face those seizures of funds, we had to increase our gross debt. So we withdrew just updating the number here, not $1,800,000,000 but rather $1,900,000,000 in commercial credit lines. We were able to show the agencies our strength, and we believe it's a good result that we had only moved these downgraded ops to less than investment grade. We did have an increase in cost of funding, so those credit facilities we're raising with the banks have an average cost, which is higher than what we used to do. Claims. State of Minas Gerais, we've already paid BRL99 1,000,000. IBAMA, the national agency government agency, we're in negotiations to perhaps change this into compensation measures. And finally, the accounting impacts, The view is that this is a subsequent event to 2018. So the figures you saw today have not been impacted, but they will be heavily in the Q1 of 2019. Several provisions will be made for the potential indemnifications for the agreements which already have been established and some of the numbers you can see in the footnotes of the financial statements. Most importantly, the amounts to be used for the decommissioning of dams will be fully provisioned in the Q1. They will not be treated as CapEx or investments for the reason because they do not generate any further future capacity or cash flow generation. So they need to be expensed and because you know how much the full expenditures will have to be provisioned in the Q1. And finally, there will be write offs of assets on the bench to be decommissioned and obviously on Corregio de Ferrejon, the sites of the production sites in Brumadinho. Before we open to questions and answers, I'd like to close saying that perhaps we won't have all the answers that you demand simply because the full attention of Vale is dedicated towards alleviating the suffering, compensating, remediating, reducing the inconveniences of all that we have caused to the nearby communities. And now the safety of those communities is our priority and not resumption of production. That's what we will be working relentlessly. And over time, as everything subside and if we do our job correctly, we will be able to start thinking about addressing the business implications. Thanks for hearing this long explanation. The intent now, we will extend a little bit past the hour. The intent would be to give you 20, maybe 25 minutes of Q and A opportunities. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from Tina Tanners, Bank of America Merrill Lynch. Yes. Hey, good morning. And from all of us, our extreme sympathies with your situation and the tragedy. Wanted to know if you could, I've got your message loud and clear on the focus on safety over supply. But can you just explain within your guidance number you said the big swing factor is Berkutu. But what's entailed in that number I'm sorry if I missed it, with regard to any additional volumes from some of the tonnage you had been ramping up, F11D and elsewhere? And any updates on the thinking of those projects in light of the shortfalls over the next couple of years? Sorry, Tina. The second question, any updates from? You're thinking regarding the increases in volume from separate projects that you've been talking about. Do you accelerate those in light of the shortfalls? Is there any acceleration of the timing of bringing on that additional iron ore volume from other projects? That's great. So the number the guidance we just gave you includes the ramp up of S11B, which is forecast to produce around 80,000,000 tons this year. The production that we've guided last year is close to 400,000,000 tons, but the sales would be less than initially intended. So therefore, this the sales will be more like $382,000,000 that was what was budgeted. But we're revising the inventory flow in order to try to compensate some of the lost production. So therefore, we came down to the $50,000,000 to $75,000,000 impact on sales estimate that we just gave you, which if you subtract $382,000,000 you subtract those two numbers, you get $307,000,000 to $332,000,000 The swing factor is mostly Brucutu, yes. And secondarily, the swing factor is the amount of dry processing that we will be able to do and the amount of inventories that we will consume. In terms of future volumes, the spare capacity that we've always said that we had to you, part of it has also been affected by the interruptions. So out of the $50,000,000 in spare capacity, dollars 30,000,000 is in the areas which are currently stopped. So we haven't done yet a full assessment of the possibilities to bring over time back other volumes. We are more, I would say, working in the scenarios for the current year. And as you we understand, those scenarios, we are changing on a daily basis. But we hope, as I mentioned in the my explanation, that from now on, because we do know what the stability certificates we will have, We hope that the scenario will stabilize. And one of my key messages today is that we believe the scenario is stabilizing. But the fact is that part of that spare capacity is within the mine complexes that have been halted. So we don't have an estimate of what volumes could be brought over the next 1 to 3 years to compensate. Important to notice as well that even though we've always said that we had spare capacity, that, that spare capacity needs time to be brought online because you need to hire the personnel, you need to buy some equipment. So that's not just a switch that you turn on and off. And finally, the additional tonnages in the Northern System, it's also too soon to see how much we can anticipate. But as I mentioned, in due time, once the heat of the moment stabilizes, we will be able to address those questions. Okay. Very helpful. If I could ask one more. Just on the cost side, fixed cost absorption across the company falls when volumes fall, but some of these closed mines may be higher cost. Have you any just I know you didn't want to quantify it quite yet, but roughly speaking, what are you able to guide us on directionally for costs? Directionally, you should do the math, assuming that cost dilution will lose those 90,000,000 tons of volumes or slightly less depending on Boucoutou. So there's a clear behavior between the first and second half that will repeat itself because production in the second half is higher than the first half. So you have a proxy for the effect of cost dilution depending on volumes, and you can apply those proxies here. The next question comes from Carlos De Alba, Morgan Stanley. Yes, hello. Good afternoon, everyone. And again, sympathies with the situation that Vale is going through. Luciano, do you have an estimate of the potential impact on force majeure sorry, on the lost volumes where you could not claim force majeure, how much Vale could be facing in terms of you're having to buy outside from what the company produces or compensate customers? And then second question, is there any potential repercussion in other the production of other minerals, either copper in the north in Brazil or even what have you seen in terms of the reaction of other jurisdictions like Canada or Vale New Caledonia? Thank you. Okay. Look, one of the reasons why Vale has volumes in the spot market is because of seasonality of production, right? So you cannot ensure a stable supply of products for customers if you had contracted all of their volumes because they vary across the year. So we did have some spot volumes. And also, especially because of the ramp up of S11B, we were testing with different alternatives, for example, supplying Carazares directly to Chinese pelletizing plants to grind and to use as pellet feed. So we're actually in we were actually in the process of developing new markets for some of our products. That process will be reversed. So we will prioritize attending to the existing contracts. So we don't see any disruption in contracts in force majeure. But in specific cases on pellet contracts, we have yet specific contracts declared force majeure. So so far, we have not the effect of force majeure will be limited to those tariff contracts. In terms of reaction of other jurisdictions, we have not had any regulatory reaction. But just anecdotally, I've been talking to my peers across the industry, and there is a sense across the industry that safety standards will need to be raised everywhere. And even ICMM, which is the body association for the major mining companies, is working on a proposal in this regard. But no reaction specific from regulators or any impact in our operations outside of Brazil. The next question comes from Andreas Bokkenheiser, UBS. Thank you very much. And before I ask my question, Luciano, thank you very much for being available and also to the entire Investor Relations team since January. I know you guys have been working around the clock even doing very, very late night calls and whatnot. So thank you very much for that. Just one question for me. On the lost shipments that you're guiding for this year, do you have any take or pay contracts within that? And if so, how do you expect to kind of meet those obligations? Would that be obligation? Would that be by buying iron ore from other major miners around the world? Or how would that dynamic actually work? The dynamic for freight is similar to the dynamics for commercial contracts. So we do have a significant amount in the spot market because of seasonality. And we believe that spot contracted freight provides the cushion that we need in order to absorb that variation. So yes, we do have take or pay contracts, but we believe we do have the production and the sales and the volumes to be shipped in order to absorb all of that capacity. Where we do face perhaps a challenge is in the railway MRS, which where we do have take or pay. But on the other hand, we do have some flexibility. The contract provides some leeway for reduced volumes, but there might be some impact at MRS. We'll remind you that Vale owns 40% of it. So in some way, part of this impact is within our own turf. The next question comes from Alex Hakim, Citi. Thank you, Luciano, and let me add my condolences. My first question would be again around production. You mentioned earlier some of the constraints around using the flex capacity. Does that imply that in all probability would take Vale probably at least 3 years to get back to sort of a 400,000,000 tonne per year rate? And then the second question would be around dry processing. If you choose to move to dry processing at Bruker 2 or other mines, do you have an estimate of what that would cost in terms of CapEx per ton? Okay. Well, Alex, thanks for the question. It might be too early to assess how long will it take for us to go back to previous guidance. One thing I learned on 11 years within Vale is that the set of assets that we have, they do have a lot of flexibility. Obviously, we've never gone through a situation like this, which impaired the flexibility. But I'm confident that we will be able to find mitigations over time. But again, this is not the priority right now. Conversioning to dry processing is easy. You just don't flow the concentrate through the run of mine through the concentration phases of the mill. We just go through grinding and screening. And obviously, the resulting product has less quality. So that's the reason I pointed in my presentation that because the resulting product will have less quality that it will be required more Carajas in order to blend and guarantee the supply of the Brazilian blend fines. So that's one wildcard as well. Dry processing should not be confused with dry concentration. Dry processing, you change the granularity and the physical properties of the ore. Usually, you get the ore and you mix with other ores and you blend to get to the final quality. Dry concentration is something that has never been achieved on a large scale. And it's our goal with the acquisition of Nu Steel earlier this year. So yes, we will invest more heavily on those technologies to try to achieve light concentration, which increases the grade of the ore. Another alternative, which would certainly be accelerated over time when we were already investing is dry stacking, which means you still continue to use water to increase the grade of the ore. But the paints, they are filtered. And there's the amount of slimes and tailings that are actually deposited on tailings dams is reduced by 75%. And the rest is stacked into waste dumps, for example. So we have investments ongoing. But again, this takes time. And this is not, I would say, significant investments that would change dramatically the size of our capital expenditures. Where probably we would spend more is on the commission, but it will not be accounted for as CapEx. It will be accounted for as a large provision in the Q1 of 'nineteen. The next question comes from Gustavo Allevato, Banco Santander. Hi, Good afternoon. So two questions regarding the investments. So how should we think going forward for like investments regarding safety and other maintenance for Vale, does the company expect an increase in CapEx guidance for not just 2019, but for the next 2 years? And the second question is also regarding investments. How does the accident impact the projects that the company was developing for this year and also for 2020? I'm sorry. I did not understand your second question. If you could repeat, please. Does the accident affect the projects the company has for this year 2020 and to increase production in other sites or not? [SPEAKER CANDIDO BOTELHO BRACHER:] Okay. One thing that needs to be very clear on the first question on CapEx guidance is Vale never did a trade off between safety and CapEx. The amount of money which needs to be spent to ensure the safety of operation is not meaningful compared to the overall CapEx burden of the company. So therefore, there wasn't and there is no reason to make any kind of calculation regarding those safety investments. The to give an example, last year, for example, we approved a few individual investments of $15,000,000 to $20,000,000 just for the removal of pipelines of pavements that will be passing through communities. We don't want to spill in this community. We want to spill in an inhabited area. So let's move it from there. A buttressing of a Penis dam, depending on the size of the dam, could cost perhaps $30,000,000 $40,000,000 for example. So this spread over 2 years. So we never did that kind of calculation. And therefore, safety will continue to be our priority and will not affect CapEx guidance going forward. But for the decommissioning of the dams, which require, yes, more significant interventions. In terms of projects, the main projects that the company is developing is Salobo III, we'll continue Varizis Bay Mine Extension, will continue. And the project in the north, the expansion of S11B to 100,000,000 tons with increased capacity on the railway and the gelato project to recover tailings and to decommission the gelato tailings dam. So this will all continue. We believe all those projects are in the right direction. The next question comes from Tyler Brodhead, RBC. Thank you, Luciano, and thanks very much for the call and some of these from us for you and the tragedy. I have two questions. The first one is just on pellets. I guess, I think from what I understood and apologies if I missed this, but you're able to ship tons down to the pellet plants. Are there any is there any impact to pellet net? And then secondly, could you just walk through the current status of the Asian stockpiles, where they are and how much you need to run down within this guidance? Thank you. Tyler, if I understood, your first question has to do with pellet production. Even if we shift additional pellet feed to feed the pellets, we are going to be short. And our last estimate is that we're going to be short 11,000,000 tons. And as regards stockpiles, we do not disclose this information. We believe this is part of our commercial strategy and hope you understand that. The next question comes from Chris Terry, Deutsche Bank. Hi, team, and thanks for taking my questions. Sympathies with you as well. The first question is just on inventory. You've given the guidance on the sales of 50,000,000 to 75 1,000,000 tonnes off line. We calculate around the 40,000,000 tonne mark has been built over the last 3 years or so, just taking a simple sales and production number. I'm just wondering if you could comment on the ability to use some of that inventory within China and Malaysia, etcetera. The second question is specifically around the 65% and 62% pricing mechanism that you've worked very hard on the 65% blending strategy. Just wondering if you could give an update on whether there's any targeted policies around the 65% material or whether at this stage because you're focusing on safety, the prices of iron ore will be what they will or whether you've got a specific strategy around that sort of $20 margin that I think you'd previously talked about between the $62,000,000 $65,000,000 Thank you. Okay. So the inventories that we have flexibility to use in order to offset production or sales losses, they are located in China, they are located in Malaysia, but they are also located in Brazil at the mines, especially material of lower quality that we can use and ship. And because of being lower quality, it requires more Carajas to fix the quality. In terms of the policy and strategy, the most important goal is to provide the supply of Brazilian blend finds that we are committed to, to our customers. We are committed to the product. We need to position the Brazilian blend finds as a premium product in the 62% segment. The reason why the premium orders with 65% is our flagship. The use of more Carajas in order to fix the quality and to provide the necessary amounts of Brazilian blend fines will somehow affect the supply and demand of the 65%. So as I mentioned, the growth in the supply of, let's say, unblended free 65% is not going to be the same as intended before. The reason why you're seeing now more weakness on the 65% is because of the low steel margins. We have pointed out in a few events before that steel margins and coking coal prices are the main drivers of the price of 65%, and that's exactly what is happening now. February was a month and because the prices have come up very quickly, because of the expectations relating to Brumadinho and because it was still a month of slow economic activity, the market was very slow in terms of trades. One thing for you to have in mind is that the impact of the production loss and the shipments lost at Vale will start to be felt now because of the time it takes for the ships to arrive in Asia. So, so far, the price increases have been driven by expectations. Now the physical consequences will start to reach the market at a moment where we expect that the economic activity will go up. So therefore, we don't have a crystal ball, but one needs to have a lot of potential what will happen in the months of in the second quarter because it could be a completely different dynamics. But still, margins, in any respect, will continue to wait on the 65% premium over the 62% now. Well, I as final remarks, first, I would like to thank all of you that offered your condolences and your sympathies. We're feeling the support of all our partners on a daily basis, and this gives us a lot of strength to move forward. And to move forward means make whole, compensate, alleviate, reduce the suffering, ensure the safety. And if we do that properly, we'll be able we'll have the sympathies and we'll have the support to resume production, to resume generating wealth and to try to establish, as I mentioned in the start, a new meaning, a new purpose for the relationship between Vale and the surrounding communities and states and towns. Our effort will be relentless. We are committed to continue to inform you on a timely basis, and we hope you understand that this is the best path towards restoring Vale to its former position. Thank you very much. That concludes Vale's conference call for today. Thank you very much for your participation. You may now disconnect.