Earnings Call: Q3 2018

Oct 25, 2018

Good morning, ladies and gentlemen. Welcome to Vale's Conference Call to discuss the 3rd Quarter of 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 atvolly.com@theinvestorslink. This conference call and the slide presentation are being transmitted via Internet as well, also through the company's website. 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 are Mr. Fabio Spartzman, President and CEO Mr. Luciano Cieni Piris, CFO Mr. Eduardo Bartolomeo, Executive Director, Base Metals Mr. Luis Eduardo Zorio, Executive Director, Sustainability and Institutional Relations Mr. Alexandre Pereira, Executive Director, Business Support and Mrs. Marina Quintao, Director of People. I would like to inform you that Mr. Peter Poppinga will not join the conference today. Mr. Luis Meriz, Global Director of Sales of Iron Ore and Coal will be available to answer any questions related to the iron ore and coal business. First, Mr. Fabis Wartsman will proceed to the presentation and after that, we will open for questions and answers. It's now my pleasure to turn the call over to Mr. Fabis Varzman. Sir, you may now begin. Thank you. Good morning to all. It's a pleasure to be here and to discuss with you the latest results of Vale. And on top of everything, we think that we are moving forward in the right direction, becoming, as expected, a more predictable company, showing consistent results during time with a meaningful evolution. And it is important to advise that even with the reduction in price of the index of iron ore from the Q3 of last year to the Q3 of this year of 4%, we were able to more than compensate that through our quality premium, actually. This is how the company is dealing with this scenario. And we've been helped by the lower volatility in the iron ore world in comparison to other ores, where the change the volatility is much more meaningful these days. I want to make a quick remark on capital allocation. I think that this is the most significant thing for a company in the mining universe. And because of that, we are taking a very cautious look towards anything that relates to capital allocation. Our primary goal is to distribute dividends and to buy back shares in order to compensate our shareholders. And marginally, we are making investments as the 2 that we have announced today, the Salobo investment and the Jalada investment, both are brownfield investments that they have a very meaningful return on investment. And they basically showcase how we think about investments and how we think that we should handle them from now on. One quick word in our business strategy moving forward. First, I don't know. I don't know if we have a very simple equation in front of us. We are ramping up SLM and D. We are hunting up the 3 privatizers that we have restarted this year. Therefore, our goal is to introduce more high quality ore in the market, a market that is today driven towards higher quality and therefore, the right product for the right market. Meanwhile, it's important for you to understand that we have a clear strategy for base metals as well. Base metals, we as we anticipated since last year, we made on purpose a reduction in production, not reduction in capacity, but in production of around 50,000 tons of nickel per year in 2017, 2018 2019. Therefore, our play in Iqio aims towards 2020, when we will have, at the same time, much higher production. We are aiming to have 310,000 tons of nickel production. And that's just coming back to our capacity in 2020. We are working towards a total restructuring in our business that will reduce in a very meaningful way costs, and this will be present in 2020 as well. And finally, it is expected to see a clear reversion and increase in price of nickel by that time. So while we are going to enjoy the good movement of iron ore, we are preparing ourselves to substitute or to add to it the good performance that these metals will show with a jump in results in 2020. So one quick word about next quarter. Our expectation is to continue to deliver next quarter in a comparable basis. Therefore, with the Q4 of last year, we are expecting a very nice growth in results as it happened in the Q3, driven by the very the recent increase in, I don't know, prices in the market that is passing quite well. Meanwhile, you have all this noise regarding trade wars, but you see that, I don't know, is a physical demand, and it is working accordingly. So this is what this was my introduction, and I now pass to Luciano to complement with some information. Please Luciano. Good morning and good afternoon. I will start by with costs. As you could see, iron ore costs reduced from $14.7 to $12.4 per ton, so we delivered on our promises. We should expect for the Q4 this level to remain. And as you are aware, in the Q1 of next year, due to seasonality and the rainy season in Brazil, likely volumes are going to be lower and costs should slightly creep up. In terms of base metals, I want to point out that not only we had higher unit costs because of lower dilution, because of lower volumes, but also there was extra spending in the maintenance shutdown for Ontario. So therefore, more spending over less volumes and not only less volumes. In terms of coal costs, although you saw improvement in volumes, the costs did not come down accordingly. And the reason for that is because we are moving a lot of material in the mine as part of the debottlenecking process. So there's a lot of overburden being moved. This should continue for the next three quarters, and we expect a meaningful uptick in product volumes in the second half of twenty nineteen. Actually, probably we're going to be running close to 17,000,000 tons of capacity on the second half Average for the year, the total for the year will be lower, but the rate of production in the second half will be very meaningful for coal in 2019. Now moving on to the projects. Some color on gelado. The investment of $428,000,000 will be roughly half financed by the savings on replacement of equipment in Carajas because the remaining mining operations of Carajas will be reduced. And in addition to that, because it operates without trucks and zero transportation distance, the operating costs, the C1 cash costs on El Dorado will be $3.5 lower than the operating cost of the Carajas mine, which are already amongst the lowest within value. So very accretive project. In terms of Salobo III, the expectation is to receive the bonus from Wheaton in 2023. The risk associated is very low given that the production targets that we need to achieve. We're very confident. It's a sister plant of the 2 that we have already there, very detailed engineering in place. We see very low risks of achieving the bonus. And even if there is a slippage in terms of ramp up, the sensitivity of the size of the bonus received is very low related to the timing of the ramp up. We're talking about tens of 1,000,000 of dollars. So therefore, it's a given that we are going to get a substantial amount of money in 2023. Capital expenditures also hit a low in the quarter. That's a consequence of finishing some important projects like the emissions reduction project in Canada and the beginning of other important projects such as the Via Emilia and gelato and also on the comprehensive review during the year, aiming at optimization, capital allocation, also in sustaining investments. So you should expect capital expenditures to go up in the Q4 to more normalized levels. Finally, looking into balance sheet and capital allocation, you saw the aiming at a more simplified company and bringing in proceeds. Aiming at a more simplified company and bringing in proceeds. We also performed, I would say, quite well on our share buyback. We have almost 50% of it completed in the 3rd quarter alone at an attractive price of $13.27 So we were very opportunistic, riding the volatility in external and internal markets. And finally, We are very close to our net debt target. We reduced overall indebtedness by $800,000,000 But if you look at debt maturing until 2021, the reduction was even greater, about $1,300,000,000 So we continue also to optimize the overall profile of debt. Having said that, we can jump straight to Q and A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from Carlos De Alba with Morgan Stanley. Hi, good morning or good afternoon. So my first question maybe for Fabio Luciano. How do you decide between paying dividends or buying back shares? Is there a particular inclination? What should we expect going forward? What are the parameters that we would need to consider in order to understand your rationale? And then second, if I understood correctly, Fabio, you basically suggested that this year the story has been about iron ore and high quality premium or high premiums for high quality material. And then in 2020, the story will be base metal. How you see next year? What is going to drive the company's performance in 2019? Thank you. Carlos, thank you for your questions. 1st, the discussion between dividends and buyback is basically opportunistic. It's a decision that we will make every time that we have a decision on this. And last time, we made the decision to invest in buyback instead of more dividends. First, because we had just created that policy, and we were pleased to pay dividends according to the policy, not in a different level in order not to confuse the market. 2nd, we thought that the opportunity for buying back was a good one. And it seems that we were right because we bought back shares around $13 and the value of the shares today are around $15 Therefore, the return on investment here was quite fast actually. And this is a good thing. That's it reinforces that we made the right decision to move in this direction. So it will depend on circumstance. It will depend, say, how it's going to be the environment in the fiscal area that impact or not dividends. This decision will be affected by a number of things that will be evaluated at any given moment. Secondly, about 2019. 2019 will be similar to 2018, but better. That means that we will have more of the same in iron ore. We are going to have more high quality ore coming on stream, more pellets coming on stream. Therefore, our average price should be higher than this year. On top of that, in base metals, our cost reduction is in process. So we can we are going to see some initial results coming out of it. But base metals is a story basically for 2020, where we are really expecting a big jump in performance that will achieve the goal that we have for, say, 30% of our results coming from the base metals. Thank you. The next question comes from Andreas Bokkenhauser with UBS. Yes, thank you very much for taking my question and thank you very much for doing today's Q and A session as well. It's been reported that obviously you're considering investing a bit more in S11B, but obviously you don't want to bring more iron ore volumes to the market, so effectively displacing some of the volumes in the Southern system. Can you talk a little bit more about your plans there if that is back what you're considering? What are you thinking in terms of time line? What are you thinking in terms of CapEx? What's required in terms of infrastructure and licenses and so on? Thank you very much. Andres, thank you for your question. You're right. We are studying to extract a little more from S-elevenb with marginal investments. We are actually in this phase. So our information is not sound at this point. That's the reason why we are not sharing the precise information. But I think that we stand to have a chance to deliver that by a valid date moment when we should have terminated all these analysis, and we will have all the information regarding this. And it will be developed in a very short period of time. Understood. If I may then instead answer or ask another follow-up question, more on the freight side of things. In the last couple of quarters, you've obviously mentioned that you are in negotiation with some of your ship vessel providers ahead of the whole new IMO regulation that's coming online in 2020, effectively trying to convince them to invest in more environmentally friendly equipment, scrubbers for the ships and so on and so forth. Do you have any update there? How are these negotiations doing? And how do you think you could be affected by the new IMO regulation? Thank you very much. Look, just correct a little bit. We are not convincing them. Actually, we will be paying for the equipment that is going to be installed in all the ships for this purpose. So as we are paying, it means that we are getting a lot of traction here. And we can say at this point that we have most of our fleet converted already for the scrubbers. That means that we are poised to actually benefit from the reduction in the cost of the bunker that is more exactly as we mentioned in the last calls over here. That's very clear. Thank you very much. Our next question comes from John Brandt with HSBC. Hi, good morning, good afternoon. Congratulations on the very strong results. I first wanted to ask you about, I guess, your shares. Firstly, on the share buyback. So you said you did about 50% and I can see that there's still sitting thin treasury shares. Are there any plans to actually cancel those or should we expect to see them as treasury shares going forward? And related to that, I see that BNDX has been selling down part of their stake. I know it's not really your decision, but I was wondering if there's any update, if you have any update as to whether or not the controlling shareholders might be looking to sell down? And then I guess my second question was related to the iron ore price and the premiums. So you said about 79% of your volumes that were sold were premium products. But my understanding is you're not actually getting a premium price for all of those products because of contracts. So I'm wondering if you can sort of shed some light on how much of your volumes are being sold on contracts. I'm really trying to get a sense of if iron ore prices stay the same because of the mix shift going from contracts to using the new metal bulletin benchmark that you've created, how that will impact premiums? How much higher they can go? Thank you. Okay. Let's start with the share buyback. If I understood properly, you want to know if we are going to continue to buy back in the same speed that we've done so far. Was that your question? No. I guess I was wondering if you were going to cancel the shares that you've bought back or they would pay on your balance. The idea will be to eventually cancel that. We have no other plans for the shares other than canceling that. Regarding the MDS and the company's shareholders, the only thing that I know is what I hear from them. And what I hear from them, especially from pension funds, is that they are not willing to sell in the short term. So I have no idea if on the other hand, the MDS is aiming to sell or not to sell. It's something that, unfortunately, I don't have the information. Now regarding IRR prices, I will pass to Luis Meriz to give you more color in this issue of contracts that you asked. Alex, thank you for your question. Basically, the premium we are capturing rise from 3 major families of products, let's say, right? You can say that the pellets, which have their prices discussed on a yearly basis, the Carajas, which is already fully indexed to the index, which represents pretty much the value of the Carajas. And the third part of that will be related to the blend, which is lower aluminum price, right? The majority of this blend is sold on a yearly basis. So we expect that as from the next quarter, we already will be in a position to capture the value that the market is recognizing on lower alumina quality under our products. Is that clarifies your question? Yes. Thank you very much. The next question comes from Alex Hacking with Citi. Yes, thanks for the questions. On the first question, I just wanted to follow-up the previous answer. Is the goal to sell 100% of Brazil blend finds linked to the low alumina index next year? And then I guess second question just on Moa cheese. As the mine ramps up, what's going to happen to the mix of met coal and thermal coal? Because obviously, I think there's been a bit more thermal coal in the mix than what was originally anticipated. I'm just trying to figure out like steady state once the mine's at full capacity, what does it look like? Alex, thank you. On the first query related to the goal, I mean, contracts have a different duration. I mean, majority of those contracts are done on a yearly basis, as I just mentioned. So on those ones, this will be implemented in a faster way. For some others, you may have a small part of that, which will be slightly longer, and then it will take a few more time to happen. As I mentioned, it's happening. Yes. In general, the market recognizes that the alumina is a natural movement in terms of pricing. We have a specific index now which has been published to which represents the low alumina on our center feeds And this is the most fair way to assess the value of this product. Alex, in terms of Muartis, the mix, we have several different pits and sections on the mine. The current sections we are mining, you're correct. So it has a slightly lower proportion of net coal. The new sessions, which we are going to be opening as of now and next year are much richer. So therefore, the situation in 2019 will be similar in terms of for volumes will improve strongly in the second half, as I pointed out, but the mix will continue to be similar. In 2020, the mix improved a little further. And in 2021, it improves dramatically. So the profitability of Moatiz will increase over time, but gets a big, big jump from 2020 to 2021. Thank you. The next question My first question is on the pellets. Could you give us an idea of what is the breakdown between pellets? Or how much of your pellets do you send to China these days compared to what I guess you send more to Europe? And linking to the contract question earlier, do you have some contracts on pellets which are maybe 6 months free on the European destinations? Yes, Christian. Thank you for your question. Well, China is not traditionally a big consumer market for our pellets. I would say that the majority will stay in Europe and Brazil. That basically is, I would say, about eventually less than 10% of our volumes are directed to China. Our full production is committed in the long term contracts. That's the scenario. Right. And the proportion going to China is increasing, right? Not necessarily, right? We are increasing this year, eventually, you might see a small amount going heading to China as the production increases. But there had to be eventually spot sales, right? The majority of the volume is in long term contracts, which are of which China is a relatively small part of that. And then my second question on what is, so we're looking at 17,000,000 tons in 2020. I mean, what is the target for 2019? I mean, are we going to be flat versus 2018 and gradually going on to 2020 at 17,000,000 tonnes? Or is it just linear? We'll override the full guidance by validate. So I just wanted to give you directionally where we're heading. So we should be at a rate of 17,000,000 tons for the second half, but we're still sorting out the details. So we'll give you precise guidance for the full year 2019 at Vale Day. Okay. And very last thing, VNC was back in losses. Davis in New Caledonia, Is that a disappointment to you? Or is it part of the plan that you currently have? Look, we never hide the fact that VLCC is a very difficult operation that Vale has. And we have the new management of these metals very focused on changing that for better. So we are now in this process. We want to reach a decision of what is that we are going to do with VNC shortly. And as soon as we have this decision, we are going to share with the market. Okay. Thank you very much. The next question comes from Grant Spohr with Macquarie. Good afternoon, gentlemen. Thank you for hosting the call. My first question is just a little bit more on B&C if you're able to share anything. The question really is around it would seem to me it's more of a revenue problem than actually a cost problem at B&C in terms of some of the realizations you might be getting from the intermediate products. So I don't know if you could share any details on that. That would be my first question. And then the second one is back on Maurices. You gave some guidance at Vale Day 18 in terms of how the costs would evolve. Is that still your current thinking as to how those costs would evolve over time? Thank you. Hi. Regarding VNC, VNC is not only an issue of price. It's an issue of cost as well, and it is an issue of capacity. We are operating at low capacity utilization at this point, and we are focused in increasing that. If we can increase that, we are going to save 1,000 of dollars per ton that will be as important as a price increase. So there is there are 2 issues. The future prices, obviously, eventually can help. But we are not counting on prices. We are looking if we are able to be in a position to produce a lot more from the same equipment that we have there. Regarding Moatiz? On Moatiz, we have no change to the cost guidance that we provided at Vale Day. And just reminding everyone of you, we look forward in the longer term to have a total cost structure at Noatiz at around $80 per ton cost at port, which means $60 per ton of operating costs plus $20 per ton of an additional tariff required to service the project finance. So very competitive. Obviously, it will take a few years to get there. The next question comes from Tyler Brodaw with RBC. Great. Thank you and thanks very much for the call. Excellent performance on the quarter. I just wanted to say, I just want to ask, on Salobo, the 3rd concentrator coming in, is that going to be the same size and design as the previous 2 concentrators? Or is there any changes or we should be looking for in terms of any specifics on what that might change in terms of the cost profile? And then secondly on that, just if you could just provide a bit more clarity exactly on what needs to happen before the Wheaton money comes through? And then just secondly, on Samarco, the pellet market is still quite strong. I just guess if you could give an update on where things are there at the moment. Thank you. Okay, Tyler. On Salobo, the it's this expansion is exactly equal. It's a sister plant than Salobo 12. So in theory, it should add 50% of capacity. But the reason why Salobo doesn't go from 200,000 to 300,000 is because copper grades, they decline over time. So therefore, the peak production will be actually to 68. So when you think longer term, there is then a trend for Salobo costs to come slowly up, although from a very low level. You all know that we have costs there close or below $1,000 per ton. But on the other hand, on the 1st few years of the startup of Salobo III, I think there's a counter effect that keeps costs at the same level, which is the fact that there's an already mined stockpile of ore very close to where the new crusher will be for treating for Salobo III. So transportation distances will be 0, mining costs will be 0. So expect soluble costs to be stable at least over the next 5 years. Well, regarding San Marco, this year year was a year of important achievements in Samarco. First, we had an agreement with all the parties involved, especially the prosecutors. That was a very complicated thing to get. And this was the most important step forward because it's taking out the uncertainty of which will be the impact of the liabilities that we had because of the accident that Samarco had because of the accident. The second good news is that very recently, we decide to start the construction of the tail dam that will support the restart of the operation. It's called Alegria Su, where we are not only we decide to start, but we got the licenses to build it. And we are under construction right now. That means that by the end of 2019, we will have everything in place to ask for the license for restarting operation. Therefore, if we are able to get these licenses, we will be we will have everything ready for restarting the operation by the beginning of 2020. Our next question comes from John Tumazos with John Tumazos Very Independent Research. Thank you very much. Two questions. Should we expect another cobalt stream in New Caledonia to finance the next tailings project there? 2nd, I was rereading my notes from the October 2011 Mozambique valet tour And the guidance was 77% met coal trending to 22,000,000 tons future fully developed. There was emphasis on the Chebanga seam 25 meters thick, but the other seams were 17 or 10 meters or smaller and variable. Is there a difference where when you open up and get into the mine, it just isn't as good as when promised? John, this is Fabio. Let me start to speak on stream. And then I will gladly pass on Luciano because I was not there. And so I have no idea what was promised back then. I will send you my notes, Fabio. I already started to write you a letter. Thank you. Regarding Cobalt Stream, I would like you to understand that in our point of view, it's a totally different story, a COVID Stream in Voices Day from 1 in VMC. The reason is a very simple one. Invoice is we didn't have the cobalt. So we cobalt was totally dependent upon opening the mine. If we didn't open the mine, no cobalt would be available. Therefore, we sold something that we didn't have in order to make the buying feasible. That was the purpose. VMC is a totally different story. We already have the cobalt in our stream of revenues, and the cobalt is there. So this the impact of streaming in Nova Caledonia will be neutral. So the benefit that we had in the case of Valdez Bay would not be present in the case of E and C. I hope it answers your question. Thank you. So John, on Moativ, starting by the production volumes. So the 22,000,000 tons encompass 18,000,000 tons through the Nacala quarter, plus 4,000,000 tons through the beta quarter. So as you know, we seized operations in the beta quarter. So we would theoretically be limited to 2018. However, we're going to go to 20 based on the bottlenecking of the logistics corridor. So what's going to limit the capacity currently is the logistics. In terms of the split, the 77 percent will not be achieved over life of mine. Now we know more about the ore body, and it will probably peak once we go to the new sections that I mentioned, Section 5 and Section 6, at 65% from today's like about 55%. Shipanga will not be as meaningful as it was before. So the quantity of Chipanga is reducing. However, the other seams of coal that we are mining, they have also very good quality. They have strange names like soza pintu and low vol, whatever, but they are achieving very good price realization. So the fact that Chipotle is decreasing should not be a concern in that respect. The next question comes from Alfonso Salazar with Scotiabank. Hello, Mr. Salazar, your line is open. Sorry. Good morning. I have questions. The first one is regarding the payment that you will get from Vuitton once Aloha 3 is up and running. If you can provide more details or anything else that you can share about this? The second is regarding the premium that you get for the quality per premium in iron ore. How do you see that in the long term? And what risk you see, especially in the supply side, if you think that outside Australia, there could be more supply of high quality ores that will compete with Vale's? And how but how do you expect that to evolve as China uses more scrap in again in the longer term? Thank you. Okay. On Salobo III, the bonus is a function of 3 variables. The first one is the timing of the completion in Gran Palpa Salobo III. So the guidance we gave you from 600 to 700 assumes that we achieve those milestones in 2023, although the start up of the project is scheduled for 2021. So however so therefore, we have a full year to achieve the production targets. And as I indicated, because it's a sister plant of the 2, which are already operating, that should not be difficult. So timing is one variable. The second variable is capacity. Again, shouldn't be an issue because we've been running sister plants for a while now. And the third variable is ore grades, which as much as we continue to mine and to know Salobo, there is no surprise that we expect it's been these ore grades have been behaving according to the mine plans. So level of risk for the receiving that bonus is very small. Regarding quality premium in the iron ore universe. Well, we certainly think that is a structural thing, therefore, permanent. And there is a fact that I would like to emphasize that helps understanding what's going on in the market these days. If you notice in the last few days, the index, Platts, went up in a very important manner. We are now in the neighborhood of $7.6 per tonne. That was not achieved for a long period of time. That was a combination of 2 things: a strong demand in China, especially because of the latest stimulus that the government is making to speed up the economy a little bit. But more importantly, our competitors made the right decision of changing the quality of the product that they are offering to the market. It always come with a consequence. It means that certainly, there are more costs associated with this decision. But the truth is that now there is more high quality blended ore coming to the market through the index. And accordingly, the index is moving forward and is the best showcase that we can have that this trend is so real and so important that everybody is now having to adapt to it. Either people are offering more quality products if they have them or they are cutting production accordingly because the market is punishing very much the low quality. So it is implied in this comment that we are quite comfortable that this will continue like that. And we don't see anything meaningful coming in the next few years as further supply. And all the initiatives that eventually you heard of are very complicated, very high CapEx, very high OpEx. And there is a clear doubt if these projects will be developed or not. This is the situation as we see today. Excellent. Very good color. Thank you. The next question comes from Mr. Alex Hacking with Citi. Hi. Yes, thanks for the follow-up. I just wanted to follow-up on the nickel volumes. You mentioned that those would be back to 310,000 tons by 2020, if I heard correctly in the prepared remarks. Could you maybe disclose where that additional sort of 50,000 tons of which mines that additional 50,000 tons of nickel is planned to come from? Because if I remember correct, the Voisez Bay underground doesn't start until 2021. So maybe just some color there would be helpful. Thank you. Okay, Alex. Just to clarify that, the 210 is our capacity stalled. So it will be around 21 or 22. Where it comes from is the mines, of course, they have to be sustained on the level and we gave a good example of Boise Bay. So Long Harbour, for instance, we have spare capacity of 10,000 tons there. We still have capacity in Sudbury of over 15,000 as well. We have Clear Lake as we have capacity. And as Fabio mentioned, we have a huge increase in capacity in New Caledonia for nothing, just for better management and a small debottleneck that we have to do there. So there are a lot of capacity on our industrial plants to get to that. So the path to get to 310 will be guided by the market, by the way. So as we expect, the crossing of the curve is 2020. But I will say this guidance, we need more clarity on the Vale Day, by the way. It's just a direction, okay? Just to bear in mind that we are able to produce the minor investment just to get it very transparent is like the second first in Onsopono, but that's very marginal. But that gets a lot of volume as well. But anyway, the direction is 3,310 is in our plans. Going to be achieved as market evolves very, very cautiously. And as we mentioned before, with a better cost structure because we're going to keep our actually, we're going to reduce our fixed base to run that whole operation. I hope it clarified you. Thank you. Very clear. The next question comes from Thiago Lofiego with Bradesco BBI. Thank you. Fabio, I have one follow-up question. Could you give us an update on the railroad concessions renewals in Carajas and Vitoraminas? What's the timing expected for those renewals? And what is the potential CapEx linked to those? Thank you. I will start, and then I'll let my colleagues here to complement that. But the state of the art here is very advanced. We are in the agency right now. We are just waiting for a final decision of the agency. I think that by cautious reasons, the agency is waiting for the change of the elections, the change of the President in order to move forward with this. But this will be a low hanging fruit waiting for a new President to catch. So I'm pretty optimistic that as soon as he starts in the office, he will be allowing this process to move forward. We have everything in place to deliver this as soon as the executive Brazilian executive power decides so. Regarding the investment, I don't the numbers and how they are going to be. Well, I think it's quite soon to say a number because in the agencies, as Mr. Schwartzman said, we are going through a very technical analysis. It's not final yet. And after that, it's going to go to the Union Court for the final analysis and then back to the government for final decision and then the renewal of the contract. So up to now, I would say that it would be early to call a final number because we are going through a technical methodology that is about to be concluded by the agents. Only to complement that. If you take, for instance, the CECO railroad that is selected by the government to become the counterpart for the concession. This will be built by Vale once the renewal of the concession is approved, but it will take several years to build it. Therefore, the investor, no matter how much it's going to be, it will be spread among many years. And just Luciano complementing. This is a general cargo railway, which by nature costs much less than a heavy haul railway like an iron ore railway. So if you take the numbers from the iron ore industry, they are not a benchmark for this railway. The next question comes from Marcos Asuncion with Itau BBA. Hi, good morning everyone. First question on production and sales volumes on iron ore. In the 1st 9 months the year, Vale sold 95% of its production volumes, basically to support the strategy of increasing blending volumes. How should we expect that ratio to behave in 2019? And the second question, if could comment a bit or give us an update on the pellet premium negotiations for next year as well, at least how the market is so far supply demand is behaving in the trend that you see for pellet premiums for next year? Thank you. Thank you, Markus, for your question. Regarding the 95% or so of last year, Most likely, we will have the same situation this year in 2019. And the reason for that is because we are using our flexibility. And as we today, we are in a different position from other companies as we have a lot of inventories sitting in China. We can speed up sales or slow down sales according to the behavior of the market. Naturally, the market slows down by the end of the year. So naturally, we are going to most likely hold a little bit of sales for next year. And this explains the level of sales in proportion to production that we had in the Q1. Besides that, we are coming to a more closer comparison between what is produced and sale every quarter as we now we are coming to the end of the building of inventories in China. Yes, Marcos. Regarding the pellets, we basically are starting our negotiation season, right? I mean, the market balance would showing a increase on price, but we rather not be much more specific than that due to the sensitivity of the negotiation moment that we are now. Well, the truth of the fact is that we are completely oversold and consequently and the demand is higher than our capacity. So the natural consequence that there will be some price adjustments because of these unbalanced situation that I just explained. Perfect. Thank you very much. This concludes today's question and answer session. Mr. Fabis Warsman, at this time, you may proceed with your closing statement, sir. Very good. Again, as always, it was a pleasure to have you all in this call. Very well detailed questions that were presented. And we are very pleased to tell you that Vale is moving forward in every aspect that we were looking for. So it seems that we are poised to have another good quarter in front of us. And I hope to have you all in the next call by the beginning of next year. Thank you so much, and have a good day. Bye bye.