Earnings Call: Q3 2020

Oct 29, 2020

Ladies and gentlemen, welcome to Vale's conference call to discuss 3Q20 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 atvali.com@theinvestorslink. This conference call is accompanied by a slide presentation also available at the investor's link at the company's website and it's transmitted via Internet as well. The broadcasting via Internet, both the audio and the slide changes, has a few seconds 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 are Mr. Eduardo De Salis, Bartolomeo, Chief Executive Officer Mr. Luciano Cianipires, CFO Mr. Marcello Spinelli, Executive Officer for Ferrous Minerals Mr. Mark Travers, Executive Officer for Base Metals Mr. Carlos Medeiros, Safety and Operational Excellence Executive Officer Mr. Luis Eduardo Zorio, Executive Officer for Sustainability and Institutional Relations Mr. Alexandre Pereira, Executive Officer for Global Business Support Mr. Paulo Colto, Director of Coalau Mr. Alexandre D'Ambrosio, General Counsel and Mrs. Marina Cantal, Director of People. First, Mr. Eduardo Bartolomeo will proceed to the presentation on Vale's 3Q20 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. Okay. Thank you. Good morning, everyone. First of all, I hope everybody is safe and sound. Well, it's been more than 7 months since we've started managing Vale in a remote way. And one thing has not changed, the safety of our employees come first. Value continued to face the COVID-nineteen pandemic with discipline and sense of urgency. We maintained our guards very high, and our priorities remain intact: safety, people and the reparation of Rumadin. We have been learning a lot since Rumadin and transforming our culture and practices for a better value. With that in mind, I'm pleased to share that our process and results continue to improve, together with our de risking process. Please, next one. Starting with the reparation. Our commitment to Brumadinho remains steady. We already disimbursed $2,600,000,000 on the reparation. The indemnification process continues with about 8,200 people covered by agreements for moral and material damage, 600 people more since our last call. The works for infrastructure and environmental recovery are progressing as well. We completed the water main at Parade Minas to ensure the supply of water to a city with a population close to 100,000 people. As well, we have concluded the tailing containment structures at the Parauteba River. Since May, the river has no longer received sediments. And most importantly, we continue open for dialogue and to active listening throughout the reparation process. This quarter, we delivered the integral reparation plan for Brumadinho, which was built on the community's perspective and submitted in September to the municipality. We are certain that with this, we have a solid plan in our hands to repair the damage and support the development of Brumadin. Finally, we are having encouraging conversations with the state of Minas Gerais and other stakeholders to get a framework agreement for collective damage indemnification and compensation for the society and the environment. With that, we continue to pursue our goal of reaching a stable agreement for reparation and compensation. Please, next one. As well, we continue to enhance our safety and dam management. The engineer record is already implemented for 100% of our dams in the iron ore business with an improved continuous monitoring. In risk management, our risk identification program, HIT UP, continues now including our dams. 59 operational units were assessed since 2019, 42 in 2020 and other 12 sites will be assessed until the end of this year. This program is being applied to our dams as well, with pilots underway in Sudbury and Long Harbour. The heater will be fully implemented by 2022 in Vale. Finally, our new tailing management system is under implementation, and we are doing that by also complying with the ICMM standard launched in August. Our initial assessment indicates close to 60% of adherence to the ICMM recommendations. We want to be fully compliant by 2020. So our ambition is clear: to be world class and have effective standards and process in place with a safety driven culture. I can assure you that Vale is on a journey to become a safer and more reliable company. Next slide, please. Brumadinho required us to become better listeners. We are listening to the communities and society and building a strong and consistent relationship with all of our stakeholders. Based on their demands, we have mapped 52 ESG gaps, which have already closed 31 of them. In 2020, we already addressed 5 gaps, and 5 more must be closed by the end of this year. Our ambition is to transform Vale into a benchmark in ESG practice. In this agenda, another important subject is the protection of the Amazon. Let me reinforce this. We have been operating in the Amazon for more than 30 years. During this time, we have helped to protect close to 800,000 hectares of rainforest, 5x the size of Greater London. In fact, we already protect about 1,000,000 hectares of forest globally. With those actions, I believe that we will contribute for sustainable mining and act accordingly with our new Pacto Society. Next one, please. Well, talking about the operational performance of our business, we continued with our plan to stabilize our production, a path that was detailed in great length during our Investor Tour in September. And I'm glad to share that the iron ore production results for this quarter was very strong, an increase of 21,000,000 tons versus the Q2, a 31% growth. We had an all time production record in Carajas. That indicates that we are making progress with our plans for production stability and the initiatives for operational Spinelli will come shortly to explain the dynamics between production and sales for the quarter. In base metals, as anticipated last quarter, some maintenance postponement was strategic before the pandemic. We have normalized that routine and expect better results for the Q4. In relation to VAC, we are taking steps to place it in care and maintenance in 2021. We also have a new group of potential investors interested in the asset. However, all possible solutions contemplate Vale's exit. In coal, this was also another quarter, highly impacted by weak demand, which continued to wait on our production. But on a positive note, we expect to finally start the plant revamp in the coming week. After that, we should reach a run rate of 50,000,000 tons per year. Next one, please. Besides that, we are focused on recovering our production, but we are also taking important actions to make our production capacity more flexible. The launching of Serra Su 120 project in Carajas is one of them. Besides creating an important buffer of production capacity, ensuring operational flexibility, we allow growth of 20,000,000 tons in the longer term with the dual logistics. Also, we launched Project West 3 to explain the Xuelaju port capacity in 20,000,000 tons per year, bringing it to a total capacity of 40,000,000 tons, securing strategic port capacity for Vale's BRBF in China. In summary, we are taking the necessary actions to ensure the stability we need to operate with efficiency and the growth options required by the market. Please, next one. Well, to finalize, we are de risking value to build a better value. Let me walk you through the most important steps on this journey. First, we are repairing Brumadinho in a fast way and with quality, listening and engaging with the families and community. 2nd, we are becoming a safer company. With discipline, we continue to make solid progress with our tailing management system and our operational safety process as well. 3rd, we are resuming production under safer conditions. I'm sure that we will achieve the 400,000,000 tonne run rate during 2022. We have a clear understanding of what we must do, and we are fully capable of delivering it. And finally, we are building the conditions for a long term stable business, keeping focus on capital discipline. With that in mind, we resumed our dividend policy and paid a solid dividend last September. Well, to conclude, we intend to continue creating and sharing value for all stakeholders. But most importantly, I assure you that we are doing everything we can to guarantee the safety of our employees in our operations and in our communities. Now I'll pass to Marcelo Spinelli, who will give some details about our results in iron ore. Thank you very much for your attention, and we'll get back at the Q and A. Thank you, Eduardo. I'll have some information to share about iron ore production and sales. I think you have a lot of questions about sales. So let's start with the production. So, can pass please the slide. Some weeks ago, we had a chance to detail, as Eduardo said, the roadmap to reach rate of 100,000,000 tons in 2022. So today, I think we have a checklist transparent checklist. We can have some deviation quarter by quarter. But definitely now we can follow together the evolution of the recovery of production. So in Q3, first information, as Varus said, huge production in the north, 57,000,000 tons record on track with production also all the projects around the North. And in the South and the Southeast, so far so good, on track projects, production and the initiative with the dams. For Q4, we are we've been running rate this running the production around 1,000,000 tons a day. It's a good news, so far so good. Our target, we are in the lower level of the guidance around 310,000,000 tons. It's very important to say that at this time of the year, we don't have any more capacity to offset some deviations if you face some problem. So we must deliver exactly what we have in our plan and what kind of risk you have ahead. So I can say 2, first one is related to the license of East Range. We're still waiting for the license. We are in the last mile of that. No more information to the regulators, but we need to receive this to start this operation is we are waiting for that. And we also we've been very hearing about the rumor of La Nina effect. La Nina effect in Brazil, just to understand, comes with more rainfalls in the north. We can anticipate this process in the north. And we have a dry season in the very south of Brazil without so many impacting our operations. So we have to track this trend day by day. I'll let you know if you have any change in our guidance. So let's focus on the sales now. I think it's the most important information to the end of the year. You can pass the slide, please. Well, I have a rationale here to share with you in 3 steps. So I'll start with the number 1. You know that we've been growing our production, our blending process in China. It's a very successful strategy, very over volume, bring the high silica product from the south of Brazil. Today, we have a discount of $30 for that and we mix with the IOCJ, carrageousides. You can see the growth in this slide for 94 to 145. So we have a stable product, growing the market, our clients are very well satisfied. The same information here is about our exposure to China. We are China in our sales are now reaching almost 70% of our sales. Why? This is due to COVID. Following that China is in a V shape, the rest of the world are struggling to recover the production and demand. So what does it mean? We have 4 to 5 days of transit time, just transit time, the shipping part. And after that, we have the discharge, the blending time and also the retrieval of Europe. And remember that the last quarter, China suffered with a lot of delays in the chart time with the congestion in the port. So the lead time to close the sales is not the same as you have in a FOB or a CFR, traditional CFR. When you are more exposed to China, you're selling more BRDF. We had some questions about this in the last call. And it's very important to understand the difference between shipping, the FOB sales, the CFR sales and the blending sales in China because we sometimes in FOB, you can find price and the time you sell. But when you have the CFR, you can sell during the shipping, but the price will be only when the product arrive in the client and also the BRBF will spend more time to blend, to have the product to blend. Another information here to understand the whole picture, we have the inventories. Note that in the last year after Bruma Giro, we have to reduce our inventories to keep the supply chain of our clients. So we reached the minimum level in the end of last year. So this part, the last quarter, we have the first chance to have a gap in our production, to increase our production. And we need to have this time to put this product in China. So we are not talking about stake relating inventors that heard about some ideas about this. This is about operational ventures. We need this to make it happen and we are more focused on China. The 2 main information here that I want to say to you for Q4. First information, we have we don't have any intention. We don't have any planning the gap of inventories or capital production, Q4 and our forecast for Q4 in our production. So we don't see any necessity to have another kind of gap like we had in this quarter. The second information, we don't see many deviations between the Q4 sales and the Q4 production Q3 production. So as we are moving our inventories to part most in Asia, mostly in China, we have probably numbers closed sales and inventories as we are just moving this inventory to the sales after a lot of time that we need. So if you have further questions, I can help you in the Q and A session. Now I pass to Luciano Lucia. Okay. A few selective remarks here, starting on iron ore. In the cost side, you saw we reduced costs from $17.2 to $14.9 per tonne. We have guided for $14.5 for the second half. We will not achieve that, and the reason is because of the price increase on the 3rd party ore that we purchased. Although the volume is small, we have a C1 for 3rd party purchases of around $50 per tonne and the $25 increase in the 62% index impacted those purchases. To the point that we decided to include information in our release about what the C1 for Vale looks like without those 3rd party purchases. And we have $12.5 per tonne for the quarter. We also showed the numbers for past quarters. And that's the best measure of Vale's competitiveness because it shows how the operations are performing, not the ore that we purchased from 3rd parties. So something for you to track going forward. If we didn't have that price increase, we would have gotten to our 14.5% guidance, but we're not going to, for a good reason, price increase. Q4 costs tend to trend down because we had some maintenance, especially in July in the Northern system that we will not repeat this Q4. And that's all in assuming stable exchange rates, right, because they've been fluctuating a lot. So and they are a tailwind for us. For 'twenty one, costs tend to stay flat compared to 'twenty. Counterintuitive, but the reason is although costs will be diluted by bringing more volumes, The volumes will come from the less competitive operations in the South and in the Southeast. So the mix effect will offset the cost dilution effect. My remark on base metals goes to copper, all time record for copper EBITDA And also on the byproduct revenues, just a reminder for you, in 'nineteen, we have collected US1.25 billion dollars on byproducts other than nickel and copper. I'm talking about gold, palladium, platinum, cobalt and rhodium. And that amount will increase this year to approximately US1.4 billion dollars So something to track because these byproducts, especially palladium, had been they have been increasing in price, and there's a US150 million dollars boost in our EBITDA compared to last year just for better byproduct prices. And finally, the Q4 will be strong because we don't have any planned maintenance in our nickel operations, and we're going to have Onsapuma back on full steam. And depending on prices, we expect Onsapuma to start generating between $40,000,000 to $50,000,000 every quarter in EBITDA. Going through the P and L, you saw financial expenditures, some one offs. These were fundamentally why we missed the consensus on earnings per share. We had a US550 $1,000,000 expense on the debentures, the participation debentures. These debentures, they were issued at the privatization of Vale more than 20 years ago, and they work like a royalty and they, therefore on iron ore sales, and they, therefore, are mark to market. Every time iron ore prices go up, they are mark to market. This is not a cash expense, and they flow through our balance sheet. And the news here is that the most important holders of these debentures are the National Treasury and the Brazilian Development Bank. They announced the intention to sell those debentures. That poses an opportunity to Vale because those debentures are a royalty or a leakage to our shareholders. This year alone, we're paying $200,000,000 on those on those royalties. So we have the fiduciary duty to work to look at this opportunity. And eventually, Vale, if we decide to repurchase those debentures, that would entail a tender offer for repurchase, and that would happen in the Q1 of 'twenty one, something that we are analyzing. We had also increases in the value of guarantees provided by Vale to some of its affiliate companies. That relates to the depreciation of the Brazilian real, all those indebtedness are in U. S. Dollars. So therefore, the increase in value when translated to Brazilian reals, and this flows through the balance sheet to the P and L. Other important thing, we updated the guidance for capital expenditures for this year. We have guided on validate USD5 1,000,000,000 for this year. The exchange rate depreciation would bring that number down to USD4.5 billion. But with COVID delays, we're now into USD4.2 billion territory. And those COVID delays, they will necessarily impact capital expenditures for next year because the work needs to be done and it just shifted from 'twenty to 'twenty one. Finally, on cash generation, you saw robust cash generation this quarter. Although working capital was still negative, the change in working capital for two reasons. Spinelli talked about inventory buildup still and secondly, because the sales that were mark to market at the end of the quarter were marked to a higher price than the sales marked at the end of the second quarter, so that increased accounts receivable. So again, all those two effects should revert next quarter, and you're going to have a better conversion from EBITDA to cash on the 4th quarter. Financial net debt decreased despite the substantial dividend distribution, and expanded net debt also decreased. And I assure you that and that wasn't and the expanded net debt is at $14,500,000,000 which is still far from the target of $10,000,000,000 dollars Important here is that the US10 $1,000,000,000 target for expanded net debt is a long term goal. It is not something to be reached on the short term, and it will not prevent us from keep paying extraordinary dividends on the path, which is our goal. Now on 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, Morgan Stanley. Yes, good morning, everyone. Thank you very much. I hope you are doing fine. My first question is regarding the potential agreement or the negotiation discussions that you are currently having with authorities on the Brumadinho settlement. Could you explain to us maybe what are the next steps and a road map on this process to the extent that you have it? And second, on the same topic, it is my understanding that there are 4 big blocks of potential payments. 1 is the collective damages 2, the socio economical damages 3, individual socio economical damages and 4, environmental damages. Are all these 4, if I am correct, included in the ongoing discussions that you are having? Or are only some of them are part of the discussions? And then if I may ask just very briefly maybe an update on Samarco and also given that Luciano spoke about potential opportunity for value to buy back the shareholders of ventures, What about the potential sale of or divestment of shares owned by the steel, I guess, controlling shareholders that is expiring in November. There might be some revelation that I think prevent you or may prevent you from buying those shares in the market, but or at least directly you might be able to buy in the market. But if you could help us understand that situation that would be great. Thank you very much. Okay, Carlos. We are fine. Thank you. The agreement, let me I'll give you a broader picture, and I'll ask Rex, Dombrosa, our legal counsel to detail. I think it's everybody's questions. So I think it's better to tackle everything so we don't leave any room for doubts. I think, first of all, we've been discussing with you during the last calls and in the meetings that we have that we were having discussions with all stakeholders. What we mean stakeholders is the state, the prosecutors, the defendants, the even the AGU, it's a Brazilian entity at the federal level. So what is different now? It's different that now we are making a process of mediation that was brought to the Court of Justice and that improved in a way the convergence of the framework. Because one thing that we have been consistently saying is that we want a stable with legal certainty that we can execute on the compensation and the reparation of the strategy. So the need is that now we are under a different environment, on a different approach. And then I think we'll come to your question about a road map. There are steps that have to be taken, and I think Alex will can cover you, will explain you for a little bit more detail on those kind of steps that are necessary to achieve this framework agreement. And secondly, it's encompassed everything, but I think Alex can manage that as well because we have 3 civil actions that refers to those elements that you mentioned. And there, of course, they will have to be covered on this, okay, more holistic or whole agreement. Can you help me with that, Alex? Of course. Thank you, Eduardo. Hello, Carlos. As Eduardo was saying, there's been a very positive evolution as of last week since the conversations have now moved to the mediation chamber of the Court of Appeals of Minas Gerais, okay, this is a formal mediation chamber, they call it the. As a result of this, the negotiations will now take place in a more structured environment with the support of mediators who are judges themselves of the Court of Appeals. Indeed, the President of the Court of Appeals himself is participating in this mediation process since he wants to see this agreement succeed. Now if we reach an agreement in this environment, we'll have much more legal certainty as it would be sanctioned by the Court of Appeals itself. So that's why we think it's positive. All the plaintiffs are invited to this mediation. And so it's a collective it's a large group of people and conversation is mediated by the judges as I mentioned. And so the idea is that it would be encompassing for all the parties involved, okay. Conversations are indeed evolving and they're very constructive. But as you can expect, there are many challenges to overcome. And the main one is to draft a document that would be acceptable for the many parties involved that would and that would offer legal certainty. So we need legal certainty that's been stated from the outset. We need governance that ensures speed of reparation and there's still no definition of values, okay. This will be discussed after we have this framework. The second part of your question, what will this cover? Well, we have, I think, I just had 4 basic blocks. 1, which is not in this agreement is the individual indemnification. So people are coming to discuss with Vale directly and that's Eduardo mentioned 8,200 people as of the state approximately have already been indemnified. What we expect is that the agreement would sanction the individual discussions with these people. So that's been already agreed in concept that would be part of it. There's environmental reparation that would be in this agreement, although environmental reparation is an obligation that we would undertake to deliver. We don't have a value. We may have estimates, but that's not something that we will pay off. We would actually continue to pursue the reparation. There is a collective damages part that would be capped or that would be paid off. And there is what we call the social compensation part, which would also be capped and that would be paid off. So I think I covered the 4 and that's what we are proposing. That's what we are discussing at this time. I hope I answered your question. Thank you. Okay. Samarco continues to be on track for a restart in December. It will produce to the capacity of 8,000,000 tonnes. There will be a ramp up in 'twenty one. So probably by 'twenty one, the production will be somehow smaller than 8,000,000, but it will reach definitely reach that production capacity somewhere in 'twenty one. As regards the potential sale from shareholders after the end of the shareholders agreement, Obviously, that is a decision that pertains to them. But should it happen, Vale can eventually that would be a public offer like a follow on offer, a secondary offer in the capital markets. There will be a book building process. Demand could be X times higher than the supply. And yes, Vale could theoretically put a bid on those shares. However, according to Brazilian legislation, if demand is higher than the supply of shares from any selling shareholder, Vale would be the first one to be cut because it is considered a related party in this process. So if Vale wants to buy shares in the market, the most obvious way would be to launch a buyback program rather than go into such a follow on because it's very unlikely that we will be able to buy those shares in such a process. Thank you. Before we proceed, please restrict your questions to 2 at a time. Our next question comes from Timna Tanners, Bank of America. Hi. I hope everyone is doing well. Wanted to ask a bit more about your market outlook on iron ore, if you could, some specific comments on the pellet premium outlook and premiums for higher iron ore grades. So along those lines, just asking, I guess, about the better demand outlook for Europe that would support higher pellet premiums. And with the announcements recently of some additional supply coming on, how are you thinking about the outlook for supply and demand in the next year or 2? Thanks. Go ahead, Mehdi. Okay. Hi, Chimna. Thank you for the question. Well, let's start with the pellet premium. Well, what we see, as you know, we have, I think 2 main markets here in this case. The direct reduction pellets is more related to the Middle East. And in the U. S, we see a recovery in these markets. Obviously, all the problems with COVID that we can have further problems. But we see these markets were stable and recovering for next year. And in case of the record reduction, we have one thing that we must track that China is again opening the import of scraps. This can bother the scrapping market, the seaborne scrappy market that is around Turkey and the U. S. This can improve the price of the scrap and bring more margins to this the Middle East market. So much reckon that we see that trend for short term is we just see a stable price or stable premium, but we can have some gap between the blast furnace pellet and the rec production pellet for next year, but we must track that. On the other hand, the blast furnace pallet is quite the same that is happening in the market of Europe or Japan. So we are struggling with this new lockdowns in COVID. We our number for this year that we have for the whole ex China, a decrease of around 12%. In this developed most developed countries, we see 19%, but depends on the new COVID outbreak. And we see a recovery for next year around 9%, So just to outlook on what we see in the market. The supply demand balance I see today during this quarter and the next quarter, we are more balanced. We are returning around 60,000,000 tons only in Vale. With the market, we see some new etchactics producers that are coming to China like India or other regions like Europe going to China. I think they will probably will go back to their original markets. That's a tendency that we see in India. And but we see a supply demand well balanced. Our numbers are narrowing now the slide I mentioned 1% or 2%. That's what our forecast for next year. Our next question comes from John Brandt, HSBC. Hi, good morning, good afternoon. Thanks for taking my questions. Luciano, I first wanted to ask you about the C1 cash costs. So I certainly appreciate the disclosure around sort of your own C1 cash costs of 12.50 dollars If I'm not mistaken, the target and the guidance that you've historically talked about has been sort of total C1 cash costs including third party purchases. I'm wondering if you can give some more guidance or target as it relates to your own C1 cash costs in the next 3 to 4 years as you ramp up production closer to that 400,000,000 tons? I mean, how much further should we expect that your own C1 cash costs to fall? And my second question, I guess, is more related to nickel and the EV battery theme. Is this something that you're potentially looking to move further upstream in the battery supply chain given your exposure to nickel and cobalt, especially considering the government of Indonesia's ambitions to become an EV sort of battery destination and your relationship with the government. Could we see sort of more investments further upstream here? Thank you. Okay, Jonathan. I'll give you numbers, the full numbers, okay, including the 3rd party purchases. The best quarter we had was 12.8%, 4th quarter of 2018 when we were producing at a rate of 385,000,000 tonnes. So that gives you an idea of where we can get. With the adjustment for the new FX rate, that $12,800,000 would be perhaps between $10 $11 per tonne. Yes, we have had some depletion, which means transportation distances have increased. So but if we have the licenses, for example, we don't open up new mines at the rate that we would like to, then we could reasonably get when we get to 400,000,000 tonnes to $10 to $11 per tonne@existing FX rates. Mark? Yes. No, I want to answer this question first. John, thanks for the question because I still have my foot on the base metal. So first of all, there's a lot of interest on OEMs and the kinds to talk about BASF. A lot of players are coming to talk to us. But we have no intention whatsoever to go upstream. We were focused on using our assets and our mining assets. That's a very important point as well. So there are initiatives that are looking to different mining assets that would require that kind of approach that you mentioned around governments and helping like specifically in Canada, we are having these kind of discussions. But we will stick where we know and where we are good at is at the mine site. Mark, you're still in the line? You could comment please. Yes. That's absolutely the case. And I would say that we already have some options for some participation. For example, we do have the Pomala project in Indonesia where the product would be suitable and would be directed towards the electric vehicle batteries. So those kinds of things are there. Also we are some of our products, for example, coming out of Sudbury and in U. K. Refineries are suitable for electric vehicles. But as Eduardo said, if we see the kind of growth that we're anticipating in the electric vehicle market, the supply chain is going to look for some tremendous amount of supply. The typical react the typical source people are talking about are HPAL Technologies out of Indonesia. But we would think that we're going to need more mines developed in the coming years to meet that supply. And obviously, that's our interest is trying to find the right ways to get those mines up and running to support the electric vehicle industry and meeting the returns that we need to see. Our next question comes from Andreas Bokkenhauser, UBS. Thank you very much. Hope you are all well. Just a quick question on freight. How has it been kind of so far over the past year in terms of your freight, especially to China? Has that mostly been on Vale Max and VLOCs? And equally as important as you kind of progress towards 2022 and aim to get close to 400,000,000 tons of production back, What is your vessel capacity there? Do you still have new vessels coming in the shape of ValeMax, VeloX or are you going to be more dependent on the 3rd party vessels possibly in the spot market in that scenario? Thank you very much. Thank you, Andres. It's Pinel here. And I think your question regarding freight, I think we have let's talk about the fleet firstly. We are improving our Weibo MAX fleet. Yes, so the strategy is to have vessels that big vessels are on track. So our trend in 1 year, 2 years is to reach our level, what we consider the optimal level to 400,000,000 tons. So that's the track is going on. So in short term, we are we have some exposure in the spot markets, not so high. We have some reflections in the freight this quarter, and we'll have some next quarter. But probably all the fluctuation in the bunker price, there will be some offset in this trend. So we'll see a stable freight for the next short term period. And another question is about the scrubbers and the discounts on the freight, you know that the scrub installations almost on track. So to say the gap between the high sulphur, low sulphur is lower than before. Now it's 60%. But most of our freight will be we'll be using this year in the view count on that next year is higher than 90%. So that's the trend. Keep the strategy to grow the fleet, but in the level that we can manage the spot and the flexibility of the spot in our own vessels. Our next question comes from Chris Terry, Deutsche Bank. Hi, Guido, Luciano, Marcelo and team. Two questions from me. Just on the sales versus production. If I understand it correctly, you're saying sales should be close to production in 4Q. And as we focus on 2021 2022 as you ramp up to 400,000,000 tons, you just give us some color on what you expect the inventory build to be as you add additional blending sites over that period? And my second question is on coals. After you do the 3 month revamp, how long will it take you to get to the 15,000,000 ton run rate? Thank you. Thank you, Chris. Good questions. Fineli. Again, it's important to understand that the situation are related also the time is up. We cannot we should not compare the production in the quarter and the sales in the quarter. So I think the best comparison is between the in this case, Q4 sales and Q3 production. So if you consider all the time of transit and lead time is the best comparison today. We can have some gaps of inventory in case of a gap of production like we have. So as you build, we've been building for a long time. We lost inventory last year. Now we're going to return this inventory building because it's the quantity we need to make the plant. So we see few gaps probably in 2 1, 2 years every time you have a difference between production in 1 quarter. But as we have the inventory in China, we have more flexibility. So we don't have significant difference between sales and production during the period. So this was the first time we have this gap after the increase of inventory, but that's not what we think in short, long term. We're going to increase credibly this inventory, and we have some differences, but not significant. Paolo, can you go ahead? Yes. Thanks for the question. After the maintenance program, we will have a small run period, and we expect to reach the 15,000,000 tons per year run rate starting from the second half of the year of twenty twenty one. Excuse me, are you ready for the next question? Yes, go ahead. I think he answered the question from Chris. Yes. Our next question comes from Alfonso Salazar, Scotiabank. Please proceed. Thank you. Thank you for taking my questions. I have 2. The first one is regarding iron ore and the implications of the Chinese restrictions of met coal imports on your iron ore operations. I don't know if you can explain if you expect the use of different coals to change the needs of blending or adjust the marketing strategy of your products. The second question is regarding your base metal division and in particular on copper. There is a lot of interest on good performing copper assets. But apparently, the ones that you own look burnished in your iron ore and nickel portfolio. So just wondering if you can share thoughts on how to unlock value of those assets in particular, copper assets and the expansion projects that you have on copper? And if it's possible to unlock that copper value before nickel? Those are the two questions I have. Thank you, Alfonso. It's Pinel here. Well, if I understand your question, so our product is scaled with a very stable quality, the BRBA for China. As we can have some demand regarding the problems now, they are increasing the cost of coke and they will if they have a better margin, they can save some cost of energy. They can improve to better quality. So we can support them with IRLO or IO6J or the Carahsoft files, all of the our BRBF. Every time we discuss about quality and the credit justice, but we've been working on a very stable operation for BRBF. It's very important for the choice that the steelmaker can take when they want to change the blast furnace product. So we must take the quality in a stable way. Okay. Alfonso, if I got your question clear, I agree with you that we have to unlock value on copper. There is a good discussion undergoing value now around exploring our Carajas province. We have a tremendous province there. There are some synergies with iron ore that we are unlocking. So we are talking about Alemano. We are talking about even Salobo 4, if we can revise reserves. We can talk about Palo Fonzo, a series of assets that we have there. So I think there's a we call here copper dream. Everybody wants copper. It's obvious. It's the commodity. I think iron ore and copper are the no brainers. And we do have exceptional assets in Carreza that need to be developed. And while you talk about unlocking value, I think it's a more complex question because as since the beginning and we started the turnaround of the whole base metals business and we believe this is undergoing pretty well as nickel has been proven. We need to fix the house as well. So there are, I think, double, I would say, phase story here. 1 is to fix the assets that you have. And second is to grow the assets that you have on the ground. So we're extremely optimistic that we can and we're going to show that on Valide, by the way, on our expectations about copper. We are very upbeat on that. So and if we come back to the famous 30% relevance of base metals inside value, we couldn't lock on that way when people start to perceive value on the base metals business besides iron ore. Iron ore is too big still in relation to base metals. We won't have time to discuss in the call what kind of options we have, but one for sure is to do the right thing with the right assets and have something that the market, how could I say, values it. But I'd like to ask Mark as well because Mark is very passionate about this team as well. Eduardo, you're right. I am very passionate about the copper business and base metals. It's an excellent business. It generates a tremendous amount of free cash flow and it's got tremendous opportunities going forward. We spent a lot of time stabilizing the business. We're seeing some good stability coming this year. Salobo is performing very well. We're now Sasego has performed extremely well this year and staying on budget. Next year, I think we're moving more into a productivity type agenda to increase the returns of the base that we have right now. And as Eduardo mentioned, the growth opportunities are there, not only the ones we've talked about in terms of Cristalino and Alamo, which are on our agenda, but also unleashing through synergies with iron ore and the railroad system that are there can bring us even further. And finally, I will note that we have a very good world class project and Project Uhu in Indonesia. We've been releasing drill results. This is a world class copper project in the making as well. So very excited about the copper business as well as the nickel business. Thank you. Our next question comes from Sylvain Brunet, Equizane BNP Paribas. Please proceed. Good afternoon, gentlemen. So two questions. The first one on iron ore, just to maybe get some sense of the demurrage costs you would guide us to for Q4, if we should assume some decline there? And my second question is on VNT. Should we assume 0 production in Q4 as you're ramping down? And what is the value left on your books after the several impairments, please? Thank you. Okay. Yes, Sylvain, the costs iron ore costs will continue to come down on the 4th quarter because we don't have any major maintenances, and we're going to spend less and dilute through the production. On the books, VNC has 0 value. We just wrote down the rest of the value that it had this quarter. Mark? Yes. And Luciano, just in terms of production at D and C, the way the care and maintenance process works is we do need to prepare for consultation with the workers' council and we continue to operate at, I would say, sort of a stabilized rate while we go through that. So you will see production of the nickel hydroxide in Q4, let's say, roughly what you would have seen in Q3. Our next question comes from Christian Georgios Societe Generale. Yes, thank you very much. Luciano, can you just go through again your cash costs for Vallejo in operations? You mentioned 10.11 was your best performance in 4Q 2018. That was at the FX rate of today, I understand. And you're saying that you can achieve again 10, 11 in future. Is that also just for Vale or that includes purchase ore? That's my first question. And the second question is on those on the ventures that you may be considering purchasing or being for into the new year? What kind of order of value magnitude should we take into consideration? Thank you. Okay. Yes, the 12.8% of Q4 of 2018 at today's exchange rate would be between 10% and 11%. And yes, we may get to there, but also you should normalize by the price of iron ore. If the price of iron ore was the same price of the Q4 of 'eighteen, the 3rd party purchases costs would be lower, and the overall aggregate C1 of today, as we speak, would be perhaps another $2 below what it is. So instead of $14,900,000 it would be already be at $12,900,000 and we would be targeting a 10 to 11. So those are important. I think on the last question, I had mistaken the my answer. The question was about the merge costs. So there's no meaningful decline of the merge costs from the 3rd to the 4th quarter. And I think the next question is for Marcelo Spinelli, right? But volumes for purchases, we don't have a lot of source of purchase in Brazil. So it must be a stable number comparing to this year. Thank you. Our next question comes from Tyler Brodah, RBC. Great. Thanks very much for the presentation. My questions have been answered, but I just have 2 quick follow-up ones. I guess with Project West, if all goes to plan, when should we expect that inventory to start building for that extra 20,000,000 tons? And then secondly, I guess just on BNC, in terms of I see if bidders back in the table, if nothing is able to be agreed, how what should we look at in terms of the shape of the closure costs? Thank you. Thank you, Tyler. It's Pinel here. Well, the WES product that's we have this partner in China, this Shulahu port. We already operate there. It's in the delta of the Yellow River the Yangtze River, sorry. So it's a very important position for our blending and our distribution in China. So when you're improving there, we don't we're not saying that we're going to use this increase this inventory considering the whole picture of Vale. So we that's our main market in that area. So we want to evolve there. Sometimes we can offset with other ports. And we're expecting to run this new operation in 2, 2.5 years. So it will give more flexibility rather than improve or increase our inventories. Tyler, just on New Caledonia, as you mentioned, there are some bidders that are looking at the asset. There's one group that is, I would say, put forward, I would say, a rather fulsome offer. That's an offer by management working together with employees and supported by Trafigura. We'll know in the next in the coming week or so how that's panning out. But we haven't stopped on the planning for care and maintenance. And just in terms of estimates, what we're planning for is care and maintenance rather than full closure. And just in terms of how that looks, it is quite a detailed process that's underway and we're preparing for it and it does require us to sit down with the workers' council and talk about what that looks like. So at this point, we don't have an estimate we can release. What we can say that is if you look at the requirements to fund New Caledonia, if we were to operate for the full year next year, we would estimate that the care and maintenance funding requirements would be roughly the same next year. And then the care and maintenance funding requirements for the following year would be a fraction of those operating costs, so primarily next year, so roughly equal to what we would require to fund the operations. This concludes today's question and answer session. Mr. Eduardo Bartolomeo, at this time, you may proceed with your closing statements. Okay. Thank you. Thank you again for your questions, attention and the opportunity to share with you our story. I think as you perceive, the quarter was a really positive one. It encourages us that we are on the right track, but I'm being repetitive on this. We are not in a sprint, we are in a marathon. And I think we've been making strides in Brumadinho. I think we're repairing, as I mentioned before, with quality, with empathy. Safety is a priority we've been improving. We are very happy with the results in Carajas this quarter because it shows us the potential that we have in that province in iron ore, and we are on track to recover production. And as everybody that knows Vale, we're extremely conservative on capital. We are going to return the capital to the shareholders, to our stakeholders in place, we'll be extremely disciplined. So I think what we want to convey to you that we are striving to derisk the company, but that will make us a better company. And again, thanks a lot for your attention, and let's see you in the next call. Have a good day, and stay safe. That does conclude Svelte's conference call for today. Thank you very much for your participation.