Earnings Call: Q4 2020

Feb 26, 2021

Good morning, ladies and gentlemen. Welcome to Vale's Conference Call to discuss 4Q 'twenty Results. As a reminder, this conference is being recorded and the recording will be available on the company's website atvali.com at the Investors link. This conference call is accompanied by a slide presentation also available at the Investors link at the company's website and is transmitted via Internet as well. The broadcasting via Internet, Both the audio and the slide changes have 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 and 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 Cianipides, CFO, Mr. Marcelo Spinelli, Executive Officer for Ferrous Minerals Mr. Mark Travers, Executive Officer for Basic Metals Mr. Carlos Medeiros, Executive Officer for Safety and Operational Excellence Mr. Alexandre Pereira, Executive Officer for Global Business Support Mr. Luiz Eduardo Zorro, Executive Officer for Institutional Relations and Communications Mr. Paulo Colto, Director of Coal Mr. Alexandre D'Ambrosio, General Counsel and Ms. Marina Quintaou, Director of People. First, Mr. Eduardo Bartolomeo will proceed to the presentation on Vale's 4Q 'twenty performance. And after that, he will be available for questions and answers. It is now my pleasure I turn the call over to Mr. Eduardo Bartolomeo. Sir, you may now begin. Well, Thank you. Good morning, everyone. First, I hope you are all well. 2020 will be remembered as one of the most challenging years in our history. As we are making progress with the reparation of Brumadinho and resuming our eye on our operations, We saw the COVID-nineteen pandemic changing our lives around the world. In early December, a few days After a meeting at Vale Day, we all got more hopeful with the start of vaccinations in several countries. However, Our priorities remain intact, safety, people and their reparation of Brumadin. While the government's vaccination plans are advancing, Vale will keep its guard high. The safety of our people comes first along with the reparation of Brumadin. Next, please. As I have been saying at each of our meetings, Vale is determined to fully repair the damage caused by the Brumadin strategy. Besides contributing even more to the development of the communities where we operate, a major step Towards this direction was the global agreement announced on February 4, signed with the public authorities who are the legitimate representatives of the people of Minas Gerais. The economic value of the global settlement was BRL37.7 billion, which includes obligations to pay and to do in addition to expenses already incurred by Vale, So it is the payment of the emergency aid and environmental recovery works. However, It's important to note that with this, we have a clear number on our balance sheet From the obligations to compensate and repair Brumadinho, eliminating a great uncertainty related to our provisions. The bottom line is that this governance allows for a PD reparation and compensation, the legitimacy of these actions and the legal certainty, elements that we have always emphasized in our meetings as fundamental for the settlement. I invite now Alexandre Ambrogio to provide A little bit more details about it. Thanks, Eduardo. Well, as Eduardo was just mentioning, the agreement has Two essential components from Vale's perspective. First, it brings finality to all class actions and to all collective lawsuits. And second, it has what we call legal certainty to the extent that it was signed by all the petitioners of those class actions. In fact, it was signed by the Attorney General himself, Brazil's Attorney General, and it was ratified by the Court of Appeals of Minas Gerais, which is the highest court in date. So the agreement resolves all claims relating to collective moral damages and to compensation to communities and to the state of Inezerais. The agreement was structured with both payment obligations and performance obligations. Vale's payment obligations are twofold. We established a fixed amount that will revert to the communities directly that were impacted by the disaster and will be distributed and invested according to criteria yet to be established by the public defenders in consultation with the communities. And another fixed amount will be used by the state government for infrastructure and mobility projects in the regions that were most impacted by the disaster. These amounts Represent approximately 2 thirds of the value of the agreement. These are the fixed amounts. And Vale will deposit These amounts in a judicial account to be managed by the Court of Appeals. Vale is then released from payment obligations Upon depositing these amounts in the court, and we will have no further influence in how these amounts will be employed or disbursed. So all we do is deposit these amounts and we are released from that part. The second part of the agreement relates to Vale's performance obligations. And these are essentially environmental recovery obligations, monitoring of water quality and the continuity of certain health and safety programs. And these obligations were constructed by jointly with the petitioners and are based were based on independent technical studies, which became part of the agreement and were validated by all the parties involved. So for that reason, We're confident that these measures, these obligations are adequate and sufficient to address the reparations for the region. Vale will be released from these performance obligations once we show evidence of completion step by step to the court. So I think that wraps up that explains the global agreement in a nutshell. So back to you, Eduardo. Thank you. Thanks, Alex. Finally, it's important to note that the reparation of the individual damage will continue and it's not part of the global settlement. Since 2019, almost 9,900 people have entered into civil or labor indemnification agreements with Vale, which totaled more than BRL2.4 billion. This is evidence that we will spare no effort More resources for a fair and quick preparation for Brumadinho and the region. Next. Well, we are committed to transforming Vale's culture into a culture that puts people and safety at the center of every decision we make. We have our leverage to accelerate this transformation, and I highlight the role of our management model, the DPS, in this process. At the end of 2020, we have completed the 1st global assessment of the VPS implementation, and now and the plan to address the gaps identified. We also continue to accelerate the implementation of our new tailings and dam management model and other process safety tools, such as here, previously mentioned here. The message is clear. We do not tolerate deviations in conduct and procedures, which expose people to safety risks. The culture transformation, which is underway, has the full commitment of the Executive Board and our Board of Directors. Next, As you know, we have a plan to address our ESG gaps, which was built based on what we heard from communities and society. This first plan firstly encompassed 52 gaps, which 37 already addressed, of which 11 were resolved in 2020. Continuing with our open dialogue and active listening, we identified 11 more opportunities for improvement. Some important gaps in governance have already been sent by the Board of Directors for shareholders' decision At the extraordinary general meeting call for March 12, one of the gaps, for example, deals with expanding The number of independent members of the Board, which currently has 3 members reportedly independent and according to the proposed amendments of the bylaws, We reached at least 7. The proposed chains seek Pla Line Valley with international government practices and are the result of a process of listening to our investors. On another note, to support Vale In its bold commitments regarding the ESG theme, the Board of Directors approved the creation of an executive office dedicated to sustainability. Maria Luisa Paiva, who has extensive experience in making this happen, will leave this front and will report to me from March 15. I take this opportunity to welcome Maria Luiza and to thank Ms. Ozzorio for the important advances he has brought in the topic of sustainability. Oso Oro will continue with his functions as Executive Director of Institutional Relations and Communications. As it can be seen, our ambition is to transform Vale into a reference in ESG practice. With these actions, we will contribute to a more sustainable mining and will act in accordance with our new practice society. Well, now talking about the operational performance of our business. We ended 2020 with the partial resumption of All iron ore operations that we were halted in 2019, we are on track to reach the capacity of 400,000,000 tons per year by the end of 2022. In December, we resumed Serhalexche and dry processing Fabrica, and in January, we resumed pellet production in Bahrain Grande. We ended 2020 with the production in line with 2019, but stronger than we were when we started the year in a very complex condition given the pandemic scenario. We managed to replenish our inventories, ensuring the maintenance of our product portfolio, and we expect more robust sales for 2021, a fact that you have already noticed in our 4th quarter results, which became our 2nd best in the history of iron ore, which was obtained by strong sales and prices. In the long term strategy, we are granted the License is to implement the Capanema project, which should start operations in 2023 and will bring 14,000,000 tons of capacity to Vale in the 1st years. It's a project of almost $500,000,000 an important step Towards the creation of Vale's capacity buffers. In short, we are taking the necessary actions to ensure the stability we need to operate efficiently and the growth options required by the market. On these topics, Marcelo Espinelli will present more informations to you ahead. We also had an excellent quarter in base metals. I would like to highlight Olsapuma's record production and EBITDA. In copper, we also had a record EBITDA. In Inza Lobo, We operated with cash cost at the lowest level in its history. Marc can give more details about it in the Q and A sessions. To conclude, we remain firm on the risk in Vale to build a better value. Summarizing for you the most important recent advances I would like to highlight would be, 1st, the global settlement for the integral reparation of Lumadimia second, the progress of Vale's culture transformation into a safer company third, the continuous resumption of our production under safe conditions and finally, keeping the focus on capital discipline, Addressing our cash drains, prioritizing organic projects in ferrous and base metals where we are competitive and allocating an important portion of our cash generation to the payment of dividends to our shareholders. About this last topic, We resumed our shareholder compensation policy last year. We announced, together with our results, the approval of dividends in the amount of BRL4.26 per share referring to the second half of twenty twenty. This decision reflects our confidence Vale's cash generation capacity, our healthy balance sheet and above all, our commitment to return value to Vale's Finally, we intend to continue creating and sharing value with our stakeholders. Most importantly, I assure you that we are doing and will continue to do everything we can to ensure the safety of the people in our operations in our communities. Also, I would like to thank our 123,000 employees and contractors, our suppliers and customers who made it possible for Vale to overcome a 2020 with all the challenges brought by the pandemic. Thank you. And now I give the floor to Spinelli, who will provide more details on the iron ore production results. Thank you. Thank you, Eduardo. Good afternoon to all. Well, we've been talking about the reception plan to raise the 400,000,000 tons. It's always a good time to reinforce our commitment to reach this goal next year. And I want to emphasize Eduardo also said that we have another an additional 50,000,000 tonnes. That's our buffer capacity, and Capa Nema product is a good example of an action in this direction. Well, our production guidance for 2021 is a range between 3.15 and 3.35. We are really confident to deliver this goal this year. So you had a chance to see the production report. I don't need to go in real details here, but you saw that we have a checklist so we can follow-up all the achievements 1 by 1 in the checkbox in the production report. But I want to drag your attention for 5 points here. First one, as Eduardo said, we brought back all of our sites, all of our operational 'twenty results. That's a good sign that we are ready to grow now. 2nd, we've been progressing, bringing the authorizations and permits to test the operations in the Southeastern system. So now Fabrica is already operating in dry process, and now we already have The license to test the wet processes. It's very important information because we can increase volumes and quality in this site. The third information you saw this week, we just announced that we brought back the Itavir Sur dam, it's Itavira complex. Itabirasur will be really important. We have a remaining capacity, and we have to bridge this operation today The filtration process that will be in place in early 2021, We also need to finish the finalize the raising works that we have in Itabiro Shudem. We are not in a rush. It's important to emphasize that this capacity in the future in Itau Brasudem It's not the critical path for the full operation in Itabira. And the way to do this with a very In safe mode, we need to go in details and check the mode we are doing this operation. So we don't we're not in a rush to do that. The 4th information is about the North. In the North Range, we've been talking about that we need always to bring new pits online. And this is a new information here. We just approved in our Board of Directors the N3 minutee, it's N3 pit. It's like more room. We are now with all the contractors and Moving forward, the procurement actions, activities, and we are waiting for The finalizes in the first half. To finalize this section, I'm going to talk about TIMBOPEBA. TIMBOPEBA, Last year, we brought back 3 lines in a 6, now operating in wet processing. We have a milestone till the end of March to bring back the remaining three lines. We are already testing Those lines, and we expect to bring earlier than we have in our plan. But we will let you know as soon as we have the full operation there. In the next slide, We have the road map for this year. So I'm not going to talk in details about this. But if you have any question, Please let me know in the Q and A. But I want to give you 2 more information. In the last year, We mentioned the La Nina effect. So we were worried about this, the effect and the consequence in our operation. We had in the end of the year last year an impact in our operations with the The rainy season, we call the winter in the North, we start the rainy season, heavy rainy season. But suddenly, in January, we had a great opportunity in this month. So just to conclude, with all of this new assets, resumption in many operations And also this possibility to increase patient in the north in the dry month, Now we already have now the winter in place since the second half of February. Combining all of these, we are really confident that we can deliver higher volume in Q1 this year compared to Q1 last year. So I'll pass to Luciano. Good morning and good afternoon, everyone. Great results, 2nd largest EBITDA ever. Interestingly, once we saw the reports of the other mining companies of their second half results, Vale's EBITDA was actually the largest in the industry. Obviously, there are circumstances to that because of the relative prices of iron ore to the other commodities, but it shows the potential of our business because we are also operating Under a lot of impairments in our operations and still we posted the highest EBITDA in the industry for the second half of twenty twenty. And we've got a lot of momentum. Cash flow wise, for example, we increased our accounts receivable by BRL 1,300,000,000 in the Q4, we already collected all those proceeds in this quarter together with the sales of the quarter. The volumes are better than they were last year. So there's a lot of momentum. Carajas premiums are very good right now. They ended the Q4 at $12, dollars 13 per Ton, they now stand at $25 per ton. Pennant premiums are on the rise for the Q2. They will be above $40 per ton, and they were very compressed in the Q4. So there's a lot of positive momentum for the business in the 1st and second quarter of this year. Talking a little bit about costs, just to highlight, although you saw costs increase in the quarter From 14.9 to 15.3, the relevant measure for costs is costs without The purchase of 3rd party ore. Because of the increase in iron ore prices, now we're paying over $60 per ton in our opportunistic purchases of iron ore from 3rd parties. When you average all of this, costs have increased. If you strip out this effect, we have costs stable at below $13 per tonne. It's a better measure of our productivity. We can discuss further the trends, of course, in iron ore. In base metals, as Eduardo said, On Sapuma, 1st full quarter without any problems of the operation, be it injunctions or problems of maintenance in furnaces or whatever, $50,000,000 in EBITDA at today's prices, it could be generating as much as $70,000,000 in EBITDA per quarter, so from 0 in the past 2 years, so this is another contributor to EBITDA going forward. Negative cash costs in Salobo for the 2nd quarter in a row, so pay attention to the prices of byproducts, very good for copper, not only for that. In Canada, there's lots of byproducts that are Selling at good prices, and that's the reason why also the EBITDA for base metals was above US1.1 billion dollars Very good performance. We had a very interesting quarter in reshaping our business, A lot of movements in our portfolio. We collected more than BRL600 1,000,000 in divestitures this quarter. For example, we sold a 25% stake In a coal mine in China, a stake in a palletizing plant in China, we sold our palm oil company with over 3,000 Yes, Vale had a palm oil company, not anymore. We finally left our Potasho Hill, Colorado Project in Argentina, we collected the proceeds from the divestiture of PTVI. And looking forward, we have also signed the agreement, The binding put option agreement with a consortia with the presence of Trafigura for the sale of V and C, which we shall discuss in the Q and A. We're hopeful that this may come to a good conclusion. We also signed the heads of agreement with Mitsui. We're working into definitive documents For the exit in Moaty. So a lot happening in the portfolio. And for those of you who also look at the portfolio and do some of the parts Valuations of Vale. We have this company, this general cargo company called VLI, which we're studying the IPO of that company in Brazil. And BNDES, the Brazilian Development Bank exercised an old option, call option that they had against us. And that option that they exercise values our stake in this general cargo company at around US1 $1,000,000,000 and probably more given that the Development Bank exercise because it sees prospects on this investment. And also our stake in MoSEQ With the very good performance of Mozeq, very good improvement in margins, costs coming down, lots of they're doing their homework, It's now worth also more than USD 1,000,000,000, so we speak. And finally, one last comment on the from a financial perspective on Brumadinho, The definitiveness of the provisions, you saw we added provisions on 3 different lines. First, Decaracterization of them, USD 617,000,000. They mostly relate to the end of The studies for decharacterization, we determined where we need new backup dams to be built. So these were accounted for. Future changes in those numbers should be marginal. There are a few small dikes that need to be also Assess the cost of the characterization and minor engineering adjustments could be made. But pretty much In terms of big numbers, we are now very confident about the numbers for decharacterization. In terms of the global agreement, you saw US3.9 billion dollars Being added to our provisions, as Alex described, 2 thirds of that amount to be spent is a fixed amount. So there's no uncertainty around those. And the other remaining third relates to performance obligations, obligations which By now have been widely studied, technical studies were mentioned. And if the if changes if there are changes, if any, they are Towards just onethree of the amounts to be spent, not to the full amount. And finally, we added There are additional provisions beyond the agreement, beyond the characterization, which relate to individual indemnifications and which relates to kind of ARO, asset retirement obligations, on the old site of The mine that collapsed, the dam that collapsed, so some geotechnical studies, we need to recover the area. So we added another $237,000,000 Now we also concluded those studies. And within those 2/27, there are also 3 months of extension of the emergency payments as a precedent condition for the agreement. So bottom line is, Unless there are minor engineering adjustments on geotechnics or performance obligations, Which are a smaller proportion of the whole, the provisions in the balance sheet now are pretty much done as regards to Bombardini. And now let's move on to Q and A. Thank you. We will now begin the question and answer session. Our first question comes from Timna Tanners, Bank of America. Hey there. Happy Friday. Thanks a lot. I wanted to ask I'll just ask 2, if I could. One is, From the slide deck, it's clear that you're running at already within your range even though the Q1 tends to be seasonally weak. So So I was just wondering if you continue to progress, if it's safe to say that we should assume you'd be closer to the high end of your guided production range? And then my second question is just we got a lot of questions recently about potential government intervention and higher taxes. I think you know why. Wondering if you could comment on that. Thanks a lot. Okay, Tina. I'll let Spinelli bring your first question, happy Friday, by the way, and I'll get back to the government discussion. Hi, Timna. Thank you for the question. So we are yes, we are really happy about the of this quarter. We are Much more prepared for the rainy season than ever. Every time we learn with this And we can bring other lessons from the past. So everything is in place. And we expect to deliver this, As I mentioned, this quarter, better shape than the quarter before in the Q1 last year. And we are in the guidance, yes. We are confident to deliver the guidance. We're at the beginning of the year, obviously, but we are really confident to deliver the guidance. Okay. Tina, by means of government intervention, we have to understand the trajectory That Vale has been going since we went to the new market, right? 4 years ago, We started to establish several changes inside the company. As we speak, in November last year, the shareholders agreement is ended. So we are under what we call a true corporation. Obviously, the new election of the Board that Coming on April, we will consolidate that movement. But that movement has to be understood, as I mentioned before, historically, When we started the new market, then when we brought 2 independents, then we had the 3rd independents. We Created the nomination committee just recently. The nomination committee, as I mentioned in my initial speech, It was called a General Assembly, extraordinary General Assembly to improve the governance to prepare ourselves And the company to this next step, we are going to have, as just an example, 7 independents on the board. So we don't see Any kind of possibility of government intervention in Vale because we are as a diffuse control company That is guided by our shareholders and by who has the interest on the company. So I don't think that is Any issue for Vale? The fact of tax increases, of course, sometimes there are some noises. I would like to ask Lex Just to clarify one recent noise because it's natural that there are some tax movements that we are Talking about the tax reform, but the tax reform that has been played by the government, the federal government is always under The principle that's going to be an equilibrium, Brazilian is already really burdened on tax. So taxing is not the best way to improve our economy. But I think if you're referring specifically to CSLL, I think Alex can give some more color on that. Yes. Thanks, Eduardo. That's a very good question that Tina raised. In fact, as Eduardo said there, Every now and then, we see the initiatives for increasing taxes in the mining sector. And recently, we saw a new tax Still proposing to increase this, what we call the social contribution tax, the CSSLL, and that's been brought in the lower house of Congress. We're very confident that this bill will not succeed because we view it essentially as unconstitutional. It violates The constitutional principle known as isonomy to the extent that it adds another layer of taxation on a sector that's already very highly taxed and effectively that it discriminates against this sector. Also, it doesn't it's not Clear in the proposal about which entities will be taxed and which will not. There is no justified reason in our view to increase taxes on the mining sector, much higher than in any other sector. So and also the project fails to take into account global benchmarks for taxation in the mining sector, which that has always been a rule in defining The amount of taxes in Brazil. For these reasons, we're very confident that this new bill will not evolve. But I'd like to take the opportunity to address a point that on the other Part of Timna's question about government intervention and to add just to complement what Eduardo said, everyone knows that there are some golden shares that are still And the opportunity to clarify that these Golden shares have veto power on very limited amount of matters, And I will state which matters these are for clarification. First, the government the federal government with these golden shares can be to a change in Vale's name, A change in Vale's location of Vale's headquarters, change in Vale's corporate purpose With regard to mining activities, meaning that we cannot cease to be a mining company, any liquidation of Vale, the government would have veto on and disposal or winding down of activities in any part of Vale's iron ore mining integrated systems, mineral deposits, or deposits, railways, ports and maritime terminals. And also we can't Vale cannot Change the bylaws with regard to these Golden shares, which would otherwise defeat the purpose. So that's these are the only matters which the Golden Shares have veto power and that's the limit of government intervention in any of the voting processes. So I hope we answered the question. Thank you. Back to you, Eduardo. Thanks, Alex. Our next question comes from Carlos De Alba, Morgan Stanley. Hello, good afternoon, good morning, everyone, and thank you very much. So a couple of questions. One is the capital generation obviously was really strong in the Q1 and iron ore prices remained quite high. So I wonder if this if you could elaborate as to how you see capital returns to shareholders in the coming months? Should we only Expect another dividend in September as per the traditional policy. And what about share buybacks with some of your Former controlling shareholders selling or potentially selling their stake, the stock may have been under pressure because of that. Any plans to maybe come into the market and do a buyback given, again, the strong balance sheet and And then if I may ask a question on the Brumadinho process, obviously, A very solid comprehensive agreement with the authorities. Just one question on something that it was it doesn't seem to have been included there, which is the lawsuit that the prosecutors have brought against Vale under the anti corruption law. Any update there? How should we think about That particular process, what are the next steps? And I guess, what is the company's position towards that? Thank you very much. Okay. Thanks, Carlos. Good morning for you as well. It's true, the cash generation is really strong. We've been extremely conservative on how we view our balance sheet. You know that because Of the commitments that we had, and we just assumed this commitment with Brumadinho, that didn't impede us to A solid dividend on this Q1 1st semester, sorry. So it's a matter of using of the proceeds Against the cash generation, I don't think we would move from our policy of doing that on September. But obviously, if we have if If you look at the trajectory, even the expanded liabilities that we have, we are going to be under the EUR 10,000,000,000 and obviously, any Excess cash will be returned to the shareholders. We have a very well Behaved, if it's a word in English, CapEx. We have no nothing in our horizon besides growing our platform to take profit 20.80 results. To take profit of the cycle, we are very bullish on copper, so we're going to invest. We've said that in Vale Day. We are going to expand our buffers in iron ore. Those are marginal CapEx. There's nothing very big. The liabilities are known, as Luciano mentioned. So the natural way that the money to flow is to the shareholders. I think this is the natural way. And As long as we can keep our business growing and safe, the excess cash goes to the shareholders. Specifically about buybacks, we're always Talking about that, we are thinking it's something in our agenda. We're talking to the shareholders and seeing what they see and what they want, And it's truly in our agenda, but it's not nothing that we have taken decision yet. I would ask Luciano to help me to elaborate on that, And then we get back to the Brumadinho lawsuit. Just to highlight, we are paying $4,000,000,000 in dividends In the same quarter that we're taking on our shoulders another $6,000,000,000 in liabilities, right? There's not only Brumadinho, there's VNC For the divestitures of VNC and Renova. So it's quite a sign of Disposition to return money to shareholders, that's one thing. The second thing is on buybacks. We want to establish a Track record of paying hefty dividends, that's a goal that we have. So buybacks are subordinated to that. The second thing is we don't want to be procyclical. So we're going to be very mindful of where we are in the cycle, not to buy it high. However, it bothers us a lot, The relative valuation, if you compare to other mining companies, and the gap has actually been increasing. So These are all factors that will be taken into account when making a decision. Yes, together with the Board, Radisson. And I got specific about the law, the court, the anti corruption law. We think there is no merit on that, but I'm not the legal counsel. So I asked my legal counsel Just give some more details to you, okay, Carlos? Thanks, Eduardo, and thanks, Carlos. I was hoping you'd ask that question, so I have a chance To clarify it, well, we purposely did not include the corruption lawsuit in the settlement agreement, Because as Eduardo said, we view it as having no merit whatsoever. Remember that the charges brought in this lawsuit, They're not supported by the facts. And in our view, they have no connection with anti corruption law. As you may Recall by reading the allegations, the lawsuit contains no allegations that Vale corrupted a government official, And that is what defines corruption. And I understand that that's the purpose of the anti corruption law. So we So, for these reasons, we believe that The charges or allegations will not prosper, and we saw no reason to include that in the settlement and give any sort of adherence to the charges. So that's why we will fight this and we will win this in court. Thanks. Back to you, Eduardo. Thank you. I hope we will answer you, Carlos. Thank you. Our next question comes from Jonathan Brandt, HSBC. Hi, good morning, guys. My questions. Luciano, I first wanted to ask you, I guess, it's sort of a capital allocation question. You ended the quarter with a very high cash And obviously, you have some liabilities coming up with the dividend, and I think you bought back some debt that was announced today. But still cash generation this quarter should be pretty robust from collecting on the working capital and high iron ore prices. So I'm just wondering if you can comment a little bit on sort of how you see the ideal cash position going forward? And on the global settlement, I know there's a timeline of payments, but in terms of liability management, is that something that you can prepay or should we expect that to Follow the payment schedule. And then just sort of secondary to that, you mentioned potential IPO of VLI. If If you could just comment a little bit on the rationale for doing that, just given you don't really need the cash, is that just to sort of create and unlock some shareholder value? And then I guess the second question for Mark, just as it relates to the copper projects and not so much Salobo, but really the projects You have in Southeast Asia, which I understand are pretty attractive. Given the high copper prices, is that something that you're looking to potentially accelerate or how should we think about a timeline for those projects? Thank you. Okay. Jonathan, thank you. Our cash position is way too high. It needs to be used. The first direction could be pay down gross debt. However, most bonds are Trading at a very high premiums because of the low yields. So we are observing very with a lot of attention the trajectory of yields that started to increase U. S. Treasury yields more recently. So we will be looking into opportunities to perhaps reduce our gross debt as well. So that's one thing. The second thing, you mentioned prepayments of values associated with the agreements that will be looked into. We might be looking into prepayments of our concession fees for the renewal of the concession because the interest rates, The regulatory interest rates are really high. We have the project financed, refinanced as well. It is an obligation that was Contracted at a time when interest rates were higher and it embeds the Mozambique risk, so that's something to be looking upon. So bottom line is we are looking into a number of alternatives. None of these alternatives have any interference with our ability To pay dividends, but the level of cash is too high and needs to come down. And yes, you're right, it continues to increase. And as you pointed out, in Burumadinho itself, there are some lump sum payments to be made over the course of the next 6 months significant. But still, the reality is that we need to decrease those cash balances. Jonathan, just in terms of the projects in Asia, I believe you're referring to our Project in Indonesia called Project Uhu. It's a project, let's call it, say in the pre feasibility stage. Based on what we see already, we see a very large ore body, high potential annual production of copper, let's Call it around the 250,000 tonnes per annum, but we're looking to optimize that with significant gold Production as well. We believe it's a potential first quartile cost mine with about 45 plus years mine life. So we're currently doing some studies to optimize this, looking at recoveries, renewable energy options and extending the mine life. We're very positive about this project. And one thing we would do is look towards bringing in Potential partners to derisk the project for approval sometime around the 2025 period. There's a very significant amount of of study work and to get ready for that project approval. And we believe this can add some great optionality to the robust copper project Opportunities that we have in Carajas, which were outlined in the Vale day. Thank you. Our next question comes from Andreas Bokkenheiser, UBS. Thank you very much. A couple of questions from me today. One is on your cost base, especially your breakeven cost to China. I'm not going to ask you to kind of forecast freight rates and whatnot. But obviously, Vale used to be A breakeven cost producer to China at about mid-30s dollars per tonne. I realize that obviously sustaining CapEx Going up and so on. But what's your long term goal here? I mean, do you think we're going to get back to sort of the mid-30s Even with sustaining CapEx a bit higher, I would imagine with some cost dilution as you ramp up towards 400,000,000 tonnes, There will be some cost dilution and then potentially some cost savings there because I mean, potentially, you could probably unlock another $2,000,000,000 to $3,000,000,000 of EBITDA if that's achievable, I would think. So could you give us a sense of kind of how you're thinking about the longer term breakeven cost of China? That's the first question. And if I may, on the second question, Obviously, you're thinking about you obviously got capacity of getting to capacity of 450, even though the initial production rate will be 400 by 2020 Well, annualized by 2022, but full year to 2023. What takes you to 450, I guess, is the question. And I realize this is not a 2023 It's not a consideration until 2023, but what takes you to $450,000,000 Is that purely an iron ore price Consideration where you say, all right, well, if iron ore is above €100,000,000 or whatever effectively, then you'll push For 450 and when do you make that decision? I'm obviously asking because iron authorization is 170. So presumably, that would be something worth considering. Okay, Andres. Yes, we intend to get back to mid-30s even considering sustaining. Number of levers for that, one is cost dilution for sure. The other thing is lowering the preoperational expenses. We're spending a lot of money, And this is impacting our breakeven with idle operations still. There is some components which are procyclical in the On the cash breakeven, namely royalties and third party purchases, like the higher the annual prices, the higher the royalties and the 3rd party purchase costs. And also sustaining CapEx is going through a bump now, especially because of the intensity of the investments in filtration. So it is not expected that we will have a longer term $7 per ton sustaining capital. So we should go back in 2 years' time, let's say, to $4 per ton once Those investments are done. So therefore, we see ourselves as a $30 and even sub-thirty dollars per ton It's a breakdown in China when you add sustaining, a sub-thirty five dollars in the medium term in 2 to 3 years. Luciano, about the $450,000,000 just to be clear, Andres, and then Spinelli can help me with that. The idea behind the 450 is much more on creating flexibility and buffers to our situation and creating growth optionality in the north, right? Although we just announced the Capanema project, it's not based on the actual prices. Vale is truly committed to the value over We are always looking at margins. We are always going to look at the way the market behaves. We're not going to The producing 450, we always said we want to have the capacity of 450 to have buffers to absorb problems Or else, even if the market demands, we are able to do the 450. If you can add something else, Spinet would be great. Yes. We're not a mess over the price that we're looking now. We're not looking at the price of now to get to the 4.50 Exactly this. This is a decision for any spike of price. And the way we manage that is the swing capacity. So we can regulate the operations in the south or in the north. We can use the portfolio flexibility to improve premium products or not. So it's To bring reliability to the plant, to the 400,000,000 tons plant and give optionality to If you have a market for that, but margin over volume is the king for that. Our next question comes from Chris Terry, Deutsche Bank. Hi, Eduardo and team. Yes, I had two questions I wanted to ask. The first is around Production versus sales. So I just wondered if you could comment a little bit on where your general inventory levels are at And some of your blending sites and how you're thinking about the build of inventory on any of those blending sites and overall Great optimization for your selling products. And the second question I want to ask is just around the exposure to Batteries, lithium ion batteries through nickel in particular. I'm just wondering if you could give an update on your latest Thinking on what the company is working on there. Thank you. Thank you, Chris. Go ahead, Spinelli. Thank you, Chris. You're not planning any gap in our venture. For that, last This year, the Q3, we had a huge, very important gap to Over all the supply chain, all the to fulfill all the supply chain that we lost 1 year before. So now we are, With our ventures in an operational level that we can give flexibility to sometimes from a specific product like Carajas or Chubland products. So obviously, you see Some gaps, so it's not the number of production and the number of the sales can sometimes can be different, But not a huge gap during the quarters. And Mark, please. Of course, Eduardo. Chris, just in terms of batteries for the electric vehicle space, maybe just to start. I think we're seeing Great evidence that the electric vehicle market is here and it's going to grow dramatically over the coming years. And it's going to be A dramatic opportunity for the nickel business. While there are discussions around the form of batteries, Lithium ion for sure is going to take a significant portion of that market. And even if there and there are places for things like the lithium It's iron phosphate battery. But we believe that nickel will take a preeminent position in the battery space And it will be demanded by the industry. So moving to the opportunities for Vale, what we See is an acceleration of discussions around creating the value chain or the supply chain in the European and U. S. Markets. And we are seeing lots of evidence and participating in many discussions on a number of different fronts around how we can participate. We have a strong portfolio of nickel and the nickel that we produce including our Class 1 nickel out of our North Atlantic flow sheet in the UK and Canada, seems to be Well demanded or strong demand for that product. And so that's something in the short term and we are very heavily engaged in those discussions. Now that's demand that comes from our current flow sheet and we will be participating in that. And then I think we look towards the more Short to medium to long term opportunities and we start to look at opportunities within our flowsheet and potential joint ventures and partnerships And we're in discussions with that around that as well. And then just in terms of how we meet, we look to supply that, we obviously are very heavily engaged in our exploration drilling activities and looking at other opportunities for innovation to fully participate in this opportunity. Next question comes from Alex Hacking, Citi. Hi, good morning. If I could just follow-up on that last question with Mark, I guess, first, which is, Mark, are you seeing in your discussions demand for sustainable Class 1 nickel? And if so, how does Vale fit on that spectrum and are there kind of initiatives that you're undertaking on that front? And then the second question, just coming To iron ore, in particular in the North Carajas, when S11D was built, I think it was built for 230,000,000 tons of export capacity. I think the system has never really done much more than 190,000,000 tons. Now I know Sarah Lesgi is coming back online. But is there a pathway there for the Northern System to achieve that 230,000,000 tonne rate. And if so, like when do you think that would be? Thanks. Okay. So Alex, thank you for asking that complementary question, because absolutely we see significant opportunity In providing nickel that meets strong ESG standards. And we are seeing A lot of discussion. We're hearing a lot of discussion around the type of nickel that's being provided in terms of ESG standards, whether it's low carbon We're coming from well regulated, well run jurisdictions. And so clearly, we can position and we do position our nickel in the top of that spectrum. If you take a look at our nickel Coming from our Canadian flow sheet, for example, it has an average carbon intensity significantly below comparable products. And we have an opportunity to decrease it dramatically. For example, taking removing diesel production, our diesel Fuel out of our Voyage's Bay operations will dramatically reduce our carbon Intensity in our product coming from Long Harbor. So we absolutely do see that opportunity and we do see and we are positioning our nickel in that way. And certainly, the suppliers are looking for that. Sinead, could you? Yes. Thank you, Alex. Well, yes, we have our plan is to reach the 230,000,000 tons next year, the capacity in the end of the year. I want to just check with you. We have 3 systems there. We have the North Range, the East Range and the South Range. S-eleven D is only one of First information is that that was good news from the last year. It was the East Range. We can add 6,000,000 tons. We stopped this operation 2 years ago. Now we are back. So we are adding in this number of €230,000,000 The North Range is The challenge is to bring the new pits online. So we always need to bring pits and Have the construction and the license. So the good news is the entry operation that I mentioned in my initial speech. In S-eleven, that is the south range, is going really well. This year, we need to Have some adapt some crushers. It's in our plant this year. It came with the use Of the S-eleven, so we are improving the operation there, but we will be ready at the end of the year, beginning of next year to have Full operation there. So we have the plan to reach 230 to the end of next year. Thank you. Our next question comes from Christian Georges, Societe Generale. Thank you very much and good morning to all. I have two questions for you. The first one On your pellets production, how should we look at the production target? Should we anticipate A gradual return to 50 or 57 tonnes per annum in coming years. And associated to that, What should we anticipate for your cost of operations, leasing and palletizing going forward? That's the first question. And the second is on the stoppage expenses that from Bumadinho, those costs which are not covered by the settlement around something like €100,000,000 per quarter. How should we expect those to evolve over the next 2 years? And on the side, you seem to be very confident on your ability to deliver production this year. Should we look already at being more likely at the upper end of your 315,000,000 3 35,000,000 tonne target. Thank you. Thank you, Christian. This is Pineda here. The pellet production, we expect to improve slightly this year comparing Last year, our main restriction is the production of pellet feed. We have All the evolutions that you face in the southeastern system with all the dams that I mentioned. So Until the end of the year, we still have the bridge of this production using the remaining capacity in the dams. In the next year, we gradually will go back to the level of the production used to have. So it will be around The ramp up to 50 to 60 of capacity. Obviously, it depends on the demand. Again, The margin of volumes is part of the strategy. But in terms of you can consider this year a slight recover and next year after the production of pellet feed, we can improve more. In terms of costs, the dilution of costs will come, that we are operating a Part of our capacity in with idle capacity. So definitely, the dilution of will be important to reach the best of our operations next year. Stopping expenses should decline in The same proportion that the operations come back into production. So with the exception of Vale and Granje, they should come to 0 at the other sites by the end of 2022. Thank you. Our next question comes from Amos Fletcher, Barclays. Yes, good morning, gents. Had a couple of questions. First one on capital allocation. Can you clarify that once the expanded net debt gets below $10,000,000,000 Can we expect all surplus cash flow to be returned to shareholders? And then the second question is just on your base metals business. Once upon a time, you look quite seriously at Separating off the base metals business, when we look at the huge valuation differential between the pure play nickel and copper miners compared to iron ore mining companies, do Do you think there's a rationale to consider a separate listing of the base metal business again to highlight the value there? Thanks. Thanks, Adamus. Yes, but look, the understanding of the trajectory of the expanded debt is even more important. So obviously, if we are below 10x, all excess cash is going to be returned to shareholders in forms of dividends or else. And secondly, about base metals, obviously, we understand that you have a strong point. We see the same, We see that in Iron Ore today with the valuation that we are undergoing. So we need to correct both valuations and build the business. And of course, Optionalities like that are always in the table to look at, but we still have to do a big homework at base metals business, Grow the copper, as we mentioned before, strengthen the nickel, but truly, it's something that we're always going to be looking at, It's not the time. For sure, it's not the time. And capital allocation, just to be clear, everything in excess is going to be returned to shareholders. But always on a trajectory because we paid a strong dividend this semester and we had 13,300,000,000 This concludes today's question and answer session. Mr. Eduardo Bartolomeo, at this time, you may proceed with your closing statements, please. Okay, thank you. Thank you a lot for your attention, your questions, your interest. I think we as you saw, we had a very Good, I would say, even excellent Q4. But as I've been saying to you, this is not a Sprint is a marathon, marathon that goes through derisking the company, reshaping the company and rerating the company. We are truly committed with the risk. Yes, we did strides very importantly in Brumadinho as with the global agreement. In safety, we're improving. We're bringing our production With safety, consistently, capital discipline, we are extremely conservative and we're going to return What we have to do with to our shareholders on a disciplined way, we are reshaping the company. Luciano mentioned several initiatives to clean up From biodiesel, palm oil to the V and C problem to other assets that are draining cash, Well, we're going to rerate when we are truly a safe, a sustainable, a reliable company. So thanks a lot for your attention, and See you in the next call. That does conclude Vale's conference call for today. Thank you very much for your participation. You may now disconnect.