Earnings Call: Q2 2021

Jul 29, 2021

Good morning, ladies and gentlemen. Welcome to Vale's Conference Call to discuss the Q2 of 2021 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 the time. This, please press star followed by 0. As a reminder, this conference is being recorded and the recording will be available on the company's website at value.com@investorslink. This conference call is accompanied by a slide presentation also available Sterling at the company's website and is transmitted via Internet as well. The broadcasting via Internet, both the audio and the slides change, specified few seconds delay in relation to the audio transmitted via phone. Before proceeding, let me mention the forward looking statements the 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 Salig Bartolomeo, Chief Executive Officer, Mr. Luciano Cianipides, Executive Vice President, Finance and Investor Relations Mr. Marcelo Spinelli, Executive Vice President, IRR Mr. Mark Trevor, Executive Vice President, Base Metals Mr. Carlos Medeiros, Executive Vice President, Safety and Operational Excellence and Mr. Alexandre Dombrosio, Equiniti's Vice President, Legal and Tax. First, Mr. Eduardo Bartolomeo will proceed to the presentation on Vale's Q2 2021 performance. This. It's 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 you're all doing well. As we have done since the beginning of the pandemic, we kept our guards up in the Q2 of 2021 the safety and prevention procedures for COVID-nineteen. Safety, people and reparation, These words have been our priority since 2019 and continue to inspire our actions. We have made progress in Hipero Brumadinho. We are working with the authorities to implement the BRL37.7 billion integration agreement signed in February this year. While the authorities are structuring the work fronts, the Vale continued its actions for social environmental and social economic reparation. In the Q2 of 2021, among other initiatives, We launched the social strengthening program in 10 municipalities and along the Parrapah River. And we are completing the A new pipeline to supply the metropolitan region of El Horizonte. This delivery is a major step forward in ensuring water safety for nearly 6,000,000 people. The reparation of individual damages also continues to advance. The Since 2019, more than 10,700 people have entered in civil or labor compensation agreement with Vale, strategic initiatives in the future. We have advanced in the safety of our dams as well. The In the 1st semester, we removed the emergence level of 4 structures and reduced the emergence level of another 2. In the upstream dam decharacterization program, we completed the works of the Fernandinho dam at the Vazin Grand complex. So since 2019, 6 upstream structures have been eliminated. We also Completed the works of the containment structures downstream of Forquilas and Grupo dams. Finally, We are also advancing with the works for B3 B4 and 2 Superior Dams. Earlier this month, We started activities to remove the tailings with unmanned equipment. In addition, the Our Dem Mandarin model also continues to improve. We have appointed an independent tailing review board, the ITRB, To each of our iron ore corridors, this practice is in line with the global industry standards for tailings management, the GISTM. By the way, we are in line to adhere to the ISTM in due time. So We continue to make progress in the culture transformation towards a safer Vale. We have also made progress on our ESG commitments. This quarter, we detailed our strategy to achieve our 33 the reduction targets for scope 12 emissions with an estimated investment between $4,000,000,000 to $6,000,000,000 As I said at the last Vale Day, Vale is uniquely positioned to lead the transition to a low carbon mining. We have a high quality portfolio to support steel decarbonization. We are a leader in renewable energy the With around 90% of our global consumption from clean sources, and we operate sustainably, protecting 1,000,000 hectares of forest, About 80% of which in the Amazon rainforest. As for our ESG GAAP action plan, we closed another gap the establishment of a formal due diligence methodology for human rights. This process Assesses and addresses human rights risks and impacts. It will be implemented across all of our operations strategic and critical projects starting with 14 operations in Brazil in 2021. As you can see, Well, now talking about the operational performance of our business. Our adjusted EBITDA in the second quarter It was an all time record at $11,200,000,000 given the increased sales volume of iron ore and good market conditions. We completed another quarter of increased iron ore production, growing 9,000,000 tonnes compared to the same period of last year. In the first half, we were 60,000,000 tonnes higher than the first half of the last year. We have reached as well An annual capacity of 335,000,000 tonnes, and we expect to operate with an average production of 1,000,000 the results of the year. We remain confident that we will achieve our production guidance for 2021. Spinelli will give more color on that. In nickel, our performance was mainly impacted by stoppage the study of the Sudbury operations in June. We continue to negotiate a collective labor agreement for the next 5 years. In copper, We recovered part of the performance compared to the Q1 by accelerating the implementation safety and maintenance process in Salobo and Suzebo towards a stronger second half. Despite of this, our portfolio of nickel projects has made strides to ensure the continued delivery of quality, responsibly sourced material to the market. In June, we had the first production of the ore from Reed Brook underground mine the success of the Voisys Bay Mine Expansion Project. We also signed an agreement for the Bahadopi nickel processing facility in Indonesia the financial results with Tisco in Chien Hai, and the final investment decision is expected in the next 6 months. Finally, in Thompson, Manitoba, We are also evaluating investments to extend the mine's activities for 10 years. In relation to our cash strengths, We concluded the acquisition of Mitsui's stake in the coal and logistics operation in Mozambique. This is an important step for our divestment. And the other is the conclusion of the ramp up of the Moatiz operations. We expect to reach the run rate of 50,000,000 tonnes per year in the second half, and we continue to seek alternatives for responsible divestment in that business. Talking about capital allocation, we provided further evidence of our commitment the significant contribution to our shareholders with the distribution of extraordinary dividends of close to $2,200,000,000 in June. Summing up March dividends, Vale returned around $6,200,000,000 to shareholders in the first half fiscal 2020 1. In September, we will distribute at least another $5,300,000,000 according to our policy the financial results and based on the results of the first half. The final number, including extraordinary dividends, We'll be defined as usual in September. And as I said in the last quarter, Without compromising the continuity of dividends above the minimum policy, we continued the share buyback program announced in April. So far, the program has disbursed $2,600,000,000 the And it's 45% complete. So, disciplining capital allocation is part of our de risking, And I'm confident that we will deliver on our commitment to maximize returns for our shareholders in the long term. To conclude, I just want to emphasize that we're still guided by derisking, the strengthening of the company's strategic initiatives. We have effectively advanced in the de risking. We are repairing Brumadinho fairly and quickly. We are building a culture of safety and operational excellence. We continue to stabilize our operations. Our ESG commitments are fundamental to our strategy, and we continue with an strict capital discipline focus on the return to our shareholders. In reshaping, we established a good case with the VNC exit, the And we are also looking for a responsible exit in Mozambique. And the rerating will happen as we evolve in our deliveries, which brings us closer to our ambition of being a safer company with more stable and reliable operations, And I want to thank our 70,000 employees, our contractors, suppliers and customers the for their resilience, high guard and commitment to our culture transformation. Now I'll hand over to Spinelli, Thank you, Eduardo. Good afternoon, everyone. Let's start bringing an outlook about the production of this year. We want to reinforce our production guidance. It's a range between 315,000,000 and 335,000,000. We increased, as Eduardo said, 16,000,000 tons in the first half comparing to last year, 12% of production. If you don't add any more volumes in the second half, you can say that we are in the lower range of the guidance. What can make us believe that we can deliver more in the second half? In my right hand side, I have some topics I want to share with you. Firstly, we are in a dry season now. You know our seasonality. We've been running our operations 1,000,000 tons a day. 2nd, East Range. We anticipated the ramp up of East Range. It was the The previous plan was for Q3. Now we are in full capacity in this range. 3rd, despite the limitation to produce more with wet processing in Brucutoul, Our team in a teamwork, we could add additional volumes for high silica there the market condition that we have nowadays. 4, Fabrica is bad. That's news from last week. And here, not only volumes, but we can now reduce the risk and have the full capacity in fiber. And last but not the least, we have a very brand new asset now, Maravides III since the last Tuesday is brine. So we can now bring the wet process in full in Vazin Grenje and we are waiting for an additional capacity in the In a couple of weeks, with the resume of the Campeo Belt, the long distance Campeo Belt So let's move to next slide. Now I can give you an update about the resumption plan. Well, since the last conference call, we had several achievements. I want to reconcile the numbers here with you. We left last quarter with 327 1,000,000 tons of capacity. Since there, we added with each range plus 2, HiSilica Boucou 2 plus 5, Fabrica full capacity since last week plus 4, Aimaraviras 3 plus 4. The sum is 342, but we need to decrease the capacity that we loss in Itabira. We start this year saying that the capacity of Itabira this year should be minus 9. And after hard work in Itabira handling the materials, we could Reduce this impact to minus 2. And as I said in the last conference call, with several small delays in other pits. We have a minus 5. So the net number is 335 of capacity today. The Next slide, please. So what we expect for the second half. So as I mentioned, We want to unlock the capacity to the end of this quarter plus 6,000,000 tons. And also in S11D, we have the abom crusher. We already installed 1. We have another the second one this year, and we'll have the other 2 for next year. And about Brucutu In total BAM, we announced in our production report that we are We have now another startup for total second half of next year. Total Dembezante construction is going well, but we decide to have some extra work to guarantee all the safety standards for that dam. I want to remind you that we need some extra time to have the final permit from Maravilla Street that already the permits. So that's our new forecast. Again, for that site in Brucutu, we also have More two initiatives to recover capacity. We have the filtration that is under construction and also Lara and Viras dam the that we're not using today, but we have a plan to bring back next year. So despite this delay in Torto, we partially offset the capacity of Torto, bringing more 5,000,000 tons with Hysilica in Brookuto And also 5,000,000 tons in Itabira, as I mentioned, that we reduced the problem since the beginning of the year. To conclude, in our roadmap to 400,000,000 tons, it's important to say that we are also with the projects online. We have the filtration in Tabira in Brucutu. In the North, we have gelado in S11D plus 10, the S11D 100,000,000 tons the expected CapEx capacity in the end of 2022. Now I hand over to Luciano Luciano. Thank you, Marcelo. A few remarks on each of the businesses. As you saw, the performance of costs, there was an important increase the on costs before 3rd party purchases towards $17.8 per ton. We're now expecting the To end the year between $16,000,000 and $16,500,000 There were one offs in this quarter. Most importantly, the mirage costs Increased a lot because of the repairs in the ship loader in the north and the queue of vessels increased. However, we're now feeling some inflationary pressures. Diesel costs have increased a lot. Mining parts, we're starting to see some service inflation. But still with the dilution of fixed costs, we expect this decline over the next quarters. Reminder that Q3 will still be impacted by the carryover of the production higher cost production from Q2 through inventories. But in Q4, you should see the full at least $1.5 decline compared to current levels. The The opportunities going forward to reduce costs, 1st and foremost, is to unwind all the COVID expenditures if we continue to progress in controlling the pandemic. Today, iron ore spends about $150,000,000 a year on costs and expenses just on the pandemic measures. On cost alone, this is about $0.30 per tonne. We expect to start unwinding this soon. We have the normalization of operations. Timbopeba, Fabrica, those who already reached full capacity should start to post better cost performance in the coming quarters as well. And finally, we did have an increase in maintenance expenses related to the catch up that we're doing. We're implementing the VPS value production system model, requires systematic maintenance to go from the prior levels of 20%, 30% of total maintenance activities towards 70%, 80%. We're getting very close to that. Once we have most of the maintenance being done systematically, the $192 to $2.55 A reminder that this $2.55 includes a mix between CFR sales and FOB sales, And also that increase should have been even higher if it wasn't for the fact that an important fraction of the pellet sales, the They have its prior quarter prices that command those sales. So therefore, the price increases in the second quarter have not yet Going through the pricing systems for pallets. Actually, pellet premiums are around $60 for blast furnace pallets and $70 the On top of the 65% for direct reduction pellets, so the premiums increased substantially in the quarter. We're now also selling more of direct reduction pellets, which command a higher premium, so that explains that very healthy increase in pellet premiums. And also that highlights the opportunity that we have ahead because 2 of our major operations, Itabir and Burcu Tul, which are performing well below potential, the awaiting the filtration works and the tailings dam works. These are the ones who produce pellet feed to supply our pellet plants. So therefore, once they come back, Hopefully, we will start to normalize our pellet production and take advantage of these very high premiums. In base metals, I think we missed consensus by maybe 12%, 15% on base metals EBITDA. Perhaps that was because of the assessment that the market made about the impact of the Sudbury strike. Just a reminder, Sudbury is a polymetallic the Not only nickel production suffered, but also copper production, byproduct production. So, Sellebrae does have A very large impact on our operations. Even if we resolve quickly the strike, we will still have the many weeks until we normalize. And also, we have some major maintenance program, the regular 18 month scheduled maintenances to be done over the next few weeks as well in the surface facilities in Sudbury. Finally, on coal. In June, we started to consolidate the results of the business in the corridor, the logistics corridor. As a result, EBITDA for the month of June was minus $12,000,000 the significant improvement the prior months in April May. We were minus $60,000,000 minus the $50,000,000 every month. So already, the benefits for the core performance are kicking in. And therefore, with the ramp up and the current pricing environment, we do expect to reach positive EBITDA the second half of this year. So let's now move straight to Q and A. The the question and answer session. Our first question comes from Mr. Carlos Galba with Morgan Stanley. The Good afternoon for you guys in Brazil. I hope you are doing well. So the question I had first is on Money returns to shareholders. What do you see with the potential increase in dividend taxes? The combination going forward of dividends and share buybacks. And also if you can provide any color on the caps To future dividends, at least in the second half of the year based on their balance sheet accounts, the capital reserve account and the net profit Or retained earnings accounts. That would be very useful. And then if I may ask just on what is the Luciano, the €12,000,000 negative EBITDA in June versus the €60,000,000 in prior months, Does that already reflect the benefit of the removal of the financial burden on the private finance? And the only thing that is then left to capture is the better economics as the ramp up progresses? Or there still some part of the product finance benefits or elimination of those costs that should be reflected on top of the the improvement to minus 12%. Thank you very much. Thank you, Carlos. Okay, Carlos. Let me begin, Luciano, just then any detail from you, okay? I think, as I mentioned in the beginning remarks, Carlos, We are being extremely disciplined in the capital allocation, right, both in buybacks and in dividend payment. We did an extraordinary in March. The Of course, we signed that we have at least DKK 5,600,000,000 to be paid on September. This is at least because the We're going to see market conditions and now to define what is the level of extraordinary dividends. The As the specifics about the tax reform, we were questioned that in the previous call, and we answered the following, is that Still on the make, by the way, is something that should be neutral. That is the plea from both government and legislators that would either increase in the if there is an How can I say that? Factor of taxation or dividends would be a reduction the On the above line, so it would be neutral. But anyhow, we won't change our dividend policy because of that because the dividend policy and philosophy is to the surplus of maintaining our business health the And running is going to go as soon as possible to the shareholders. So with that, I think there is a specific question about reserves. And I think Luciano can explore that as well and give some more color I've just explained. Okay, Luciano, and then you'll go to Matisse, please. Okay. So Carlos, at current levels of cash flow generation, there's no competition between buybacks and the extraordinary dividend. So we've been doing both and we'll continue to do both. Different the shareholder base is spread all around the world, So different shareholders, they have different tax regimes. So it is even possible that for some of them the already taxing their dividends that the current proposal even could even be beneficial. We at least hope that it's going to be neutral, as Eduardo said, for the Brazilian shareholders, but for some foreign shareholders, could even be beneficial. So because of this heterogeneity of the shareholder base, we would rather be Not take sides here and continue to do both, thinking about the Because we can do both and there's clearly appetite for both also in the shareholder base. As regards to reserves, This is going to be a if any, this is going to be a temporary effect because as you see, we are building reserves very quickly. And there will naturally come a point, for example, perhaps in the Q1 that cash flows will be less than profits generated, For example, because in January, we have to pay the annual income taxes and it's natural that The free cash flow generated in the Q1 will be well below profit. So any If there is any restriction, it should be corrected very quickly. The other thing that we might do is that we did before is to the dividend into quarters instead of just doing it in a lump sum. So we're certainly going to pay more than the minimum in September, But there's we cannot rule out additional dividends in December as well based on the profits generated in the 3rd quarter. On Motis, yes, the benefits of the removal of the project finance have fully kicked in the Into the minus 12%. So now what we have to pursue going forward is the better economics, as you mentioned, of the ramp up Our next question comes from Mr. Jason fair call with Bank of America. Yes, bonjour everybody. Good day from London. The A couple of quick ones from me. First, can we just talk about Samarco? It appears that some of the involved parties want to renegotiate some of the amounts that has already been agreed. So any color you can provide would be really helpful and if Any implications for the Brumadinho settlement? Secondly, just on your guidance, could we just Talk about the guidance to return to 400,000,000 tonnes by the end of 2022. I'm trying to understand what benefit you take from guiding from such an aggressive return to nameplate capacity when the market basically is not rewarding for me rewarding you for it. Any thoughts there? The Go ahead, San Marco. And then Spinelli and I can talk about the guidance. Hello. Okay, I'm sorry. I was in mute. Okay, just a reminder here to give some Part of the history in Mariana, in 2016, there was an agreement between the state governments, the justice institutions in Samarco with support of the shareholders and where 42 programs were defined to ensure full reparation the And compensation amounts were also defined. In 2018, there was another agreement in which the public prosecutors joined in And there was a review of the governance of the Renovo Foundation, okay, to improve the participation of those affected. And this agreement in 2018 had already a provision that 2 years after its signing, the parties would sit together Again, to evaluate the effectiveness and the functioning of the programs, so Not of the entire agreement, of each of the 42 programs. What Samarco is doing right now is precisely that It's renegotiating the programs, the 42 programs as provided by the 2018 agreement. It is not negotiating a new agreement for Mariana. In fact, many of the programs of the agreement are quite advanced And it would make no sense to discard the work already done by the Regenado Foundation. So And importantly, completely different from Brumadin, where we were building an agreement from scratch, the mediation underway in the Supreme Court right now, it's aimed at the Improving execution and governance, respecting the parameters of the Vale agreement, which were signed by everyone and the The compensation amounts have already been defined and fixed. There are no discussions about values in this mediation the Because the programs have already been defined, the cost of the programs are provisioned for, and the compensation amounts have already been defined. And everyone agrees on this. There's a letter of principles which is public that was signed in June at the beginning of the renegotiation progress, which states exactly that. We're reviewing the programs, And we're not talking about values. We're not talking about compensation values, which had already been fixed. Now Spinelli on EUR 400,000,000 guidance. Yes. I want to I think Jason has an excellent question because it's very important to understand why We are focusing on coming back to the nameplate capacity. When you look at the numbers and you drill down on the 3 systems, the The big numbers are coming where from Itabira, from Brucutu and from the north. So we are talking about quality here. And then comes to our value over volume. We are not going to put volume on the market, as you're right, If you will be not rewarded for that. But at the same time, we are functioning inefficiently. We're operating half of the Uracutu capacity, the Not the total capacity of Itabira and having opportunities to increase our operations in the north of Brazil. So we're not saying that we're going to produce 400,000,000 tonnes. We're going to say that we have the conditions to swing capacity the to blend in an adequate form. So that's behind the building up the capacity. And then we use it as we should do in our value over volume in our commercial strategy. And I think Spinel can reiterate that. But that's, I think, a very, very good question, Jason. Thanks for that. You were perfect, Eduardo. And just to complement, I think in the different mode operational mode, so safer mode using dry processing and have the capacity Our next question comes from Mr. Alex Hacking with Citi. Yes. Thank you. Good morning. So first question, Spinelli, just to follow-up on the iron ore capacity. The How much when I look at Figure 12, what assumptions in there are on the Northern system? Because that was always designed with, I think, 230,000,000 tons of capacity. But when we look at production the Today, it still seems like it's operating below 200. So what are you assuming on the ramp up there of the Northern System? And then just to follow-up on your previous comments. So again, you're talking there about getting to 450,000,000 tons of capacity in the future. I mean, are you saying that you would be willing to build up to that capacity level, but operate Very significantly below that at 350,000,000 tonnes or something like that. And then just one quick question on Moa Cheese. What's the mix of met and thermal in that 15,000,000 tons? Thanks. Thank you, Alex, for your question. Well, talking about the figures in the North system, yes, we're designed Construction that have the plus 10, S11 D and also to deliver the gelato product. Now we have the ramp up of S11D. The We learned a lot last year to run a non flexible system or less flexible system, but very interesting in terms of environment and efficient in terms of cost. But we don't have the same flexibility in open pit operation. So that was related to the ramp up with 2 adjusting the crushers. And it's important to say that we learned this in last quarter When we have a lot of products, we have the tie ins. So we can have some impact, temporary impact when we are Adding some new capacity and we learned to this and we are going to have in our plan for this in the near future. And talking about the 450, again, it is about a pipeline of projects to offset some setback that we can have. In the mining business, you know very well we can have difficulties like we have now in Porto the Related to our construction or our permit, some small delays in 6 months, even 1 year. We have a pipeline to have reliability to deliver our lung. If you don't see the necessity in the future, the We don't just don't trigger the project in this pipeline, but we must have the pipeline of 150 the guarantee that we can have the optionality to deliver the EUR 400,000,000. So that's the idea of EUR 450,000,000. And And Spina, just to add on you, and I think Alex has the point. 450 is a more medium term shot. And then comes the swing capacity that you just mentioned, okay? That's why we need to build buffers for that and to swing capacity because we have very expensive Mines as well. So that's behind. And it's a medium term. It's not that we're going to use $550,000,000 next year or next 2 years or what else, even next year for the 400,000,000. We need to reestablish our architecture as it was before. And then we define, as you said, margin over volume, as we always do. And Luciano could answer about the moieties. It's about 55%, met coal, 45% thermal. Our next question comes from Mr. Andreas Bokkenhauser with UBS. Thank you very much. Just a quick question from me on freight. I know we've talked a little bit about this before. We're obviously seeing a bit of freight cost inflation. The But over the last few months, there's obviously been talk about new IMO rules on freight and carbon emissions and so on and so forth. Can you just Remind us, how does the freight contract reset work for you guys? I mean, I know you have long term freight contracts And obviously freight rates are right now hovering around $27, dollars 28 a tonne. So I guess the question is if freight stays at this level, the Should we just expect even your medium to long term freight contracts to be reset at that level? Or do you have any kind of fixed the freight contracts with some of your ship providers. That is my question. Thank you very much. Thank you, Andreas. It's Peniel here. Well, two points here to address. The first one is about the market, the spot market today. You're right. It's Surprisingly robust in this first half. I can say surprising because we can see the smaller vessels, Panamaxes, Handamaxes, they were really under pressure with high demand. It It wasn't the same pattern of the Capesize business, but there were the whole market the higher level than we expect. We don't see this long term trend considering the supply demand in this market. The other part, the other question that you made related to IMO regulations, This is an important point. I'm always defining the regulation for some time. They set a goal for 2,030 2015. Now they are extending to existing vessels. What we see in our fleet, we don't have any impact in terms of cost. Only the 1st generation of the Of Vale Max, as you can consider in maximum speed, a reduction of 2%, but it's very small impact. So we don't see in average any problem in our fleet. But the spot market we can have, It's only for 2023. And after that, we have another regulation the that you need to keep the efficiency 2% a year in a rank that the We will define A2E in terms of efficiency of the vessel. So in this case, if you don't Comply on that target, you're going to have a reduction of your power. And Again, this can be something that we must track. But at the same time, the business will react Today's bringing technology, I want to emphasize, Israel, that we have our project, our set of projects that is called Eco Shipping. We brought the broader sailing to a new vessel and we're bringing out the air bubble lubrication that's another initiative both of them Can help a lot in a vessel to reduce the emissions. And we have a set of projects We can make this evolution better, and we need to definitely Talk to our ship owners to implement these initiatives, but we are really aware about that. Andres, We will never ever converge towards spot rates. More than 80% of our fleet has 30 year contracts, Which is cost operating cost and a pass through for fuel. So for example, our 2nd generation Vale MAXs today are running at rates of $14, dollars 15 per ton at these bunker prices. At lower prices, they can go as low as $10, dollars 9 per ton, the And that's it. The reason why we suffer with higher spot rates is because in the second half, we usually use spot to transport the excess production from the second half to the first half, but this is not ever going to flow through the existing contracts for 85% of our fleet. Just to add another information, our fleet today is 170 ships and we're also bringing more 18 Wayba Maxes and 6 Newcastle Maxes this year. So we'll be really well protected for these fluctuations. Our next question comes from Mr. Amos' sweatshirt with Barclays. Yes. Good morning, good afternoon, gentlemen. Thanks for taking question. First question was just on the Sudbury strike. How long should we assume this takes to get resolved? And then I wanted to also ask about financial leverage. I mean, if we look at your pure financial leverage, you're in a net cash position With the business delivering very strong EBITDA prospectively, could it be possible to take on a bit of modest levels of financial leverage to improve returns shareholders even more. Thanks very much. Go ahead, Mark. Okay. So, Amos, we've been back at the table In discussions with the USW for about 10, 11 days now, and those talks continue today. The So that is a good news to this story. The fact is that we're at the table and engaged very in a very heavy manner with the USW to try and resolve this. Discussions are going well. We feel positive, but of course, we can't count on anything until it's concluded. But we remain positive that the And Amos, in terms of financial leverage, the answer is yes. We intend to increase our leverage. We had this target of $10,000,000,000 of expanded net debt. We raised it After discussion with the Board of Directors to 15, we're going to do this over time. And obviously, in the short term, we're playing catch up, right, given the very strong cash flow generation. Just Stand still where we are. We're having to distribute everything that we generate as we promised before. The But in order to re leverage, yes, we will need to distribute more than the free cash flow, and we will do so in the next few quarters. Our next question comes from Mr. Tyler Brodah with RBC. Great. Thank you. I guess I just had a question on the 3rd party volumes. So you had quite a jump in the 2nd quarter, about 2,000,000 tons. It doesn't sound like much, but obviously has a big impact on your costs. Could you just run through where those volumes come from and sort of where we should be looking at for those going forward? Thank you. Thank you, Tyler. Spinaldi here. We see the purchase of 3rd parties as an opportunity, Okay. We for this depends on the the impact depends on the index, But you can make money and we do it. In this what happened in the second quarter that in the first half actually we have spare capacity in our systems to the rainy season and the lower production in the mine. So we could Improve increase our purchase and take advantage on that. 2nd half, I say that It's more related to what we do usually if you can compare to the last year. We are full in our operations now with public Quebec and also we have the Margin and Financial Operations. We don't see so much increase the in this purchase comparing to last year. So that will be a stable process. Our next question comes from Mr. Christian Georges with Societe Generale. Thank you very much. Just quickly on what you were saying about freight costs. I think you were saying that you're not seeing the current surge as being sustainable in the long term. I mean, what's your take on it? What's your idea of when we should see this current elevated cost the Reverse and then is that because there's more capacity coming to market or more because you're seeing less activity on shipping? Thank you, Christian. Well, I think we have a balanced market in Capesize business. We don't the impact of commodities Like soybeans is more related to small vessels, not Capesize. This year, they had a boon. They Sometimes use the Capesize for their business, but it's not the usual use of the Capesize. So that's our view. This market with our even with our return to the market, you see some markets like India or CIS that are using Capesize to feed China, You go back to the domestic markets, so there is a balance, rebalanced in this, something Coming from Brazil, but reducing for other parts of the world. So that's our view about this, the Capesize markets. But again, It depends on other points like the other part of the total market in other kind of vessels, Our next question comes from Mr. Sylvain Grenier with BNP. Hi, gentlemen. Two questions for me, please. First on I and O the sequential cost increases. Maybe Luciano, as you hinted at some spillover effects, what should we expect Into Q3, you guided us towards the later part of the year, but what about freight and fuel costs, lag effects we should expect in Q3? My second question is on your nickel business in a context where NPI production keeps creeping, it's now over 50% of the global production, if you take China and Indonesia together, does that concern you? And would you the streamlining your portfolio to favor Class 1 exposure and maybe streamline the non Class I Exporter. Okay. So the On iron ore costs, so we guided for $1.5 reduction on C1 until the end of the year. And also as I mentioned, Q3 will be a middle point from today and end of the year because the effects on inventory that there's a pass through that takes another 1 or 2 months in order to the unwind the inventory produced at higher costs. So there's no structural change in the next 6 months. But the Eventually, if we can unwind COVID quicker due to more progress in the reduction of the number of cases, maybe we can have the positive surprise here. In terms of freight and fuel for today's spot prices and oil prices, the The freight should stay pretty much the same, maybe a slight increase because when we sell more, we have to resort more the to spot freight, which is going to be definitely the case on the Q3 and Q4. But again, this is at the margin Because most of the freight is contracted in our fleet, so you should not expect significant changes In this variable for Q3 and Q4, some are part tick, but marginal. So I'll address the question around NPI Production Class 1 Pivoting. So clearly, the supply of NPI coming out of Indonesia is increasing the Dramatically, right now, what we are seeing is that the demand for nickel is quite strong. And in fact, the We are seeing the market, I would say, more or less in deficit rather than surplus. We also see and expect the Chinese NPI production to continue to decrease, although it is fair to say that the NPI production Coming out of Indonesia will continue to lead to increased overall supply in the coming years, as well as some strong, but we do also have some very strong demand in the stainless steel industry. There are I think it's something that we do need to watch in the future years, but overall in the coming years, we do expect that it not potential policy moves to limit further expansion of NPI to protect the sustainability of the saprolite in the coming decades. In Vale based metals, we do are in a position to play to all 3 segments in the nickel industry, high purity, the stainless as well as the chemical to provide to the EV side. We are clearly focusing quite the heavily on the high purity and the playing into the energy transition and electric vehicles, in particular, in our Canadian flow sheet. It's important to note also that even our Indonesian operations, although providing the nickel mat. We are flowing that through to make a Class 1 product out of our Wales refinery. Also, finally, I will note that our onsapuma fair nickel operation is a very is quite a profitable operation, And it provides us with a long life and continued flexibility even to convert that mat and sulfadize it for use in a Class this. So I think we have lots of options to play the market the way we would like to under our strategy. This concludes today's question and answer session. Mr. Eduardo Bartolomeo. At this time, you may proceed with your closing statements. Okay. Thank you. Well, thank you again for your interest and your questions and interest in our business and results. And as we said all the quarters, the It's really a marathon, not a sprint. And this marathon requires discipline and persistence. And I think we've been there. We actively with the narrative of de risking, reshaping and rerating. We are doing our job in de risking the company, in Brumadinho, in the safety and operations in ESG and, of course, in the capital discipline that you're seeing that is extremely rigid. Reshaping is being done. But of course, the rerating is the final is the 42 kilometers is when we are really reliable the and safe and then when we'll be reworded with your confidence again. And I think that's the work that we're doing