0 Vale goes to the BM&F Bovespa Stock Exchange August 2015 Luciano Siani Vale CFO
Disclaimer 1 “This presentation may include statements that present Vale's expectations about future events or results. All statements, when based upon expectations about the future and not on historical facts, involve various risks and uncertainties. Vale cannot guarantee that such statements will prove correct. These risks and uncertainties include factors related to the following: (a) the countries where we operate, especially Brazil and Canada; (b) the global economy; (c) the capital markets; (d) the mining and metals prices and their dependence on global industrial production, which is cyclical by nature; and (e) global competition in the markets in which Vale operates. To obtain further information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission (SEC), the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF) and The Stock Exchange of Hong Kong Limited, and in particular the factors discussed under “Forward -Looking Statements” and “Risk Factors” in Vale’s annual report on Form 20-F. ”
2 We have been working in several dimensions to further improve Vale´s highly competitive position Increasing Volumes Reducing Costs and expenses Setting the basis for strong Free Delivering Cash Flows projects Increasing productivity Strengthening our license to operate
3 We have reduced our expenses 1,2 significantly US$ millions One off impact -51% -22% 7,117 1,204 5 295 809 3 4,521 4 638 633 3,547 2012 2013 2014 3Q14 4Q14 1Q15 2Q15 ¹ Net of depreciation and amortization. ² Includes SG&A, R&D, Pre-operating and stoppage and Other expenses. ³ Excludes the positive one off impact of US$ 244 million of the goldstream transaction in 1Q13 4 Excludes the positive one off impact of US$ 230 million of the goldstream transaction in 1Q15. 5 Includes US$ 107 million of provisions from environmental obligations, US$ 98 million due to the write-down of thermal coal stocks and US$ 90 million due to the write-down of the ICMS credits. Source: Company reports of 2012, 2013, 2014 and 2Q15.
4 We have also made significant progress on cost reductions, as per the example of iron ore C1 Cash Cost FOB¹ port Brazil Freight Costs Expenses US$/t US$/t US$/t -30% -25% -34% 9.3 22.5 22.3 21.5 21.7 18.3 17.2 16.8 15.8 5.9 4.0 3.9 3Q14 4Q14 1Q15 2Q15 3Q14 4Q14 1Q15 2Q15 3Q14 4Q14 1Q15 2Q15 ¹ Cost of mine, plant, railway and port, excluding ROM, third party acquisitions and royalties (US$ 2,2/t in 3Q14, US$ 1,7/t in 4Q14, US$ 1,5/t in 1Q15 and US$ 1.2/t in 2Q15). Source: Company reports of 2014 and 2Q15
5 And we remain committed to delivering additional productivity gains Completed In implementation Example of initiatives Status • Improvement in availability of the transportation fleet in the Northern System Mine • Resizing of infrastructure, drilling and transportation fleets • Optimization of mine plans • Ramp up of the Itabirites projects • Improvement in the yield of the concentration plants Beneficiation • Extension of the natural screening process to older plants in Carajás • Full automatic operation of reclaimers • Automated operation of trains Logistics • Implementation of innovative technology: corridors − Distributed traction technology − Energy control systems at the ports − Reverse routes at the ports
6 We obtained the operational licenses for new mines and started the ramp up of three Itabiritos projects High quality products will replace lower grade material N4WS and N5S in Carajás Itabirites Projects Plant 2 N4W Plant 2 Primary N4E Crusher N5W N4WS Waste Dump N5S • N4WS licensed in 2014 • Conceição Itabiritos I started up in 4T13 ― Pre-stripping completed • Vargem Grande Itabiritos started up in 4Q14 ―Already mining the first layer of product (“ canga ”) • Conceição Itabiritos II started up in 2T15 • N5S extension licensed in May 2015 • Cauê Itabiritos will start up 2S15
7 And our iron ore break-even is being reduced US$/dmt, adjusted by quality Delta vs 1Q15 Base case price US$ 50/t 1Q15 2Q15 2.5 C1 Cash Cost Port 18.3 15.8 • Break-even¹ 1.5 Royalties 1.2 reduced to US$ 39.1/dmt Freight 0.4 17.2 16.8 • Carajás ’ operational cost Expenses 0.1 4.0 3.9 in June, 2015 already at US$ 3.6 3.4 Moisture 12/t Quality 1.2 2.0 Total 43.4 39.1 4.3 ¹ Iron ore fines unit cost and expenses landed in China
8 Our production volumes have increased across all business segments with the completion of our projects Iron Ore¹ Nickel Mt Kt 160 136 130 151 129 135 1H13 1H14 1H15 1H13 1H14 1H15 Mozambique Coal Copper 2.4 Mt Kt 212 2.2 181 169 2.0 1H13 1H14 1H15 1H13 1H14 1H15 ¹ Own production, excluding Samarco’s attributable production Source: Company reports of 2Q13, 2Q14 and 2Q15.
9 The iron ore supply in 2016 will be defined according to margins Mt 376 • The installed 340 capacity will be 376 Mt in 2016 • The potential production increase will be defined according to the 340 margins optimizations plan • Inventories will be optimized along the supply chain Iron ore Potential increase Iron ore Supply 2015 in 2016 Supply 2016
10 We expect nickel production to increase in 2H15 Nickel Kt • Ramp-up of VNC • Increase in PTVI’s production after the maintenance of furnaces • Higher production in Canada in 2H15 with the anticipation of the preventive maintenance in Sudbury originally planned for 2H15 303 167 67 136 69 1Q15 2Q15 1H15 2H15 Nickel's total production guidance 2015
11 Our capex¹ has reduced as we completed our projects Status of Vale’s project portfolio Capex¹ 2Q15 US$ billion • 8 projects delivered in 2014 • S11D advancing as planned: mine and logistics physical progress of 67% and 41%, respectively • Conceição Itabiritos II: delivered in 2Q15 and 7.3 7.2 started up in the quarter 5.1 • Cauê Itabiritos: 86% of physical progress 4.3 • Mozambique: mine and logistics physical progress of 93% and 89%, respectively 1H12 1H13 1H14 1H15 ¹ Growth plus sustaining capex. Source: Company reports of 2012, 2013, 2014 and 2Q15.
12 And we are seeking to further reduce our capex in 2015 Capex¹ US$ billion • Structural reduction in sustaining capex • Change in scope of some projects • Positive impact from BRL depreciation 8.0-8.5 ~4.0 4.3 2.1 2.2 1Q15 2Q15 1H15 2H15 Capex 2015
13 Our investment cycle is almost over Executed capex Estimated capex Capacity Estimated US$ million US$ million Physical Project Mtpy start-up progress 2015 Total 2015 Total Carajás Serra Sul S11D 90 2H16 568 4,060 1,321 6,878² 67% CLN S11D 230 (80¹) 1H14 to 2H18 924 3,577 2,375 9,484² 41% 1,317 ³ Cauê Itabiritos 24 (4¹) 2H15 139 825 350 86% CSP 4 1.5 1H16 - 1,055 185 1,224 4 87% Moatize II 11 2H15 289 1,673 629 2,068 93% Nacala corridor 5 18 2H14 431 3,324 648 4,444 89% ¹ Net additional capacity ² Original capex budget for S11D of US$ 8.089 billion and for CLN S11D of US$ 11.582 billion ³ Original capex budget of US$ 1.504 billion 4 Original capex of US$ 2.734 billion; out of the original capex – US$ 1.491 billion financed directly by CSP project. 5 Completion of the greenfield sections of the Nacala corridor occurred in 4Q14 while brownfield section 7 (500Km) is still being upgraded.
14 The S11D project is at an advanced stage of implementation Truckless system Main facts (mine and processing plants) • Start-up: 2H16 • Capacity: 90 Mtpy • Estimated cash cost 1 : US$ 10/t • Fe %: 66.7% • Production process: truckless mining Processing plants system and dry processing. • Dry processing plant, reducing operating costs as it avoids the need for tailing dams. 1 Cash cost FOB port (mine, plant, railway and port, including royalties).
15 The S11D project will help us further reduce our costs US$/dmt, adjusted by quality, 2018(F) with S11D Gap in relation to 2Q15 Base case price: US$ 50/t 3.3 0.6 2.4 1.7 8.3 2.8 3.7 1.5 30.8 16.2 1.5 12.5 C1 Cash Cost Royalties Freight Expenses Moisture Quality Total FOB Port
16 Meanwhile, we continue to divest non-core assets and form strategic partnerships Belo Monte Tres Valles Fosbrasil 8 VLOCs¹ Log-in Reference US$ 1 billion Norsk Hydro Goldstream II CADAM Oil and Gas Concessions I MBR preffered Ferroalloy plants in shares Goldstream I Europe Araucária El Hatillo Mozambique deal with Mitsui Aluminium VLI assets 10 Very Large Ore Carriers 2011 2012 2013 2015 US$ 1.1 billion US$ 1.5 billion US$ 6.0 billion US$ 5.0 billion Source: Company reports of 2012, 2013, 2014 and 2Q15.
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