Nuevos Tiempos Estrategia e Innovación - Gestión Minera 15.15 - 16.00... · Nuevos Tiempos Estrategia e Innovación Comercialización y los Mercados Internacionales “Los Commodities”

Marcos Assumpção

VP of LatAm Metals & Mining

Nuevos Tiempos

Estrategia e Innovación Comercialización y los Mercados

Internacionales “Los Commodities”

2

Agenda

SECTION 1 COMMODITY PRICE OVERVIEW

SECTION 2

NEW REALITY = NEW REGULATORY AND FISCAL FRAMEWORK SECTION 3

NEW TRENDS IN THE GLOBAL MINING INDUSTRY

SECTION 1

Commodity Price Overview

4


CHINESE GDP GROWTH IS SLOWING DOWN!

14%

10%

7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

79 82 85 88 91 94 97 00 03 06 09 12 15E

GDP Growth

5

CHINESE STEEL OUTPUT GROWTH IS DECLINING WITH GDP


0.0

0.5

1.0

1.5

2.0

2.5

0.0

5.0

10.0

15.0

20.0

25.0

2000 2003 2006 2009 2013 2014E 2015E

(ratio)(YoY %)

GDP Growth Rate Crude Steel Output Growth Rate Steel/GDP Elasticity (RHS)

6

-60

-40

-20

0

20

40

60

80

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Consumption Investment Net exports


GROWTH IN CHINA WILL BE LESS COMMODITY INTENSIVE

GDP Growth Contribution (%)

7


WEAK DEMAND FROM THE REST OF THE WORLD

Euro and Japanese PMIs Remained Weak in the

Last Few Years

55.9

50.6

52.4

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Nov-1

1

Jan

-12

Mar-

12

Ma

y-1

2

Jul-1

2

Se

p-1

2

Nov-1

2

Jan

-13

Mar-

13

Ma

y-1

3

Jul-1

3

Se

p-1

3

Nov-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Jul-1

4

Se

p-1

4

USA Euro Zone Japan

Source: Bloomberg and Itaú BBA

Itaú’s Global GDP Growth Expectations

2.2

0.7

0.9

3.0

1.0 1.0

USA Euro Zone Japan

2014 2015

8

1.2

1.7

0.8

1.1

2014 2015

Old Estimate New Estimate


WEAK DEMAND FROM THE REST OF THE WORLD

Euro and Japanese PMIs Remained Weak in the

Last Few Years

55.9

50.6

52.4

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Nov-1

1

Jan

-12

Mar-

12

Ma

y-1

2

Jul-1

2

Se

p-1

2

Nov-1

2

Jan

-13

Mar-

13

Ma

y-1

3

Jul-1

3

Se

p-1

3

Nov-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Jul-1

4

Se

p-1

4

USA Euro Zone Japan


European Commission Just Revised Down Growth

Expectations for the Continent

9



COMMODITY PRICES INCREASINGLY DEPENDENT ON

THE SUPPLY SIDE.

THE SUPER CYCLE IS OVER;

CONCLUSIONS

10


IRON ORE CASE STUDY

BHP’s Quarterly Iron Ore Shipments

53.6

63.3

0

20

40

60

80

100

1Q09A 4Q09A 3Q10A 2Q11A 1Q12A 4Q12A 3Q13A 2Q14A

(Mt)

+18% YoY

Fortescue’s Quarterly Iron Ore Shipments

26

42

0

20

40

60

80

100


(Mt)

+60% YoY

Rio Tinto's Quarterly Iron Ore Shipments

68.0

78.0

0

20

40

60

80

100


(Mt)+15% YoY

Australian Producers Have Been Adding Capacity and Increasing Sales Over The Years

376

418448

489

564

410

511

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 9M13 9M14

Fortescue Rio Tinto BHP

mn. tons

+74mn. tons

+102mn. tons

11


IRON ORE COPPER

Market is currently oversupplied

New capacity expected in 2015/16

Capacity shutdowns are taking longer than

expected

Inventories at high levels in China

Market is balanced

Difficulties to add new capacity

Projects are taking longer than expected

Strikes are common

Low inventories (LME/Shanghai/Comex)

WHAT IS THE CURRENT SCENARIO?

12


WHAT IS OUR VIEW ON THE OUTLOOK?

Prices supported at USD 3.00/pound

Scrap producers are swing producers

Prices could surprise to the upside

Prices to remain pressured

Limited room for price hike

Price volatility to remain low

IRON ORE COPPER

13


View on prices = cautious

LT price forecast USD 80-90/ton

View on prices = neutral/positive

LT price forecast USD 3.1/pound

CONCLUSION

IRON ORE COPPER

SECTION 2

New Trends in the Mining Industry

15


FOCUS ON DISCIPLINE IN CAPITAL ALLOCATION

Source: Vale and Itaú BBA

Last decade

Strong demand growth (China)

New scenario

Moderate demand growth

16




Last decade


Focus on volume growth

New scenario


Focus on cost cutting

17




Last decade



Focus on diversification

New scenario



Capital allocation discipline

18




Last decade




Focus on acquisitions

New scenario




Sale of non-core assets

19




Last decade





Brownfield expansions

New scenario





Higher capex/ton, riskier

geographies

20




Last decade





Brownfield expansions

Slow response of industry supply

New scenario





Higher capex/ton, riskier

geographies

Delayed supply coming on stream

(different for each commodity)

21

Strategies to Adapt to a New Reality

DECLINING CAPEX

22


LOWERING COSTS

23


DIVESTITURES

Rio Tinto sold

>USD3 billion in 2013

BHP has sold

>USD 6.5 billion to date

24

INVESTORS DEMANDING HIGHER DIVIDENDS


25


Vale’s Capex Plans: 2008 vs. Current

2008 Capex

32 PROJECTS

9 DIFFERENT BUSINESS SEGMENTS

Current Capex

5 PROJECTS

4 DIFFERENT BUSINESS SEGMENTS

Carajas USD3.3 bn

Nacala USD2.6 bn

Itabiritos USD 1.1 bn

IO Distribution USD 0.4 bn

Salobo USD 0.3 bn

Vale’s Investment Case – Adjusting to a New Reality

26


Vale’s Strategy – Adjusting to a New Reality

Capex and R&D Dropped Considerably

27


SG&A as a % of Revenue


6.1%

5.6%

4.6%

4.8%4.7%

2.9%

0%

1%

2%

3%

4%

5%

6%

7%

01 02 03 04 05 06 07 08 09 10 11 12 13 14e

SG&A as % of Revenue

28


c01 02 04 05 06 07 08 09 10 1103

-Samitri (Iron Ore) -FERTECO (Iron Ore)-SIBRA e CPFL (Ferro-Alloy)-Sossego Project (Copper)

-Peru Phosphate Concession (Fertilizers)

-Mozambique Copper Concession (Copper)-Argentina Potash Concession (Fertilizers)

-AMCI Holdings Australia (Coal)-Belvedere Project (Coal)

-Salobo (Copper)-ALUNORTE (Aluminum)-Vera Cruz (Aluminum)-Estreito Hyd. Plant (Energy)

-Rana (Ferro-Alloy)-CST (Steel)-Celmar (Pulp)-Caemi (Iron Ore)

-Canico (Nickel)-Valesul (Aluminum)-Inco (Nickel)

-Mineração Apolo Mining Rights (Iron Ore)

-Rio Colorado Project (Fertilizers)-Regina Project (Fertilizers)-Exploration Fields in Africa (Copper)-Coal Assets in Colombia (Coal)-Corumbá (Iron Ore)-CSA (Steel)

-Bunge and Fosfertil (Fertilizers)-Simandou (Iron Ore)-Belvedere Stake Increase (Coal)

-Belo Monte Stake (Energy)

Previous Management, Asset Investments


29


c01 02 04 05 06 07 08 09 10 1103

-Samitri (Iron Ore) -FERTECO (Iron Ore)-SIBRA e CPFL (Ferro-Alloy)-Sossego Project (Copper)

-Peru Phosphate Concession (Fertilizers)

-Mozambique Copper Concession (Copper)-Argentina Potash Concession (Fertilizers)

-AMCI Holdings Australia (Coal)-Belvedere Project (Coal)

-Salobo (Copper)-ALUNORTE (Aluminum)-Vera Cruz (Aluminum)-Estreito Hyd. Plant (Energy)

-Rana (Ferro-Alloy)-CST (Steel)-Celmar (Pulp)-Caemi (Iron Ore)

-Canico (Nickel)-Valesul (Aluminum)-Inco (Nickel)

-Mineração Apolo Mining Rights (Iron Ore)

-Rio Colorado Project (Fertilizers)-Regina Project (Fertilizers)-Exploration Fields in Africa (Copper)-Coal Assets in Colombia (Coal)-Corumbá (Iron Ore)-CSA (Steel)

-Bunge and Fosfertil (Fertilizers)-Simandou (Iron Ore)-Belvedere Stake Increase (Coal)

-Belo Monte Stake (Energy)

11 12 13

- Log-in Stake Sale- VLI Stake Sale- Phosphoric Acid Asset Sale- Tres Valles Asset Sale- Norsk Hydro- Salobo Gold Production Stream

- Oil & Gas Assets- Araucária Fertilizer Sale- European Manganese Assets- Ship Sales- Colombian Coal Assets- CADAM Kaolin Assets

New Management,

Asset Sales

Previous Management, Asset Investments


30

0.4 0.61.0

4.251.7

2.5 2.5 2.5

12.0

6.0

4.54.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E

USD billion



LOWER INVESTOR RETURNS

HIGHER INVESTOR RETURNS

SECTION 3

Regulatory and Fiscal Framework

32

Mining is a Relevant Industry in LatAm

Mining Represents More Than 10% of GDP and 50% of Exports in Some Countries

GDP Growth: Mining vs. Brazil Mining as % of 2013 Exports and GDP in LatAm

2.7

1.1

5.7

3.24.0

6.1

5.2

-0.3

7.5

2.7 0.9

11.6

4.7

4.3

9.3

4.4

3.73.5

-3.2

13.6

3.2

-1.1

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Brazil Mining

60%

57%

18%16%

12%

16%

12%

3%

Peru Chile Colombia Brazil

Metal Mining exports as % of Total Exports Metal Mining Exports - % GDP

33

Latam Has Been Investing Heavily in Mining

Latam Countries Also Invest Heavily in Exploration

Global Mining Exploration - 2012

4.0

3.5

3.0

2.5

2.0

2.0

1.5

1.0

0.5

0.0

Au

str

alia

Can

ad

a

US

A

Me

xic

o

Chile

Pe

ru

Bra

zil

Russia

Chin

a

Arg

en

tin

a

Ind

on

esia

So

uth

Afr

ica

US

$ b

ilio

n

34

Mining Activities Benefit Many Sectors in the Economy

Capex

Development of local suppliers

Employment

Exports

Trade Balance

Taxes

R&D

Development of communities

35

Mining is an important Trade Balance Contributor

Vale has a huge contribution to the positive figures in the Brazilian trade balance surplus

Source: Vale, MDIC, Itaú BBA

6.3

8.8

11.5

16.2

13.0

27.7

36.9

26.527.6

44.946.5

40.0

25.0 25.3

20.1

29.7

19.4

2.6

2005 2006 2007 2008 2009 2010 2011 2012 2013

Vale Trade Balance Brazil Trade Balance

Peru and Chile – Metal Mining Exports

as % of GDP

00%

05%

10%

15%

20%

25%

30%

Dec-9

6

Nov-9

7

Oct-

98

Se

p-9

9

Au

g-0

0

Jul-0

1

Jun

-02

May-0

3

Ap

r-04

Mar-

05

Feb-0

6

Jan

-07

Dec-0

7

Nov-0

8

Oct-

09

Se

p-1

0

Au

g-1

1

Jul-1

2

Jun

-13

May-1

4

Peru Chile

USD billion

36

A Stable and Friendly Framework is Desired

Global competition

High capital intensity

Long lead times

Operations in remote areas require infrastructure investments

Environmental risks

A stable and friendly regulatory and fiscal framework is desired to

continue attracting and incentivizing investments in the mining industry

Mining is a high risk business

37

Questions and Answers

Thank you!

Nuevos Tiempos Estrategia e Innovación - Gestión Minera 15.15 - 16.00... · Nuevos Tiempos Estrategia e Innovación Comercialización y los Mercados Internacionales “Los Commodities”

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