0
Apimec - São Paulo
Rogério Nogueira
Vale S.A.
June 16, 2016
1
Dis
clai
mer
“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
Age
nda
1. Market dynamics
2. Impact on Vale’s performance
3. Paving the way for the future
3
Market dynamics
4
7500
8000
8500
9000
9500
4-jan 4-fev 4-mar 4-abr 4-mai 4-jun
75
80
85
90
95
100
4-jan 4-fev 4-mar 4-abr 4-mai 4-jun
Percentual raise in prices from
04/01/2016 to 06/08/2016 US$/ton
35
40
45
50
55
60
65
70
4-jan 4-fev 4-mar 4-abr 4-mai 4-jun
22.9%
18.1%
-1.2%
3.6%
Copper
Metallurgical Coal Iron Ore
Nickel
4000
4300
4600
4900
5200
4-jan 4-fev 4-mar 4-abr 4-mai 4-jun
Prices of commodities have increased year to date reflecting a more positive sentiment, mainly in China
Source: Bloomberg.
5
-10
0
10
20
30
40
50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Local government bond
Corporate bond
Off-balance sheet credit
RMB & FX loans
Overall credit
Source: UBS, CEIC.
Share of credit in GDP, % y/y 3 months moving average
The positive sentiment is significantly based on the credit expansion in China with a record of bonds’ issues by the Chinese government
6
Source: UBS, CEIC.
-30
-20
-10
0
10
20
30
40
50
60
2013 2014 2015 2016
Floor Space Sold
Floor Space Started
Floor Space Completed
-5
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016
Total
Infrastructure
Real estate
Manufacturing
Real estate market Fixed Asset Investment (FAI)
% y/y 3 months moving average % y/y 3 months moving average
Resulting in a greater incentive in fixed asset investment in China, particularly in infrastructure and real state market
7
Seaborne iron ore supply estimate
201 169 156
146 142 136 1.494 1.514 1.568
1.622 1.627 1.624
2015 2016 2017 2018 2019 2020
Chinese Domestic
Seaborne of iron ore ex-pellets
804 788 793 801 807 810
819 833 853 873 897 921
1.623 1.621 1.646 1.674 1.704 1.731
2015 2016 2017 2018 2019 2020
Ex-China crude steel production
Chinese crude steel production
In the context, expectations for Chinese steel production improved, absorbing additional supply of iron ore
Source: World Steel Association, Vale’s internal data.
Crude steel production estimate
Bt Mt
8
The oversupply of iron ore previewed to 2016 is likely to be attenuated
1 Overseas market, including pellets and Chinese domestic supply.
Mt
1.611 1.645 (10-20) (10-15) (25-35) 10-15 1.585 – 1.615
Supply2015¹
Projections2016¹
AustralianMajors
Ramp upnew
projects
Chinesedomestic
India Reviewed supply2016
+2%
-2% a 0%
9
32
109
199
89
40
-50
2011 2012 2013 2014 2015 2016E
1.997 1.9571.821
2014 2015 2016E
-5% -2%
The nickel supply should decrease 5% in 2016,
primarily because of the reduction of NPI in
China
Market forecasts a potential deficit¹ in the nickel market in 2016
with lower global supply
World Nickel Supply
Kt
Supply and Demand Balance1
Kt
Potential deficit should be of approximately 50kt
of nickel contained
1 Supply and demand balance excluding the inventories in the LME and SHFE.
Source: Macquarie.
10
Inventories have migrated towards Shanghai
Exchange, but levels are not as high as in recent
years
-252
58
-546
-183
17 10
333415
107
-495
-
100
200
300
400
500
600
700
800
900
1.000
LME
Comex
Shanghai
Copper market is expected to be balanced in 2016,
with a surplus in the following years
In 2016, we expect the copper market to be balanced, with a
potential surplus in the following years
Source: CRU Copper Quarterly Report 1Q16, Bloomberg.
Global balance in refined copper
Kt
World Copper inventories in Exchanges Kt
11
Impact on Vale’s
performance
12
Despite recent price increases, commodities’ prices are returning
to a historical level
0
50
100
150
200
250
300
350
400
1962 1968 1974 1980 1986 1992 1998 2004 2010 2016²
Iron Ore
Metallurgical Coal
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
1962 1968 1974 1980 1986 1992 1998 2004 20102016²
Copper Nickel
1 Nominal prices for 2015 and 2016 and real prices for the previous years. 2 Mean until June 13th, 2016.
Source: Bloomberg, World Bank, Wood Mackenzie and CRU.
US$/t
Base Metals1 Bulk materials1
13
1 Net of depreciation and amortization. 2 Includes SG&A, R&D, Pre-operating and stoppage and other expenses. Does not include gain/loss on sale of assets. 3 Positive impact of US$ 244 million from the goldstream transaction on the 1T13. 4 Positive impacts of US$ 230 million from the goldstream transaction on the 1T15 and US$ 331 million of Asset Retirement
Obligations - ARO).
Our focus and managerial discipline allowed us a substantial
reduction in COGS and expenses, despite an increase in volumes
Costs¹
US$ million
Expenses1,2
US$ million
-33.1%
6.857
4.521
3.547
1.861
2012 2013 2014 2015
-72.8%
22.661
20.520 21.207
16.984
2012 2013 2014 2015
3
4
14
3,8
4,9 5,0
2013 2014 2015
299,8 319,2 333,4
2013 2014 2015
Iron Ore1,2
Nickel Copper3
Coal (Moatize)
260,2 275,0
291,0
2013 2014 2015
+11,8%
+11,2%
370,1 379,7 423,8
2013 2014 2015
+14,5%
1 Includes iron ore fines, lump, ROM and iron ore feed for Vale’s pellets plants. 2 Excludes Samarco’s attributable production. 3 Includes Lubambe’s attributable production. 2013 figure include Tres Valles production.
30% Mt ‘Mt
Kt Kt
With the start-up of new projects and an increase in productivity,
we have increased production volumes in different commodities
15
Adjusted EBITDA margin (%)
Platts IODEX Iron Ore Price
Average (US$/t)
4.1 4.1
3.0
2.2 1.6
2.2 1.9
1.4 2.0
120.4
102.6
90.2
74.3
62.4 58.4 54.9
46.7 48.3
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q16
42.7 41.4 33.1 24.1 25.7 31.8 28.8 23.6 35.1
US$ billion, quarter EBITDA
¹ Adjusted EBITDA excludes gains and/or losses on sales of assets and non-recurring expenses and includes dividends received from
non-consolidated affiliates.
2014 2015
EBITDA
Despite prices decrease, we’ve maintained our adjusted EBITDA¹ in a
robust level
16
57.6
39.3 36.9
32.6 30.9
28.0
4T14 1T15 2T15 3T15 4T15 1T16
-51%
Iron ore fines and pellets delivered in China1 EBITDA’s breakeven decreased even more and consistently
1 Considers: [Cash Cost + royalties + freight + distribution costs + expenses (SG&A + R&D + pre operational and stoppage expenses)
+ moisture, adjusted by quality and premium s of pellets] / [ sold volume of iron ore (ex ROM)].
US$/t
17
11.7 11.6
9.6
7.9
5.5
4.6 4.6
4.6
4.1
2.9
16.3 16.2
14.2
12.0
8.4
5.5 - 6.0
2011 2012 2013 2014 2015 2016E¹
Sustaining
Growth Projects
Additionally, we have been increasing our discipline on capital allocation, reducing significantly our investments
1 Considers Exchange rate BRL/USD 3.50 – 3.80.
Capex, US$ billion
18
8.1 6.5
11.6
7.9
0.6 0.2
Original Budget Total Until 2015 2016 2017 2018 2019
Logistics
Mine and Plant
1.6
2.6
9.4 14.4
19.7
Our biggest growth project – the S11D – will complete most of its investment in the next 2 years
1 Includes project expenses, that are not capitalized, of US$ 289 million accumulated until 2015, US$ 84 million in2016, US$ 52 million
in 2017, US$ 15 million in 2018 and US$ 5 million in 2019.
US$ billion1
19
The S11D project reached significant advances in the mine, plant and railway
S11D Mine Systems 1,2 and 3 Status March 2016
S11D Logistics – Onshore port stockyard
• Combined physical progress of 73%
- 85% of physical progress at the mine
site
- 64% of physical progress at logistic sites
- 85% of physical progress at the railway
spur
- 78% physical progress at the onshore
port
- 83% physical progress at the offshore
port
20
The project will function with dry processing and will not need tailings dams
Screening Process Process’ Highlights
• High Fe content and highly homogenous
ore body allows the dry processing,
without any concentration process
• 18.000 MWh of electricity saved every
year (equivalent to a 20,000 inhabitants’
city)
• Lower environmental impact (lower water
consumption and no need for tailings
dams)
• Simpler process reducing capital
investment and sustaining investment,
mainly on tailings dams
21
1.0 3.3 4.9
2.9
19.5
31.5
2016 2017 2018 2019 2020 on GrossDebt
Dollar 91%
Other currencies
9%
US$ billion
In parallel we’ve continue to manage our current debt profile and cost of debt
Debt amortization schedule¹ Debt profile, after hedge
¹ As of March 31st, 2016.
22
Paving the way for the
future
23
2016 and 2017 will be years for optimizing our business with the
continuous structured reduction of cost and expenses
Our free cash flow should be near equilibrium in 2016, our main
priority is to strengthen our balance sheet
1
2
We are prepared to face the challenges caused by the uncertainty in demand and the volatility in commodities prices
24
Source: Vale’s internal data
22 mines in 4
production
systems
3 railways and 4
ports in Brazil
12 pelletizing
plants (Brazil
and Oman)
2 DCs and 5
blending ports
1
2
In iron ore, our integrated supply chain offers operational flexibility to maximize margins
25
• Reduction of losses in New
Caledonia
• Optimization of operational flows
and progress in Long Harbour
ramp-up, with further reduction
of costs and expenses in the
North Atlantic
• Potential expansion steps
already identified in the
operations in Indonesia,
leveraging the resource base
and the existing brownfield
opportunities
1
2
Vale is the world’s largest producer of nickel, its portfolio will be further optimized
26
• Completion of the ramp-up of Salobo tapping into a new rich
resource base
• Optimization of copper concentrate production in North Atlantic
operations with revision of our production flowsheet
• The late cycle of the commodity balances Vale’s business
portfolio
• Start-up of the Patrocínio phosphate rock project by 2017
with an additional estimated EBITDA of US$ 80-90 million
• Ramp-up of the Nacala Logistics Corridor will increase our
competitiveness in the coal business, reducing around 60% of
COGS when compared to 2015
• Operational improvements in Mozambique are paving the way
for better results in our coal business
Copper
Coal
Fertilizers
1
2
Our copper, coal and fertilizers business will be in better competitive position in the near future
27
• Our discipline in capital allocation will enable a significant
CAPEX reduction from 2015 to 2016
• The divestment of non core assets in the range of US$ 4 to 5
billion will help us improve our cash flow and reduce our
leverage
• The execution of the ongoing initiatives will allow a solid cash
generation at any price scenario
2
1
Our main priority is to strengthen our balance sheet together with the increase in our Free Cash Flow
28
Evaluation of transactions involving
core assets, aiming at reducing net
debt by US$ 10 billion
Sale of non core assets, with the goal of
simplifying the company’s portfolio, totaling
US$ 4 – 5 billion
• Coal JV
• 2nd tranche preferred shares
• Precious metals streaming
• 7 VLOCs
• Energy assets
• Definition of the future assets
portfolio
• Assessment of the value of
potential transactions
• Estimate of the potential debt
reduction associated with potential
transactions
2016
2016 - 2017
2
1
Potential divestments will help balance free cash flow and strengthen the balance sheet
29
• Assets well positioned in the
cost curve
• Capital allocation discipline
with lower sustaining capex
requirements
• Low leverage, with long debt
maturity
Strong balance sheet
World-class
assets
Low capex
We will be competitive, independently of prices
30