American Business Bank Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2024

There are 15 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to Vale's First Quarter 2024 Earnings Call. This conference is being recorded and a replay will be available on our website atvali.com. The presentation is available for download in English and Portuguese from our website. To listen to the call in Portuguese, please press the globe icon on the lower right side of your zoom screen and then choose to enter the Portuguese room.

Operator

Then select mute original audio so that you won't hear the English version in the background. We would like to inform that all participants are currently in a listen only mode for the presentations. Further instructions will be provided before we begin the question and answer section of our call. We would like to advise that forward looking statements may be provided in this presentation, including Vale's expectations about future events or results, encompassing those matters listed in the respective presentation. We caution you that forward looking statements are not guarantees of future performance and involve risks and uncertainties.

Operator

To obtain information on factors that may lead to results different from those forecasted by Vale, please consult the reports Vale files with the U. S. Securities and Exchange Commission, the Brazilian Comision de Valores Mobiliadus, and in particular the factors discussed under forward looking statements and risks factors in Vale's Annual Report on Form 20 F. With us today are Mr. Eduardo De Salis Bartolomeo, CEO Mr.

Operator

Gustavo Pimenta, Executive Vice President of Finance and Investor Relations Mr. Marcelo Spinelli, Executive Vice President, Iron Ore Solutions Mr. Carlos Medeiros, Executive Vice President of Operations and Mr. Mark Cutesfunny, Chairman of Valley Base Metals. Now, I will turn the conference over to Mr.

Operator

Eduardo Bartolomeu. Sir, you may now begin.

Speaker 1

Thank you and good morning everyone. I'm very excited that we got off to a good start in 2024. Starting with our safety journey, technological enhancements and innovation towards safety improvements is showing encouraging results with 77% reduction in accidents in some critical activities. On dam safety, the Panerian dam located in the Vazin Grandi complex was removed from the emergency level by the National Mining Agency and is now certified as safe and stable. On our second lever, the stabilization of our iron ore operations, we are taking Vale to an even higher level of performance.

Speaker 1

Iron ore production had the highest output for our Q1 since 2019 and sales were up 15% year over year. On our 3rd lever, one of Vale's major competitive advantage is our potential to grow a high quality portfolio with low capital intensity. Our 3 key projects will add 50,000,000 tons capacity by 2026, Vagin Grande, Capanema and S11D plus 20. The first project to come online will be Vazin Grande, which is almost 90% completed and on track to start up in the Q4 of 2024. On our path to transform the energy transition metal business, copper production grew 22% in the Q1.

Speaker 1

Nickel production decreased by 4% year on year, in line with plan, mainly reflecting maintenance overhaul at the Onsapuma furnace. Outside Brazil, we saw stronger performance in the Canadian and Indonesian operations. On the Energy Transition Metals Partnership, last week, the Committee on Foreign Investment in the United States granted the final regulatory approval, and we expect to close the transaction in the upcoming weeks. And in our pursuit towards ESG leadership in mining, we reached a remarkable target, 100% renewable energy consumption in Brazil, 2 years ahead of schedule. Reaching the target means that Vale has zeroed its indirect CO2 emissions in Brazil, which corresponds to Scope 2 emissions.

Speaker 1

To support our decarbonization pathway, Vale has announced an agreement to acquire the remaining 45% stake in Allianz Energia, which is a first step towards creating an asset light energy platform. Lastly, our discipline in capital allocation remains untouched. We are walking the talk and returning value to shareholders. In March, we paid $2,300,000,000 in dividends while completing 17% of the 4th buyback program launched since 2020. Now, let's go over more details of our quarter performance.

Speaker 1

Next slide, please. We are gradually becoming a safer company. Technology and innovation have been key pillars to our quest to deliver a sustainable safety performance. We want to turn Vale into a safety benchmark, starting with 0ing our N2 injuries, those that usually precede life changing or fatal events by the end of 2025. We are on the right track to fulfill this commitment.

Speaker 1

Our Safety Transformation Program targets the critical activities with the highest N2 records, later developing preventive controls, Some of them technology based like collision alerts and driver drowsiness detection. As a result, we had a 77% reduction in any two events since 2019. Another key element of our safety strategy is our dam safety management. Since 2020, we increased safety conditions up to adequate levels for 16 dams. All our structures are continuously checked by our 20 fourseven geotechnical monitoring centers.

Speaker 1

In a conservative approach, we removed 100 percent of the people from risk areas and back cap dams were constructed to reduce potential consequences in those areas. At the same time, Vale continues to progress on the dam decharacterization program with 43% of the structures eliminated to date. We are already seeing a safer value built with operational discipline and a strong management model. Okay, next slide, please. We delivered a robust operating performance on iron ore in Q1.

Speaker 1

Production was the highest for our Q1 since 2019 underpinned by increased asset and process reliability especially S11D. We have talked about our strong actions toward operational excellence, and we are now consistently bearing the fruits of that strategy. Our operational plan for the quarter was successful in dealing with a higher average rainfall. We delivered a 6% increase in total production and 15% higher sales year on year. Moreover, we continue to debottleneck our operations.

Speaker 1

At S11D, increased geological knowledge enables more accurate mining plans, while the truckless system combined with a mobile mining fleet provides further operating flexibility. Our long term ability to deal with Jasper Light relies on the installation of the new crushers, as you know. But these surgical measures have allowed us to operate S-eleven D with more efficiency with the highest production for Q1 since 2020. The solid production performance in Q1 give us further confidence that we will deliver our guidance as planned. Next slide, please.

Speaker 1

We are committed to accelerating solutions to support the steel industry's decarbonization. Our bricklet plant is ramping up in our Tubarang complex aiming to deliver around 1,500,000 tons of briquettes in 2024. We continue to progress on agreements for construction of mega hubs. We are also studying the feasibility of developing green industrial hubs in Spain together with hidden steel. Finally, we are very proud to be selected under the Inflation Reduction Act funding to enter in negotiations to develop a bricked plant in the U.

Speaker 1

S. The selection by the U. S. Government Department of Energy represents a critical path for the validation of our proprietary technology and its potential to deliver a transformative solution to decarbonize the steel sector. Iron Ore Brickets will contribute to achieving Vale's commitment to reduce 15% of its Scope 3 net emissions by 2,035.

Speaker 1

Next slide, please. In the Energy Transition Metals business, we delivered remarkable output in copper, an outstanding 22% increase quarter on quarter driven by the successful ramp up of Salobo 3 and stronger performance at Salobo 1 and 2 plants. On nickel, we are on track to deliver the production guidance for 2024. As part of the asset review initiatives, Sudbury Mines had improved performance and the Carabel Mill throughput was up 7% year on year. The improved mine performance resulted in reduced consumption of 3rd party feed and lower costs.

Speaker 1

We are confident that we are taking the right steps to transform the energy transition metals business. Next slide. On ESG, we continue to march towards becoming a more transparent and open company. We just released our 2023 integrated report where we announced that we reached the target of 100 percent renewable energy consumption in Brazil, 2 years ahead of schedule. Reaching the target means that Vale has 0 scope to emissions in Brazil.

Speaker 1

To support our decarbonization pathway, Vale signed an agreement to acquire the remaining 45% stake in Allianz Energy. This is an important step towards creating an asset light energy platform. Upon the transaction conclusion, value search for potential partners to better advance in our commitments to decarbonize our operations using renewable sources at competitive costs. Our big focus on becoming an ESG leader in mining is bearing fruit. Our improvement in carbon emissions and safety practice led to renewed perception by Sustainabilitytics, for instance, with an important upgrade in our ESG risk rating in April.

Speaker 1

With that said, now I'll pass the floor to Gustavo for our financial results. And I'll get back to you in the Q and A. Thank you.

Speaker 2

Thanks, Eduardo, and good morning, everyone. Let me start with our EBITDA performance in the quarter. As you can see, we delivered a pro form a EBITDA of $3,500,000,000 in Q1. Before going to the main drivers, I would like to first explain a couple of reporting changes we implemented this quarter. With the reorganization of our assets between iron ore solutions and energy transition metals, some items previously classified as others will now be allocated to their respective business segments.

Speaker 2

This change includes items such as SG and A and Energy Generation Assets and will allow for more precise evaluation of each business segment's performance. In addition, for better alignment with market peers, we are now including the proportional EBITDA of our associates and joint ventures into our EBITDA. We note that before 2024, our EBITDA included the dividends coming from those entities, which were naturally more volatile during the year. Now returning to the main drivers behind our EBITDA performance in the quarter. We are pleased to see a continued strong operational performance across the board, which helped us offset a large portion of the impact from provisional prices given the decrease in the iron ore benchmark prices during the quarter.

Speaker 2

On volumes, iron ore sales increased almost 15% or 8,200,000 tonnes year on year driven by better operational performance in all of our systems highlighting S11D which achieved the highest output for our Q1 since 2020. Sales were also quite strong in Q1 this year, reflecting the initiatives undertaken in 2023 to improve operational performance and flexibility of our Punta Dama data port. Corporate sales were another highlight in the quarter, increasing by 22% or 14,000 tons year on year, driven by the ramp up of Salobo III and better operational performance in the Salobo I and II operations. On costs and expenses, I would like to highlight the ongoing effort that our teams have been making internally to improve productivity and efficiency. Excluding the external effects of higher freight costs in the iron ore business and the one off effects in base metals like the Onsapuma furnace rebuild, our costs and expenses were roughly flat year on year.

Speaker 2

Again, this has been accomplished through a series of initiatives across the business and we are quite excited about the cost efficiency opportunities we still see ahead of us. Now moving on to price realization. Our North Finance realized price was $100.7 per ton in Q1, 7% lower year on year and 15% lower quarter on quarter. Pricing mechanisms had a negative impact of $10 per tonne on our realized price in the quarter, largely explained by the negative effect of provisional prices. At the end of Q1, 24 percent of our iron ore fine sales were booked at $102 per tonne on average, which compares to an average price of $124 per tonne in the quarter.

Speaker 2

Also, about 30,000,000 tons of sales from Q4 2023 were booked at an average price of $139 per ton and were later realized at lower prices in Q1. Our average iron ore finance premium came in negative at $1.6 per ton as we increased the share of high silica products in our sales mix given the lower discounts observed for these products during the quarter. This has allowed us to maintain an adequate balance of high quality products through our supply chain for later value maximization. For Q2, we continue to see similar market conditions and therefore expected to maintain a slightly higher share of HiSilica products in our mix compared to historical levels. Now let me turn to our cost performance.

Speaker 2

In iron ore, our C1 cash cost ex third party purchases was $23.5 per tonne, slightly lower versus last year despite the negative impact of the BRL appreciation. Excluding this effect, C1 would have been $22.8 per ton, almost $1 per ton lower year on year. This was driven by lower demurrage costs due to improved shipping and port loading during the rainy season, higher fixed cost dilution as a result of higher production volumes and gains from our cost efficiency programs. Additionally, I would like to take a moment to comment on our strategy behind third party purchases. We acquired iron ore from smaller producers that operate near our operations.

Speaker 2

This product is sold directly to our customers or it is blended within our own production, generating a positive contribution margin. This helps dilute fixed costs, particularly as we have excess logistic capacity, while capital intensity is very low, which implies a very healthy return on invested capital. In 2023, our 3rd party volume was 24,000,000 tonnes and it is expected to increase slightly in 2024. We are also evaluating to accelerate the development of some of our smaller deposits through leasing agreements with regional partners, transactions that can offer attractive returns for both sides. Moving on to our Energy Transition Metals business, we are pleased to deliver significant year on year reductions in all in cost in both copper and nickel.

Speaker 2

Our copper all in costs decreased by 26 percent year on year, driven by continued successful ramp up of Salobo III and the improved operational performance at Salobo I and II. The higher proportion of Salobo 3 volumes in the product mix has also contributed to an increase in unit by product revenues with higher gold sales. Nickel all in costs were down 14% year on year supported by higher unit byproduct revenues. The unit COGS increase was expected and largely related to the furnace rebuild at Onsapuma. I would like to also mention that Mark with Fani and the VBM team continue to make significant progress on the asset review.

Speaker 2

The value unlock opportunities are being assessed and designed for implementation over the next 2 to 3 years with some benefits already being captured in the shorter term. As we pointed out last quarter, we'll present the key findings and action plan of the asset review in our webinar to be scheduled for June this year. Now moving on to cash generation. Our EBITDA to cash conversion was 57% in Q1 with free cash flow reaching $2,000,000,000 roughly $500,000,000 lower than Q4 2023 despite the $3,400,000,000 sequential drop in EBITDA driven mostly by seasonally lower shipments quarter on quarter and lower iron ore prices. This was achieved primarily due to the positive impact of a strong cash collection from Q4 sales as we had anticipated last quarter and seasonally lower CapEx disbursements.

Speaker 2

Most of the free cash flow generation was used to pay dividends and execute our buyback program for total shareholder remuneration of $2,600,000,000 in Q1. So before we move on to the Q and A session, I would like to reinforce the key messages from today's call. Safety continues to be our key priority and we remain highly focused on creating the conditions for an accident free workplace environment. Our continued strong operational performance across all commodities only reinforces we are in the right direction to consistently deliver on our short and long term commitments. On ESG, we are making significant progress on several fronts as demonstrated by our recent achievement of 100 percent renewable sourcing in Brazil for Scope 2 and the continued investments to deliver a sustainable future for our businesses.

Speaker 2

On the medium term strategic objectives we laid out at Valide, we are quite pleased to see the development of our key projects such as VARGI and GRANDE, which we expected to reach start up later this year. These investments will position Vale as the leader in high quality offerings, which are critical for steel making decarbonization. Last, we remain highly committed to a disciplined capital allocation process as evidenced by our $2,600,000,000 cash return to shareholders year to date through dividends and share buybacks. Now I would like to open the call for questions. Thank

Operator

you. We are going to start the question and answer section of the call. If you have a question, please click on the raise hand button. If your question has already been answered, you can leave the queue by clicking on the lower hand button. Please ask your question in English and limit your question to 2 at a time.

Speaker 3

Hello. Good morning and thanks for taking my questions. So firstly, I would say that the main news in the sector was the potential merger between BHP and Omerica. Maybe if you could discuss a bit on how this movement could change Vale's strategy going forward, It could be interesting for us or even how could it change your recently announced partnership at Anglo's Minas Review Assets? And my second question here is maybe to just understand very your views on iron ore markets and price premiums in the coming course.

Speaker 3

And of course, how do you see the possibility of further extraordinary dividends now with iron ore prices back to the $120 per tonne level? And thanks.

Speaker 1

Thanks, Rafael. It's Eduardo here, okay? As you've noticed, it's truly unfolding, So we are still digesting what is going on. We specifically answering your question, we don't see any impacts on the on Laminas Rio deal. It's being undertaken with Hungary.

Speaker 1

It's going to be respected by whoever comes later, if it comes later. So that's the first reaction. 2nd is, we've been speaking with you since we did decided to do the carve out, right? We believe that Vale has a unique position in the industry, right? We do have a growth platform in iron ore.

Speaker 1

As Gustavo mentioned during his presentation, we are going to add 50,000,000 tons of high quality with low costs. So there is no other asset in the world that could be attractive to us on that sense. And when you look at base metals, we still have the as well the best endowment in Canada, in Brazil, in Carajal's province and Indonesia. We're off obviously, we're always looking at opportunities eventually, but it doesn't change our strategic focus on executing the asset review, the transformation in base metals. There's a tremendous amount of value to be extracted there.

Speaker 1

And iron ore, we are the only iron ore growth with quality in the sector. So we will follow-up closely this the development of this deal, but it doesn't impact our strategy or change anything in our mindset. And I'll pass the second question to Spinelli. [SPEAKER

Speaker 4

MIHAEL POLYMEROPOULOS:] Thank you, Rafael. Regarding the market, so we see China, as you mentioned, we remain the same view about China. That's the main market. We are calling this moment as the China Residency. Despite the problem and the proper markets that all of us track, We see since 'twenty one a very strong market in the manufacturing, growing really consistently with the energy transition industry or shipbuilding.

Speaker 4

So we have an offset for that. And we will be considered the export as something that is sometimes bothering the markets. But by the end of the day, it's a trade off between protection in the market and inflation. So all the macro conditions in China are going well. So steel inventory now is slower than last year, and the margins are getting better.

Speaker 4

So as a whole, we see the market really similar compared to last year. And you asked us about the premiums. Premiums by product, we see a stable moment and that we've been stable for some months, so some quarters actually. So we see the Karajas and also the BRBF in a stable gap. And we can have small upside risk if we have some spike in the coke and coal market that can increase the necessity for efficiency.

Operator

Next question from Caio Ribeiro with Bank of America.

Speaker 5

Yes. Thank you very much. Good morning. Thanks for the opportunity. So first of all, I just wanted to see if you could share some updates with us on the latest involving the Onsapuma and Sosego operations.

Speaker 5

And any color that you can share on expected operational financial impacts there would be helpful. And then my second question is related to the renegotiation of the railroad concessions, right? Can you give us some color there as well on your latest expectations around those negotiations and on timing as well to conclude them? Thank you.

Speaker 1

I think Mark is in the call, right? Mark, could you answer the first one?

Speaker 6

Yes. Thanks, Eduardo. Can you hear me okay?

Speaker 7

Yes.

Speaker 6

Okay. Good. Well, thanks for the question. On both operations, we're working through with the authorities as we speak. In the case of Sasego, what has been outlined to us is that there were some complaints on noise and dust and complaints around reduced social programs through COVID.

Speaker 6

We have already submitted our reports for those issues, which was subject to the first complaint. And now that it's clear that we've input the reports, we're now working through detail that's contained in those reports both with the authorities and with the local political leaderships as well. And we've got about 3 to 4 weeks ore on the ground to process, so we're in good shape in terms of our ore stocks because it's the mines that are actually impacted. So processes are still going forward. On on Sapuma, fairly similar story in terms of complaints, a little bit different in terms of some of the mining work more environmental related, but also connected to social programs and a similar story.

Speaker 6

We're working through with the authorities, we're also talking to other leaders in the community, very sensitive to making sure that people aren't impacted, and I think everybody's keen to make sure we get things up and running very quickly. In the Onsopuma case, we've got about 4 months before because we've now finished the furnace rebuilt and we're on heat up at the moment. Still going through those processes, but again at this stage we're not anticipating problems over the course of the year. We should be able to make up the production through the course of the year. May might be impacted on the furnace issue, but that's more an operating ramp up to full capacity issue than anything connected to the current mining shutdown because we've got lots of ore.

Speaker 6

So that's where we are. I would expect during the course of next week, we'll have both issues pretty well in view and we'll let everybody know where we're up to.

Speaker 4

Caio, thank you for your question. So first of all, we have a very solid contract. We spent more than 4 years to reach a view of the renewal with all the approvals and all the levels, federal levels. And it's important to say we are complying with our obligations. But nevertheless, we've been talking to the transportation industry.

Speaker 4

We see room to optimize some specific parts of the contract and also adjust some obligations. That can bring value for the company, and we see that we can balance this value with new obligations to pay. So you may expect a balanced negotiation. We are finalizing the discussion, and we expect the final terms soon.

Operator

Next question from Carlos De Alba with Morgan Stanley.

Speaker 8

Thank you very much and good morning everyone. So my question may be similar to the last one, but focusing a little bit on Mariana. Clearly, you took a provision in the Q4 and now you provided us with an updated disbursement path. And there were news overnight about the potential restart or the reportedly restarted restart of the negotiations this week. So I don't know if you can provide an update there.

Speaker 8

Clearly, a key concern by the market, something that everyone would like to get resolved. I think the companies, the authorities and certainly the people that were impacted. So an update will be greater. And my second question is, in light of the increasing CapEx at Serra Sur 120 as well as the voices value expansion and then the revision on CapEx of the briquettes projects. How can we think about how should we think about the 2025, 2026 CapEx for the company?

Speaker 8

Thank you.

Speaker 9

Hey, Carlos, this is Gustavo. So on Mariana, yes, you have your question is spot on. We are highly engaged with the counterparties. The mediation process, as you probably know, has been ongoing and we engaged more actively recently in order to find a resolution that works for everybody. We continue to be hopeful that by May this year, we can reach a negotiated outcome, which we all think it's the ideal path in this case.

Speaker 9

So stay tuned. We'll keep you updated, but we are certainly engaged looking for ways to find an agreeable solution here for all parties. On the CapEx, we've updated the main one is S11D. It's over a period of years as we get to commissioning 2026. So no impact in our guidance for and our expectations as we have before for the following years.

Speaker 9

This year, we are still within the $6,500,000,000 no impact. And we should be able to accommodate those increases in the following years as well.

Operator

Next question from Jon Brandt with HSBC.

Speaker 10

Hi, good morning. Thanks for taking my questions. I just wanted to clarify an earlier answer, Eduardo. Just given the Anglo BHP news today, are you sort of unequivocally saying that you Vale have no interest in the Anglo assets and that you're more watching to see what the impact is from a potential deal, but Vale have no interest in those assets. Is that correct?

Speaker 10

And then I guess my question is really around we sort of discussed some of the rail concessions, some of the permits, the Samarco liabilities, etcetera. I'm just wondering, I think that's sort of a big part of the reason for Vale's underperformance relative to peers. And I'm just wondering how would you categorize your relationship with the government, right? I mean, you've talked a lot about stability and wanting sort of a stable environment. This seems to be anything but.

Speaker 10

So I'm just I'm wondering what you can do or what Vale can do to sort of improve the relationship that you have with the government so that the market doesn't have to deal with these sorts of issues. And then my second question just really quickly is, it looks like on the breakeven costs for copper, they came in well below guidance for 2024. I'm just wondering how much upside risk there is to that guidance number. Is this a seasonal issue or has some of the things, Mark, that you've put into place, is that really starting to bear fruit? Thank you.

Speaker 1

Thanks, John. Well, it's a question that obviously when you look at Anglo assets, obviously, would be interested. What we tried to explain in my answer at the beginning is that we have better options inside house to look at and more cheap options because otherwise you would go to a bid and that's not doesn't make any sense for us. So that's why I said we are watching with attention The asset that has interference with our strategy is the Munoz Rio that we just closed with Anglo and this one is protected. The others, as mentioned, we are wait and see to see what's going to happen.

Speaker 1

But meanwhile, we are much more interested in accelerating, executing our own endowment. Specifically about the railway concessions, that's a good question because it's not a values issue, right? It has been done through Humu, it has been done through MRS, it has been with all the other concessions. So it's not a Vale specific problem. Obviously, as Spinelli said, we are truly sure that we have a very robust contract, but we'll take the opportunity to adjust some specifics and make a win win situation with the government that we believe will help on this problem or on this matter that you mentioned, better and a more stable relationship with the government.

Speaker 1

That is always good, that we are by the way, we always had. And the second question is to you, right? Sorry. Quite a couple of questions, Mark. Sorry, Mark.

Speaker 9

I I can't I probably lost Mark. I can I can take John? So yes, it was a good Q1, especially given the strong ramp up of Salobo, right? Salobo 3, Plazos, so a strong operational performance on Salobo 1 and 2. So we are not resetting expectations, but what I can say, it's looking pretty good within the guidance that we had laid out.

Speaker 9

So hopefully, through year end, we or the remaining part of the year, we can provide more details around it.

Operator

Next question from Leonardo Correa with BTG Pactual.

Speaker 11

Good morning, everyone. I have a couple of questions on my side. Yeah, so the first one, I'm not sure if Mark is back, so feel free.

Speaker 2

Sorry, sir.

Speaker 11

You are okay. Perfect. Welcome back, Mark. On the just on the on the base metal story still, right? I mean, they're they're very mixed results, very pressured, right?

Speaker 11

By in fairness by pressured nickel prices, but you're having a dual speed situation, right, where basically copper is performing very well, perhaps above expectations and nickel is performing well below expectations. And the overall results have been pressured. If you take a year, expectations for EBITDA and base metals were way above what you guys are currently delivering. And I get the point that there's a lot under review, so I don't want to be unfair. But, and I know that Gustavo, and I think in the opening remarks, he said that by June, we're going to have more details.

Speaker 11

But just thinking of you, do you see an opportunity to adjust capacities and to perhaps put, some of of Vale's nickel assets under care and maintenance at this point, just given market conditions are unfavorable and the asset is not generating any EBITDA. So my first question is specifically to Nikhil, how you see the evolution and how viable certain assets of Vale are in this scenario? The second question, I think there was a question on this Gustavo, but I think it wasn't addressed yet. But if I may, just moving back to the dividend situation and the extraordinary dividend potential for the latter part of this year. With all these questions on additional provisions and outflows, I mean, how are you viewing this, right?

Speaker 11

I mean, we're getting some help from iron ore prices lately, so we're back to 120. How are you viewing this extraordinary dividend story with your leverage, which is now at the upper side of your tolerance, let's say? Those are the 2 questions. Thank you very much.

Speaker 1

Okay. Go ahead, Mark. Mark, you're on mute.

Speaker 6

Try again. How's that? Okay. Okay. I

Speaker 1

I copy you.

Speaker 6

Okay. The Gustavo made the observation on copper around Salobo's improvement and that was very encouraging flowing into the Q1 coming off strong last quarter as well and that pointed to a few changes that were made over the last 6 or 9 months. And we've had similar, albeit lagging performance at Sudbury because we we did the asset review in Sudbury about 3 months after Salobo. And, Eduardo pointed to the 7% improvement at Clarabel. On a run rate basis, it's closer to 15%, and that reflects both copper and nickel.

Speaker 6

So I think we've got good trends at 2 of the most important operations. Indonesia remains fairly solid. On Sapuma is coming through the furnace rebuild and is heating up, and what we are flagging is a likely intention to push some of that feed north to try and improve the premiums on products we receive. And so it's not simply about operations, it's also and that's a long way to go and a lot of improvement to come, but it's also about price realizations and with the price volatility and what we think will be a premium related to the products that we produce from Canada, we think there's still a lot of potential on both the cost side and on the pricing side that we're looking at. And with the volatility we're seeing in the nickel market, what we don't want to do is start cutting production where we're already seeing material reductions in operating costs and we think there's a real premium.

Speaker 6

So we want to give it another 2 or 3 months and that's what we want to reflect and show you in June. So we still think this is 2 stories playing out. The operating improvement plus premiums that we can get by using our flow sheets better, filling Matsusaka, doing more work at the clinic and making sure we've got all the molecules heading in the right direction. So it'll be a story in 2 parts and I think we'll be able to show that in June we're looking at both operating cost and margin improvements as well on the pricing side.

Speaker 9

Thanks, Marc. And I'll take the second one. Apologies also to Rafael that we haven't responded for the first question on the extraordinary dividend potential. Look, as you know, it depends on several elements. Certainly, market conditions have improved lately, which give us some good expectations of potential cash generation through year end.

Speaker 9

But we also compare those visavis where we are on the leverage ratio, minimum cash, provisions and outflows. So I think it's early and we think it's early to point out to potential incremental dividends, but we will certainly assess that through year end. And if there's any opportunity, we will certainly consider with our Board as we always do, right? And we've been doing this consistently over the last several years.

Operator

Next question from Myles Alsop with UBS.

Speaker 12

Hi, there. Yes, a couple of questions. First of all, on iron ore. Obviously, a very strong Q1. The guidance for 2024 either looks conservative or you have some concerns about potential operating challenges later this year.

Speaker 12

I mean, should we look at the guidance as conservative or other things we should bear in mind for later in the year? And then maybe secondly, on the nickel side, a question for Mark. I mean, the challenges in the nickel market are driven by Indonesia and obviously Vale is contributing to those incremental tons. And what's the latest with the Indonesian projects? And are there any is there any desire to slow those back to try and rebalance the market?

Speaker 12

Thank you.

Speaker 13

Hi, Myles. This is Carlos Medeiros. It's too early days to review our 2024 guidance. We had a quite good Q1, but still there are challenges as we see ahead, and we had also a very strong second half of the year last year. So this is why we prefer to maintain our guidance.

Speaker 13

And if we decide to revisit it, it will be done later in the year. Meanwhile, we're still working on the usual levels to increase production. Things initiatives such as our seasonality plan that has proved to be robust, the reliability initiatives to continue to improve the overall equipment availability, our mining plans to review the mine geometries, whatever necessary to free up more ore. And also in the hydrogeology initiatives to make sure that our water balance in our mines offers additional opportunities to access the bottom of the pit earlier during the year. So all in all, we will keep it for now, and we might get back to you later.

Speaker 13

Thank you.

Operator

Next question.

Speaker 6

Pauls, on the nickel side? On the question on Indonesia, I think the first thing to recognize is the divestment announcements and milestones that were achieved were very positive and certainly we moved through that fairly quickly with the Indonesian government. So credit to everybody involved. 2nd point, funds on POMALA have been committed as per the requirements, and we're still working through the early phases of that. In terms of the commitment on new projects, again, we're very mindful of our obligations with our partners, but at the same time we're also making the point that we need to be prudent and consider the individual investment propositions very carefully.

Speaker 6

There is a little bit of uncertainty in the marketplace regarding how different products will be priced in the market. Great news for us in Canada is that it's likely we will do better than most because of the nature of the material and the low carbon footprint. Indonesia will probably be in a very different conversation and we're working with our partners just to make sure we understand that and what that means for each of the investments, And again, we're also mindful of the fact that we need to pace those additions with the market as well. But again, an open conversation with our partners. It's still early in that process, I have to say.

Speaker 6

So we've got a bit more work to do.

Operator

Next question from Timna Tanners with Wolfe Research.

Speaker 1

Could you speak it, could you ask it again?

Speaker 14

Sure. Is that any better?

Speaker 1

A little bit.

Speaker 14

Sorry. Just asking for any outlook on cost given the loss of price volatility and any guidance for third party purchase costs, anything you can do to continue costs overall on the higher end of our slide.

Speaker 1

Okay. We got it. We got this one.

Speaker 9

Yeah. I can Let's

Speaker 1

ask the first one. I'll answer the first one, then Tina, you asked the second one.

Speaker 9

Hey, Tina. So, Tina, Gustavo here. On the cost outlook, we came at a C1 at 23 point 5%, slightly lower than last year. It's you have to be mindful that Q1 is usually our toughest quarter in terms given the lower volumes that are produced. So the effect of dilution is limited, as we saw last year.

Speaker 9

But when we look at the forecast for the year, we are feeling super confident with the numbers that we laid out, the 21.5% to 23 percent. A lot of the cost efficiency initiatives that we've started 18 months ago are bearing fruit and sales are coming strong, production is coming strong. So we are feeling good about it. The challenges which have been managed on the all in, I think Leonardo made that reference in terms of the breakeven cost, has been mostly associated with the freight rates, which Vale is mostly hedged, which is one of our competitive advantages, not 100% hedged, so you saw an uptick this quarter. But we this is one of the headwinds that we've been able to manage.

Speaker 9

We are now probably 90% hedged in terms of our demands for the year. Also hedged on the Brent costs. And the other element here are the premiums, which came a little tighter and as given market conditions. But all in all, we are feeling very good with the numbers that we had laid out in terms of our forecast for the year for both C1 and all in cost, across all businesses, by the way.

Operator

Next question from Riccardo Monengaglia with Safra.

Speaker 7

Hello. Good morning, everyone. I have a couple of questions, actually follow ups from previous questions. First on the base metals business, there are any changes to commodity price hedge policies given the recent rally in metals prices? And the second question still on base metals is there any updates that you could share with us on regards to the conclusion of value based metals transaction?

Speaker 7

It continues to be expected to occur in the Q2 that what are the final steps to conclude this acquisition will be interesting to understand. And my second question is on iron quality. Based on the target for the year and 1 to 24 levels, it implies that quality will come above the level of 62.5% in the coming quarters. Should we expect this trend already in the 2nd quarter or high silica sales will continue high or at the same levels as in the first Q? Those are my questions to emphasize.

Speaker 1

Ed Stav?

Speaker 9

Sure. Thanks, Ricardo. So I'll do the first ones, and then, Spinelli will cover the premiums. So on the hedging, we usually don't do it. That's the nature of the business.

Speaker 9

We like to run exposure, unless there is some very unique conditions where we may want to consider. So that's part of the nature of our business. And we like to run with exposure in those commodities. On the VBM, we've got, I think Eduardo mentioned in his prepared remarks, we've got all the regulatory approvals, and we are now working with partners to move to the closing, which we expect it to happen in the next, call it, couple of weeks. So we'll keep the market updated about it.

Speaker 9

So I'll turn back to Spinelli.

Speaker 4

Okay. Thank you, Ricardo. So regarding the quality of average, it depends on firstly in the production mix. And you saw that we had a good performance in the North system. And as we have a pattern of higher production in the second half that will naturally increase the average grade.

Speaker 4

And regarding sales, you're right. We had took an advantage to sell directly the high silica in the 1st part of the year, actually the end of last year. So the discount was there. So we can take this choice every actually every day we assess this. So as we move forward during the year, we have the possibility to blend this product or to concentrate this product or sell them directly.

Speaker 4

But in the second half, we don't have a lot of high silica as we increase blend. And after that we can choose the remaining high silica if you want to sell directly on all. It's difficult to precise in advance, depends on the market conditions.

Operator

Next question from Gabriel Simon with Goldman Sachs.

Speaker 14

Hi. Can you hear me? Yes. Okay. Thanks for taking my questions.

Speaker 14

I actually have one quick follow-up on one of the questions that were asked before. Actually, I just wanted to understand on the development of your iron ore projects. So if you could comment a bit on how the development is going, the capacity increasing projects, so that'd be great. Because we just wanted to to understand how the the projects are doing so far and how confident you are, with the time line you provided earlier. I know you mentioned that that the should remain the same timeline.

Speaker 14

Just wanted to have a better sense on the other ones. Thank you.

Speaker 9

So, Gabriel Gustavo here. We are feeling pretty good about it. We gave you some stats during Eduardo's presentation of where each one of those projects are. We have a series of projects, but the 3 main ones we've been pointing out is Vargin Grande, Capa NEM and Plus 20. And they are moving along the timeline we had established.

Speaker 9

So we're feeling pretty good about it. And Vagin Grande, for example, the expectation is that we'll start have the start up by the end of the year. So that's one of the key projects that we've promised to deliver through 2026 to have that increase and take Vale to a potential range of 3.40 to 3.60. So I'm moving along the plan and we're feeling pretty good about those deliverables.

Operator

This concludes today's question and answer session. We would like to hand the floor back to Mr. Eduardo Bartolomeo for the company's final remarks.

Speaker 1

Okay. Thank you. Well, just to conclude, I think we as we say here in Brazil, we start with the right foot. We started the year in a very good shape. We always like to say that we win the game in the Q1.

Speaker 1

We're not that arrogant. So we know we still have 9 months to go. Rainy season isn't over yet on the North. But the thesis of safety versus production is being proved that we can be safer and reliable. And that's, I think, is a very important message.

Speaker 1

We are seeing a positive to market in iron ore and in the copper as well, nickel as its challenge. As lastly, answered by Gustavo, our projects are on time, on budget, so we will deliver on it. On June, we're going to have more color on the asset review. And in the end, every about the noises that are around us, we see some overhangs starting to getting off of the radar as Mariana is expected to be over by the we will try our best to do it by the first half. The renewal is going to be over.

Speaker 1

It's not going to be material. So with that said, if we sit through the noise, we remain extremely disciplined, extremely focused on what we have to do. And we still see extremely huge opportunity to invest in value. So again, thanks a lot for your attention and hope to see you in the next call. Okay.

Speaker 1

Thank you and have a safe day.

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Earnings Conference Call
American Business Bank Q1 2024
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