VALE
Conference call and webcast presentation
December 09th, 2014
Press Conference Call: 14:30h (RJ time)
Introduction
Operator: Good afternoon ladies and gentlemen welcome to Vale’s conference call exclusively
for press members. At this time, all participants are on listen-only mode. Afterwards, we will
conduct a question and answer session.
Today with us we have:

Mr. Murilo Ferreira – CEO;

Mr. Luciano Siani – CFO and IRO;

Mr. Roger Downey – Fertilizers and Coal Officer;

Ms. Giane Zimmer – Strategy and Logistics Performance Manager Director.
I would like to give the floor now to Mr. Murilo Ferreira. Mr. Ferreira, you may proceed.
Murilo Ferreira: Good afternoon everyone. Today we are to talk about a specific transaction,
which is welcoming a new partner in Mozambique, both in Moatize and in Nacala Corridor. We
are here also to celebrate the opportunity that we believe represents a great marriage in terms
of cooperation between the company and the country. When we visited Mozambique for the
first time after we return to Vale in 2011, President Guebuza of Mozambique expressed his
interest in the railway that goes from Moatize and crosses Malawi, which is another country, and
goes back and returns to Mozambique, going down to the Nacala port. He said that he would be
very much interested in that in terms of bringing benefits even higher than coal, because the
only product to be transported was coal, and we understood very well the demands on the part
of the Mozambique government, and we made this open railway so that could transport general
cargo. And undoubtedly Vale has its core business, and our main interest is to be in
Mozambique for mining activities.
And we have just received our new partner, Mitsui, to participate both into mine and in the
Nacala corridor with 35%of the total capital, and we’ll have 35% as well, and we believe that this
will be a very important means for the development of additional businesses within Mozambique
and bringing about opportunities and jobs for the people who need this very much. So we see
great opportunities in agriculture, in the transportation of fuels in the Nacala corridor. So this
transaction and this partnership with such an important partner such as Mitsui has a very
special context. I have just described, I met with Prime Minister Abe during my visit to
Mozambique in January, when he made the State visit to that country, and the first visit of a
Japanese Prime Minister to Mozambique, and at the time the Prime Minister said that he would
be very much interested in the Japanese participation in a broader fashion in the businesses in
that country.
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So it is with great satisfaction that I would like to thank our team, especially Roger Downey, our
Executive Coal Officer and our Logistics Officer, Luciano Siani, our CFO, who made their best
endeavors together with their team so that we could reach this wonderful outcome and also with
our Legal Department led by Clovis.
And now I would like to give the floor to Roger so that he may talk about the business itself,
about the deal itself.
Roger Downey: Good afternoon everyone, and thank you Murilo. This is a transaction that
represents a historical landmark for Vale, for Mitsui and especially for Mozambique. As Murilo
said, the people of Mozambique expressed this wish that this railway that crosses 912 km from,
in Mozambique and Malawi as well, it may spur other businesses for this country.
Coal is a project that Vale has been developing for 10 years already. And his landmark for Vale
represents a huge step towards our objective, which is to transform Moatize into a benchmark
mine for the coal industry. The path is long, because if you take a mineral resource and go all
the way down to a world class operation, this is a very long path, because you have to find and
measure the reserve. Then all the engineering work involved, development work of the
construction and now the operation.
We are still in the beginning of this operation, we have 11 million tons of installed capacity today
in Moatize, and we use a railway that so far can only fit 4 million tons of our products. And with
the startup of the Nacala railway, today we can already transport coal from the Moatize mine up
to Nacala. And the port of Nacala that will start shipping in the first half of 2015. Without that,
gradually we will be increasing our scale of operations up to 22 million tons, and maybe even
more than that. Though this is a transaction that is extremely important for Vale, because the
company will become a coal player of a very considerable size, playing in the same league as
the other large players that compete with us and that do the seaborne market for coal.
The Moatize product is very good and a noble product and has been very well accepted by the
market and by our clients. We also have a significant volume of thermal coal, with increasing
demand, because of the energy deficits in some Asian countries and also other spots in the
world.
But our challenges still very big, because we need to skill and train people, and also prepare our
system to make our dream come through, and to realize our objective, our commitment to the
environment, with the communities where we work, and with the safety and the health of our
people and wellbeing of them. All this guarantees us and that renews everyday our licenses to
operate in the long run, and with this commitment, we found in Mitsui a partner that is fully
aligned with us in terms of values and vision. Besides Mitsui knows Mozambique very well and
knows the coal business extensively. They are already present in other coal operations in other
parts of the world.
Having said that, I would now like to open for questions from you.
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Operator: Ladies and gentlemen, now we will start the Q&A session. In order to ask a question,
please press (*) one (1). In order to remove your question from the queue, please press (*) two
(2). Questions will be limited to 2 at a time.
Mr. Francisco Góes, from Valor Econômico.
Francisco Góes, Valor Econômico: Good afternoon everyone. I have two questions, the first
one is to see if we really understand the deal. Because we read the presentation that Vale
made available to us and that in total Mitsui will be contributing to Mozambique coal amounting
to US$ 1 billion, if you consider the mine plus the Nacala Corridor, and at the same time this will
be released Vale in the sense of alleviating Vale with gains in terms of cash flow for Vale. So is
that correct? Could you please explain if my understanding is correct? And when do you expect
to conclude this operation in terms of having all the contracts fine, all the paperwork?
And the second question is the following, when do you consider that the Nacala Corridor will be
fully operational? Will it be by the end of 2015 or maybe even later than the end of 2015? And
could you give us an idea about the shipping tariff established in the take or pay contract
between the mine and the corridor? And maybe you could also explain something that were not
very clear for us, during your call with investors, that is the fact that the tariff should be
remunerating the intercompany loan that was made by Vale to Vale Mozambique, to VM. I know
it’s quite a few questions but I thank you for understanding.
Roger Downey: Francisco, I will try to remember all the questions. This is Roger speaking.
Talking about our operations first, you asked about when Nacala Corridor will be fully
operational. It is already operational. We have the first train loaded with coal from Moatize mine
to the port, at the beginning of this month, and now this means that we are already starting to
form the piles of coal. Our first shipment in Nacala may occur in the first quarter of 2015. So the
process of moving coal from the mine to the port, and making the necessary piles and with
homogeneous quality and also with the firsts shipments being made as off the first quarter of
next year. From the deal view point, I would like to ask Luciano to help me here.
Luciano Siani: Giving a more financial view of the transaction, I would like to make it very clear
that this transaction allows the project to go ahead. There’s no gain for Vale but that of having a
lower exposure to the project. So we see Mitsui as a capital contributor to our business, and
also placing resources available and opening doors for access to financing agencies for the
project finance.
Francisco, you are correct in your understanding, the resources that are brought by Mitsui are
close to US$ 1 billion, between the capital increases and resources that are injected directly into
Vale, and then you can add the project finance that we are targeting amounting to up to US$ 2.7
billion, but no coming from Mitsui this resources. They would be coming to support the Vale
cash in two ways, both financing the remainder of the project construction and in some cases
placing money or placing resources directly into funded. It could get to US$ 3.7 billion. And our
target is to conclude the transaction up to the end of the first half of 2015.
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And in what regards to tariff, there is a concept that the tariff will have to remunerate the
operating expenses of the railways plus the financial costs of the financing operations including
the financing by Vale itself. And thus this financing resources, or the funding resources are not
final, or you don’t have a final figure for that. We have not fixed tariff yet. We have a concept
and we are working with this concept. Certainly the tariff will be very competitive, because in our
call with investors we have already said the operational cost will be around US$ 16 per ton.
Operator: Ms. Ana Paula Camargo - Steel First.
Ana Paula Camargo - Steel First: Good afternoon. 22 million tons capacity, you said that the
next couple of years you should be able to get to the full capacity so we could see that by the
beginning of 2017? Is that correct? And you also said that you are already starting a further
expansion. Do you have a deadline for that? And what about the other coal assets of Vale in
Australia? Could we see an operation similar to this one with Mitsui in terms of stake?
Roger Downey: Thank you for the questions. Yes, the Nacala logistics corridor is in a ramp up
now, and by the end of 2016 we will be reaching 22 million tons capacity in this corridor. I would
like to remind you that part of the logistics corridor will be for third party cargo and other
products and other cargos, and the corridor can transport 22 million tons of coal. However, if
third parties are interested in transporting their cargo through the Nacala Corridor, we will be
doing that as well. In this case, there’s one alternative, there is one options which is the use of
the Sena-Beira Corridor to be able to handle more volume. The Moatize mine will be operating
with 22 million tons of coal capacity by 2017, as you said yourself. And in Australia the situation
is slightly different. With the current prices, some of our mine are really with a cost that does not
justify their operations so temporarily we have place them under care maintenance the
operation that we have in Integra and also Isaac Plain, so they are under care maintenance
now. And for Australia we believe we will cover those will is today a positive cash flow mine, so
we will continue to operate there the way we are operating today. The only expansion in
Australia is a joint venture with a new partner, and today we are, today we are revising the
projects, all the engineering, once the coal price require a new approach, vis a vis the
expansion projects in Australia, so we are revising it.
Operator: Mr. Juan Spinetto from Bloomberg
Mr. Juan Spinetto from Bloomberg: Good afternoon everyone. The agreement with Mitsui,
does it include any measures in the Nacala Port? And Roger, what about the coal market? Do
you think they have already reached the rock bottom and that they could recover? Or is it
something closer to the end of this decade? And what is your aspiration in coal markets, in the
coal business in general?
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Roger Downey: Juan, thank you for your questions. Mitsui participates in our coal business in
Mozambique, by means of a capital increase they become a joint controlling shareholder with
Vale, in the whole logistics corridor, and this includes the ports, the railway, and they will have
50% of the equity that we have there today. Today we have 70%, so Mitsui will have 35%,
equivalent to the Vale’s 35%. And in Moatize, 15% of the Moatize mine, of our holding company
in the Moatize mine, which is 95%, so this will mean 81% Vale and 14% Mitsui.
In relation to the coal market in general and our plans for coal, the coal market for sometimes
already has been operating bellow the incentive price, so this are very hard times for coal
producers, all over the world, including Australia, which is the largest producer and exporter of
coal in the seaborn markets today. And as you saw, not only Vale but in other companies, we
had to suspend operations in some of these mines, and our crystal ball is not really here with us
now. Nevertheless, we see that the markets will continue to be tough, lots of price pressures,
and most probably up to the end of this decade, we’ll still see high inventories in China and still
this incentivizing the production of coal in China, so met coal, and thermal coal, because China
is a great producer of these two coals, and our plans continues untouched.
We have a mine which is world class. This is an asset that will still give us a few decades of
operation, many decades of operation, so this is the bases of our coal business. And there is a
challenge ahead of us, but I believe that we will be able to work with comfort in the first quartile
of the cost curve, around US$ 80 / US$ 80 and a few per ton. And we will be operating within
this first quartile, so we will be a great player, with a very good mine, and a top quality product
and very competitive costs. So we still have a long way to go, lots of homework to do.
Operator: Ms. Mariana Durão from Agência Estado.
Mariana Durão from Agência Estado: Good afternoon. I still have a doubt about your Opex of
US$ 16 per ton. Does it refer to this whole logistics operation or are you referring only to the
railway operation? And another thing I would like to know. I was listening to the conference call
and I see that there is a guarantee of project finance that is an agreement of take or pay
between the coal mine and the logistics entity. Could you explain this take or pay agreement?
Roger Downey: Good afternoon, Mariana. The tariff that, well, in fact this is the operation
component of the tariff between the railway and the port. So, in the tariff that will be charged by
the corridor to the mine, we believe that it will be around US$ 16 per ton, and we are talking
here about the operating component. So the CLN, the Nacala Logistics Corridor, NCL, will
charge US$ 16 where this represents the costs of taking the coal from Moatize and placing it
under ship.
Luciano Siani: Mariana, here is Luciano, regarding the guarantee, there is an important point
here, Vale will not be giving a guarantee or collateral for the funding operations that will used in
Nacala Corridor. The revenues coming from the transportation of coal paid by the mine will be
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used for this purpose. So I think it is important to mention that, and by means of take or pay
agreement.
Operator: Ms. Paula Pereira from CMA Agency.
Paula Pereira from CMA Agency: Good afternoon, I have two doubts regarding the call. Last
year, when you announced the sale of part of your coal assets, you were talking about 15 to
25%. Does this mean that you will sell an additional stake in your coal business still? And the
second question has to do with the third part cargo in the Nacala Corridor. Do you have a time
schedule for that? When will it start? When will be transporting third part cargo?
Roger Downey: Good afternoon. Regarding our current operation and what will come in the
future, we will be looking for a partner who could add between 15 and 25%, and we found a
partner who acquired 15%, so we have no plans to look for another partner. We are not selling
a stake. This has to do with a capital increase in many different types, both in funding and
equity. Regarding the time schedule, we are operating at full steam in order to reach our
capacity of 22 million tons in the railway, and this will be achieved by the end of 2016. And in
2017, both mine and the port will be working with full capacity. The first transportation of coal
from the mine to the port occurs this month, the first train load.
Operator: Mr. Paul Kiernan from Wall Street Journal
Paul Kiernan from Wall Street Journal: Good afternoon everyone, thank you for the question.
I have the impression that this agreement will be increasing the final cost of producing and
transporting coal in Mozambique. In you call with investors, somebody talked about the
objective of US$ 68 per ton, and now Roger Downey said that it should be lower than US$ 80
now. Do you have any idea of the final impact that this agreement will have on your final cost
and the reason for this deal? Was this the ideal deal?
Roger Downey: Well, we don’t see things this way, we do not see this as having an increase in
costs. What we are doing is bringing on board a partner that will bring capital and open doors
for project finance, and a very competitive one. So what is happening on the loan side is a
replacement of the shareholder loan from Vale to Nacala Corridor and it will become project
finance, with very competitive rates and tariffs and maybe even lower than our own rates here at
Vale. Luciano, maybe you could add to that.
Luciano Siani: All investors have to be remunerated, so the operational tariff depends on our
efficiency and we said US$ 16 and the return on invested. The project finance will be even more
competitive. So it is possible that the total cost might go down and not up.
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Operator: We would like to remind you that in order to ask a question you should press * 1
(one).
Operator: Ms. Mariana Durão, Agência Estado
Mariana Durão, Agência Estado: Now that you are talking about this deal, I would like to know
about 2014 divestments for Vale. What would be the full amount of divestments for Vale? And I
remember that Vale Florestar stake. I don’t remember what else we have here.
Monica Ferreira: Well, the consolidated information will be published on the 16th. We will be
inviting all to have lunch with us and we will be disclosing all these information to you on the 16th
of this month.
Operator: Mr. Paul Kiernan from Wall Street Journal
Paul Kiernan from Wall Street Journal: It’s me again. It seems to me that your expectation is
of the slightly higher cost for this operation. You said US$ 68 per ton in your call with analysts,
and now you say that the objective is to be lower or below US$ 80. But you said that you have a
lot of work to be done in order to reach this objective, so what are the reasons for this pressure
on your cost side?
Roger Downey: There is no pressure on our costs. I believe that one analyst during the call
said that there would be so much as a cost. We maintained our statement that Moatize would
be an operation that will very comfortably be in the first quartile, and the limit for this first quartile
is US$ 80. Of course we have to do quite a lot of work still, so the project still in the ramp up
stage and the objective is to reach 22 million tons and when we get in the mine and in the
railway running at full capacity, then it will be possible for us to have a very competitive cost.
From the viewpoint of funding and putting pressure on costs, as Luciano said in his last answer,
we are replacing one debt for another. From the general view point, project finance could have
a cost that may be much lower than the current cost that we have in the form of shareholder
loan for Vale for Nacala, by Vale to Nacala.
Luciano Siani: One of the ways to see this is like MRS in Brazil, we pay a tariff which is
nominally slightly higher in Vitoria-Minas for instance. And we get this money back in the case of
MRS in the form of dividends. So the bottom line is better. This is what Roger means, you pay
on one side but on the other side you get something as capital provider.
Operator: Ms. Ana Paula Camargo from Steel First.
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Ana Paula Camargo from Steel First: It’s me again, thank you for accepting other questions
from me. Roger, the first shipments that are scheduled for the first half of next year. Can you
talk about the destination? Where will the coal be transported to? And regarding the expansion
of Moatize beyond 22 million tons, is that something that is already been studying by you and
can you give us some more details about that? Thank you.
Roger Downey: Paula, the first shipment will be in the first quarter of the next year and we do
not know exactly who will be the lucky costumer. We have had sales for quite a few years
already and the Moatize product is already sold in the market, so it will depend on the shipping
schedule.
The expansion of Moatize and the railway, they are already under way. We already have the
first phase of Moatize, 11 million tons, delivered some time ago, and the second phase, 22
million tons. An addition of 11 million tons, will be delivered in the second half of 2015. So the
two really walk hand in hand the expansion of the railway goes hand in hand with the expansion
of the mine in order to improve the capital disbursements and the shipments as well.
Operator: Mr. Francisco Góes, Valor Econômico.
Mr. Francisco Góes, Valor Econômico: One more question. You mentioned, in the other call,
you mentioned the offtake of Mitsui. And I see here in this presentation that you believe the
production will be 8 million tons for Moazitze, for 2015. So I understand Mitsui will be entitled to
15% of this volume. But in the call you didn’t say if Mitsui could, could a higher offtake in the
second phase, this was not clear in the call. And the sale of coal, vis a vis Vale, will Vale
continue to sell coal itself that is to say, or directly?
Roger Downey: The Mitsui offtake will be proportional to its stake. So we are talking about
15%. We are debating with some financing or funding agents that might, that might require that
this offtake maybe increased in order to comply with the contract clauses. Which means that the
volume of the offtake may be a balance for the debt service for the project finance. And this is
really independent, as far as we are concerned, because it’s indifferent. This is what I mean,
because we believe our coal is so good that it will not be difficult for us to sell it. In other hand, it
is always good to have a higher demand and a firm demand for our project. This is how it works
with mining, the more firm contracts you have and offtakes guaranteed by shareholders or by
funding agents, the better it is for the health of our business.
Operator: Ms. Paula Pereira, CMA
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Ms. Paula Pereira, CMA: Thank you for another question. Are you working with a cap for prices
in Australia to remove these mines from care maintenance?
Roger Downey: Well, as I said before, in order to resume operations, we would have first to
see our prices bouncing back to a level higher that they are today, and in a consistent fashion.
So we still need quite some time to check this.
Operator: I would like to give the floor back to Mr. Murilo Ferreira now, for his closing remarks.
Mr. Murilo Ferreira: Thank you very much for your time. I would like to thank our team that was
involved in this transaction and I would like to express our joy for having this new partner in
Mozambique and bringing new businesses to our company. I would like also to add that it was
another point that we have already overcome in our agenda that was established by our
Executive Committee and the Board of Directors since 2011, related to expansions in Carajás,
S11D, Serra Sul, Itabiritos, the restructuring of base metals, including the Salobo project in
Brazil and then the expansion of the Salobo, Onça Puma, the Totten project in Canada, LongHarbour, as ours New Caledonia, and now another step, a huge step ahead in our coal
operations. We will continue to work intensively in our fertilizer business, knowing that we are
living a very challenging moment for the global mining industry, however we are here for the
long run. As you can see, there are prospects, there are people interested, and we had
discussions that lasted for months and months. And Asians have these characteristics. They are
not overly impressed by economic cycles or momentary situations, they place their bets on the
long run and this make us very happy, because we have the same philosophy, we work for the
long run. We just don’t keep our eyes on the spot market and knowing just what is going to
happen tomorrow. We have a long term view and today the coal market is not very exuberant.
I’m referring to met coal, on the other hand we know that this is an essential component for the
steel making and it will resume its growth. And I would like to thank you very much and wish you
all a very good afternoon.
Operator: Vale’s conference call is closed. We thank you all for participating and wish you a
very good afternoon. Thank you.
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