Vale S.A. (VALE3) Earnings Call Transcript

So first of all, I'd like to thank you very much for being here with us today in our first completely virtual Vale Day. So for our presentation and Q&A session here, we have our senior executives, and I'll quickly introduce each one of them. So we have here with us Eduardo Bartolomeo, our CEO; Marina Quental, Director of People; Carlos Medeiros, Safety and Operational Excellence Officer; Marcelo Spinelli, Executive Officer for Ferrous Minerals; Mark Travers, Executive Officer for Base Metals; Luciano Siani, our CFO; Alexandre D’Ambrosio, General Counsel; Alexandre Pereira, Executive Officer for Global Business Support; Luis Eduardo Osorio, Executive Officer for Sustainability and Institutional Relations; Paulo Couto, Director of Coal; and Marcelo Klein, Recovery and Development Director. So we have -- we plan to have a 1 hour and 15-minute slide presentation, including 6 videos and after that, a 45-minute Q&A session. So we have received already many questions in advance, but we will also collect questions during the slide presentation. And for that, please use your cell phones and scan the QR code you're going to see on the screen. [Operator Instructions] So with that said, I hope you enjoy our event, and I will now pass it on to Eduardo Bartolomeo, who will go over our presentation on how to build a better Vale. Eduardo, please. Thank you.

Thank you, Ivan. First of all, I hope everybody is safe and sound. And I would like to thank you for being with us today in this virtual setting. That's going to be a novelty for everyone. But it's my second day as Vale Day, and it's an honor to have the opportunity to discuss and show the important steps that we're taking towards building a safer and more reliable company. But before we do that, I would like to reinforce once again that our #1 priority is the reparation of Brumadinho. We will never forget Brumadinho. Since I took over the leadership of Vale, I have been vocal about 3 words: people, safety and reparation. Those 3 words have inspired us to create the road map that's fundamental to build a better Vale. Brumadinho is the driving force behind everything that we are doing to improve our company. Even during the pandemic, we maintained the critical reparation works and actions. So with that, I invite you to watch a video that shows some of the progress we have made so far. [Presentation]

You can see this video brings some important examples of our commitment to Brumadinho. With those actions, we have already disbursed $2.6 billion. We already indemnified 8,300 people. In addition, we also designed a plan for the community of Brumadinho. This master plan was built on the community's perspective and has been very well appreciated by the local authorities. And as you know, we are having encouraging conversations with the state of Minas Gerais and other stakeholders to get a framework agreement for collective damage and reparation. With that, we continue to pursue our goal to reach a stable agreement for this matter. But let me be very clear, regardless of any agreement, we will continue to deliver on our commitment to the full reparation of Brumadinho. That is to repair Brumadinho with quality, care and at a fast pace. One of my first decisions as CEO in 2019 was to add 2 new pillars to our strategy. Actually, there were 2 resets inside Vale, and they have improved a lot during 2020. The first pillar was set to create the safety and operational excellence mindset. It's about assuring them safety and asset integrity. It's about creating discipline towards operational excellence. It's about being obsessed about safety, and we are advancing well on it. The second pillar is what we call the new pact with society. It means active listening and working together with society so we can create a virtual cycle that brings prosperity to everyone. One good example of this new pact was our great support to the Brazilian authorities in fighting COVID, leading the Brazilian corporate effort to join forces with the government in the battle. 2020 was a year about a better stability in our business despite COVID and on the effective delivery on our commitment to these new pillars. But important to our stability as well, our executive team is together since July 19 and truly committed to this agenda. Our actions within those 2 pillars that you will see throughout this first part of the presentation are essential to the process of transforming Vale. Later, Spinelli, Mark and Siani will come to talk about the other 3 pillars of our strategy. With that in mind, we outlined a guide, which we call 1 page, a narrative that will lead us toward this better Vale. It took a lot of effort from our team, and we are sure that will lead us to this goal. Let me guide you through this 1 page. It starts with it's foundation, our values that you can see at the bottom of the page and goes all the way up to our mission, which is to transform natural resources into prosperity and sustainable development. Our values haven't changed. They remain the same. But in this culture transformation, we looked deeply into our culture, and we concluded that we needed to move from a culture of make it happen in any way, to a culture of learning together. To give you an example, life matters most was already a value, but we wanted to create a chronic and needs behavior around this value. With the new culture fostering this new behavior, we could now lever it with our VPS, for example, to achieve higher levels of safety. VPS work as a lever because it's our management model that puts safety as a priority. With this interconnection occurring in a virtuous way from bottom to top and top to bottom, we can achieve our ambitions, in this case, which is to become a benchmark in safety. Besides that, we have the ambition to be a best-in-class reliable operator, a talent-driven organization, leader in low-carbon mining and a reference in creating, sharing value. So today, we use those ambitions to lead you through our presentation on how we are building a better Vale. Let's start by talking about becoming a benchmark in safety and a reliable operator, which are directly correlated to our pillar of safety and operational assets. And for that, I would like to invite our Executive Officer, Carlos Medeiros. Please, Carlos.

Thank you, Eduardo. Good morning to you all. Good afternoon. As you are probably aware, Vale utilized the 3 lines of defense model: the operations, the first line of defense; the organization I lead is the second line of defense; and our internal auditors are the third line of defense. As Eduardo mentioned, we have the ambition to become a benchmark in safety. And I would like to share with you the important strides Vale's making in both occupational and process safety. The column on the left describes the organization's long-term safety targets. It comprises targets in high-potential events reduction, reduction of human exposure to hazardous agents and high-risk scenarios reduction. The graphs on the right illustrate our progress so far. And as you can see, we are on track to become a much safer company in the next few years. Our process safety program starts with the HIRA, hazard investigation and risk assessment. A team of 12 multidisciplinary people visited our sites and working side-by-side with the local management identify the most critical process risks as well as their respective controls. This activity follows a well-defined methodology, which has helped so far identify almost 600 critical risks and more than 6,000 critical controls. Monitoring the integrity of these controls has become a part of our daily maintenance routine. By the end of 2020, more than 90% of our sites, who have received the HIRA. The combination of the occupational and process safety programs has proved to be truly transformational. The obvious consequence is that Vale has become a lot more proactive and is starting to display a chronic needs, as Eduardo mentioned, for safety-related matters. The operations below were halted during 2020 for different reasons. And I would like to highlight a few of them: VNC and Simões Filho. These are both refineries that have been permanently shut down as they failed to comply with the HIRA requirements. Sossego operations was temporarily paralyzed to allow the team to fix several issues related to assets integrity. This one is a busy slide, so please let me walk you through it. Starting at the top, our Tailings Management System is being rebuilt to ensure the adoption of all known best practices to manage our tailings dams. Although it is still a work in progress, it is highly adherent with the global industry standard on tailings management. Vale will implement the global standard and is well positioned to complete it by the end of 2021. The practical consequence of this work is that our governance has been strengthened and our team is more prepared to make the best decisions about our dams safety. Our Tailings Management System is organized around 3 pillars: routine, performance and risk assessment. I will explain briefly what it means, starting from the left column, routine. We have a new dam management policy and the roles and responsibility matrix has been reviewed. Both are requirements from the global standard. Performance. The engineers of records are in place since last January. The monthly reports will be made available during the first quarter of next year through our ESG portal. Engineer of records is also another global, standard requirement. Risk assessment. The HIRA methodology that I explained a moment ago has been utilized to assess the potential failure mechanisms of our dams, as well as the controls that are in place. The first assessment was completed last September, and we are targeting to conclude this exercise by the end of 2022. While we are strengthening our Tailings Management System, improving our dams conditions and working closely with the engineer of records, we are also continuing to decharacterize our upstream dams as per the announcement made last year. Until the year-end, 5 structures will have been decharacterized, and another 3 will also be decharacterized during 2021. At the bottom, we are highlighting the 3 most critical structures. And by the way, none of them are operational. As you can see, 2 back-up dams have been completed, and the third one will be finalized during the first half of 2021. The decharacterization works for the B3/B4 dam has already commenced. The progress is deliberately slow to avoid the introduction of additional risks. You will now watch a video explaining the decharacterization process. [Presentation]

Besides becoming a safety benchmark, Vale also has the ambition to become a reliable operator. How do we expect to do this? This will be done through the implementation of our integrated management system or VPS as we call it. Let me give you a flavor of what this is about. As an integrated management system, VPS brings together all of Vale's processes and systems into one single framework, enabling our company to work with unified objectives and in a standardized way. The VPS implementation is already creating a positive momentum within Vale. 100% of our employees have been trained, and they are fully engaged. For example, a week ago, during our online global VPS Summit, 18,000 employees were connected, thousands of continuous improvement projects were submitted. Our workforce is gradually understanding the benefits VPS brings: safer work environment and a more effective problem resolution process. These inevitably will lead Vale to great reliability. There are some tangible benefits already being perceived on maintenance performance as highlighted on the column on the right-hand side. The video you watch next will tell a bit more about the VPS and its 3 dimensions: technical, leadership and method. [Presentation]

Everything we are doing here can only be accomplished through the real engagement of our people. I will hand over now to Marina Quental, our Executive Officer for People, to talk about Vale's human capital. Thank you.

Thank you, Carlos. Hi, everyone. I will talk today about people and culture. We have set a very clear mission at Vale to be one of the safest mining companies in the world and hence, a reliable operator. How do we plan to achieve that? By attracting and developing the best professionals and by promoting a culture of collaboration, inclusion and lifelong learning, nurtured by performance with the right incentives. In a nutshell, we are moving to be a talent-driven organization. We know it's a journey, and I'm glad to highlight to you today some important progress we've made this year. The orange and green boxes in the left side are examples of how we are improving our culture of safety. The implementation of the second line of defense have strengthened our technical capabilities, enhancing clarity of roles and responsibilities. In the last 12 months, we added more than 200 new geotechnical professionals, mostly on our operations. And we have also resourced the new safety and operational excellence office with global high specialized talent, having almost half of them less than 5 years tenure. Conscious the needed culture shift must be driven by the leadership, we've been investing heavily in nominating and developing our leaders. In the blue box, you see the results of our efforts to renovate the leadership. At Ferrous organization, almost 60% of the leaders are either new at the company or at a position. In the red box, you see an important step in a commitment we made here last year. To become a more inclusive organization, we defined a goal to double female representation in 10 years. This year, we increased our female representation in leadership roles by 21%. And I can say, I must say, we are working in all dimensions of diversity towards a true inclusive Vale. Finally, in the yellow box in the right-down corner, you see that our compensation targets were also strengthened to reflect the culture we want. For next year, 60% of Vale's scorecards is linked to our ESG agenda and to the operational discipline as Carlos just guided us through. We, as the Executive Board, have defined a bold road map for the transformation we are going through, which is deep and goes beyond our boundaries. We are actively listening to the society, working hand to hand with the communities and engaging our employees, aiming to achieve the ambitions Eduardo shared with us here. Now I pass back to Eduardo.

Okay. Thanks, Marina. Now let's talk about our last 2 ambitions, which are to be the leader in low-carbon mining and a reference in sharing and creating value, ambitions which are directly related to our new pack with society. Last year, we announced very ambitious goals as you may remember, and they are shown in the slides. Starting by our climate change resolutions, we had strong reduction targets for scope 1 and 2 emissions, aligned with the Paris agreement and also a net 0 target by 2050. Now I'd like to invite you to watch a video that summarizes our climate initiatives and the road map to deliver on those commitments. [Presentation]

Well, as you could see, there's a lot of work, and we are committed to this journey. And we are aware that we have an additional challenge since we are increasing our production. On the chart, you see that we estimate to reach peak emissions in 2023 when we should be producing around 400 million tons of iron ore. We are now investing in innovative lower carbon technologies. And by 2024, 2025, they will be mature that is scale to help us to reach our goal. As well, we monitor this performance in our monthly low-carbon Board meetings, a group led by me and executive directors and their technical teams. As you know, our electricity consumption profile is one of our top competitive advantage in reducing scope 1 and 2. Last year, we announced a target to achieve 100% renewable consumption in Brazil by '25 and globally by 2030. Today, our global consumption is already close to 80% from renewable sources. In the beginning of 2019, we announced a wind project, Folha Larga Sul, which is operational since last August. Today, I'm glad to announce a large solar project called Sol do Cerrado, which has just been approved by our Board. Sol do Cerrado is expected to be operational by 2022 and will deliver 13% of our self-generation goal. As you could see, we have a bolder map with clear milestones to our scope 1 and 2 emissions. But we recognize that we can only be leaders in low-carbon mining if we induce our value chain in the same direction. So we want to make a very important announcement today regarding scope 3. We are committing ourselves to reduce our scope 3 net emissions by 15% until 2035. We know this is not an easy task, but I believe Vale has a unique position to deliver this. And we are committed to work hard to reach this goal. I believe we are one of the few companies that have initiatives that's on that alone contributes to deliver 15%, 20% to 25% of our scope 3 targets. Our direct contribution will come mainly from our portfolio of premium products, which enables steel-making emission reduction, our HPI technology using natural gas and our pig iron production using biomass. And finally, we also rely on nature-based solutions and carbon markets to neutralize emissions. To deliver the other 75% to 85% part of our goal, we rely on partnerships and engagement with our value chain to help them innovate and decarbonize. We are already mapping different technologies for decarbonization, including CCS, hydrogen and scrap. And we are open for partnership with our clients. On shipping, our very large carriers are already the most efficient in the world. And we are committed to supporting the shipping industry to deliver on the IMO targets. To complete our climate agenda, I would like to highlight that Vale's net 0 strategy has its pillars on emission reduction and offsetting. Aligned with Brazil's and especially Vale's forest vocation, we may also use sound and credible carbon offsets. Today, we protect more than 1 million hectares, the equivalent of 6x Greater London. In 2020, we added another 50,000 hectares, and we are on track to achieve our 2030 goal that we have mentioned here last year. Please, let's watch a video that illustrates our approach on forests. [Presentation]

So let's talk about our final ambition, which is to be a reference in creating and sharing value, which is also linked to our 2030 commitment for income generation, basic health and education. Our working communities involves active listening and engagement strategy to define and prioritize social actions. Let me show you 3 examples of investments in urban infrastructure and education to improve social economic development. The first project is in the north of Brazil. In Pará, we support program on the reduction of violence in vulnerable communities. More than 370,000 people will be benefited. The second is in Maranhao. We have a project to remote literacy at the recommended age, and we already saw improvements in educational test applied in some municipalities. And third, at the IT hub in Itabira that we have mentioned here last year, we have just launched Infinita, a start-up accelerator that will help around 90 companies create 450 new jobs and train 3,000 people. Those are examples that we must move from just creating value to sharing value with our communities. Finally, as you may have noticed, we remain firm in improving our ESG practice, and that's essential to the de-risk of our business. We listen to our stakeholders, and we met 52 [indiscernible] gaps, having [indiscernible] 33 of them. In 2020, we already addressed some gaps, and 4 more should be addressed by the end of this year. For example, in governance, we have established the Audit Committee. Recently, we created a Nomination Committee to support our Board in the transition to a noncontrolled company following the expiration of our shareholders' agreement. And as a good sign, risk rating agencies such as Fitch and Moody's and ESG provider like Sustainalytics have already recognized our efforts. To conclude, I would like to emphasize that we are very much aware of our responsibility. More than ever, we embraced the idea of listening to society and learning together with our stakeholders. Our ambitions, as you saw, are bold. And our actions are the foundations to consolidate the value of tomorrow by responding to the challenges of today. With that, I invite now Marcello Spinelli, who will talk about our strategic pillar to maximize the flight to quality in iron ore and how are we going to restore our flexibility. Thank you.

Thanks, Eduardo. Good morning, everyone. Good afternoon. It is a pleasure to be here again in my second Vale Day. So as you know, one of our strategic pillars is to maximize flight to quality. I'll show you in the next slides how we're going to achieve this in a sustainable way. We have 4 main fronts here. We continue to reduce the dependence on dams. We have a plan to recover our capacity with new assets coming online. We are planning our capacity with some buffers to be more reliable. And we have the best portfolio of products and solutions to meet our clients' needs in a greener world. I'm really confident that we are in the right direction. My team is fully engaged to make it happen, and sustainable results with VPS will come sooner or later with safe first. Well, last year, we showed our plan to reduce the use of dams. I'd like to make an update about the initiatives. Well, remember that we start the blended strategy some years ago, producing BRBF in China. It's a very successful product, stable, reliable. It's a result of a mixture of Carajás fines and the lower grade ores from the south of Brazil. This allowed an increase in dry processing in the Southern -- in the Southeastern System. And this process will continue as we are growing in the Northern System. But how are we attacking the remaining 40% to 30%? So we have the dry concentration. 2 years ago, we acquired New Steel, a disruptive technology that we can concentrate without water. We just submitted to our Board's approval the first industrial plant. It will be in Vargem Grande with a capacity of 1.5 million tons, and the start-up will be in the middle of 2022. Finally, we have the future initiatives. We concentrate using water, new future detailings will reuse the water and drive stack the tailings. We are implementing this solution in 3 sites: Vargem Grande, Itabira and Brucutu. In summary, in 2016, 60% of our production was based on wet processing we use in dams. When we reach the production level of 400 million tons, we will have only [ 40% ] disposal in dams or pits. Now I'd like to play a video showing the development of the filtrations. [Presentation]

Okay. Now let's move to our path to 400 million tons. This is the same manual that we presented 2 months ago in the Investor Tour. I think this is one of the most important slide for this morning and this afternoon. And the first and main message that I want to reinforce here, we'll bring back our 400 million tons of capacity till the end of 2022. We have a clear plan with new assets coming online, which is progressing despite some variations quarter-by-quarter, and the capacity will be resumed gradually over the next 2 years. So I'll drive you column by column in this slide. So the first column today is the concept of the capacity today. If you don't evolve bringing any other asset or resume any other operation, that's what you can deliver at the end of the year, 320 million tons. Second column, 2021 is what we expect to resume next year. The next slide have some milestone system by system that I want to share with you. So our plan is to bring back around 30 million tons till the end of 2021. By the end of 2022, our goal, 400 million tons of capacity. And the last column is related to our buffer capacity and effort to bring reliability to our plan and allow the possibility of swing capacity, very aligned with our margin over volume strategy. But before moving to the next slide, I'd like to highlight the 2020 and 2021 production guidance. I know that you are very excited about this, and I want to address all the information we have. We should produce a range between 300 and 305 this year. Why? We've been running slightly below 1 million tons. We've been talking about this the last weeks. We just entered the rainy season, so we lose a lot of our flexibility in the operations. East branch license, we were waiting for the beginning of the Q4, delayed 2 months. What is the good news here that we have the full capacity for East branch in the next year. So for 2021, our production guidance is a range between 315 million and 335 million tons. What is the rationale for that? For the lower range, we consider our capacity today with some possible operational risks like rain or maintenance. We consider no evolution in our plan to recover. It's a really more conservative number. The higher range, what is the rationale? We consider that we receive authorizations and the new assets will come online as a schedule. But we also consider some contingencies in some constructions in this upper range. So we can have some upside here, but we also prefer to be more conservative here, setting 335 as a max of production for 2021. Now we can go in detail system by system. Well, Northern System, our world-class assets, high-quality ores, low-cost OpEx growth platform. Logistics capacity in place, 330 million tons. You know very well about this. What is the name of the game here? Opening new pits, licensing and ramping up the products. Good news is that we are progressing. I just mentioned that we retained the installation license in Serra Lesta or East branch. This has already brought 4 million to 5 million tons of production in 2021. In other words, the year, we will start stronger. Let's move to Southeastern System. Well, here is the birth of our pellet feed production. So it's very important for our premium portfolio. Challenge here, it is a bridge from a lack of dam capacity. You remember the downstream dams, to the filtering process. Remember, we lost the capacity in this system, mainly in Brucutu and Itabir, due to the problem of reassessing these downstream dams. Almost 40 million tons can be unlocked in short term, and they will -- they are related to tailing disposals. The first addition, Timbopeba, full disposure of tailings in old Timbopeba pitch. So this said, we achieved 12 million tons capacity from the current 5 million tons. Another increase next year is store to them, a new asset coming out in Q4, adding 18 million tons capacity for Brucutu site. So we can resume the full operation there. Let's move to Southern System. Well, this is a very important system for Vale is where we produce volumes that will create BRBF in China. It is a perfect match for Carajás. We also produced pellet feed pellets here. That system was by far the most impacted with the upstream dams. What is the challenge here? We need to increase capacity close to upstream dams. Remember that we need to decharacterize the dams, Carlos just said this, and there are some interference with our logistics systems and mine operations. For 2021, we expect to resume fabric operations. And the good news here, we already have the license to start the test in the pits. We are also expecting here to start-up Maravilhas trades, Maravilhas III dam and the future in system in Vargem Grande. That will be very important to increase not only volumes but also quality here. To close the chapter of volumes, we have our plan to create the buffer capacity. And I want to emphasize here, it doesn't mean that we will produce 450 million tons. If you don't have demand, we're not going to do it. But I want to address here 3 main important reasons to do that. We want to increase operational flexibility, strength and margin over volume strategy, applying the swing capacity approach and minimize any operational setback. Just for example, Northern System. We already have in place the 240 project. That's the expansion of S11C 200 million tons and the upgrade of systems capacity, rail and the [indiscernible]. But we also approved this year the S11 120, which is in the first moment, it will increase only the mine plan flexibility. But after we approve the logistics solution, we will have a fantastic system with 260 million tons capacity. Well, other example is the Southeastern System. We just submitted the approval of Capanema product. You really -- you heard about this. You hear about this. We're going to detail this in some weeks, which adds 40 million tons to Timbopeba side. And I will drag your attention here, it is a USD 35 per ton CapEx, very competitive. We have assets. We have projects. We can bring back our capacity, and we're going to do it. It's important to repeat, capacity buffer means operational flexibility to meet market needs. Finally, it totally aligns our strategic pillars to maximize flight to quality in iron ore. So let's talk about cost now. The resumption of capacities would also help to reduce C1 cash costs. The last quarterly results, we presented the C1 cost without the effect of third-party purchases. We purchased ore from third parties as an opportunity to optimize the supply chain or our product portfolio or maximize cash generation. Before these analysis, we are looking only at the cost that we control. We can expect a C1 drop off up to $2 per ton due to the dilution of fixed costs. Another important aspect is stabilization of operation. Today, we operate with a lot of contingencies in several operations. And when we bring back blasting dismantling, shorter truck travel or when we resume our long distance conveyor belts that you know very well in the [indiscernible] that affects, for example, Vargem Grande to help a lot to reduce our cost. In average, this can bring up to $1.5 of gain. And finally, the future initiatives will bring a slight additional cost. So what you can expect for C1 here is a range between USD 10.5 to USD 12 per ton. So let's move to the very important part of the cost, the shipping costs. We have a winning strategy here. So despite the distance, our long-term contracts, especially for Valemaxes and Guaibamaxes are very competitive below $13. I'd like also to highlight the scrubber strategy. Remember, last year, we talked a lot about this. The beginning of the year, there were a lot of concern about the IMO regulations, but we didn't see any increase in our freight costs for this. In the end of -- in 2021 the next year, almost of the entire dedicated fleet, we will have this scrubber install. But we can do more. Eduardo just mentioned that the scope 3 agenda, and we have several initiatives that we can call ecoshipping. We are working with more than 20 institutions here also in an opening strategy environment. We already have testing this year. Now this year, new ideas in product that we can contribute to reach the IMO targets for carbon emission. Let's move to our last part, our product and service portfolio. Well, Vale assumed the goal to reduce its scope 3 by 15%. This is a commitment in line with objectives declared by government. You see in this chart all the map of the world. We will do it with our clients. Several initiatives are being implemented in the industry. The main question is which energy source for reduction will be proven feasible? One thing in common to all these initiatives we need higher-quality products to reduce site. We are acting in 3 fronts. It's a very important one to emphasize this, 3 points, 3 fronts. We need to have product, premium products, and we have another system. We have the concentration using filtration and the New Steel. So we've been addressing one front the quality of the product. Secondly, as the trend is to keep in the first moment the sintering process, the steel-making process, we are developing products for use as the red cargo. We already have the pellets. You know very well that. But we are now developing other ways to culminate funds with lower CapEx and OpEx, and that will be soon one of our main announcements. The third front here is to be close to our clients, to develop other routes in the steelmaking process. Eduardo just mentioned that the HPI -- and example, we are evolving an alliance with Cope, Metrix, Mitsui and our technology to design better solutions to our clients' needs in an asset-light platform. We can use our strength in product development and scale and supply chain to reduce the carbon emissions. Well, through these initiatives, we can differentiate ourselves from our competitors. By 2024, around 90% of our portfolio will be of high quality. Here I'd like to highlight again the New Steel. My first slide is showed that New steel will help to reduce the depends on dams. But the beauty of this technology is that we can also increase, in a sustainable way, our average quality. This will bring gains. We expect the enrichment of the portfolio in the term. Therefore, premiums should return to $10 per ton level, considering the whole average of our portfolio over 62 index. In the long run, it can be higher as the carbon price will be more relevant. But going beyond products, our strategy is to be close to our customers, seeking for solutions to meet their needs. While we have several initiatives in China, the last 6 years, we are getting closer and closer with the expansion of the blending strategy. This type of initiative reduced our delivery time and [indiscernible]. So our inventories are close to the customers and ready for consumption. In 2020, we just launched the first grinding hub, the GF 88 after observing our customers' needs for pellet feed production. We already have our IOCJ inventors there. We just grind the same in China to attend the market. Finally, we announced the partnership for the development of the West 3 project. What is this? It's the expansion of the Port of Shulanghu. It is a Valemax port. It is a key port of Vale, given the proximity to the Yantze River, being able to serve customers along that road that they have restrictions to receive large vessels there. The expectation for the start-up is 2025. But before giving the floor to Mark Travers, I would like to wrap up with some key message here. We will reduce the use of tailing dams. Vale, we resume our 400 million capacity per year. We have new assets that are coming online. We can control this to support our resumption plan. Sooner or later, well be there. We are investing in capacity buffers to have 40 -- 450 million tons of capacity, S11 120 and Capanema are some examples. And the flight to quality trend is here today, and Vale is the partner of choice of the steel industry. Please, Mark, the floor is yours.

Thank you, Marcelo. Good morning, good afternoon to everyone. Let me discuss how we're turning around the Base Metals business and becoming a meaningful contributor of value, helping Vale become a reference for creation of shareholder value. In Base Metals, we're transforming ourselves to be a safe and reliable cost-efficient producer, following the path that Carlos Medeiros explained earlier in the presentation. How are we doing this? We're investing in our assets. We're rebuilding and refocusing our processes to bring in discipline. We're completing our investments in our replacement mines in Canada, and we're executing our strategy. We've been on a journey for 2 years, and it's taking hold. We are seeing results. Today, I want to discuss with you how we're building on this solid foundation to seize the unique opportunities we have in nickel and copper, 2 commodities that the world will need in the decarbonization of the economy. We have a strong portfolio of copper assets. They're low cost, profitable, and robust generators of cash flow. Right here, you see a picture of the Salobo III expansion. It's an expansion of our Salobo mine, our largest copper mine, based in the Carajás region of Brazil. As you will see, we have tremendous organic growth opportunities in Carajás. They are available to us, and they are real. Let me talk about what's currently in the pipeline. On this slide here, you'll see that we have a pipeline that will bring us to 500 kilotons of copper by 2025. In Salobo III, which I mentioned previously, we are going to be expanding by early 2022, adding an additional 30,000 to 40,000 tons of copper. And we will receive a significant cash payment under our previously completed gold streaming transaction with Wheaton. On the right-hand side, you'll see 2 projects that are up for approval either at the end of next year or early 2022. Alemão is a growth project, adding 60,000 tons of production, has very significant gold byproduct credits available to it. So we see an opportunity here for a potential goldstream transaction. In Cristalino, we have the opportunity to bring online 80,000 tons of production, which will come on stream as the Sossego mine is coming to closure, therefore keeping the current Salobo processing facility full. This is a very exciting opportunity for us, but there's more. In Carajas, we've just completed about 2 years of intensive drilling. It will add -- approximately here, it has added approximately 1.9 million tons of copper equivalent to our reserve base. When you combine that reserve base with the infrastructure that we have in the Carajás region, we have tremendous opportunities for further growth. On Salobo, with the extra reserves, we see the potential for another additional expansion of 30,000 tons past 2027. And on the right-hand side of the slide, I'll refer you to the northern hub, where we have 3 main copper deposits, Paulo Alfonso, Polo and Furnas, which can add between 70,000 and 100,000 tons of copper after 2030. Moving to the bottom. We have a number of surface deposits, small surface deposits, between the Sossego and the Cristalino mines, which we intend to bring on stream post-2020, adding an additional 40,000 to 60,000 tons. And we have an opportunity to use the synergies with our Iron Ore business. And we have an opportunity to use the synergies with our iron ore business. In Cristalino, with the pre-stripping, we have significant and very valuable pellet feed that we intend to bring forward. We also see opportunities to bring pellet feed from our tailings facilities in Sossego and Salobo. All of these opportunities are in the heart of our Northern Brazil operations connected by our infrastructure that can bring our copper from the interior of Brazil to the markets of the world. In Indonesia, we also have another exciting opportunity. We believe we have a Tier 1 asset, Project, Hu'u. With our recent drilling and engineering studies, we believe we have the opportunity here for a 45-year plus life-of-mine project, producing greater than 250,000 tons of copper and 200,000 ounces of gold. This is an exciting opportunity with good grades, high tonnages and low cost. We would be looking to approve this project post-2025, but it's important to note, only with the bringing along of a partner in its development. Let's put all of this together. Our primary focus, as I said, is in the world-class Carajás mining area. In Carajás, you could see that we will move from 280,000 tons of production next year to a little less than 400,000 tons in 2025. And with these other opportunities I explained, we can see ourselves going up to 550,000 tons or beyond. In addition to that, we have the Victor mine in Canada, a potential JV with Glencore, which will add another 30,000 tons of copper production, and the project Hu'u, which I further explained. Put this all together, it places Vale as a large, relevant player with a strong portfolio of copper assets. Now let me discuss nickel. It is clear that nickel will play a key role in the decarbonization of our economy. Through the growth of electric vehicles and the use of nickel in those batteries, we see a great opportunity for ourselves. In base metals, we have a wide portfolio of products, including Class I nickel coming from our Canadian mines. These products meet the needs of our customers, providing a wide range of opportunities, providing nickel to high-purity manufacturers with high-purity needs as well as providing nickel to those producing electric vehicle batteries. To meet CO2 reduction goals in the globe, nickel will be vital, and Vale has a big role to play. But for nickel to play this key role of sustainability, how we mine is very important. At Vale, we -- our nickel for Class I comes from Canada, a stable jurisdiction with a clean power grid and strong ESG standards. We believe we're in a unique position in Vale base metals. Our nickel -- our Class I nickel is 25% less carbon-intensive than the average in the industry, and we see many opportunities to improve. What have we done so far? Well, we've completed our $1.5 billion clean air investment in Sudbury. This is reduced with the closure of the -- or the decommissioning of the super stock that has led to the reduction of GHG emissions from our smelter by 40%. It has also reduced SO2 emissions by 85% and nickel-particulate emissions by 40%. As we mentioned in the video, we have 25 electric vehicles in the underground mines of Sudbury, moving to 40 by the end of next year. And then we move into the next horizon, where we look to bring dramatic reductions to our carbon emissions. We'll look to replace our diesel fuel with electric energy in Voisey's Bay. We will look to flow sheet introductions to decarbonize our reduction kilns and electric furnaces and introduce biofuels and biomass in the future. I'd also like to point out a very interesting opportunity, which is in the recycling of the material coming from spent electric vehicle batteries as well as batteries that are manufactured off-spec. It's a small amount of material right now, but it is -- it will grow to dramatic amounts in future years. We are currently studying the introduction of this material into our current flow sheet in Canada, both our pyro and our hydro facilities in Canada. Let's have a look at each of our nickel operations in base metals. In North Atlantic, we're working to stabilize our production in future years and increase our productivity. We will be completing our replacement mines in Voisey's Bay and Copper Cliff in future years -- in the coming years. And we have a great -- we have a number of opportunities that we're looking at to improve our operations. We're currently well underway with our Thompson turnaround, which is aiming to bring productivity improvements to our operations. And we have a significant exploration program looking for those incremental smaller deposits in places like Sudbury, but also looking at larger potential mines to meet the electric vehicle battery needs, such as the ultramafic in Manitoba, which we are currently studying. Moving to Onça Puma. We just completed the overhaul of our electric furnace, and we are looking to stabilize our production. In fact, we had one of our best months in November. With the stabilization of the Onça Puma, we can generate a $15,000 a ton nickel between $40 million and $50 million a quarter in EBITDA. And with the stabilization, we're looking to bring forward a second furnace at Onça Puma. It will bring our production up to 40 kilotons of nickel. It will have a long life-of-mine, low CapEx intensity. It is a great project to add to the base metals portfolio. At last Vale Day, I spoke about our potential projects in Indonesia. We're still working hard on those projects in Pomalaa and Bahodopi. These 2 projects together represent about 110,000 tons of production in future years. We would own 100% of the mine, and we would take our joint venture share of that 110,000 production from the process facility. In summary, we are derisking and stabilizing our production. With our current portfolio, we have the opportunity to increase our production from 200,000 tons per annum to 220,000 tons with the introduction of the second furnace in Onça Puma. But on the right-hand side, I'd like to point out the potential. As I mentioned, the 110,000 tons of nickel coming from Pomalaa and Bahodopi, Pomalaa representing an HPAL project with potential feed for the electric vehicle industry. And Bahodopi representing a fair nickel NPI production for the stainless steel industry. And as I mentioned, we are looking to significantly increase our opportunities to find those new mines to continue our life-of-mine in Canada, whether it be Voisey's Bay, Sudbury or Thompson. We're looking at brownfield expansions, and we're looking at those surface deposits and looking to make feasible larger projects such as the ultramafic in Manitoba. To wrap up, let's talk about where the nickel business is today and where we expect it to be from 2025. In 2021, you'll see we have a very significant CapEx program as we build those replacement mines in Voisey's Bay and Copper Cliff and Sudbury. However, we are cash flow positive, to the tune of about $200 million. This assumes $15,000 a ton nickel. As you move over to the right and look at 2025, and we reduce our CapEx in the coming years. And as we introduce the improvements in the stabilization and the productivity gains, you can see the significant improvement in cash flow generation. Again, this is a $15,000 a ton nickel. And with the improvements of about $800 million, we will generate in excess of $1 billion of cash flow, again, a $15,000 a ton nickel, with each extra $1,000 a ton, we generate an additional $220 million in cash flow. In summary, we're turning around and transforming the base metals business. We are stabilizing our production in nickel. We are becoming a safe and reliable producer. We're investing in our future. We're prepared to seize the opportunities to grow our copper portfolio, primarily in Carajás. And we're preparing our nickel business to seize the opportunity to take advantage of electric vehicle growth. All of this to become a meaningful contributor of value within the overall Vale business. With that, I'll pass it to Luciano Siani to talk about capital allocation.

Thank you, Mark. So discipline in capital allocation is our fifth strategic pillar. And to think about capital allocations, to think as owners, we do think as owners. And to allocate capital, we need to understand where capital generates the most value. What is the story of generating value for Vale? What is the equity story for Vale? In our minds, the equity story has 3 components. The first one is derisking. Because of the higher perception of risk, you see less value in Vale. And derisking goes through the addressing of the reparation of the liabilities of Brumadinho, the improvement in dam safety, improvement in ESG practice, the resumption of production. The share prices are falling today because maybe you didn't like the production numbers for next year because you're seeing risk. But have no doubt, we are allocating capital to reduce risk. We are allocating capital in safety of dams, reparation of Brumadinho, production resumption. If there's one thing that Vale has done very well in the past is to bring projects to life. So we have no doubt, S11D plus '20 is coming. Capanema is coming. Filtration is coming. The new dams are coming, so the production will resume. On reshaping, which is the second part of how to allocate capital to generate value, we need to focus on the core business. We need to control our cash drains. There's a $2 billion opportunity lying within Vale, just by fixing the cash range, which I will address. And also the growth opportunities. There are plentiful. Nobody is as well positioned as we are in iron ore or nickel and copper to deliver growth. And finally, there's the re-rating story, which are the 5 ambitions that you can read that we talked about to an extent. All of this underpinned by sound cash flow generation, which will be mostly distributed to you. So I'll start addressing some financial aspects of the risk, and let's go to the main hot topic, which is Brumadinho. This chart shows the financials of the Brumadinho operation. That does not include decharacterization of dams. If you look in the middle, we have spent so far, as of October, BRL 12.1 billion in reparation with the breakdown to the left. If you move to the right, you see that there are still BRL 9.5 billion in provisions in our balance sheet. And there is a footnote indicating that should there be an agreement, there's an additional BRL 8 billion to be provisioned. If you add all of that, the best estimate that we have today for the full cost of the full reparation of Brumadinho is BRL 29.6 billion. But pay attention to the gray shaded areas, which sum up to BRL 19 billion. Everything which is in gray is in the scope of a potential agreement. And interestingly, there are amounts already disbursed that are in the scope of a potential agreement. And why is that? Because those amounts, they were disbursed according to previous agreements that specifically saying their provisions, that should there be a master settlement or a court ruling, those amounts will be deducted from the collective damages or compensation payments on those settlements of ruling. So we have BRL 3.6 billion that already count towards an agreement. So therefore, today, what we have in our balance sheet is BRL 19 billion earmarked for a potential agreement. We believe this amount is fair and is adequate. And for an agreement to happen, the numbers need to be in this ballpark. Now I'm going to move to the dam decharacterization, another important aspect of derisking. On the left-hand side, you see the schedule of decharacterization of dams. And on the right-hand side, you see the updated cash outflows in U.S. dollars. There is an increase of $670 million, which will be recorded in the provision of the year-end. And why is that? Basically, 2 reasons. First, we will need to build additional backup dams for other structures to be decharacterized beyond the structures, which are in critical level. And also, we are advancing in the engineering studies for the proper method of decharacterization, and we are perfecting the numbers. And therefore, we have additional provisions. Moving on to reshaping and fixing our cash drains. Every one of you know that we have at least 4 assets: Samarco, the coal asset in Mozambique, VNC and Renova, which consume cash. If you look at the right-hand side, on the column of 2020, you have a little over USD 2 billion consumed in cash in 2020. And in 2022, 2 columns to the right, we expect those amounts to be around $500 million in just 2 years. And why is that? Because we're achieving some milestones and we have ongoing measures. Starting by Samarco. Next week, production will commence. And iron ore will flow through the equipment in the Samarco process plants, and pellets will be produced by the end of the month. With the prices where they are, we do expect that the cash flow needs of 2020 will revert eventually even to 0 in '21 and '22. Coal in Mozambique. The revamp is going on well. According to schedule, it shall finish. In March, the ramp-up will follow. And hopefully, by the second half, we will be producing at a rate of 50 million tons. Therefore, the cash consumption while still behind the first half, but will diminish dramatically in the second half. And with the full year of 2022, at 50 million tons, the cash outflow will be $200 million, mostly because of the burden of the project finance. Because in operational terms, the business will be making money. And remember, fixing the asset is a precondition for exploring strategic options with coal. Vale New Caledonia. The care and maintenance plan is ongoing. The numbers you see are related to the care maintenance plan. We shall spend, in 2021, with care and maintenance, around USD 350 million. And then from 2022 onwards, a number which is going to be lesser than USD 100 million. However, there is the ongoing transaction with a consortia with the presence of Trafigura. There may be signing of an agreement in the coming days. If that is the case, the package of support of Vale will be similar to what we announced already for New century. And we, hopefully, will have a smooth exit. And again, by 2022, we will not be spending money with VNC. And finally, on Renova, there is an uptick in 2021, but for good reasons, because we are now in the process of accelerated indemnification of the communities, thanks to the court rulings of 2020 that allowed us to go directly and deal with them. So '21 will be a peak year. And also from 2022 onwards, the numbers will decrease. So look at the opportunity. Yes, there's money that will be spent. But after that, the cash outflows will be much improved. But it's not only about fixing -- reducing rigs and fixing the business. Look at this honeycomb here, where we outlined all the projects we've been talking about, in iron ore in copper and in nickel. The key message here is that beyond everything, which dominates our story today of risk of production resumption and so on, there are lots of opportunities coming, accretive opportunities, marginal CapEx opportunities and -- which will lead us to 450 million tons of capacity in iron ore, a target of 900,000 tons in copper and 220,000 tons in nickel, plus another 110,000 in our JVs in Indonesia. So I ask you, who else in the industry has those opportunities in such great commodities as iron ore, copper and nickel? How much will all of this cost? The capital expenditures have been updated. You should expect a normalized level of capital expenditures to the left of $5.5 billion going forward. This is up from $4.5 billion that we told you last year. And why is that? That's because of the many strategic decisions that we made in order to make all of this happen, which are on the right. We are going to be very bold on reducing dependency on dams. The filtrations are being anticipated. The new steel technology is being employed for dry concentration. We are changing our energy metrics that Eduardo just announced, the Sol do Cerrado project, which will reduce energy costs. We're replacing production capacity. We're building the capacity buffers, I mentioned, S11D, 120, Capanema. We have the low carbon agenda with new products. There's a lot coming online. And honestly, if you compare to our competitors, still a very low level of CapEx and a very efficient use of resources for all that we are proposing to do. And because CapEx continues to be low, the cash flows will continue to be plentiful. These are our updated estimates. If you look to the left, EBITDA in 2023, with all those improvements, will all the volumes coming in, with all the replacement of capacity in nickel, with Salobo III coming online, EBITDA will increase for a given level of prices substantially. And to the right, we took the average -- the accumulated free cash flows for the 3 years, and we will add them up. A new average, you see that the free cash flow yields, considering a market cap of USD 75 billion, are very, very considerable and should merit your attention. What are we going to do with those free cash flows? Well, as you know, that depends on the balance sheet. And what is the status of the balance sheet? If you look to the left, you see our expanded net debt. We forecast financial net debt to be 0 or slightly negative by the end of this year. So therefore, our expanded net debt is mostly comprised of other liabilities. Leases, currency swaps, refis and tax, refinancing, they have a specific schedule and payments which are defined, whereas the Brumadinho provision and other foundations are expectations. So we will be at $11 billion at the end of the year, including the new provision for dam decharacterization that I just mentioned. And to the right, you see what the trajectory of this expanded net debt will be, considering 100% of cash flow distributions beyond the CapEx that I mentioned there. So the trajectory is very virtuous. And because we look medium to long term, there are no obstacles to distributing 100% of the cash flows of Vale going forward and perhaps even more. With all of that and bear in mind, I hand back to Eduardo to make a closure on our story of derisking, reshaping and re-rating.

Okay. Thank you, Luciano. I won't dare to try to repeat your great presentation. But I want to reinforce a very specific point here. We are, with our team, committed to work with transparence, with focus and on discipline. Every time that we talk to the market, we talk, it's not a sprint, it's a marathon. If I -- if we go through each one of these dealers here, it's extremely transparent where we are, where we are advancing. We are starting to move from a story of our just derisking, starting to build the story of re-rating Vale to create a much better company. And just to conclude, I believe that once that you join us on this journey, we reap the benefits of one of the greatest share creation -- value creation, I believe, for sure, in the mining industry, as Luciano already mentioned. With that, I would like to hand over to Ivan that will lead us through the Q&A, so we can give more clarity on your doubts. But count on us to deliver on what we committed. As we did last year, we came here this year. And we said exactly where we are, and we're going to come next year and tell you exactly what we were able to do in 2021. Thanks, again, for your attention. This virtual setting is a novelty for everyone. So now back to Ivan to try to coordinate our Q&A virtually again. Thanks, Ivan, and thanks for your attention.

Okay. Thank you very much, Eduardo, and all the executives for the great presentation, very detailed -- very detailful. So as I said in the beginning, we received questions in advance. We received questions during the presentation, and thank you for that. And we're trying to group the questions here. So be sure we will address most of them or the -- where we see a lot of level of interest. So maybe starting with one question here to you, Spinelli, on iron ore production. So the question is related to what are the main challenges that Vale faces in achieving this goal of a capacity back to 400 million tons? And I think the people want to know, investors want to know, how much of that growth is in our own hands? And how much depends on the government's licensing and goodwill? And also how much buffer do you think or will have to reach the guidance in case something goes wrong? So in fact, how challenging are these additional volumes beyond 400 million tons?

Thank you, Ivan. It's always an opportunity to clarify what we are doing here. It is important to say that we are planning to deliver. So I think we had a frustration this year during 2020. And we are addressing our planning to guarantee that we are going to be reliable. So this is one message I want to address here. Remember that we have 3 main systems. I can say that the northern system, the southeastern system, we have actions that are in our hands. So obviously, we need authorizations to start up some operation. But I can say that it's business as usual. So it's nothing that is different from the common process. So north and southeastern, we need only to deliver what we are bringing in new assets and the license of pits. In the southern system, it is quite different. Here, we are counting on authorizations, prosecutors. Remember that we have to test. We have the agency -- mining agency in Brazil, checking all the evolutions we had regarding the upstream dams. So remember that we are not counting on that to reach the 400 million tons. So in our plan, the southern systems will -- it's more for a mid to long term. We are counting only in the buffer capacity. So this is one point that I want to say. The other is the planning for next year, if you have any buffer for that. Yes, we have, the contingences. We already planned the rainy -- the heavy rainy season that we are expecting with the [indiscernible]. Another point is that we have -- we're not counting any downstream dam. So if you evolve any of them in terms of safety and assessment, we can have back these assets and anticipate some well, but we are not counting in our guidance of production. And in the extra buffer, for the future, I want to emphasize another point that Luciano said. Those projects, the S11, the 120, and the Capanema, they are brownfield projects, these are not greenfield. We know exactly what we need to do. We know the site. We know we have the design for that. So the risk is lower when you are planning in the near future. So for next year, we are confident that we can deliver our guidance. We have some possibilities, some upsides. But as we have so many actions to do, we prefer to be more conservative in this guidance for the maximum production for next year.

Okay. Thank you very much, Spinelli, for your answer. Maybe moving on to base metals and VNC, and I think this is to you, Mark. The question is, Vale entered into this exclusivity agreement to negotiate the sale of VNC with Trafigura. And this exclusivity is close to its exploration. And what could you comment about the negotiations? Whether Vale is optimistic with a positive deal out of this? And also, if you can refer to the protests of those opposed to the deal on the ground? And what would be the alternatives and timing in the case that the deal falls apart?

All right. Thanks, Ivan. Maybe just stepping back. We've been working tirelessly since the end of 2019 to exit New Caledonia. We put a lot of effort into selling the business. As was mentioned earlier, we did have a deal with New Century that unfortunately could not be competed. And it was followed by, as was mentioned in the question, an exclusivity arrangement with a consortium, which is combination of the management team as well as Trafigura as well as some other shareholders and employees -- including employees. That offer needs to meet certain parameters. We feel that it checks the boxes in many ways. There is a clear plan for sustainable operations following our exit. It maintains employment. There is broad inclusion and representation among the Society of New Caledonia and its employees. So in summary, we continue to negotiate on that. And as it was indicated in the question, it's 2 days away. And I could say at this point, we're hopeful. And we'll certainly be bringing updates in the coming days. Just maybe reflecting a little bit on what we've been presented with in the current situation as was intimated in the question. So this offer that has been put together, this nonbinding offer that was a subject of exclusivity, is a rather unique construction. It has very strong governance and shareholding protections. It's a made in New Caledonia solution. If you look at the proposed share structure, while it does have some investments from Trafigura and potentially another party, the vast majority over -- approximately 60% of the shareholdings would be the combination of the management team, the employees, the current New Caledonian shareholder, SPMSC. And there's a number of shares that are open and committed for the indigenous tribes surrounding our plant as well as civil society. So it's quite a unique structure. And as I indicated, it supports the continued employment of the current employees of the plant. One of the other things that we've done is we made it very clear, we committed to a sustainability pact for the indigenous groups surrounding the plant back in 2008. And we've made it very clear that we will always guarantee those payments. No matter what happens, whether it's in the conclusion of a deal and a new party owning it or in care and maintenance. So coming now to the question about protest. There are protests on the island. There are currently some blockades that are preventing the operation of our mine, although the plant is currently operating. We feel this is a minority group. It's a minority group that is completely dedicated to directing the ownership of the plant to another consortium, which is a group that owns -- is a partner in the northern project in New Caledonia, as well as Korea Zinc. We looked at this offer in good faith. It was found wanting. It was -- it didn't have a clear plan. It didn't have financing. And unfortunately, it has led to some protests, which are causing us some great difficulties. So we hope that the robustness of the current deal, which brings in broad representation within New Caledonia community, including the indigenous groups, will win over the people as something that's in their best interest because we truly believe it is. Now the question -- the final bit of the question, I believe, was around the alternatives. We made it very clear that we will exit New Caledonia, and our time line was the end of this year, and we are committed to that path. And while we are completely dedicated and working hard as possible on completion of the current offer with the management team in Trafigura, if it does not proceed, we will proceed with -- along the path of care and maintenance, and we have been planning for that, because we have to plan for that in case it doesn't pan out. And of course, we will have to go to the workers' council, and do and work in consultation with them, but that would be the next step. And I believe the last part of the question was around the cost. I think Luciano set that out in his presentation, the care and maintenance costs, he referred to next year of approximately $350 million. Of course, that depends on the consultation process and the timing and whether some of that money goes is it brought forward from 2022 or post-2022. But I think Luciano's figures are a good indicator of what to look for.