Beijing, China 1 3 of March, 2016 Delivering more value in a challenging environment Metal Bulletin China Iron Ore 2016 João Mendes de Faria Sales and Business Development Director, Chinese Market Ferrous Division
isclaimer This presentation may include declarations about Vale's expectations regarding future events or results. All declarations based upon future expectations, rather than historical facts, are subject to various risks and uncertainties. Vale cannot guarantee that such declarations will prove to be correct. These risks and uncertainties include factors related to the following: (a) the countries where Vale operates, mainly Brazil and Canada; (b) the global economy; (c) capital markets; (d) the mining and metals businesses and their dependence upon global industrial production, which is cyclical by nature; and (e) the high degree of global competition in the markets in which Vale operates. To obtain further information on factors that may give rise to results different from those forecast by Vale, please consult the reports filed with the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF), and with the U.S. Securities and Exchange Commission (SEC), including Vale s most recent Annual Report on Form 20F and its reports on Form 6K. 1
Juniors Integrated Exotics Chinese Just like the steel industry, mining also faces difficulties Since 2013, almost 250 Mt of supply have been closed or ceased due to market conditions. High cost Chinese domestic producers, non-traditional countries/players ( Exotics ), even high cost producers from traditional regions (Juniors) and some integrated projects. 140 120 100 80 Ref. 2014 2015 Cost Curve How much has exited the Chinese market since 2013? 2013 2015 60 40 20 - Traditional players + Aussie and Brazilian Juniors 0 200 400 600 800 1000 1200 1400 1600 ilustrative China Domestic Seab. others to China* 335 184-151 Mt 205 109-96 Mt Source : Vale, Mysteel, NBS, China Customs and Companies reports *Seaborne others to China iron ore imports excluding Australia (with juniors), Brazil (with juniors) and South Africa
More supplies are expected to be closed Due to the recent quarters market condition with pressure on iron ore prices, there has been displacement in supply. According to recent announcements and market projections, approximately 70Mt of seaborne supplies could be squeezed out of the market in 2016. Further volumes (~30 Mt) are also at risk at current market environment. Besides, more high cost Chinese domestic supplies, including captives mines could be displaced. Australia Juniors: Brazilian players: Africa: Others / Exotics: High risk seaborne supplies at current market price Total impacted supplies (10Mt) (28Mt) (19Mt) (12Mt) (~30Mt) (~100Mt) Source : Companies reports
In times when companies struggle with low prices, in addition to the most basic operations requirements, quality and efficiency become even more important Licenses High quality assets Efficient logistics Low operating cost Health and safety Skilled labor Capital Long term return Source : Vale
S11D Project The expansion of our top-quality integrated iron ore operations in Carajás 90 Mty capacity: 100% sinter feed Start-up: 2H2016 Stripping ratio: 0.27 Mass recovery: 100% Area of pre-assembling An environmentally-friendly operation: truckless mining / dry ore processing / no tailing dams 50% reduction of greenhouse gases 5 Título da apresentação 01/12/2010 (opcional)
S11D will ensure clients have access to the highest Fe content and low impurity of the market Mine assembly of transporter Reclaimers Module Construction site Long Distance Conveyor Belt
The secondary screening TR-2011KS-07 CT-1085KS-02
TCLD Assembling of transporter TR-2011KS-07
S11D, as the largest project of the industry, is coming on stream Assembly of stackers and reclaimers 9
Vale is committed to deliver high quality ore even in a challenging market situation CAPEX plan of S11D 14.3 Revised Exchange rate used in 2016 BRL/USD 3.50, 2017 BRL/USD 3.60, 2018 BRL/USD 3.70 and 2019 BRL/USD 3.80 Source : Vale
We are also working in all fronts to make Vale even more competitive Some of our initiatives Mine Truckless mining and no tailing dams in S11D Beneficiation Dry ore processing in S11D Increasing volumes Reducing costs and expenses Logistics Corridors Reclaimers operating automatically Automated train operation Delivering Projects Setting the basis for strong free cash flow Increasing productivity Logistics Chain Valemax at Chinese ports Malaysia distribution center Vale blending at Chinese ports Strengthening our license to operate Source : Vale
Vale s fines comparison with major players Vale Aussie % Fe % SiO 2 % Al 2 O 3 % P In general, Vale s sinter feeds have highest iron content, less Silica, Alumina and less Phos than Aussie ores. Vale s IOCJ is still the best ore in terms of chemical composition (reference in market). Vale Aussie Vale s sinter feeds have the lowest LOI. % LOI % + 1.0 mm % - 0.15 mm Note: -Vale s Ores Sepc for 2016 -The others 2015 data A, B, C, D: Top 3 Aussie suppliers In terms of size, Vale s sinter feeds have good values of +1.00 mm and -0.15 mm.
Sales of Brazilian Blend Fines have been successful and steelmakers are giving very positive feedback on Vale s blended sinter feed BRBF is a mix of Northern System ore (Carajás) and Southern System (Tubarão & Guaíba). It s blended in large scale in Malaysia and picking-up in volume in major ports in China and Sohar-Oman. Northern Iron Ore High reducibility Southern Iron Ore High sinter resistance Low Impurities BRBF BRBF Specification 2016: Fe % SiO 2 % Al 2 O 3 % P % Mn % LOI % H 2 O % +6.3mm +1.0mm -0.15mm 62.50 5.20 1.80 0.070 0.30 2.70 7.5 20.0 45.0 30.0 Source : Vale
Supply from major locations in Asia will bring additional economic benefits to customers DELIVERY LOT SIZE Big lot sizes Customer stock behavior thru time Average stock Capesize Small lot sizes Average stock Panamax DELIVERY LEAD TIME VARIABILITY from Brazil CUSTOMER Logistics Benefits DELIVERY LEAD TIME from Brazil from distribution facilities Customer Higher safety stock Stock in transit behavior thru time from distribution facilities Higher in transit stock Lower safety stock Lower in transit stock 14
1 st Mixing - Conveyor Efficient blending method in Malaysia DC and Chinese Ports Ore A Ore B 3 Mixing points: At the conveyor belt when reclaiming from Pile A and B simultaneously At the yard: Stacking using Windrow method Reclaiming bench by bench the blending pile to the shiploader 2 nd Mixing - Stacking Blending Pile 3 rd Mixing - Reclaiming Stockpiling method - Windrow: Better homogenization of components from the mix lower variability Less impact on size segregation good distribution of coarse and fine particles Better use of the stockyard area 15
Malaysia Distribution Center Designed to expand Phase 1 - Implemented Throughput: 60 Mty Future Throughput: 200 Mty 16
Photos of Malaysia terminal IMPORT BERTH Import Wharf: 750 m Depth: 25 m 3 Ship Unloaders Nominal capacity: 3,500 ton/h each EXPORT BERTH Export Wharf: 560 m Depth: 21 m 1 Ship Loader Nominal capacity: 8,000 ton/h 17
18 Photos of Malaysia terminal
Photos of Malaysia terminal Laboratory Analyses the ore s physical and chemical properties according to ISO standards. Sampling Tower Takes ore samples during export according to ISO standard. Sampling Tower Laboratory 19
Malaysia Distribution Center Facilities STOCKYARDS Storage capacity 3.2 Mton (5 yards) 1 Stacker Nominal Capacity: 10,500 ton/h 1 Reclaimer Nominal Capacity: 8,000 ton/h 3 Stacker-reclaimers Nominal Capacity: 8,000 ton/h 20
Blending configuration BUFFER 21 BRBF Ore 1 Ore 2
22 Floating transfer station in Philippines (FTS) more flexibility for VLOCs 400k
23 Photo of FTS
Major Chinese ports with blending capabilities Caofeidian Liaoning Dalian Hebei Shandong Jiangsu Yantai Qingdao/Dongjiakou Rizhao Lianyungang Shulanghu Guangdong Zhanjiang 24
Trial Blending Operations at Caofeidian Port July and September 2014
Trial Blending Operations at Rizhao Port October 2014
Trial Blending Operations at Dalian Port April 2015
Trial Blending Operations at Lianyungang Port June 2015
Trial Blending Operations at Dongjiakou Port July 2015
Trial Blending Operations at Yantai Port September-November 2015
Vale and China have established a long term relationship based on trust and value creation Vale is ready to support China s transition into a more sustainable growth model Brazilian Blend Fines, tailor-made for the market, has been introduced successfully S11D will ensure Vale continues to deliver the highest Fe content and the lowest impurity ore of the market to China Investments made to enhance productivity ensures the best ores are the most competitive in China The best of Vale s and China s relationship is yet to come!