1Q22 Financial Results


1Q22 Financial Results

Vale announced this Wednesday, April 27th, its financial result for the first trimester of 2022. In 1Q22, Vale reported a proforma adjusted EBITDA from continued operations of US$ 6.374 billion, US$ 483 million lower than 4Q21.

Despite the challenging quarter in our operations, we are on track to deliver on our commitments for 2022. In 1Q22, we faced heavy rainfall in Minas Gerais, licensing delays in the North and performance below par at some assets. Nevertheless, we took the opportunity of the seasonally-lower volumes to concentrate our maintenance activities that will lead the way for a safer operational environment and solid production ahead. Confident about our business outlook, we are announcing a third share-buyback program, as another lever of value creation for our shareholders.

Eduardo Bartolomeo, Chief Executive Officer

Our operations

- In March, we entered into a multi-year agreement to supply low-carbon nickel products to Swedish lithium-cell producer Northvolt AB, reinforcing our commitment to sustainability in the electric vehicle supply chain and electrification of the broader mining industry and reaffirming our position as a supplier of choice to the fast-growing electric vehicle industry.

- In April, we started the construction works of Tecnored’s first commercial plant in the state of Pará. Tecnored is 100% owned by us and focuses on developing a low-carbon pig iron process through energy sources that emit less CO2 than coal and coke, the traditional ironmaking methods. The plant will initially have a capacity of 250 ktpy of green pig iron and may reach 500 ktpy in the future. We plan the start-up for 2025 with an estimated investment of approximately R$ 1.6 billion.

Our commitments to reparation and society

- The actions provided for in the Integral Reparation Agreement are well in progress. After judicial authorization, Vale began to detail information to implement socio-economic repair projects, selected by the parties based on the results of popular consultation. These projects are part of the Fast Response Package and cover the areas of health, social development, infrastructure, agriculture and livestock, in Brumadinho and in the other 25 municipalities in the Paraopeba basin. The details of the scope of each project will be evaluated by the other parties to the Integral Reparation Agreement and, once approved, will allow the effective execution of the projects.

Dam safety

- In February, we signed an agreement with the state of Minas Gerais, regulatory agencies and state and federal public prosecutors, establishing a schedule and reinforcing the commitment to de-characterize all our upstream structures in Brazil. The agreement brings more legal and technical certainty to the process, extending the original deadline for the conclusion and reflecting the required actions to increase safety during the works. We agreed to hire an independent consulting firm to confirm technical feasibility of deadlines for de-characterizing each structure included in our plan. We will also contribute with a value of R$ 236 million for investments in social and environmental projects, with disbursement over eight years.

- In April, we began the de-characterization of the Dique Auxiliar da Barragem 5, at the Águas Claras Mine, in Nova Lima (MG). The dike is one of the five upstream structures to be eliminated in 2022. By the end of the year, Vale expects to have eliminated a total of 12 upstream structures under the De-characterization Program in Brazil.

Focusing on the core business

- In February, we concluded the sale of the 50% stake we had at California Steel Industries – CSI to Nucor Corporation, and, in April, we successfully completed the sale of the Moatize coal mine and the Nacala Logistics Corridor to Vulcan Resources, following the completion of all conditions precedent.

- In April, we also entered into a binding agreement to divest our iron ore, manganese ore and logistics assets in the Midwestern System. Under the terms agreed, the enterprise value of the transaction is approximately US$ 1.2 billion for a set of assets that produced 2.7Mt of iron ore and 0.2Mt of manganese, and that contributed to Vale with US$ 110 million of adjusted EBITDA in 2021. At closing, we expect to receive approximately US$ 150 million, in addition to transferring the obligations related to the take-or-pay logistics contracts, subject to the consent of the applicable counterparties and customary conditions precedent.

Sharing value creation

- Aligned with our drive to deliver superior value to our shareholders, we paid dividends of US$ 3.5 billion and advanced with our share buyback program, which is 84% complete as of the date of this report.

- In continuity with the 2021 share buyback programs, our Board of Directors approved a new program of up to 500 million shares, equivalent to around 10% of the currently outstanding shares of the company, to be executed in the following 18 months and after the conclusion of the current program. Upon conclusion of the third sequential buyback, Vale’s shareholders interest in the company’s results will have increased by more than 22% since the approval of the first program in 2021.

Imagem Relatório Financeiro

The main drivers for 1Q22 performance compared to 4Q21 were: the lower sales volume for iron ore and pellets, mainly due to the intense rainy season in 1Q22 and the weaker performance of the northern system (US$ 2.192 billion), and the higher realized prices for iron ore and pellets (US$ 1.812 billion), following the US$ 32/t increase in the 62% benchmark price and higher quality premium, working to partially offset the weaker iron ore volumes.

Net income in 1Q22 was US$ 4.458 billion, US$ 969 million lower than 4Q21. The seasonally lower EBITDA and the higher 4Q21 financial results explain the decline, which was partially offset by the US$ 1.1 billion positive impact of the binding agreement to sell the Midwestern iron ore and manganese operations and the provisions for dams’ de-characterization and Renova Foundation charged in 4Q21.

In 1Q22, we invested US$ 1.1 billion in growth projects and sustaining, US$ 615 million lower than in 4Q21, due to seasonally higher investments during the drier season at the end of the year.

Gross debt and leases totaled US$ 14.0 billion at the end of 1Q22, in line with 4Q21. Expanded net debt increased to US$ 19.4 billion, mainly attributed to the Brazilian Real appreciation effect on the commitments denominated in local currency, partially offset by the mark-to-market gains on the foreign exchange hedge positions. During this quarter, we reviewed with our Board of Directors a change in our optimal leverage from US$ 15 billion to a range of US$10 - 20 billion, under the expanded net debt concept.