2Q20 - Financial Results

Business

2Q20 - Financial Results

Vale released this Wednesday, July 29th, its Financial Result for the second quarter of 2020.

We are moving in our path to de-risk the company even in a very complex second quarter of 2020, facing the challenging times brought by the COVID-19 pandemic with responsibility, discipline and sense of urgency. We continue to make progress on the reparation of Brumadinho, on the assurance of the safety of our dams and on the stabilization of our iron ore production. As another important step in the capital allocation front, we are also announcing the resumption of our dividend policy.

Eduardo Bartolomeo, Chief Executive Officer

Stabilization of iron ore production

The major milestones towards the resumption of operations in 2Q20 were: Improved safety measures to fight the pandemic, applied the mass testing; in the Southeastern System, Timbopeba dry-processing operation resumed in June and is shifting to wet-processing production after the temporary authorization by ANM; in the Southern System, Vargem Grande Complex implemented alternative solutions to partially debottleneck logistic capacity at the site and partially resumed wet processing; and in the Northern System, Vale obtained in June the preliminary license for the expansion of the Serra Leste mine. Vale will resume its operation with 6 Mtpy capacity.

Resumption of dividend payments

Following the reduction of uncertainties related to the pandemic, with risks of a second wave in China mitigated and the stabilization and decline in COVID-19 cases, especially in the northern states of Brazil (e.g. Pará), Vale assesses that the worst is likely behind us and decided to resume its Shareholder Remuneration Policy, which requires that the minimum dividends calculated based on 1H20 results to be paid in September.

Reparation

The reparation of Brumadinho is a priority for Vale and the works on that front have been continuously adjusted amid the COVID-19 pandemic to ensure their continuity. In an active listening process, Vale has been working on an Integral Reparation Plan, which will lead its actions in the coming years to deliver structuring projects able to promote lasting positive impacts for the affected communities. The indemnification process continues, with the signing of civil agreements related to more than 600 people since the publishing date of the 1Q20 results. In total, Vale has disbursed approximately R$ 11.5 billion in initiatives related to the reparation of Brumadinho and the decharacterization of its dams.

Results

In 2Q20, proforma adjusted EBITDA, excluding US$ 130 million of expenses related to Brumadinho and US$ 85 million of COVID-19-related donations supporting initiatives to fight the pandemic, totaled US$ 3.586 billion, US$ 545 million higher than in 1Q20. After those effects, the adjusted EBITDA was US$ 3.371 billion in 2Q20.

Ferrous Minerals EBITDA of US$ 3.502 billion in 2Q20 was US$ 655 million higher than the US$ 2.847 billion recorded in 1Q20, mainly due to (i) higher realized prices, reflecting the healthy demand coming from China; (ii) higher iron ore fines sales volumes, following a quarter of stronger production volume; (iii) the positive effect of the Brazilian real devaluation; and (iv) lower freight costs, which were partially offset by higher iron ore fines C1 cash costs.

In the first six months of 2020, the impact of COVID-19 pandemic in Vale’s costs and expenses was US$ 112 million, of which US$ 85 million in expenses with initiatives to fight the pandemic, such as donations of rapid test kits and personal protection equipment to the Brazilian and state governments and support of hospitals and local health units, and US$ 27 million in the increase of costs in operations.

To check financial and production reports, click below. On Thursday, July 30th, will be held webcasts for investors at 10am (Portuguese) and 12pm (English) – Brasilia time - to comment the results.