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Vale´s performance in 2Q13

08/07/2013

Vale had a solid financial performance in the second quarter of 2013 (2Q13) amidst an environment of below-trend global economic growth and declining minerals and metals prices. Operating revenues were US$ 11.3 billion, operating income, as measured by adjusted EBIT, reached US$ 3.6 billion, adjusted EBITDA US$ 5.0 billion, and underlying earnings US$ 3.3 billion, US$ 0.64 per share. 

Copper, gold and coal production achieved all-time high figures, at 91,300 t, 63,000 oz and 2.4 Mt, respectively, while nickel output remained at 65,000 t, its best second quarter since 2Q08. Salobo is ramping up successfully, beginning to generate cash in June.

We are executing our business plan, which provides exposure to a large world-class natural resource base and multiple opportunities for shareholder value creation, underpinned by a greater focus on cost and capital management discipline, financial strength and an efficient logistics infrastructure. In this context, we are concluding important base metals projects, such as Salobo II copper, executing some world-class bulk materials projects, such as Carajás S11D iron ore and Moatize II coal, expanding the logistics network – Teluk Rubiah, CLNS 11D and the Nacala Corridor – to support our global operations. Simultaneously, we are divesting non-core assets, cutting research and development (R&D) expenditures, operating costs and corporate expenses and maintaining a strong balance sheet. 

We have continued to deliver on our promises. The several initiatives under way are producing sequential improvements: total costs and expenses fell by US$ 736 million in 2Q13 versus 2Q12, accumulating a reduction of US$ 1.6 billion in the first half of 2013 (1H13) compared to 1H12 – driven by decreases in costs by US$ 845 million (8%), sales, general and administrative (SG&A) expenses by US$ 435 million (42%) and R&D by US$ 324 million (49%).  

Supported by the cost cutting efforts, adjusted EBITDA remained steady at US$ 10.2 billion in the first half of this year, declining only US$ 304 million on a year-on-year basis, notwithstanding the US$ 2.1 billion fall in revenues determined mostly by price decreases.

We are strongly committed to persist in our relentless efforts to pursue a cost structure consistent with continuous value creation through the cycles. In addition to our own efforts, the cost performance of 2Q13 was reached with an average Brazilian real (BRL) / US dollar (USD) exchange rate of 2.07 in 2Q13, thus highlighting potential opportunities for further savings, given that the BRL/USD stood at 2.23 at the end of 2Q13.

Iron ore sales were slightly above planned, 61.9 Mt in 2Q13 and 117.6 Mt in 1H13, and in line with 1H12. The average price for our iron ore shipments changed to US$ 99.20 from US$ 111.70 in 1Q13, as we managed to cushion the effect of the fall of the IODEX 62% Fe to US$ 125.95 in 2Q13 from US$ 148.40, given the mix of different pricing mechanisms in our sales portfolio. Revenues were sustained at US$ 6.1 billion and adjusted EBITDA for ferrous minerals kept steady at US$ 4.7 billion, the same level as 1Q13.

Our total debt came to US$ 29.9 billion from US$ 30.2 billion at the end of 1Q13, despite paying US$ 2.25 billion in dividends and investing US$ 3.6 billion in 2Q13, thus contributing to sustain our financial leverage at 1.6 times the adjusted EBITDA for the last twelve-month period, a low level for this stage of the cycle. 

Cash position was shored up by important improvements in working capital resulting from a series of initiatives to increase efficiency and optimize capital management. The number of days of receivables was shortened to 40.1 in 2Q13 against 50.6 in 1Q13. This has contributed to free cash in the amount of US$ 1.3 billion when compared to March 2013. Inventories also fell by US$ 378 million in 2Q13 versus 1Q13.

One important milestone was attained in July with the granting by the Brazilian environmental protection agency (IBAMA) of the installation license (LI) for Carajás S11D, the largest, highest quality and lowest cost world-class iron ore project in the global industry. Given the combination of high quality and low operating costs, S11D has the potential to generate sizable shareholder value even in the face of a scenario of low iron ore prices. 

We also reached completion of work on several projects to increase the railway capacity on the Carajás railroad (EFC), an important enabler of production growth for the Additional 40 Mtpy project. The license to implement S11D, the improving operational performance of base metals on the back of the successful ramp-up of Salobo, and the strong financial performance supported by lower costs and expenses will uniquely position Vale to be amongst the clear winners in the natural resources industry in the years to come.

Financial highlights in 2Q13:

• Operating revenues totaled US$ 11.3 billion, in line with 1Q13. The increase in sales volumes was partially offset by lower prices. 

• Income from existing operations, as measured by adjusted EBIT(a) (earnings before interest and taxes), was US$ 3.6 billion, versus US$ 4.2 billion in 1Q13. 

• Operating income margin of 32.7%, as measured by adjusted EBIT margin.

• Underlying earnings were US$ 3.3 billion, equal to US$ 0.64 per share on a fully diluted basis, against US$ 3.1 billion in 1Q13, net of the accounting effects of non-cash and/or non-recurring items. 

• Cash generation, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of US$ 5.0 billion in 2Q13, against US$ 5.2 billion in the previous quarter.

• Capex – excluding acquisitions – in 2Q13 equal to US$ 3.6 billion, 9.8% and 16.1% lower than 1Q13 and 2Q12, respectively. R&D expenditures were reduced by US$113 million quarter-on-quarter and US$ 241 million year-on-year.

• Investments in corporate social responsibility reached US$ 262 million, US$ 214 million of which was for environmental protection and conservation and US$ 48 million for social projects.

• The first tranche of the US$ 4.0 billion minimum dividend for 2013, US$ 2.25 billion, was paid to shareholders on April 30, 2013.

• Maintenance of a strong balance sheet, with low debt leverage, measured by the ratio of total debt to LTM adjusted EBITDA excluding non-recurring items, equal to 1.6x, long average maturity, at 9.9 years, and low average cost, 4.5% per year as of June 30, 2013. 

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For further information:
Phone: 55 21 3814-4360
Mônica Ferreira - monica.ferreira@vale.com
Fatima Cristina - fatima.cristina@vale.com
www.vale.com/newsroom
www.facebook.com/valeglobal
www.twitter.com/valeglobal
www.youtube.com/valeglobal


 


For further information:
Phone: 55 21 3814-4360
Mônica Ferreira - monica.ferreira@vale.com
Fatima Cristina - fatima.cristina@vale.com

www.vale.com/newsroom
/www.facebook.com/valeglobal
/www.twitter.com/valeglobal
/www.youtube.com/valeglobal
/
www.instagram.com/valenobrasil 


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