Vale S.A. (VALE) Q2 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Vale's Conference Call to Discuss Second Q 2012 Results. If you do not have a copy of the relevant press release, it is available at the company's website at www.vale.com under the Investor link. [Operator Instructions]As a reminder, this conference is being recorded. To access the replay, please dial 1 (877) 919 -4059, access code 86474542. The file will also be available at the company's website at www.vale.com at the Investor section. This conference call and the slide presentation are being transmitted via the Internet as well. You can access the webcast by logging on the company's website at www.vale.com, Investor sections or at www.prnewswire.com.br. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from the anticipated, and any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us today are Mr. Murilo Ferreira, Chief Executive Officer; Mr. Tito Martins, Executive Officer of Finance and Investor Relations, CFO; Mr. Luciano Siani, the Account Executive Officer of Financing and Investor Relations, CFO; Mr Jose Carlos Martins, Executive Officer of Ferrous and Strategy; Mr. Roger Downey, Executive Officer of Fertilizers and Coal; Mrs. Vania Somavilla, Executive Officer of Human Resources, Health and Safety, Sustainability and Energy; Mr. Galib Chaim, Executive Officer of Capital Projects for Execution; Mr. Humberto Freitas, Executive Office of Logistics and Mineral Exploration; and Mr. Peter Poppinga, Executive Officer of Base Minerals and Information Technology. First, Mr. Murilo Ferreira will proceed to the presentation, and after that, we will open for questions and answers. It's now my pleasure to turn the call over to Mr. Murilo Ferreira. Sir, you may now begin.

Good morning, good afternoon. The second quarter of this year was marked by challenges imposed by the lower-priced environment for all of our products and operational issues in the base metals and the coal business. Our iron ore production recovered, and recovered very well, increasing 15% against the first quarter. And Vale's output reached the all-time high after 14.3 million tons. At the end of the first half of the year, our iron production reached 150 million tons, which is in line with our target for 310 million tons this year. As you'll note, we improved substantially the volume of our production in the second quarter of the year. Operating revenues, operating income and margin, as well as the cash flow improved in relation to the first quarter of this year, despite of the negative contribution of prices, which produced a negative impact of $630 million on EBITDA. Our net earnings suffered a large noncash balance sheet impact, arising from the valuation of the Brazilian real against the U.S. dollar. On the other hand, depreciation of the U.S. dollar against our basket of currency like at 15% Canadian dollar and others, produced a positive impact of more than USD 330 million. But we needed to call out your attention for some important milestones, like the granting of the environment permit to S11D, which is an important step, and we are looking forward to getting the final environment permit this year. You'll know that this is a very important milestone for us, in terms -- to contribute to improve the average quality of our iron ore output, to lower our operating cost and to create a new platform for low CapEx-related projects. I think of that this is a milestone -- it's one of the most important milestones in our history.…

[Operator Instructions] Our first question comes from Felipe Hirai with Merrill Lynch.

So my first question is related to any potential changes that you could do to your CapEx. So when do you think that you could give us some more specific details on how or are you going to do that? So should we just expect to see that on a quarterly basis whenever you report your earnings? Or should -- are you planning to make any kind of announcement of the -- on your updated CapEx budget sometime towards the end or in the beginning of the fourth quarter? And my second question is related to the recent news on the dispute on the [indiscernible]. so just, if you could give us an update on how -- with the current situation and what do you think of this $4 billion to $4.5 billion value here that was expected to be paid to the government?

That's a good question, Felipe. I think that there's a big misunderstanding regarding the discussion in our negotiation with -- on the certain liability with DNPM. The working group, composed by representatives of Vale and DNPM completed the analysis of the documentation related to basis of calculation of the assessment, that question of the payment of mining royals. And what I can tell you that at this point of time, we have a rather complete and we got a very important reduction regarding this number. As to what -- very important to say that we are not talking about the agreement with them because the first step, it was to provide a complete assessment of the documentation regarding these royalties. We did the analysis since 1991 up to now. And in this regard, what I have to tell you that we have completed the assessment, and the number that we got is very important. But now, we have the second step. The second step is to have a discussion with our board, to discuss with the board members about all the steps [ph] that we have with us. And then, to go to DNPM and to address all the points with them. Then, I would have 2 elements; the first one it was the assessment to the numbers; and the second it's -- will be the discussion with the DNPM. And about the CapEx, I think that we must provide a review based in the cash flow. I think that it's very important to say that we intended to finalize all the projects. We don't want to reveal the capital, the number that we are investing softly in all of these projects. But we must be ready to reveal the sustaining MPMD. I think that it is very important to provide this review. We don't want to go to the market and to provide some announcement because, as you know, with this volatility that we are facing, can be very premature to take a decision for the remaining of the year. But we'll be following very closely in a weekly basis what's happened with our investment mainly in sustain.

Our next question comes from Ivano Westin with Crédit Suisse. Ivano Westin - Crédit Suisse AG, Research Division: My first question refers to depletion. The board of director approved the Cauê project [ph], which based on a CapEx of $1.5 billion and 24 million tons of iron ore capacity. However, this volume will be used to replace depletion volumes, resulting no additional volume to the market. And I believe it is the same case of Carajás North, 40 million tons capacity. So my first question refers to your depletion. I appreciate if you comment on the depletion ratios of all your mines as an overview. And that the second question refers to your average iron ore price, which reached $103 a ton this quarter, which represents a discount to support price. So I wonder whether Vale has the intention to revisit the overall pricing strategy and start getting to other more derivatives as an alternative to hedge your price.

Martin, please go ahead. José Carlos Martins: Talking first about the depletion. In the Southern System, we have a situation where many mines are entering the ending of their life. But at the same time, we are developing new operations based on concentration. So the Cauê project, together with Conceicao and also [Technical Difficulty]

Excuse me, please continue to hold, we are reconnecting the main speaker line now. Please continue to hold. José Carlos Martins: Well, coming back to the issue, so we have many projects in Southern System, mainly devoted to improve quality and give continuity to the volumes. Okay, extending life mines. So we have 4 projects underway today; one is Conceição Itabiritos that we'll start operating in 2013. We have a further expansion of this Conceição Itabiritos adaptation, 2014. Also Cauê and the Vargem Grande. So those projects to be entering operations between 2013 and 2014, mainly -- the main objective is to increase mining lives and also improving quality by concentration. So only to give you an idea, those -- the quantity will improve for something around 65% today to 68% today. And also silica will be reduced sharply from the level of 4%, 5% today, to the level of 2%. So although the -- all those projects in the Southern System are based on extending mining lives and improving quality in the Southern System. As far as Carajás, all the projects that we have in Carajás now is for increasing capacity and also improving quality because we are being -- developing new orebodies. So we have in Carajás there today the plus 40 project. We have also Serra Leste project besides S11D. So all those projects will be aiming to increase the volumes and also improve quality. Also -- we also have to open new mines in the existing brownfields based on new areas that can be developed in the North System. So in these cases we are working to get the approval and the license to also open these new bodies in the existing mining area. Those bodies will bring more volumes and also more quality. So happily speaking, the projects in the Southern System are mainly designed to improve the quality and extending mining lives. And the projects in the North System are mainly to improve the volumes and also improving qualities by opening new mines.

And just to complete your question, we don't -- we think that we don't have much liquidity in the market in order to go ahead. We take sincere hedging program. I'd just like to hear, Martins, knows much more about this issue. José Carlos Martins: Yes, actually I think it's better to -- Tito to explain because it's really a financial issue. Commercially speaking, we are not very much interested in doing it and going for this kind of financialization of the iron ore price. We believe that we are the lowest cost producers even with this level of pricing and profitability and the iron ore is very good. So we don't see any reasons to develop this kind of operation. We believe that would be more mutual for customers that want to protect their margins. So that's our position so far, but I also would like to hear Tito's opinion about it.

Well I think what happened is -- it's not just a matter of liquidity. In order to build up liquidity, you probably wouldn't have to [indiscernible] for the future markets. And given the variety of ore available in the world today, I think it's going to be very complicated to do that. Let me compare with -- these methods, for example, you have some standardization on the product there that are used or it's just that there's storage capacity, which is a big issue as well. The tonnages are for iron ore we are talking about, the volumes are much higher than the ones we see on other mineral -- I mean, in other commodities and other minerals. So I think it's going to be very difficult to see actually a huge or significant market, future market for the iron ore. That's it.

And another point is about the price. This quarter, our average price was around $103. And last quarter, it was around $109. If you look at the index, it went down around $2.50 and also the 1% iron ore content value went down also $0.50 per 51%. So all of the index and also the 1% content can explain $4 of the decrease. The remaining $2 are spread in a lot of different items. But I would like, as I did in the previous conference in a short script, I would like to address the issue with a little bit more detail. So the finance price plus the market CED [ph] index average, which was $141 in the third quarter of this year. This price is dry, and CNS signed. So to bring it to FOB's conditions and also wet basis as our average price is on wet basis, so we have to reduce the long-term rates that we use in our negotiations with our customers, which is $25 per ton. Also, you have to reduce the average moisture that we have in iron ore, so this will bring down another $12. So the FOB price wet basis is $104. On top of this, we needed to add the quality differential that we deserve because our ore has 2 or 3 more percent content, relating to the index, so it's adding today $7 additionally to our price. So we come back to FOB U.S. basis 64.5% around $111. From this, we needed to deduct all the different sales that we have. For instance, when you sell domestically in Brazil, we deduct all the logistics involved, not only ports but also railways. We have a special contract with our subsidiary, Samarco. We sell them 10 million tons per year of runoff…

Our next question comes from Carlos de Alba.

My first question is regarding to the coal and the base metal operations. The performance of these businesses had been far from stellar. So I would like to understand is there any action plans that the management team has - had been talking about to address what is going on in these 2 businesses, segments? And when can we expect to see some results of these actions, if any? And my second question has to do with what are the plans in terms of the financing of the CapEx and dividends for this year, given the fact that the cash from operations based on what has been reported so far and based on consensus expectations doesn't seem to be enough in the free cash flow for you -- not enough to pay the dividend.

Carlos, thank you very much for your question. Regarding the base metals, we have already started our discussion about the strategic plan, and we intended to finalize in November in order to present to our shareholders in the New York Day, in the London Day as well. We believe that portfolio, the performance is below our forecast. We needed to address carefully everything, the assets that we have in copper and nickel and the results that we can see today. For sure, we have some influence of the -- regarding the price of nickel and copper. But the main problem that we had it was -- regarding Onça Puma and New Caledonia project. We hope that you -- to provide a deeper analysis. But before all these, I think that I would like to hear from Peter what's happened with our project in New Caledonia and also Puma in Brazil.

Yes, thank you, Murilo. And thank you Carlos for your question. is no doubt that base metal is having a challenging moment in the short term. Although, in the long term, we have a good strategic plan. But this is not only because of the low nickel prices today, but as we just talked about the main reasons are the 2 ramp-up operations in Onca Puma and in VNC New Caledonia. If you go to the VNC New Caledonia, there is this -- there was this incident in the acid plant, and it was diluted acids, a leak in the plant -- a leak in the heat exchanger, the mineral water mixed with acid and corroded some part of the equipment. Now, I'm very positive to state that this is -- has nothing to do with the high-technology HPAL and SX column issues. So this is a completely different issue. And the HPAL and SX technology was proven in the beginning of the year, where we produced with an integrated one, over 1,000 tons of nickel final product. And the acid only supplies an input to those downstream acids. So, we are going to repair the acid plant and we are going to restart the operations in New Caledonia at the end of Q3 and start to produce nickel in Q4. So regarding Onça Puma, we had to stop the furnaces also in May and 2 furnaces due to furnace runouts. For safety reasons, we stopped them. And we are still assessing the extent of the repairs and the period of time required to fund them. But we think they will be out for some months in operations. So that's the situation about these 2 ramp-ups, which are very challenging. And I'd be happy to take further questions, if necessary.

Carlos, this is just to say that we had problems in some operations, not just in the base metal, but in the coal business as well. I'd like you to hear from Roger Downey, regarding the coal business as well.

We've had a very good performance at the Moatize mine. The ramp-up is progressing very smoothly and very strong. However, of course, in Mozambique, we have been slightly hindered by the performance of the railway down to beta. So much so that we had had to slow down operation a bit in order not to accumulate stocks because some of our coals have a short shelf life before it oxidizes. So I think in terms of production, we're okay. We need to focus, and we are initiatives to increase output from beta. We have today significant initiatives and investments in order to speed that up. But as I think Murilo has mentioned, a very significant outcome of our negotiations with the government of Moatize -- I'm sorry, with the government of Mozambique to explore the Nacala Corridor will be a significant triumph in terms of bringing Moatize up and beyond its ramp-up. In terms of Australia, we've had several different issues with the operations there, and Carlos, yes, far from stellar there. But in Carborough Downs, we had a problem with oxidation on the underground mine there. We had had to stop that, and it's been stopped since the end of May basically. We have -- the good news is that we have not lost the equipment that -- with oxidation, we basically had to flood the mine with ash and floxal [ph], and that's basically dampened and -- it kind of gets the equipment wet. So we lost a little -- the electronic part of the equipment, but the equipment is in general, in a good state. We should resume operations shortly. We have been cleared with the local authorities in terms of reentering the mine, and we're now working on getting that started. The rest of Australia, I think, well we have been -- there are issues here and there, but very small impact on the Isaac Plains Integra operations, so we are operating there quite smoothly. And in general, we are expecting a recovery in terms of the Australian operations into the year.

And then please, Tito. Thank you, Roger. And then, Tito, please some words about our cash flow.

Yes. Clearly, what we were forecasting for price for 2012, we are not seeing that happening. And we will have some benefits from the exchange rate mostly in Brazil. I mean, the valuation of the reals against U.S. dollar, in some ways, will help us with -- in some reduction in the investments and sustaining the capital growth. And so, expecting to benefit from these reductions and improving -- increasing little in our leverage will actually match the needed cash flow for the whole year. We are not expecting to see our balance sheet ratio changing dramatically. The long-term debt on EBITDA has been below 1, 1.5. And as we have promised since last year, we expect to have this number around 1x, no more than that. I think that we are confident that even with these dropping prices, we could see -- may actually finance the full cash flow and keep investments at the level they are today and paying the minimum dividend that was announced at the beginning of the year.

Our next question comes from Alex Hacking with Citibank.

I have 2 questions. I guess, probably for Roger. The first one is Moatize. At current coal prices and -- do you think the current logistical setup -- do you believe that, that project is going to be EBITDA positive? Or do we need the new logistics in high coal prices to generate positive EBITDA there? And then secondly, Rio Colorado, I noticed there was no increase in the CapEx budget. It's a little bit surprising, given the inflation that we're seeing. Barrick announcing a big increase at Pascua-Lama in Argentina. Is the financial review of that project complete? Or should we -- or are you still working on the budget there?

Yes, Alex -- Murilo, do you want to make any comments before me?

No. Just to give some notes that we guided at last couple of weeks. Two weeks ago, we've signed with the government of Argentina, memorandum of understanding, which is a positive and a key respect towards the agreement that will provide the road map and a full assessment to Roger, but please, go ahead.

Alex, starting with Moatize, well Moatize is a world-class mine. We've got large resource, vast resources of low-cost, open cut coal mining there. Most of it is 70% hot coking coal, so I think even with pricing we're seeing today, we're seeing a positive contribution for Moatize. I have no fears that this will become a very high-return projects. Obviously, we're accepting the pains of growth -- that's applicable to every single project around the world, I think, and we're no exception. We are building a world-class operation. Our challenges today have more to do with the rail, of course. And like I mentioned earlier on, we've just made a very important development, a very important milestone in the development of this project, which is the signing of the agreement to develop the Nacala Corridor. That will be a world-class railway, operated by Vale. And I think once we're there-- we can certainly start looking at Moatize, too, with much brighter eyes. In terms of the PRC, as Murilo just mentioned, also, we made a very significant move in Argentina, the signing of the Acta Acuerdo, which basically establishes the footprint for us to develop the infrastructure that we need to go ahead with that project. That project, your questions were more related to scenarios, I think. And right now as we're maintaining our CapEx for that project, we are looking at all the different scenarios. One of the scenarios that I think you must look at as well is the scenario where we could see some favorable exchange rate fluctuations, favoring the dollar in relation to the peso, which would actually have a very positive effect on CapEx, bringing our CapEx below our targets. So far, we've got about -- around 35% of execution up at the mine. We're on track there. So I think it's -- and any CapEx update at this stage would be a bit premature.

And about the risk of the project, what we have to tell you that you are on analyzing many alternatives. One of the alternatives could be to have a partner in the project. But it's just one alternative. We'll have many alternatives that must be analyzed carefully to be presented to -- in our strategic plan to the board.

Our next question comes from Jonathan Brandt from HSBC.

Two questions. First, on the unit cost. We noticed that the unit iron ore cost fell 5%, 6% in the second quarter. My understanding is when the real depreciates, it typically takes a few quarters to see the full benefit of that. What should we expect in the third quarter? I mean, should we expect an even bigger fall in unit costs? And then secondly, just on iron ore. What are your expectations? I mean, we're right above what we saw, the lowest of last year. What are your expectations for the rest of the year? And have you given any thoughts to production cuts to help support the price? Or is this more of a seasonal issue at the moment?

Tito, please go ahead about the cost, please.

Yes. Usually, we don't give any guidance on unit cost. What I can tell you is some of the effects of the exchange rate were already accrued during this last quarter. And we should expect some additional effects along the last of -- the rest of the year, for sure. But I can't tell you more than that. The second question?

It is about the price in the scenario that you reviewed.

Well, we believe that we are reaching the bottom of the mark as far as price is concerned. If our assumptions are correct, when the price is reaching a point where many players will be put out of the mark, and then we believe that there will be some stabilization or even a rebound of the price. We do not see a strong recover, but we see some stabilization and even a slight recover in the next weeks. We want to see it very soon because we believe it describes what's rich ore in the second quarter of 2010 and also in the fourth quarter of 2011. And it didn't stay in this last for long. It recovered in this level for long. It recovered very fast. So I think we're going to see in the next 2 or 3 weeks the behavior of the market. My view is that the iron ore price range will range between $110 million and maybe $180 million in long term. We consider this 2 as the range because $180 million, many still miners cannot compete, so the demand will decrease. And also, $120 million, many miners will not be able to compete in the market, many local miners in China. So we see this range as where -- the iron ore price will stay in the next 2 or 3 years. But what could change it is a lot of supply from outside that could change the economics of the pricing system. Because today, the economics of the price is supported by local miners in China. As local miners in China is displaced by foreign, more competitive players, this economics will change. But it will not be in a short run. So it would take a long time for us to see the point where the economics of pricing on iron ore will be based on pure seaborne players. I think the local players are the most -- the less competitive players continues to play a big role on the price as far as the floor price is concerned.

Our next question comes from René Kleyweg with the Renaissance.

I guess, sort of touching a couple of things. One, in terms of the internal review of Simandou Project, if you could give us an update on when we can expect -- or when you expect to complete it internally? Is that also tied into Vale there? And then a couple of things on Salobo, which is in comparing Sossego with Salobo. Salobo -- Sossego is obviously not delivering the results that you'd hoped for. If you could just provide some clarification in terms of why the outlook on Salobo is significantly better. And then, if I may, just opening up the potential for you to talk a little bit about the Blue Sky in terms of further expansion into Northern System, Martin was suggesting, presumably that takes the place around Serra Sul. And are we back to sort of low capital intensity projects because the infrastructure buildup has taken place? And I know that's beyond the current planning, but if we're looking on a 5, 10-year view, what does that longer-term CapEx profile look like?

Please, Peter, could you spend some few words about Salobo?

Thanks for your question, Rene. So Salobo is in the beginning of the startup. We are now -- since June, ramping up with 2 lines, and we have so far produced some small tonnage of concentrate. This is not unusual that -- it's just that the transition of -- from the commissioning and to ramp up. Both projects, Sossego and Salobo, are very similar in terms of concept, in terms of flotation stages and in terms of -- there is some small difference in terms of terminology. But in comparing -- almost just Salobo is a copy-paste of Sossego. So what we have is that there is a -- rather with the CapEx adjustment in Salobo. Salobo I was adjusted to $2.5 billion and Salobo II, which is always -- is also 100,000 tons concentrate capacity, was adjusted to $1.4 billion. But in the next months, we will see a robust ramp-up from these operations because as we already know, there's a very similar situation like we had in Sossego.

But for sure, any project in the North of Brazil will contribute to improve the average of our quality in iron ore output. I think that would reduce the operational cost, and then mainly, mainly to create a new platform for low CapEx in our future brownfield. I think that it's very important for us, this project in this regard. It's -- can build the milestone regarding the logistics system as well. Peter, any further comments?

So the first question was about Simandou. Do you want to make any comment about that?

Simandou, I think of that -- we did not receive any new message from the government of Guinea, regarding the new legislation, the new mine coal. We believe that we needed to reserve the -- everything regarding the shareholders is key and the royalty, the logistics, the ownership of the logistic before going to the board of Vale, and we'll see then some sign of where we'll guide in the future of the project. Unfortunately, we stay as it was in the end of the first quarter of the year. We know that it's very important issue in the political context there, and much should be addressed carefully by the government. But in the end, we don't have any answer in this regard.

Our next question will come from Marcos Assumpcao with Itau BBA. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: First question is to Murilo regarding CapEx inflation, risk for new projects. We're starting to see some lower pressure on equipment and material prices as some projects were actually being canceled or even postponed. So do you see -- do you already see this happening for Vale as well, some reduction on CapEx risk? And if this could reduce the risk of revising CapEx efforts for our new project, like Serra Sul. And the second question is for Martins, if you could comment a little bit about the iron ore market in Brazil in the domestic market, if you believe that there could be a small catch-up in terms of prices in the domestic market for the coming years, mainly 2013 and probably 2014, when there could be a little bit of excess capacity in terms of port with the start-up of new competitors?

Marcos, in fact, right after so many years seeing CapEx inflation and depreciation of the Brazilian real against the U.S. dollars, I think about because of the weakening -- weakness of the market that you are seeing. For sure, we have -- our feeling that you'll see some benefit in terms of the CapEx. But we needed to see the next coming month if this feeling is right or wrong. I believe that it can be good news in terms of the implementation of the S11D, but we needed to wait a little bit in order to give you some level of certainty in this regard. And then Martins?

As far as the Brazilian domestic market for iron ore is concerned, our view is this market is becoming not iron ore market any more but a steel market. So if you want to sell iron ore in domestic market there, you'll have to produce steel because the -- all the steelmakers in Brazil are great [ph] in their operations. And what to sell in domestic markets today, if you look careful, is the indirect export. So the 10 million tons we sell to some markets, totally export. The iron ore we sell to CFA and also to CSD, bigger part of it is export to those. So Brazilian market for iron ore is completely disappearing and becoming a steel market. So we do not see a chance on it, and that's the reason we are supporting some ventures to produce here in Brazil. Because in that way, we think that we can keep some market share in this market. So I think Brazil has a lot of iron ore, availability of iron ore is big, although not high quality anymore in some areas. But for [indiscernible] flowing to grade is constant, it's rather good. So I think that the challenge to compete in the steel market for local steelmakers, will drive more and more to vertical integration. I think that is my view about it.

Our next question comes from Rodrigo Barros with Deutsche Bank.

My first question is regarding the strategy to acquire EBM, which was 51% of the Southern System, and the leasing of Spanobras [ph], if you can comment a little bit on this strategy. And if there would be any interesting acquiring -- more participation in iron ore assets. And my second question is regarding the Carajás, Serra Sul project. One question that's sometimes asked of us is whether the existence of caves could increase costs or post any sorts of implementation challenge to the project. So if you can comment a little bit on how the caves impact, let's say the Carajás, Serra Sul project, so if it does impact at all, that would be great.

Martins, MBR?

As far as the acquisition of small share of MBR and also the leasing mechanism for Spanobras [ph] , it's part of our long-term strategy of consolidating our assets in iron ore. We'll have this small participation from Japanese players and former MDBR. And every time we will have opportunity that -- to buy back, we are buying the share. So this is not a big -- it's not a big problem for us to keep this participation, but we believe long term, it makes sense for us to do it. And as far as the Spanobras [ph], it's better to operate under the system, because it gives us more much more flexibility to use different plants to reduce operational costs. So until recently, all these joint ventures were independent companies, and each one had its own storage, its own management, its own infrastructure. Now, under the system, we have a much more flexibility to operate independent plants to shut them down or to keep it to work in full capacity. And things that in the past was difficult to reach, we always have to negotiate with the partners in this. So I think those movements are in a way to consolidate our assets in iron ore and also includes the operation reduced costs and make it more flexible. As far as the Carajás caves, Vania will explain a little bit. Vânia Lucia Chaves Somavilla: Okay, the existing legislation allow us to compensate the caves. And so it's easier. We -- I cannot say it's easy. But for the next remaining relevant caves, which are now to compensate, but there are just a few. So they're higher and medium relevant caves we can compensate. So all of these is under negotiation, just to negotiate with all the environmental organizations. How we can compensate this, that it's just a matter of how, because the legislation already allows us the compensation. So it's not a big issue. We can't have a comment for sure.

This concludes today's question-and-answer session. Mr. Murilo Ferreira, at this time, you may proceed with your closing comments.

Thank you very much for your time. The most important to leave a message that we are -- we continue -- completely focused and disciplined in capital allocation, looking to increase the volume, to be more efficient use of our reserves and knowing very well that it's an important new platform for the low CapEx cost that -- what we are building today, we are building in S11D, in and Rio Colorado. I think of that very important to see these 3 projects as a new platform for low-cost and in the future for excellent brownfield projects. Thank you very much. And again, to express our gratitude to Tito, and welcome to Luciano Siani. Thank you.

That does conclude Vale's Second Quarter 2012 Results Conference Call for today. Thank you very much for your participation. You may now disconnect.