Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss first quarter 2020 results. (Operator Instructions) As a reminder, this conference is being recorded, and the recording will be available on the company's website at vale.com at Investors link. This conference call is accompanied by a slide presentation also available at the Investors link at the company's website, and is transmitted via Internet as well. The broadcasting via Internet, both the audio and the slides change has a few seconds delay in relation to the audio transmitted via phone. 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 that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us today are Mr. Eduardo de Salles Bartolomeo, Chief Executive Officer; Mr. Luciano Siani Pires, CFO; Mr. Marcello Spinelli, Executive Officer for Ferrous Minerals; Mr. Mark Travers, Executive Officer for Base Metals; Mr. Carlos Medeiros, Safety and Operational Excellence, Executive Officer; Mr. Luiz Eduardo Osorio, Executive Officer for Sustainability and Institutional Relations. Mr. Alexandre Pereira, Executive Officer for Business Support; Mr. Alexandre D'Ambrosio, General Counsel; and Mrs. Marina Quental, Director of People. First, Mr. Eduardo Bartolomeo will proceed to the presentation on Vale's first quarter 2020 performance. And after that, he'll be available for questions and answers. It is now my pleasure to turn the call over to Mr. Eduardo Bartolomeo. Sir, you may now begin.

Okay. Thank you. Good morning, everyone. First of all, I hope that you and your families are well and able to maintain social distance. This will be a very different call as our management team is also apart from each other. Each one in his house or office. First thing that I would like to point out is that Vale's facing this unprecedented scenario brought by the COVID-19 with responsibility discipline and sense of urgency. Since March 13, we have been managing the company remotely. Just to give you an idea, we went from 600 to 20,000 remote access. And we continue to operate our assets. Definitely, we are in a worse scenario with a common enemy. For this reason, Vale joined forces with communities, governments in our value chain with a humble attitude to win this war. The main message that we have been communicating to our employees and partners are resilience and overcoming. Resilience because this war will not be a quick one. Overcoming because I'm sure that we'll succeed and come out much better as a company and as society. I also want to emphasize that our efforts with the full reparation of Brumadinho remains firm. Finally, reparation, safety and people remain our priorities and are very up-to-date in the face of this crisis. Could you please pass the slide. Well, we have a very solid plan to face the pandemic. In January, we started to monitor the scenario and to structure and implement preventive and safety actions. Our response plan is ongoing and is updated constantly. It has 5 fronts which prioritize. First, the continuity of the reparation of the Brumadinho and our dam safe actions; the health and safety of our employees and our neighboring communities; the support in fighting the pandemic, honoring our new…

Good morning, good afternoon. I'm going to address 5 items here today. First item, costs. As you saw, costs were high in iron ore in the first quarter, $16.20 per ton. It's seasonally high because of low volumes, but we had even lower volumes this quarter. And we also had some additional impacts like demurrage in the north, the lineup of vessels, like waiting for it to be charged because of problems with moisture and for the excessive rains in the north. And we had also problems with maintenance. We had a fatal accident in Mozambique in one of our conveyor belts in January. So we stopped and did extra work in all our conveyors around the world, including the iron ore conveyors. And so we spent a little more on maintenance. We had a little offset for the exchange rate, but the final result was the $16.20 you saw. The outlook for next quarter is of a slight decline but very marginal because we still have some important effects that will weigh on costs. The first one is the carryover. Part of what we produced has gone into inventories at a higher cost. So it will impact next quarter. Some COVID-related expenses, for example, we're providing additional benefits for our employees, which may weight $0.30 to $0.40 on the cost next quarter. And because we are resuming operations in Timbopeba, for example, which is higher cost because it's not going to be a blasting operation. We're not going to use explosives. We're going to use mechanical dismantling of the ore. So it's going to be high cost. And also because of the mix, we're going to have more ore being sold from the south and the southeast. We're also undergoing the scheduled 10-day maintenance of the lone conveyor belt…

[Operator Instructions]. Our first question comes from Carlos De Alba, Morgan Stanley.

Just a question, perhaps starting on dividends. I understand the difficulty of the situation clearly, not only Brumadinho, but the COVID-19 pandemic and the pressures that this puts in the company's different stakeholders and how the company responding very responsibly. But can you maybe, Bartolomeo or Luciano, give us a road map or what needs to happen for the company to resume the dividends? Clearly, it has a strong balance sheet. It generates very strong cash flows. And at some point, I think the company wants to resume dividends. But I just want to understand, how do you see the road map ahead? And then are there any other potential uses of cash like you're buying back the preferred shares that were sold a few years back or other uses of cash that could improve the cash flow generation going forward?

Thank you, Carlos. Thank you. I think dividends is a thing that a road map as we've been saying since the beginning is the reparation, the quality and the speed of the reparation. We believe that is undergoing pretty well by the fact, by the way we repaired the environment, the level of indemnities. So I think this is on -- this road map is pretty on line on where we think we should be. What happened is that, you mentioned, the level of uncertainty that brought to us since with COVID made us -- how can I say that? Bring some extra cushion to our balance sheet. So that's why we took the revolver. Why we did that? We have to look that on a timely basis. It was the beginning of the crisis that what impacted us on beginning of March. And we had like sales risk that we couldn't see at the time. One is a second wave of contamination in China that is still not done. But it was even not very reasonable now, but it's still on the table. And secondly, any other kind of stoppage in our operation. I think to answer your question objectively, as long as we are able to give back the revolver, I think we are able to do what I meant about capital discipline. It's to allocate to the shareholders their part. So I think dividend can come back. After the uncertainty of COVID, it's out of the equation because we believe that we know the size of the damages that we've created in Brumadinho. We are repairing. And with that in mind, I think after paying the revolver, we could resume dividends. Of course, propose that to the Board of Directors and resume our policy. For the use of cash, I would like to ask Luciano to elaborate a little bit.

Carlos, we used $800 million in the last quarter of last year to buy back the preferred shares, and there's already a benefit this year. So there will be not a $200 million outflow towards those preferred shares because we bought them back. And we do not anticipate any other major alternative uses of cash. So the cash will be redirected towards the shareholders once we repay back the revolver.

Our next question comes from Jon Brandt, HSBC.

Kind of a follow-up to Carlos' question. I know you've talked a lot about $10 billion in net debt. But if you look at sort of your adjusted liabilities, including Brumadinho and Samarco and the REFIS, et cetera, total liabilities is closer to up to $15 billion. So I guess sort of a two-part question. Are you sort of comfortable at that $15 billion level? Or would you look to potentially, especially given the weak BRL, would you look to maybe prepay a portion of the sort of the nondebt liabilities? And then if you could just sort of explain, once you're cleared for dividends, given the weakness in the share price, how do you look at sort of the cash dividends versus buybacks at this point?

Luciano, you can go ahead.

Okay. Jon, the reason why we talk about those EUR 15 billion in expanded liabilities is to call your attention that when we think about capital allocation, we have in mind those additional commitments. That's the purpose. The $10 billion net debt target was established in a situation before the Brumadinho dam rupture in which we already had part of those additional liabilities. So we already had fees at that time. We already had Samarco and Renova liabilities. And we established the $10 billion debt considering those commitments already. But today, we stand at $5 billion, right, the headline net debt without those additional commitments. So you may say, okay, so now you're $5 billion below your original target, which you established when those additional commitments were already there. However, there's one additional commitment that was not there when we established the $10 billion target which is Brumadinho itself, which today stands at $4 billion in our balance sheet. So you may say you were $5 billion below your original target, but you have an additional commitment that did not exist of $4 billion when you established that target. So today, we are slightly better, so to speak, than the target we set, which means that we don't intend to make additional uses of money in order to pay back any of those -- that headline debt or of those commitments. In fact, we cannot pay because they have a schedule, which is not controlled by us. The fees in Brumadinho and Renova, it's -- as we as we execute on our programs. So therefore, the money generated will be available fully for -- to return to shareholders. We frankly do not believe that in a post-COVID world, in a world where we repay back the revolver that the share price will continue to trade at today's levels. And I'm not saying because I have a strong opinion on Vale's share price. I'm just saying that all share prices, all equity prices across the world are affected by COVD-19, and Vale is no different. So we will need to make that decision of dividends against buybacks once we see what the new normal level for the Vale share price will be after we repay the revolver. But if you ask me what my bias is, obviously, we did -- the last time we did a buyback was at prices which were above today's prices. So the -- a buyback option, if it was today, would be strongly considered as an additional option for capital allocation at today's share prices.

Our next question comes from Alex Hacking, Citi.

So a couple of questions. Firstly, could you give us any update on how demand for iron ore is outside of China? I guess in April, is it possible to quantify demand from Europe, Japan, Korea elsewhere? That would be helpful. And then the second question, on your iron ore operations in Brazil and operations in Brazil in general, how are the logistics there? I think you gave us an update about a month ago, Luciano, and you said there were some challenges, but things were basically going okay. Has it gotten, I guess, better or worse since then? And are there any concerns that you have around your ability to kind of keep the operations going in Brazil?

Go ahead, Spinelli.

Thank you, Alex. Thanks for your question. Well, update about ex China demand is a challenge. It depends on the how will be the duration of the -- of the crisis. But we have some theories about this. Europe, we see they were really fast to downstream and upstream decisions, shutting down operations. The main impact was the automotive production and also the steel. Different from the Middle East, Middle East is you have an additional crisis, the oil crisis, basic for the growth. We see that they are struggling with the same problem with demand, but they're trying to keep the price. And they still have a breakeven when they compare with the scraps, they compete with the process of production in Middle East. So we see a problem different from Europe. In Japan, they are a little bit delayed comparing to Europe. But now they are now slowing down productions, automotive, even construction. We have some problems coming from steel. But now how ramped will be the crisis is the question. What we see that part of the demand will -- the supply will go to China, but even the supply is being affect in many regions in the world. So we have -- you offset this extra iron ore that go to China. China is back. And regarding the iron ore operations, obviously, we have really -- we are learning with the COVID, actually. So we've been doing a lot of effort for our social distancing. We reduced a lot of workers in our plants, almost 60%, to guarantee that we have people -- less people in the canteens or even inside the buses. We are scanning body temperature. We start now the test of our team and also contractors. And it is very important to understand that this is a daily process to control the absentees. So we have a daily checklist that people can define if they have any symptoms or they have a problem. After that, we can track the people and put them in quarantine. So the main thing here is to guarantee the health of our people and also the other people that had contacted with that people. So this is a daily process that we need to keep the operation. So far, we didn't have a problem in logistics and even operations. But we are just in the middle of this crisis. But we think that we are seeing that that'll be the new normal. So we need to be good to guarantee that we have a great control and also using technology, GPS technology, to track people to guarantee that they are helped and to keep the operation. So this is the problem that we're facing now.

Our next question comes from Timna Tenors, Bank of America Merrill Lynch.

I wanted to follow-up with Alex's question just to get a little more on the timing of the European recovery and how we think about the translation to pellet premiums. And then if you wouldn't mind giving us an update on the coal operations and your progress there and what governs the decision to stay off-line? And how that could proceed going forward?

Timna, I'm going to answer your second question. I asked Spinelli to elaborate a little bit more about the European recovery. About Moatize, we're still on track to do the plain overhaul in the plant because of the lockdown that happened in South Africa, then Mozambique, we had to postpone. So due to that, we're going to have to reschedule. There's a good side on it because we can plan better in a better way, but we don't know the time frame for that. That's -- unfortunately, that's the fact. By the way, Mozambique and coal is the operation that has been mostly heated by the COVID on this example that I just mentioned about the intervention of maintenance. And secondly, about the demand. India was -- is our main customer and was locked down as well. So it's created a problem. We were operating very well in March. That creates an optimism about when we come back, we come back with the overhaul, with the improvements that we see. But of course, we need market as well. Anyhow, in a nutshell, I think, Mozambique, we need to do the overhaul. We need to prove -- we need to correct their assets, put to run at a 50 million ton rate and then decide what we're going to do, not the other way around. We're not going to discuss about selling, JV, anything before we correct the asset. But to correct the asset, we're going to need a window after COVID. And for the European recovery, Spinelli?

Europe, I think, as I mentioned, they are really fast to decide that. But see, we have many scenarios to see this. Definitely, there will be a double-digit reduction. It depends on, again, the duration of the recovery. We don't -- if you consider the 6 months to go back and even not to the same level, it will be something between 10% or even 30% reduction of production this year. So this is really -- there are a lot of uncertainties. We are tracking the -- some lead indicators. We have some information from satellite that we can see. People now going back to auto factories, trying to reestablish. We see some announcements during May that some government are returning to their operations. Again, there will be a new normal. The fact that it will be impact, definitely, it will be double digit. But we get to track how it's going to happen, the evolve of the disease.

Timna, just Luciano. Just to complement on coal. It's disappointing that the month that we had a very good production, March, which was almost at an $11 million run rate was followed by a month in which demand collapsed. So in April, we're going to produce about $700,000 and maybe less in May, not because we're not able to produce, but because we don't have where to storage -- to store more coal. We cannot sell coal into China because of specs of our coal. So unfortunately, we have that situation. But just to give you some color because although the operations run really well, the next months are going to be severely impacted.

The next question comes from Christian Georges, Societe Generale.

The two questions, the first one on the pellets again. Assuming that we can see a relatively high-risk that European demand is going to be seriously affected. Your Tubaro I and II were stopped in the first quarter. I mean would you be considering not restarting them in coming weeks? And a side question. Also, does it make sense to maybe slow down the restart at Samarco or are you adding on Samarco as you were planning to in the first place? And my second question is on the New Caledonia. And I saw some headline that you may be finding a solution to divest the operation. I mean is this realistic? Or is a closure a more likely outcome?

Thank you, Christian. Let me begin with VNC, and then I'll pass to Mark to elaborate a little bit because I think we have some by the way follow-up, what we said to you in the past. And a good follow-up, by the way, because we're closing the refinery. And I believe that we are on a good approach to exit the business healthily. So I would ask Mark to answer and then Spinelli could elaborate on balance as well. And Samarco, I can come back to the question as well.

Okay. Thanks, Christian, for the question. So Eduardo's already addressed the closure of the refinery, which is progressing well, and we should see the last of the material running through the circuit by -- in the coming days by next week. And so just -- so that brings us to the to the exit strategy for Vale New Caledonia, which we announced back in December of 2019. As you'll recall from prior analyst calls, we mentioned that the process with Rothschild's searching for an investor is progressing well. We did have nonbinding offers received at the end of February. And we are progressing fairly well with a couple of potential investors. Of course, the crisis did come in March. And -- but we don't think that will impact the process too much. So we have a good level of confidence that we should be finding a potential investor in the next month or two, too. So we would say that, that's the route that's higher likelihood than a closure at this point in time.

Okay. And what about the balances, Spinelli? Then I go back to Samarco.

Okay. Christian, thank you for the question. Regarding the pellets, first, we decided to change the guidance from 44 to 35 to 40%. But this decision was related to the production side, the supply side. We are limited with pellet feed coming from Brucutu. You may -- saw that we are struggling with the return of the full operation in Brucutu, waiting for new assessment in the larger belt. But now after COVID, we are checking if you have demand for those pellets. So again, the main thing is value over volume. We are not going to produce more than that we need. Our market, natural market is Europe, JPT and also Middle East. The problem now is a temporary problem. It's not related to price, but with the demand. So we checked this decision everyday actually. So we can -- we are flexible to shut down some plants and sell directly pellet feeds to China or even a blend in the RBF. So we are taking the decisions every day. If you don't have short term demand, we can switch the program and keep the best margins.

And Christian, about Samarco. I think Luciano is back, right? And Luciano is our Samarco expert, but the rhythm of ramp up and the commitment to come back with Samarco is not changed, okay? But if you want to elaborate, Luciano, on Samarco. Can you? I don't think Luciano is online. I think -- just so answering your question, we're coming back on -- I think I'm out.

Our next question comes from Sylvain Brunet, Exane BNP Paribas.

Two questions for me, please. First one on iron ore flows. Just if you could give us some indication, even in broad terms, on how much more business you did with China or Asia in general in April versus March so we get a sense of your ability to address and redirect flows there? And my second question is a bit more on the modeling side. Maybe, Luciano, as a way to help us with some sensitivity around hedging. If there is any rule of thumb that would help us through the P&L with the impact of the reais.

Okay. I can take the first one. Well, Thai is back, actually. They are really putting a lot of effort to put the economy back. We have many indicators, more than 90% of the infrastructure projects are back, and we have a very interesting information from corporate properties. They sold more than 130% in April compared to March. And in the steel, we had a record -- a high record last week in price -- in sales, sorry, for rebar. So China is trying to make the best effort to fight against the worst scenario that they face. So we are sold out in China, actually. And from the -- since last year after Brumadinho, our market share consider the whole sale, Europe was a level -- lower level than in the past. So our exposure in that region ex China wasn't really high. So we don't have any problem to sell more products in China. And we need to remind, probably you remember the last call, we said that we have -- we still have to make a better inventory of BRBF for the blending. And we sold almost the full starts in the end of that year, last year. And now we are rebuilding the venture. So we have inventory as a source of demand, but actually, we are selling the whole BRBF we have and also caritas fines.

Okay. Luciano, before I answer to Sylvain, just back on Christian's question on Samarco. Hot commissioning will start in July. The filters are being installed. So we are on track for December, although we had a little bit of buffer and we are eating up on this buffer. But December 2020 is our best guess still for Samarco restart. On the hedge, as you saw, we had approximately $1.1 billion change lost in the value of derivatives, currency derivatives. This is an accounting economic loss because we do not pay this. This will -- those derivatives, they match the profile of the debt. So if the real stands where it is for the next 7 to 10 years, that's how we are going to realize those losses in terms of our cash flow. But I showed -- the slide I showed in my introduction shows that the value of the real denominated debt decreased by $500 million -- approximately $500 million. So part of this hedge is actually the offset of the decrease in the real-denominated debt value. So in other words, when we took those liabilities, we immediately swapped them back into U.S. dollars because it was convenient at that time. It's a policy of Vale to try to put its commitment as much as possible in U.S. dollars. So the value of the debt declined by $500 million, we're losing $500 million out of the $1.1 billion in the derivatives. But still, there's another $600 million of losses. And those $600 million, actually, they were entered into in order to hedge the commitments of Brumadinho, Renova, REFIS, but only a partial hedge. So as you saw also on the slide that I showed, the -- those other liabilities significantly declined in value in the Brazilian reals. To the point that the -- our expanded net debt, so to speak, the way we define the release has decreased by more than $2 billion. So all in all, even in the balance sheet, the situation is extremely helpful and favorable for Vale, the devaluation of the Brazilian real. It happens that the only thing that flows through the balance sheet and all those things on Brazilian reals is the change in the value of the financial derivative instrument. The other changes do not flow into the income statement because originally, the income statement of Vale is prepared in Brazilian reals. So in Brazilian reals, there's no change so that there's no impact. It is only translated into U.S. dollars to show to you. So that's the logic behind the hedge.

Our next question comes from Alfonso Salazar, Scotiabank.

Most of my questions about -- I don't know if have been answered, but I have one about the Base Metals division and specifically on nickel. You have been optimistic about demand increasing from electric vehicles' revolution, but without the industry facing very challenging times, probably things have changed and electric vehicles investments -- you investing in electric vehicles is not a priority at this point. So if you can provide an update on the short-term and longer-term fundamentals for nickel in your view and how you plan to adapt to market conditions so you can maximize the value of your nickel reserves and perhaps you can leave this out at this point at VNC and focus on the other nickel assets that you operate.

Okay. Thank you, Alfonso. I think you pointed out very clearly, we are exiting VNC to focus in our world-class assets in both Canada and Indonesia. So -- but you also say -- you also raised a very interesting point about the change in -- how can I say this? The expectations about the electric vehicle. I believe this is a short-term problem, but I'll ask Mark to elaborate because I'm not running base metals anymore. So Mark must have more deep view on that. But we're still positive on EV, for sure.

Yes. That's right, Eduardo. Thanks, Alfonso, for the question. And I would echo what Eduardo just said, is that in the short term, there definitely is an impact. In particular, the EV market in China in the first 2 months, obviously, a significant drop. We don't see as much of an impact in Europe this year. But in terms of Vale exposure in the short term, it's not that significant, and especially as we are excluding the VNC results from our guidance, et cetera. But in fact, the product that we do sell from VNC into the market, the NHC, Nickel Hydroxide Cake, is actually doing fairly well, and we've had some good contracts recently. So in the short term, it certainly is impacting the overall growth of the electric vehicle demand for nickel, and we will see a decreased demand overall in the market for that material. And as we would see it, we think, in the stainless steel market overall. So our overall view in the short term, including electric vehicles, is that we probably will move from what we expected to be a deficit this year to a surplus of nickel in the supply demand equation. That said, we are a strong believer in the growth of electric vehicles in the coming years, and we remain committed to that.

Our next question comes from Andreas Bokkenheuser, UBS.

Just one question for me. And I'm not sure whether that's one that's easy to answer, really. But how do you think about your kind of long-term breakeven cost to China, given the new situation we're in? I can definitely see how your cash costs will come down when you ramp up volumes again because it will dilute the fixed cost base. And I can definitely also see how the currently lower oil price benefits you on the freight side. But if we kind of look beyond that, once you start putting more volumes back into the market and assuming that oil prices kind of recover from here, I would expect freight rates to go back up again and maybe even coupled with some BRLstrengths, which I see it could end up offsetting some of the cost savings you would be getting by ramping up production. So when I kind of look at your breakeven cost to China, it's gone, including sustaining CapEx and then pellet adjustments and so on. We've seen that breakeven cost to China go from early $40 -- sorry, early 30s per ton to now basically $49 a ton. So how do you think about that $49 going forward? Is that something we're going to see go back into the 30s? Are we going to stay in the 40s? And again, I realize that a lot of this is going to depend on freight rates and BRLand a bunch of other things that are very hard to kind of -- to look at, but just to get your kind of broad view on where do you think we kind of like even out in the longer-term here?

Okay. Andreas, that's a tough question, really. I'll ask Luciano to answer because it's so fluid. Everything is so correlated. When you talk to oil or talk to iron ore pricing, it's a very short-term problem. But I think we did some exercise as well here. Luciano?

Andreas, the last time we had more stability in our production was in 2018, and we were very firm, very close to $30 per ton, all-in costs without sustaining capital. And at the end of '18, with the increase in premiums, we went actually below. We got to $28 per ton, and that would normalize higher oil prices, higher spot rates and so on. And at the time, we were discussing how we could do some internal self-help and work with digital transformation, with efficiency in order to try to get this down to $25. I would say that in a normalized situation, we would be naturally back to that $30 per ton ex sustaining capital. Perhaps a little lower because at that time, Brumadinho was not fully ramped up and we would be in a more stable, steady state. We would be targeting an end goal and try to aim at $25 per ton. So the logic of Vale pre-COVID, pre-Brumadinho was pretty much like, okay, give me a $60 long-term iron ore price, I'm going to shoot for $25 per ton, $35 margin times 400 million tons, that's a $14 billion business as the baseload for the cash flow generation at Vale, and we also had the other businesses to improve and to fix. That was kind of the long-term view. And I think we're going to get back to pretty much something around this after everything normalizes.

Luciano, just to add another point. I think that a part of that is we're building the fleet of Valemaxes and Guaibamaxes. And In the long term, we're going to have the benefit of that. So this is a long-term view to stabilize lower freight and also with the installation of the scrubbers, we can offset the impact of the low sulfur bunkers. So it was another component to guarantee that we are in the right track for the 30s.

This concludes today's question-and-answer session. Mr. Eduardo Bartolomeo, at this time, you may proceed with your closing statements.

Okay. Thank you. Thank you all for your questions and interest in our results. And I would like to reinforce that we'll keep facing this unprecedented crisis with humbleness, responsibility, sense of urgency and discipline. And more importantly, with listening. I think it's the new way to see that Vale. And I would like to invite you to read our sustainability report. There's a lot there that could be shared with you that, of course, we don't have the time to do in this call. Okay, have a good day. Thank you again and see you in the next call.

That does conclude Vale's conference call for today. Thank you very much for your participation. You may now disconnect your lines. Thank you.