Vale 2026 Q2 Earnings Call

Hello, everyone. Thank you for joining Vale's second quarter 2026 conference call. First, I would like to briefly reinforce our strategic direction and ambition to create superior value for our shareholders. In this context, we have been consistently focused on our key priorities of operational excellence, disciplined capital allocation, and the advancement of highly accretive growth projects, particularly in copper and iron ore. Our objective is to build a business that is resilient through the cycle, competitive under different market environments, and well-positioned to deliver sustainable returns. Despite the uncertainties that continue to shape the global landscape, I'm very confident about Vale's future. What gives me that confidence it's not only the quality of our assets, but also the consistency in which our teams are executing and delivering results.

Based on the strong performance in the first half of 2026, yesterday our board of directors approved $1.7 billion in dividends and interest on capital to be paid in September. The board also approved the extension of our share buyback program for up to 2.3% of our outstanding shares, reflecting our positive view on Vale's long-term outlook and our continued commitment to delivering superior returns to our shareholders. Let me now turn to the highlights of the second quarter performance. We once again delivered solid year-on-year results across all commodities, reinforcing our confidence in achieving all production guidances for the year. In the particular case of VBM, we have now narrowed the guidance ranges for copper and nickel, implying higher midpoints on the back of continued strong operational performance in both businesses.

Starting with iron ore in Q2, production reached the highest second quarter levels since 2018, supported by the continued ramp-up of the Capanema and Vargem Grande projects, as well as the record output at S11D. Sales volumes also increased by 3% year-on-year. In copper, we delivered our strongest Q2 production in the last nine years with a 6% year-on-year increase, while sales volumes grew 10% in the same period. This growth was driven by record second quarter output at Salobo and a very strong performance at Sossego. In nickel, we also achieved solid results. Production increased by 4% year-on-year, while sales volume grew 7%, supported by additional volumes from Onça Puma and Voisey's Bay. Looking ahead, I would like to highlight two important milestones at Serra Sul that will further enhance the performance of this world-class asset.

First, I'm very pleased to announce the startup of the Serra Sul +20 project with the commissioning of S11D's second long-distance conveyor belt in July. This project, which also includes mine and plant expansions, will provide greater operational flexibility to the site. Second, in the fourth quarter, we expect to start commissioning the Compact Crusher project, which is designed to address operational constraints related to jaspilite ore at the Serra Sul mine, helping improve production consistency and strengthen asset reliability. Together, these projects will deliver 20 million tons of incremental capacity at Serra Sul, strengthening Vale's competitiveness and expanding our high-grade product portfolio. Turning now to our copper growth story. Last year, we launched the New Carajás Program with the vision of accelerating the development of strategic projects in one of the world's most attractive mineral provinces.

Today, I'm pleased to announce the earlier startup expected for the Bacaba project. Construction is progressing ahead of schedule. As a result, Bacaba is now planning to begin commissioning in Q3 2027, significantly ahead of the original first half 2028 schedule. With 50,000 tons capacity, Bacaba is the first of six accretive growth projects that will support our ambition to double copper production to approximately 700,000 tons per year by 2035. Our second project, the Salobo coarse particle flotation, is expected to be formally announced soon and represents another important step in unlocking the potential of our unique endowment. As we continue to execute our project portfolio with below-average capital intensity and compelling rates of returns, we believe investors will increasingly recognize the significant upside embedded in our copper platform.

Before moving on to our financial performance, I would like to briefly talk about innovation, a key enabler of Vale's long-term strategy. As we've discussed throughout this presentation, our operational results and growth projects are the outcome of consistent execution and a relentless focus on performance. Having said that, we continue to focus on innovation and on developing new technologies that increase our efficiency, enhance safety, reduce environmental impact, and strengthen our competitiveness. This is our vision for the mining of the future, a strategic agenda built around five key pillars outlined here in this slide that will help shape Vale's journey. To provide greater transparency on this agenda, we recently published Vale's first research, development, and innovation report, showcasing several initiatives that are already transforming the way we operate.

Among them, I would highlight the progress we are making with the model plan in Itabira and our autonomous mining initiatives at Brucutu, Capanema, and Serra Norte, which demonstrate how innovation is being translated into tangible operational gains. I encourage everyone to explore this report and learn more about how innovation supports our strategic agenda and creates opportunities across the businesses. With that, I'll hand over to Marcelo Bacci to discuss our financial performance. I will return later for my closing remarks before the Q&A session.

Marcelo, please. Thanks, Gustavo, and good morning, everyone.

In the second quarter of 2026, our pro forma EBITDA reached $4.1 billion, representing a strong 19% increase year-on-year, despite continued pressure from external cost factors. This performance reflects another quarter of solid execution across our businesses, supported by higher volumes, improved commercial performance, and better price realization. At Vale Base Metals, EBITDA totaled $1.3 billion, increasing nearly 80% year-on-year. This performance was driven by stronger realized prices and solid operational execution. In iron ore, EBITDA exceeded $3 billion, supported by higher realized prices and increased sales volumes. These positive effects more than compensated for the higher freight costs and the appreciation of the Brazilian real. Overall, this quarter's numbers demonstrate the resilience of our business and our ability to consistently deliver a solid operational performance, even in a more challenging external environment.

Let me turn to the details of our cost performance. In the quarter, our C1 cash cost, excluding third-party purchases, was $24.1 per ton, an increase of 9% year-on-year. The all-in cost reached $61.6 per ton, 18% higher year-on-year. The higher costs were mainly driven by external factors. The appreciation of the BRL impacted both C1 costs and expenses, while diesel and freight costs also increased during the quarter. As I mentioned in our last call, while external variables can introduce volatility into our cost structure, they also reinforce the importance of our relentless focus on productivity and operational excellence. The results of our efficiency program, combined with higher production from low-cost assets such as S11D, demonstrate that we're moving in the right direction.

Together, these initiatives contributed to a $0.50 per ton reduction in C1 costs year-on-year, strengthening our structural competitiveness throughout the cycle. In addition, our hedging program helped reduce the impact of external variables in our results. Our Brent oil hedging program resulted in approximately $100 million benefit, equivalent to $1.6 per ton. Considering this effect, our all-in costs were $60 per ton. If oil price volatility persists, this strategy will continue to provide cash flow support in the second half of 2026. Given the increased volatility in external variables, we have decided to update our 2026 iron ore C1 and all-in cost guidance. The revised guidances reflect an average BRL exchange rate of 5.13 compared to 5.60 in our previous guidance, as well as an average Brent oil price of $86 per barrel versus $68 previously assumed.

We now expect C1 cash costs, ex third-party purchases, to range between $22.50-$23.50 per ton in 2026, compared with our previous guidance of $20-$21.50 per ton. Roughly 70% of this increase is explained by the combined impact of external effects such as FX and diesel costs. In the same way, we're also updating the all-in cost guidance to $58-$62 per ton, compared with the previous range of $52-$56 per ton, with around $5 per ton related to oil, FX, and iron ore premiums. Despite this more challenging external backdrop, we remain fully focused on the variables within our control. Our teams continue to advance a robust pipeline of efficiency and productivity initiatives across the businesses. These efforts are targeting further gains in asset utilization, maintenance optimization, supply chain efficiency, and procurement.

These initiatives do not fully offset the impact of FX and oil prices in the short term, they are essential to improving our structural cost position over time. Combined with the ramp-up of our low-cost assets, they will continue to strengthen our competitiveness throughout the cycle and support long-term value creation for our shareholders. Turning now to Vale Base Metals, both copper and nickel delivered another quarter of strong cost performance, reflecting solid operational execution across our assets and a more supportive market environment. In copper, all-in costs reached a negative $300 per ton, an improvement of $1,700 per ton year-on-year, once again in negative territory. In nickel, all-in costs declined 17% year-on-year, reaching $10,300 per ton. We expect Vale Base Metals to continue delivering operational improvements beyond the contribution from by-product prices.

As a result, we're lowering our cost guidance for the year. For copper, we now expect all-in cost to range between 0 and $500 per ton, compared to our previous guidance of $1,000 to $1,500 per ton. For nickel, we now expect all-in cost to range between $10 and $11,500 per ton, compared to our previous guidance of $12,000 to $13,500 per ton. These revised ranges reflect the operational progress we continue to deliver and reinforce the value creation potential for Vale Base Metals. With that, let me move on to our cash generation. Our free cash flow totaled $1.5 billion in the quarter, supported by our strong EBITDA performance and by the settlement of our currency and oil hedging programs, which contributed a positive cash impact of $337 million.