Use these links to rapidly review the document
TABLE OF CONTENTSContentsTABLE OF CONTENTS
As filed with the Securities and Exchange Commission on March 31, 2016April 3, 2020
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 20152019
Commission file number: 001-15030
VALE S.A.
(Exact name of Registrant as specified in its charter)
Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Luciano Siani Pires, Chief Financial Officerphone:Phone: +55 21 3814 8888fax: +55 21 3814 88203485 5000
Avenida das Américas, 700Praia de Botafogo 186 – Bloco 8offices 701 – Loja 3181901 – Botafogo22640-10022250-145 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | ||||||||
| |||||||||||
| | | New York Stock Exchange* | | | ||||||
American Depositary Shares (evidenced by American Depositary Receipts), each representing one common share of Vale | | | VALE | | | | New York Stock Exchange | | | ||
6.250% Guaranteed Notes due | | | VALE/26 | | | | New York Stock Exchange | | | ||
| | | | ||||||||
| |||||||||||
| |||||||||||
| | | New York Stock Exchange | | | ||||||
6.875% Guaranteed Notes due 2036, issued by Vale Overseas | | | VALE/36 | | | | New York Stock Exchange | | | ||
6.875% Guaranteed Notes due 2039, issued by Vale Overseas | | | VALE39 | | | | New York Stock Exchange | | | ||
5.625% Notes due 2042, issued by Vale S.A. | | | VALE42 | | | | New York Stock Exchange | | |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None The number of outstanding shares of each class of stock of Vale as of December 31, 12 golden shares, no par value per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
Yes |
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Yes o No |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. |
Yes |
Indicate by check mark whether the registrant has submitted electronically |
Yes |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, |
Large accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: |
U.S. GAAPo International Financial Reporting Standards as issued by the International Accounting Standards Board |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. |
Item 17 o Item 18o |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes o No |
Page
Form 20-F | | ii |
I. | | 1 |
Business | | |
Selected Financial Data | | 25 |
| | 27 |
| | |
| | 46 |
| | |
| ||
| ||
| 77 | |
| | 86 |
Regulatory Matters | | 88 |
III. Operating and financial review and prospects | ||
| 93 | |
Overview | | |
Results of operations | | 102 |
Liquidity and capital resources | | |
Contractual obligations | | |
Off-balance sheet arrangements | ||
| 116 | |
Critical accounting policies and estimates | | 117 |
Risk management | | |
IV. Share ownership and trading | | 126 |
Major shareholders | | 126 |
Related party transactions | | 129 |
Distributions | | 131 |
Trading markets | | 132 |
Depositary shares | | 133 |
Purchases of equity securities by the issuer and affiliated purchasers | | |
135 | ||
V. Management and employees | | 136 |
Management | | 136 |
Management compensation | | 151 |
Employees | | 155 |
VI. Additional information | | 157 |
Legal proceedings | | 157 |
Memorandum and articles of association | | |
Shareholder debentures | | 176 |
Exchange controls and other limitations affecting security holders | | |
Taxation | | |
Evaluation of disclosure controls and procedures | | |
Management's report on internal control over financial reporting | | |
Corporate governance | | |
Code of | | |
Principal | | |
Information filed with securities regulators | | |
Exhibits | | |
Glossary | | |
Signatures | | |
i
FORM 20-F CROSS REFERENCE GUIDE
Item | | Form 20-F caption | | Location in this report | | Page | | Form 20-F caption | | Location in this report | | Page |
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | |
1 | | Identity of directors, senior management and advisers | | Not applicable | | – | | Identity of directors, senior management and advisers | | Not applicable | | – |
| | | | | | | | | | | | |
2 | | Offer statistics and expected timetable | | Not applicable | | – | | Offer statistics and expected timetable | | Not applicable | | – |
| | | | | | | | | | | | |
3 | | Key information | | | | Key information | | | ||||
| 3A Selected financial data | | Selected financial data | | 14 | | 3A Selected financial data | | Selected financial data | | 25 | |
| 3B Capitalization and indebtedness | | Not applicable | | – | | 3B Capitalization and indebtedness | | Not applicable | | – | |
| 3C Reasons for the offer and use of proceeds | | Not applicable | | – | | 3C Reasons for the offer and use of proceeds | | Not applicable | | – | |
| 3D Risk factors | | Risk factors | | 1 | | 3D Risk factors | | Risk factors | | 28 | |
| | | | | | | | | | | | |
4 | | Information on the Company | | | | Information on the Company | | | ||||
| 4A History and development of the company | | Business overview, Capital expenditures | | 16, 74 | | 4A History and development of the company | | Overview, Business overview, Capital expenditures; Information filed with securities regulators, | | 1, 2, 86,195 | |
| 4B Business overview | | Business overview, Lines of business, Reserves, Regulatory matters | | 16, 25, 63, 77 | | 4B Business overview | | Overview, Business overview, Lines of business, Reserves, Regulatory matters, Major factors affecting prices, Results of operations | | 1, 2, 46, 77, 88, 94, 102 | |
| 4C Organizational structure | | Exhibit 8 | | – | | 4C Organizational structure | | Exhibit 8 | | – | |
| 4D Property, plant and equipment | | Lines of business, Capital expenditures, Regulatory matters | | 25, 74, 77 | | 4D Property, plant and equipment | | Lines of business, Capital expenditures,Regulatory matters | | 46, 86, 88 | |
| | | | | | | | | | | | |
4A | | Unresolved staff comments | | None | | – | | Unresolved staff comments | | None | | – |
| | | | | | | | | | | | |
5 | | Operating and financial review and prospects | | | | Operating and financial review and prospects | | | ||||
| 5A Operating results | | Results of operations | | 87 | | 5A Operating results | | Business overview, Results of operations | | 2, 102 | |
| 5B Liquidity and capital resources | | Liquidity and capital resources | | 101 | | 5B Liquidity and capital resources | | Liquidity and capital resources | | 112 | |
| 5C Research and development, patents and licenses, etc. | | Capital expenditures | | 74 | | 5C Research and development, patents and licenses, etc. | | Capital expenditures | | 86 | |
| 5D Trend information | | Results of operations | | 87 | | 5D Trend information | | Results of operations | | 102 | |
| 5E Off-balance sheet arrangements | | Off-balance sheet arrangements | | 104 | | 5E Off-balance sheet arrangements | | Off-balance sheet arrangements | | 116 | |
| | Critical accounting policies and estimates | | 104 | | | Critical accounting policies and estimates | | 117 | |||
| 5F Tabular disclosure of contractual obligations | | Contractual obligations | | 104 | | 5F Tabular disclosure of contractual obligations | | Contractual obligations | | 115 | |
| 5G Safe harbor | | Forward-looking statements | | iv | | 5G Safe harbor | | Forward-looking statements | | 27 | |
| | | | | | | | | | | | |
6 | | Directors, senior management and employees | | | – | | Directors, senior management and employees | | | – | ||
| 6A Directors and senior management | | Management | | 120 | | 6A Directors and senior management | | Management | | 136 | |
| 6B Compensation | | Management compensation | | 132 | | 6B Compensation | | Management compensation | | 151 | |
| 6C Board practices | | Management—Board of directors | | 120 | | 6C Board practices | | Management—Board of directors | | 136 | |
| 6D Employees | | Employees | | 134 | | 6D Employees | | Employees | | 155 | |
| 6E Share ownership | | Major shareholders, Employees—Performance-based compensation | | 135 | | 6E Share ownership | | Major shareholders, Management compensation, Employees—Performance-based compensation | | 126, 151, 156 | |
| | | | | | | | | | | | |
7 | | Major shareholders and related party transactions | | | | Major shareholders and related party transactions | | | ||||
| 7A Major shareholders | | Major shareholders | | 111 | | 7A Major shareholders | | Major shareholders | | 126 | |
| 7B Related party transactions | | Related party transactions | | 114 | | 7B Related party transactions | | Related party transactions | | 129 | |
| 7C Interests of experts and counsel | | Not applicable | | – | | 7C Interests of experts and counsel | | Not applicable | | – | |
| | | | | | | | | | | | |
8 | | Financial information | | | | Financial information | | | ||||
| 8A Consolidated statements and other financial information | | Financial statements | | F-1 | | 8A Consolidated statements and other financial information | | Financial statements | | F-1 | |
| | Distributions | | 116 | | | Distributions | | 131 | |||
| | Legal proceedings | | 135 | | | Legal proceedings | | 157 | |||
| 8B Significant changes | | Not applicable | | – | | 8B Significant changes | | Not applicable | | – | |
| | | | | | | | | | | | �� |
9 | | The offer and listing | | | ||||||||
| 9A Offer and listing details | | Share price history | | 118 | |||||||
| 9B Plan of distribution | | Not applicable | | – | |||||||
| 9C Markets | | Trading markets | | 117 | |||||||
| 9D Selling shareholders | | Not applicable | | – | |||||||
| 9E Dilution | | Not applicable | | – | |||||||
| 9F Expenses of the issue | | Not applicable | | – | |||||||
| | | | | | |
ii
Form 20-F cross-reference guide
Item | | Form 20-F caption | | Location in this report | | Page | | Form 20-F caption | | Location in this report | | Page |
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | ||||||
9 | | The offer and listing | | | ||||||||
| 9A Offer and listing details | | Not applicable | | – | |||||||
| 9B Plan of distribution | | Not applicable | | – | |||||||
| 9C Markets | | Trading markets | | 132 | |||||||
| 9D Selling shareholders | | Not applicable | | – | |||||||
| 9E Dilution | | Not applicable | | – | |||||||
| 9F Expenses of the issue | | Not applicable | | – | |||||||
| | | | | | | | | | | | |
10 | | Additional information | | | | Additional information | | | ||||
| 10A Share capital | | Memorandum and articles of association—Common shares and preferred shares | | 142 | | 10A Share capital | | Memorandum and articles of association—Common shares and golden shares | | 169 | |
| 10B Memorandum and articles of association | | Memorandum and articles of association | | 142 | | 10B Memorandum and articles of association | | Memorandum and articles of association | | 169 | |
| 10C Material contracts | | Lines of business, Results of operations, Related party transactions | | 25, 87, 114 | | 10C Material contracts | | Lines of business, Results of operations, Related party transactions | | 46, 102, 129 | |
| 10D Exchange controls | | Exchange controls and other limitations affecting security holders | | 150 | | 10D Exchange controls | | Exchange controls and other limitations affecting security holders | | 177 | |
| 10E Taxation | | Taxation | | 152 | | 10E Taxation | | Taxation | | 179 | |
| 10F Dividends and paying agents | | Not applicable | | – | | 10F Dividends and paying agents | | Not applicable | | – | |
| 10G Statement by experts | | Reserves | | 63 | | 10G Statement by experts | | Reserves | | 77 | |
| 10H Documents on display | | Information filed with securities regulators | | 165 | | 10H Documents on display | | Information filed with securities regulators | | 195 | |
| 10I Subsidiary information | | Not applicable | | – | | 10I Subsidiary information | | Not applicable | | – | |
| | | | | | | | | | | | |
11 | | Quantitative and qualitative disclosures about market risk | | Risk management | | 109 | | Quantitative and qualitative disclosures about market risk | | Risk management | | 122 |
| | | | | | | | | | | | |
12 | | Description of securities other than equity securities | | | | Description of securities other than equity securities | | | ||||
| 12A Debt securities | | Not applicable | | – | | 12A Debt securities | | Not applicable | | – | |
| 12B Warrants and rights | | Not applicable | | – | | 12B Warrants and rights | | Not applicable | | – | |
| 12C Other securities | | Not applicable | | – | | 12C Other securities | | Not applicable | | – | |
| 12D American Depositary Shares | | Depositary shares | | 118 | | 12D American Depositary Shares | | Depositary shares | | 133 | |
| | | | | | | | | | | | |
13 | | Defaults, dividend arrearages and delinquencies | | Not applicable | | – | | Defaults, dividend arrearages and delinquencies | | Not applicable | | – |
| | | | | | | | | | | | |
14 | | Material modifications to the rights of security holders and use of proceeds | | Not applicable | | – | | Material modifications to the rights of security holders and use of proceeds | | Not applicable | | – |
| | | | | | | | | | | | |
15 | | Controls and procedures | | Evaluation of disclosure controls and procedures | | 160 | | Controls and procedures | | Evaluation of disclosure controls and procedures | | 187 |
| | Management's report on internal control over financial reporting | | 160 | | | Management's report on internal control over financial reporting | | 187 | |||
| | | | | | | | | | | | |
16 | | 16A Audit Committee financial expert | | Management—Fiscal Council | | 129 | ||||||
| 16B Code of ethics | | Code of ethics and conduct | | 163 | |||||||
| 16C Principal accountant fees and services | | Principal accountant fees and services | | 164 | |||||||
| 16D Exemptions from the listing standards for audit committees | | Management—Fiscal Council; Corporate governance | | 129, 161 | |||||||
| 16E Purchase of equity securities by the issuer and affiliated purchasers | | Purchases of equity securities by the issuer and affiliated purchasers | | 120 | |||||||
| 16F Change in registrant's certifying accountant | | Not applicable | | – | |||||||
| 16G Corporate governance | | Corporate governance | | 161 | |||||||
| 16H Mine safety disclosure | | Not applicable | | – | |||||||
16A | | Audit Committee financial expert | | Management—Audit Committee | | 148 | ||||||
| | | | | | | ||||||
16B | | Code of ethics | | Code of conduct | | 193 | ||||||
| | | | | | | ||||||
16C | | Principal accountant fees and services | | Principal accountant fees and services | | 194 | ||||||
| | | | | | | ||||||
16D | | Exemptions from the listing standards for audit committees | | Management—Audit Committee; Corporate governance | | 148, 188 | ||||||
| | | | | | | ||||||
16E | | Purchase of equity securities by the issuer and affiliated purchasers | | Purchases of equity securities by the issuer and affiliated purchasers | | 135 | ||||||
| | | | | | | ||||||
16F | | Change in registrant's certifying accountant | | Not applicable | | – | ||||||
| | | | | | | ||||||
16G | | Corporate governance | | Corporate governance | | 188 | ||||||
| | | | | | | ||||||
16H | | Mine safety disclosure | | Not applicable | | – | ||||||
| | | | | | | | | | | | |
17 | | Financial statements | | Not applicable | | – | | Financial statements | | Not applicable | | – |
| | | | | | | | | | | | |
18 | | Financial statements | | Financial statements | | F-1 | | Financial statements | | Financial statements | | F-1 |
| | | | | | | | | | | | |
19 | | Exhibits | | Exhibits | | 166 | | Exhibits | | Exhibits | | 196 |
| | | | | | | | | | | | |
iii
We are one of the largest metals and mining companies in the world, based on market capitalization. We are one of the world's largest producer of iron ore and nickel. We also produce iron ore pellets, manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold, silver and cobalt. We are presently engaged in greenfield mineral exploration in five countries. We operate large logistics systems in Brazil and other regions of the world, including railroads, maritime terminals and ports, which are integrated with our mining operations. In addition, we have a distribution center to support the delivery of iron ore worldwide. Directly and through affiliates and joint ventures, we also have investments in energy and steel businesses.
In this report, references to "Vale" are to Vale S.A. References to "we," "us" or the "Company" are to Vale and, except where the context otherwise requires, its consolidated subsidiaries. References to our "ADSs" or "American Depositary Shares" are to our common American Depositary Shares (our "common ADSs"), each of which represents one common share of Vale. American Depositary Shares are represented by American Depositary Receipts ("ADRs") issued by the depositary.
Vale S.A. is a stock corporation, orsociedade por ações, that was organized on January 11, 1943 under the laws of the Federative Republic of Brazil for an unlimited period of time. Its head office is located at Praia de Botafogo 186 – offices 701-1901 – Botafogo, 22250-145 Rio de Janeiro, RJ, Brazil, and its telephone number is 55-21-3485-5000.
Unless otherwise specified, we use metric units. References to "real," "reais" or "R$" are to the official currency of Brazil, thereal (singular) orreais (plural). References to "U.S. dollars" or "US$" are to United States dollars. References to "€" are to Euros.
| | | | |
| | 1 | | |
RUPTURE OF THE TAILINGS DAM AT THE CÓRREGO DO FEIJÃO MINE
On January 25, 2019, a tailings dam ("Dam I") failed at our Córrego do Feijão mine, in the city of Brumadinho, state of Minas Gerais. The rupture released a flow of tailings residue, which affected our administrative area at the Córrego do Feijão mine and parts of the communities of Córrego do Feijão and Parque da Cachoeira outside of Brumadinho, reaching the nearby Paraopeba River. The dam rupture resulted in 270 fatalities or presumed fatalities, and also caused extensive property and environmental damage in the region.
We reaffirm our respect for the victims and their families, and thank the authorities engaged with the search and rescue measures, and those who have dedicated time and effort to provide support and comfort amidst such tragedy. Since the first hours following the rupture of Dam I, we have provided assistance to the victims and impacted families, support to restore the livelihood of the people affected, and means to help them cope with the losses. We have also provided support to local governments and public entities, given the extent of the impacts of the dam rupture and of the suspension of our operations in the region.
Repairing the damage in a fair and agile way is fundamental to the families affected by the rupture of Dam I, and we have prioritized initiatives and resources to that end. Based on open dialogue with the authorities and the affected communities, we developed the Integral Reparation Program, based on social, environmental and infrastructure pillars, to ensure that actions and resources will effectively compensate individuals and communities, recover the environment and enable the sustainable development of Brumadinho and its surroundings.
As we move forward on our path to making our business better, valuing people, safety and reparation, we continue firm in our ambition to become one of the safest and most reliable companies in the world. We will never forget Brumadinho.
Dam I
The Córrego do Feijão mine is part of the Paraopeba complex, in the Southern System. Dam I was first built in 1976 by Ferteco Mineração, a company we acquired in 2001. Dam I received disposed tailings from the Córrego do Feijão and Jangada mines from 1976 until it became inactive in 2016. Dam I contained approximately 11.7 million cubic meters of iron ore tailings.
The dam was raised by building successive layers (lifts) above the tailings accumulated in the reservoir, a technique known as the "upstream" method. There are two other raising methods, the "downstream" method and the "centerline" method, in which the dam is raised by placing new layers away from the initial dam or on top of it, as opposed to over the accumulated tailings. Each of these methods presents a different risk profile.
Vale's response
Since the date of the dam rupture, we have focused on (i) providing full and effective assistance to the victims and reparation of the damages, (ii) determining the causes of the rupture of Dam I, and (iii) preventing further accidents through the adoption of improved technical standards and accelerating the decharacterization of our upstream dams in Brazil, in compliance with applicable Brazilian regulations.
| | | | |
| | 2 | | |
Business Overview
(i) Immediate support to victims and families
We have provided humanitarian assistance to victims and families from the very first moments. Immediately following the rupture of Dam I, we contacted the local authorities and activated our Emergency Mining Dam Response Plan (Plano de Ação de Emergência para Barragens de Mineração (PAEBM)) to locate and rescue victims and provide immediate aid to affected parties, including employees and members of the community. Support to people affected has been offered on a broad basis, with large teams dedicated to listening to the people affected, recording their emergency requirements, ensuring the immediate assistance and delivering them updates in the fastest way possible. A variety of actions were taken to offer aid and relief to people affected by the rupture of Dam I.
We took measures to mobilize ten hospitals and health units, as well as seven assistance centers to provide emergency healthcare and psychological and social assistance to those in need. More than 14,000 medical and psychological consultations and 185,000 pharmacy items have been provided. We made donations to the families of deceased or missing individuals, to assist them with financial expenses in such a critical moment, regardless any future compensation. Donations were also made, starting a few days after the dam rupture, to those who lived or had business activities or real estates in the Self-Rescue Zone. Basic items, such as water, food and shelter, were made available to the communities in need.
Over 580 million liters of water have been supplied to the population, artesian wells have been drilled and a new water pipeline was built to serve the municipality of Pará de Minas. For people who had to be evacuated from neighborhoods close to the impacted areas, we have provided full support with relocation, temporary or permanent housing and the overall well-being.
We mobilized over 700 professionals, including veterinarians, biologists, technicians and field staff to support the rescue of fauna and mitigate environmental impacts, and provided a hospital and an animal shelter. Over 9,800 animals have been rescued so far, and more than 500 remain under our care.
We have also made financial contributions over R$400 million to the city of Brumadinho, ten municipalities impacted by suspended mining operations and the state of Minas Gerais. Donations were directed to public entities engaged with the search and rescue efforts, especially the State Fire Department, the State Civil Defense, and the State Military Police. State-of-the-art equipment was bought for the Institute of Forensics of Belo Horizonte.
We have also performed emergency infrastructure works to ensure the fast reestablishment of logistics, such as the installation of the Alberto Flores bridge, which grants safe access to the central area of Brumadinho.
(ii) Reparation and remediation efforts
We have been working with authorities and affected communities to remediate the environmental and social impacts of the rupture of Dam I. In addition to the emergency actions discussed above, we have entered into 27 agreements with authorities, on a variety of matters. Below is a summary of the preliminary agreements we have entered into with public authorities to establish a framework of for indemnification and reparation measures:
| | | | |
| | 3 | | |
Business Overview
Minas Gerais and other public authorities. Under this agreement, we committed to make monthly emergency aid payments to residents of Brumadinho and the communities located downstream of Dam I, up to one kilometer from the Paraopeba riverbed, from Brumadinho to the city of Pompéu for one year, retroacting to January 2019. In October 2019, we entered into a new agreement to extend payments for 10 months, with a narrower scope. The total amount paid as emergency aid pursuant to these agreements will be deducted from an eventual collective damages payment to be agreed in the future.
| | | | |
| | 4 | | |
Business Overview
technical support for the authorities, with measures to review and reinforce structures and suspension of operations.
Based on the dialogue with impacted communities and with authorities, we have developed a comprehensive program to repair the damage caused, encompassing economic measures already included in legal agreements as well as non-economic compensation measures.
On the environmental front, a plan was developed to remove and treat tailings, recover fauna and flora and ensure the water catchment and supply to the Belo Horizonte metropolitan region. Two water treatment stations (ETAF) are already operating to clean and return treated water to the Ferro-Carvão stream and the Paraopeba river. The "Ground Zero Project" is a pilot project to fully recover the original conditions of the Ferro-Carvão stream by 2023.
On the socio-economic front, non-economic compensation measures aim to ensure respect for human rights and are being negotiated, focused on the perspectives and demands of the affected communities and public authorities. Our initiatives are being designed to provide structured assistance for long-term results in education, healthcare and well-being, employment and income generation, ultimately enabling sustainable development in the region. Some initiatives in place welcome residents of Brumadinho to share their experiences and feelings, with a view to rebuilding self-esteem and strengthening the sense of belonging to that community and location. Activities are also developed to enhance local vocations, such as cultural tourism, productive backyards, community gardens and handicrafts.
We know that there is still a lot to be done to fully restore Brumadinho and reaffirm our commitment to doing so. For further information on the updated balance of our actions taken so far, see the following website: vale.com/repairoverview. Information on our website is not incorporated by reference in this annual report on Form 20-F.
(iii) Determination of the causes for the rupture of the dam
Immediately after the dam rupture, our external legal advisors engaged an expert panel to conduct an investigation into the causes of the dam rupture. On December 12, 2019, the expert panel released its report on the technical causes of the rupture of Dam I.
| | | | |
| | 5 | | |
Business Overview
internal drainage that resulted in a persistently high water level in the dam, particularly in the toe region; (v) high iron content of tailings, resulting in heavy tailings with bonding between particles, which created stiff tailings that were potentially very brittle if triggered to become undrained; and (vi) high and intense regional wet season rainfall that can result in significant loss of suction, producing a slight loss of strength in the unsaturated materials above the water level.
Our Board of Directors also established, immediately after the dam rupture, three independent ad hoc advisory committees to support the Board in matters relating to the dam rupture: the Independent Ad Hoc Consulting Committee for Investigation (CIAEA), the Independent Ad Hoc Consulting Committee for Support and Recovery (CIAEA-R) and the Independent Ad Hoc Consulting Committee for Dam Safety (CIAESB).
| | | | |
| | 6 | | |
Business Overview
(iv) Prevention of further accidents and decharacterization of upstream dams
In April 2019, we created a special department in charge of reparation and development (Diretoria Especial de Reparação e Desenvolvimento). This department is responsible for all social, humanitarian, environmental, and structural recovery actions to be carried out in Brumadinho and in the 22 municipalities along Paraopeba river up to Retiro Baixo dam in the state of Minas Gerais, and the coordination of actions with communities in the Self-Rescue Zone and Secondary Safety Zone of the dams. The head of the department reports to our CEO and participates in weekly meetings of our management to report and discuss the progress of the initiatives.
In January 2019, we decided to accelerate our plan to "decharacterize" all of our dams located in Brazil built using the upstream raising method. Following the announcement of our decision, the Brazilian National Mining Agency ("ANM") approved new safety standards for dams and required the decharacterization of structures built under the upstream method. Our plan aims to decharacterize dam structures in accordance with new federal and state regulations (ANM Regulation no. 13/2019 and the Minas Gerais State Law no. 23.291/2019). The term "decharacterization" means reintegrating the dam and its contents into the local environment.
We have been working to develop a detailed engineering plan to decharacterize each of those upstream dams. The updated plan for each structure takes into consideration whether downstream containment structures should be built, depending on the level of safety of the structure. As of December 31, 2019, we recognized provisions in connection with the decharacterization of dams in the aggregate amount of US$2.625 billion.
In December 2019, we concluded the decharacterization of the 8B dam in the city of Nova Lima and the construction of a containment structure for the Sul Superior dam in the city of Barão de Cocais. We expect to conclude the downstream containment structures for B3/B4 and Forquilha I, Forquilha II and Forquilha III dams in the first half of 2020.
In 2019, due to the ANM's technical reevaluation of the construction methods of our dams and other structures, we included additional dams in our decharacterization plan. Additionally, smaller dikes that were raised through the upstream method and drained stacking, that are now required to comply with the requirements imposed by the ANM, will also be decharacterized.
We are currently working on the improvement of engineering solutions to decharacterize all of these structures. These projects are subject to further review and eventual approval by the relevant authorities. The costs and provisions associated with the decharacterization of our upstream dams and structures are based on several assumptions and estimates that depend, in part, on factors that are beyond our control.
We also operate tailings dams outside of Brazil (Canada and New Caledonia), including compacted outer shell upstream dams in Canada. We are not planning to decharacterize these upstream dams, as decharacterization is not required or contemplated under local regulations.
Impacts of the rupture of Dam I on Vale
The impacts of the dam rupture on our operations and results of operations were very significant, but their full scale and scope remain uncertain. Some of the major impacts are described below.
| | | | |
| | 7 | | |
Business Overview
(i) Impacts on our financial performance and results of operations
The rupture of Dam I had an extensive impact on our financial performance and results of operations as of and for the year ended December 31, 2019. The main impacts in our income statement for the year ended December 31, 2019 was (i) US$7.402 billion, including expenses and provisions to meet our obligations in connection with the decharacterization of our upstream dams and the obligations we assumed in preliminary settlement agreements, and (ii) a loss of US$235 million in the "impairment and disposal of non-current assets" attributable to the write-off of the Córrego do Feijão mine and other upstream dams. SeeOperating and Financial Review and Prospects—Overview—Rupture of Dam I.
(ii) Liabilities and legal proceedings
Our potential liabilities resulting from the dam rupture are significant. We are continuously evaluating these contingencies and may recognize additional provisions in the future. We are already subject to several legal proceedings and governmental investigations relating to the rupture of Dam I, and we expect to face other such proceedings and investigations. For additional information regarding the legal proceedings relating to the rupture of Dam I, seeAdditional Information—Legal proceedings. We will continue to cooperate fully with the authorities and support the investigations into the dam rupture, and will also contest any proceedings that we believe are unjustified.
As of December 31, 2019, we recognized provisions in the total amount of US$3.925 billion related to preliminary settlement agreements with authorities for compensation to affected persons and communities, donations and projects to restore the environment, including (i) US$2.735 billion in connection with social and economic compensation and (ii) US$1.190 billion in connection with environmental restoration and compensation. Our potential liabilities resulting from the dam rupture are significant, and additional provisions might be expected.
(iii) Suspension of operations
Following the dam rupture, we have suspended various operations, either voluntarily or as a result of revocation of licenses or court orders. The suspension of operations in its most critical level totaled 92.8 million metric tons per year of production capacity, but part of these operations resumed during 2019. Additional operations may be suspended as a result of new laws and regulations relating to the use of dams, or our inability to obtain the required licenses or the stability reports required by applicable regulations, as discussed below.
Below is a summary of operations suspended since the date of the dam rupture.
| | | | |
| | 8 | | |
Business Overview
order to resume operations at the pellet plant, we will need to run trigger tests, which require approval by an external audit of the state prosecutors of the state of Minas Gerais (MPMG). In order to restart the Vargem Grande beneficiation plant and its economic mining plan, we will need to obtain approval from the ANM.
(iv) New regulations
Various governmental authorities have approved or proposed new regulations relating to licensing, use and operations of dams in response to the Dam I rupture. Additional rules imposing restrictions on mining operations and ancillary activities are expected. Also, new taxes, contributions or other obligations may be imposed on us as a result of the rupture of Dam I or its direct or indirect impacts. These rules may affect not only our iron ore operations, but also our base metals operations in Brazil and other operations that rely on dams.
| | | | |
| | 9 | | |
Business Overview
We will need to rely on alternative methods to continue operating certain of our mines and plants, particularly those that rely on tailings dams. We have approved projects and further studies are in progress, to apply a residue disposal technology that consists of filtering and stacking of partially or totally dewatered tailings, which will reduce our reliance on tailings dams in the medium and long term. These alternative technologies will cause an increase in our production costs and require additional investments in our mines and plants.
(v) Impact on reserves
Our reported reserves have been affected by the ongoing investigations and legal proceedings involving the use of dams in our mining operations and by the new rules relating to licensing, use and operations of dams, which were adopted in response to the Dam I rupture. SeeInformation on the Company—Reserves These proceedings and regulations may impact our iron ore reserves and reserves for other products for which the production process involves dams.
(vi) Uncertainties arising from increased safety requirements and external expert certification
We are required to obtain a certification of stability (Stability Condition Statement, or "DCE"), which is provided by external experts following an audit, for most of our dams in Brazil in six-month intervals by March 31 and September 30 of each year, and for some, on an annual basis. Brazilian state and federal authorities are strengthening regulations on dam safety. External experts may be unwilling to provide these reports and certificates as a result of the uncertainties regarding the causes of the Dam I rupture, the increasing risk of liability, and uncertainties concerning the interpretation of new regulations. If any of our dams is unable to comply with safety requirements, we may need to suspend related operations, evacuate the area surrounding the dam, relocate communities and take other emergency actions.
| | | | |
| | 10 | | |
Business Overview
In January 2020, we implemented the role of Engineer of Record ("EoR") as an additional step in the assessment of our structures in Brazil. Among its duties, the EoR is responsible for carrying out regular dam safety inspections, as well as the issuance of monthly technical reports. The EoR is integrated with our lines of defense and senior management level, and not part of our operations, so as to have the requisite authority for this type of role. In this model of continuous supervision, if a change in the stability of any of our structures is identified, a new audit process may be initiated to obtain a DCE at any point in the year.
| | | | |
| | 11 | | |
Business Overview
the end of April 2020. Seventeen other structures, all currently inactive, did not obtain DCEs. We are not required to evacuate people in the Self-Rescue Zone of these 17 structures, as they are classified as emergency level 1 of the PAEBM.
OPERATIONAL SUMMARY
The following table presents the breakdown of total net operating revenues attributable to each of our lines of business with continuing operations.
| Year ended December 31, | | |||||||||||||||||
| 2019 | | 2018 | | 2017 | | |||||||||||||
| (US$ million) | | (% of total) | | (US$ million) | | (% of total) | | (US$ million) | | (% of total) | | |||||||
Ferrous minerals: | | | | | | | | | | | | | | ||||||
Iron ore | | 23,343 | | | 62.1 | % | | 20,354 | | | 55.7 | % | | 18,524 | | | 54.5 | % | |
Pellets | | 5,948 | | | 15.8 | | | 6,651 | | | 18.2 | | | 5,653 | | | 16.7 | | |
Ferroalloys and manganese | | 282 | | | 0.8 | | | 454 | | | 1.2 | | | 469 | | | 1.4 | | |
Other ferrous products and services | | 432 | | | 1.1 | | | 474 | | | 1.3 | | | 483 | | | 1.4 | | |
| | | | | | | | | | | | | | ||||||
Subtotal | | 30,005 | | | 79.9 | | | 27,933 | | | 76.4 | | | 25,129 | | | 74.0 | | |
| | | | | | | | | | | | | | ||||||
Base metals: | | | | | | | | | | | | | | ||||||
Nickel and other products(1) | | 4,257 | | | 11.3 | | | 4,610 | | | 12.6 | | | 4,667 | | | 13.7 | | |
Copper(2) | | 1,904 | | | 5.1 | | | 2,093 | | | 5.7 | | | 2,204 | | | 6.5 | | |
| | | | | | | | | | | | | | ||||||
Subtotal | | 6,161 | | | 16.4 | | | 6,703 | | | 18.3 | | | 6,871 | | | 20.2 | | |
| | | | | | | | | | | | | | ||||||
Coal | | 1,021 | | | 2.7 | | | 1,643 | | | 4.5 | | | 1,567 | | | 4.6 | | |
| | | | | | | | | | | | | | ||||||
Other | | 383 | | | 1.0 | | | 296 | | | 0.8 | | | 400 | | | 1.2 | | |
| | | | | | | | | | | | | | ||||||
Total net operating revenues from continuing operations | | 37,570 | | | 100 | % | | 36,575 | | | 100 | % | | 33,967 | | | 100 | % | |
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Ferrous minerals:
Base metals:
| | | | |
| | 12 | | |
Business Overview
Indonesia and New Caledonia. We also have nickel operations in Onça Puma, in the Brazilian state of Pará. We also control and operate nickel refining facilities in the United Kingdom, Japan and China, and have interests in a nickel refinery in South Korea.
Coal:
Logistics infrastructure:
BUSINESS STRATEGY
2019 was a very challenging year for us. We know that there is much to be done to address the effects of the rupture of Dam I at the Córrego do Feijão mine. We will manage the liabilities arising from this deeply regretted event, and we are committed to learning and sharing the lessons from the dam rupture. With this purpose, we are dedicated to going beyond our commitment to restore Brumadinho and to build a better Vale, based on the following main pillars:
| | | | |
| | 13 | | |
Business Overview
Below are the highlights of our major business strategies.
Safety and operational excellence
We are fully committed to addressing the effects of the rupture of Dam I, with three key initiatives: (i) assistance to victims and recovery of the affected areas, (ii) determination of the causes of the dam rupture, and (iii) prevention of further accidents through adoption of the highest technical standards and accelerated decharacterization of all upstream dams.
In 2019, we created a new position on our Board of Executive Officers, for an executive officer for Safety and Operational Excellence, who leads a department in charge of: (i) enhancing risk governance and information flow, (ii) acting as second line of defense and defining technical standards and risk acceptance criteria applicable to personnel whose activities are related to strategic assets, performance monitoring and definition of technical competences, and (iii) monitoring risk management. This new Executive Office is composed of four technical teams: Tailings, Asset Integrity, Operational Excellence and Health, Safety and Operational Risks. One of the main responsibilities of the Health, Safety and Operational Risks team is a new structured process for hazard identification and risk assessment (HIRA) in all of our operations, developing a tailings management system in line with the best international practices and consolidating our management system (Vale Production System), which was revised and relaunched with more than 60,000 people trained in 2019 as a means to support the ongoing safety cultural transformation within Vale. We continue to make every effort to provide relief and support to those affected by the dam rupture and to restore the trust of our stakeholders on us. We are committed to rebuilding our reputation in Brazil and in the global mining industry.
New pact with society
We are committed to a comprehensive approach towards sustainability and safety, establishing a positive social, economic and environmental legacy in the places where we operate and going beyond taxes, social projects and reparation in Brumadinho. SeeOverview—Business overview—Our environmental, social and governance (ESG) framework. In 2019, we revised the sustainability goals that we had established in 2018 in line with the Sustainable Development Goals (SDG) of the United Nations 2030 Agenda, to adopt more ambitious goals. Below is a list of our new "2030 Commitments":
| | | | |
| | 14 | | |
Business Overview
Maximize flight-to-quality in iron ore
In the iron ore business, we are committed to delivering the highest possible margins under the current circumstances, by managing our extensive supply chain and flexible product portfolio to cope with production constraints in the short-term. We will constantly seek better price realization, based on adjustments to our product portfolio according to market demand and supply chain optimization. We are focusing our product line to capture industry trends, improving quality and productivity, controlling costs, strengthening our logistics infrastructure of railroads, ports, shipping and distribution centers, and strengthening relationships with customers. Our diversified portfolio of high-quality products, strong technical marketing strategy, efficient logistics and long-standing relationships with major customers will help us overcome the immediate challenges and achieve this goal.
With the continuous increase of the share of dry processing production to 60% in 2018 from 40% in 2014, and aimed at 70% by 2023, our reliance on new dams and dam raisings is declining. To treat the tailings from wet processing, we are investing in studies and new technologies with a view to allowing us to operate certain of our mines and plants without having to rely on the use of tailings dams. We have announced an estimated investment of US$1.8 billion between 2020 and 2024 in some of our sites, including Cauê, Conceição and Brucutu Mines, to be operated with dry stacking waste disposal technology, which consists of filtering and stacking of partially or totally dewatered tailings, reducing our reliance on tailings dams in the medium and long term. In line with this goal, we acquired New Steel in January 2019, bringing in innovative technologies for the dry beneficiation of iron ore. We also announced an investment of US$100 million in the world's first industrial-scale dry magnetic fines concentration to produce 1.5Mt starting in 2022.
We will continue to promote the Brazilian blend fines (BRBF), a product standard with silica (SiO2) content limited to 5% and lower alumina (1.5%), offering strong performance in any kind of sintering operation. We produce BRBF by blending fines from Carajás, which contain a higher concentration of iron and a lower concentration of silica in the ore, with fines from the Southern and Southeastern Systems, which contain a lower concentration of iron in the ore, but also low concentration of alumina. It is produced in our Teluk Rubiah Maritime Terminal in Malaysia and in seventeen ports in China. This process reduces the time needed to reach Asian markets and increases our distribution capillarity by allowing the use of smaller vessels. The blending strategy also permits the use of iron ore with lower concentration from the Southern and Southeastern Systems, allowing more efficient mining plans and increasing the use of dry processing methods, which in turn reduce capital expenditures, extend the life of our mines and reduce the use of water in our operations: a key flexibility to cope with the short-term challenges.
We continue to improve our portfolio in order to provide solutions to our customers and to adapt to potential market demands. In 2019, we announced the launch of the GF88, a new product to supply the growing market of pellet production in China. This product consists of Carajás fines (IOCJ), obtained through a grinding process, opening a new market for our high quality portfolio. We are currently evaluating the development and production of metallics products (e.g. "green" pig iron and hot
| | | | |
| | 15 | | |
Business Overview
briquetted iron) along with customers as an addition to our portfolio. Metallics are steel raw material products containing a high percentage of metallic iron, which can support the steel industry in its challenge to reduce carbon emission, fulfilling its quality requirements with less capex, while using more advanced technologies.
Base metals transformation
In view of a potential trifurcation in nickel markets, into stainless steel (Class II), electric vehicle battery (nickel sulphate) and high value applications (Class I) markets, we are adopting a new commercial strategy for our nickel business, which includes (a) preserving and restoring our market share in the high value segments, through a recovery of our market share in the Upper Class 1 nickel market (nickel alloys) and an increase of our presence in the Lower Class 1 nickel markets, and (b) maintaining our product portfolio optionality for a potential surge in electric vehicle battery demand, through our continuous presence in the Class 2 ferronickel market globally, and a reduction in our exposure to intermediate products.
A key aspect of the strategy for our nickel business is to complete its turnaround, continuing to review our asset utilization, optimizing our operations and focusing our efforts to increase productivity and improve returns, while preserving capacity for growth. We are one of the world's largest nickel producers, with large-scale, long-life and low-cost operations, a substantial resource base and diversified mining operations that produce nickel from nickel sulfide and laterite sources using advanced technology. Our commercial footprint is global, with a focus on serving our customers directly.
A key aspect of our strategy for our copper business is to improve efficiency and asset utilization in the Carajás region in Brazil while we also evaluate opportunities to increase copper production in Canada. We have plans to develop a multi-year copper expansion plan, with Salobo III in the Carajás region being the first approved project in the pipeline. Commercially, we plan on redirecting our copper concentrate sales to the Pacific region in order to align with global copper demand.
Below is a list of actions we are taking, which are consistent with our turnaround strategy for our base metals business:
| | | | |
| | 16 | | |
Business Overview
Discipline in capital allocation
We reiterate our strong commitment to a sound balance sheet. In 2019, we continued our deleveraging process and achieved a net debt level of US$4.880 billion as of December 31, 2019. We will allocate capital in a disciplined way, which will be key to enable us to address the effects of the Dam I rupture. In January 2019, our Board of Directors approved the suspension of our shareholder remuneration policy, so that no payment of dividends or interest on shareholders' equity will be made pursuant to this policy in excess of mandatory payments required by law, and we will not approve any share buyback for the time being. In March 2020, taking into account our strong balance sheet and the need to secure capital funding in light of the increased risks presented by the COVID-19 pandemic, we drew US$5 billion under our revolving credit lines.
As part of our commitment to discipline in capital allocation and a leaner portfolio, some of our non-performing assets are under scrutiny as we move towards de-risking outside of our core business. As a result, we are implementing the following strategies: (a) a new mining plan and a new plant strategy to achieve a sustainable ramp-up of Moatize, which includes shortening the life of mine and completing a plant overhaul, (b) studying exit alternatives for our operations in New Caledonia, while also considering operational and commercial alternatives to improve the short-term cash flows of Vale New Caledonia ("VNC"), and (c) studying coordinated exit alternatives for steel joint-ventures and other investments outside our core business.
SIGNIFICANT CHANGES IN OUR BUSINESS
We summarize below major events in our business since the beginning of 2019.
Developments relating to the outbreak of the coronavirus
In December 2019, an outbreak of a contagious disease, the Coronavirus Disease 2019 (COVID-19), began in mainland China and has since spread through various countries, including Brazil and Canada, where most of our operations are concentrated. We are complying with the health and safety protocols established by the authorities and agencies of each country in which we operate and are monitoring the developments of the situation closely. In January 2020, we created a crisis management structure and governance to manage and deploy our actions in response to the COVID-19 pandemic. We have taken steps and implemented policies to safeguard our employees, businesses and communities surrounding our operations from the threats posed by the COVID-19 pandemic.
| | | | |
| | 17 | | |
Business Overview
The Long Harbour Processing Plant (LHPP) continues to operate nickel and cobalt production and, in principle, should not be affected, given the availability of stockpiled concentrates to feed the LHPP well past the four-week care and maintenance period, while copper concentrate production at the site will be reduced proportionally to the period of mine stoppage (Voisey's Bay produced 25kt of copper in concentrate in 2019). The decision also impacts the Voisey's Bay Mine Expansion project currently underway to transition to underground operations.
We are closely evaluating the impact of COVID-19 on our business. The situation is evolving and could have a material impact on us if there is significant supply chain disruption or customer demand declines.
| | | | |
| | 18 | | |
Business Overview
Acquisitions
Full production capacity of 90 Mtpy of S11D enabled
In December 2019, we completed the physical works and the start-up of the CLN S11D project, which enables the full production capacity of 90 million metric tons per year at the S11D mine in 2020. The CLN S11D project increased logistics capacity of the Northern System, through the expansion of approximately 570 km of railway, the construction of a railway spur of 101 km, the acquisition of wagons and locomotives and port expansion (onshore and offshore expansions at Ponta da Madeira maritime terminal). Until 2022, the project will be in a monitored ramp-up phase.
Sale of interest in Longyu
In December 2019 we entered into an agreement to sell our 25% stake in Longyu Energy Resources Co., Ltd.(Longyu) to Yongmei Group Co., Ltd (Yongmei), for CNY1.065 billion (equivalent to approximately US$152 million). Longyu produces metallurgical and thermal coal and other related products in the Henan province in China. Closing of the transaction is expected to occur in 2020, subject to certain conditions precedent.
Obtaining of licenses for resumption of Samarco's operations
In October 2019, Samarco obtained the Corrective Operation License (LOC) relating to its operations in the Germano Complex, located in the Brazilian state of Minas Gerais. With the license, Samarco has now obtained all environmental licenses required to resume its operations. As Samarco is planning on restarting its operations using new technologies for dry tailings stacking, the operations of iron ore extraction and beneficiation plants in Germano and the pelletization plant at the Ubu Complex, located in Anchieta, state of Espírito Santo, will resume only after the implementation of a filtration system, which is expected to take approximately 12 months. During this period, Samarco will continue to prepare to restart its operations, which is currently expected to occur by the end of 2020. Samarco's expected ramp-up has been materially affected by new regulation and changes in existing regulation related to mining activities and dams. Although we expect that Samarco be able to restart operations through one concentrator following the implementation of the filtration technology, increase in production will
| | | | |
| | 19 | | |
Business Overview
depend on the other two concentrators, which activities are expected to resume in six and ten years, respectively.
Resumption of operations in Onça Puma
We resumed our operations at Onça Puma in September 2019, following a decision of the Brazilian Federal Supreme Court (STF). The operations at this mine had been suspended since September 2017 and the nickel processing plant had been halted since June 2019, as a result of court decisions issued in connection with a legal proceeding brought by federal prosecutors against us. SeeAdditional Information—Legal proceedings—Onça Puma litigation.
RUPTURE OF SAMARCO'S TAILINGS DAM IN MINAS GERAIS
In November 2015, the Fundão tailings dam owned by Samarco Mineração S.A. (Samarco) failed, releasing tailings downstream, flooding certain communities and causing impacts on communities and the environment along the Doce river. The rupture resulted in 19 fatalities and caused property and environmental damage to the affected areas. Samarco is a joint venture equally owned by Vale S.A. and BHP Billiton Brasil Ltda. ("BHPB").
In June 2016, Samarco, Vale and BHPB created the Fundação Renova, a not-for-profit private foundation, to develop and implement (i) social and economic remediation and compensation programs and (ii) environmental remediation and compensation programs in the region affected by the dam rupture.
The creation of Fundação Renova was provided for under the agreement for settlement and conduct adjustment (the "Framework Agreement") signed in March 2016 by Vale, BHPB, Samarco, the Brazilian federal government, the two Brazilian states affected by the rupture (Minas Gerais and Espírito Santo) and other governmental authorities. The Framework Agreement has a 15-year term, renewable for successive one-year periods until all the obligations under the Framework Agreement have been performed. The Framework Agreement does not provide for admission of civil, criminal or administrative liability for the Fundão dam rupture. The Framework Agreement provides that, within three years of the date of the agreement, the parties would review its terms to assessing the effectiveness of the ongoing remediation and compensation activities.
On June 25, 2018, Samarco, Vale and BHPB entered into a comprehensive agreement with the offices of the federal and state (Minas Gerais and Espírito Santo) prosecutors, public defenders and attorney general, among other parties, improving the governance mechanism of Fundação Renova and establishing, among other things, a process for potential revisions to the remediation programs provided under the Framework Agreement based on the findings of experts hired by Samarco to advise the MPF (Federal Prosecutor's Office) over a two-year period (the "June 2018 Agreement"). SeeAdditional Information—Legal proceedings. The process of revision of the remediation programs will start in the second half of 2020.
Under the Framework Agreement, the June 2018 Agreement and Renova's by-laws, Fundação Renova must be funded by Samarco, but to the extent that Samarco is unable to fund, Vale and BHPB must ratably bear the funding requirements under the Framework Agreement. As Samarco is currently unable to resume its activities, we and BHPB have been funding the Fundação Renova and also providing funds directly to Samarco, to preserve its operations and to support Samarco's funding obligations.
In October 2019, Samarco obtained the Corrective Operation License (LOC) relating to its operations in the Germano Complex, located in the Brazilian state of Minas Gerais. With the license, Samarco has now
| | | | |
| | 20 | | |
Business Overview
obtained all environmental licenses required to resume its operations. As Samarco is planning on restarting its operations using new technologies for dry tailings stacking, the operations of iron ore extraction and beneficiation plants in Germano and the pelletization plant at the Ubu Complex, located in Anchieta, state of Espírito Santo, will resume only after the implementation of a filtration system, which is expected to take approximately 12 months.
Pursuant to the Framework Agreement, Fundação Renova and Samarco allocated R$2.6 billion to social and economic remediation and compensation programs in 2019 and have allocated R$7.8 billion to these programs since the dam rupture. From 2020 to 2021, Samarco, or Vale and BHP, will provide to Fundação Renova funding based on the amounts needed to implement the projects approved for each year, subject to an annual minimum of R$800 million. Starting in 2022, we expect Samarco to provide the necessary funding in order to complete remaining programs approved for each year.
Additionally, Fundação Renova must allocate a minimum annual amount of R$240 million over 15 years (from 2016) to the implementation of compensation programs. Under the terms of the Framework Agreement, Fundação Renova must spend an additional amount of at least R$500 million on sewage collection and treatment and solid waste disposal.
For a discussion of the legal proceedings resulting from the rupture of Samarco's tailings dam, seeAdditional Information—Legal proceedings.
OUR ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FRAMEWORK
We are committed to fully integrating sustainability into our business through a comprehensive approach based on systematic planning and execution, prioritizing risk and impact management, and establishing a positive social, economic and environmental legacy in the places where we operate. Our practices related to ESG are evolving.
We are members of the International Council on Mining and Metals (ICMM), one of the most important associations in the mining industry, reaffirming our commitment to sustainable development of the mining industry, and we have joined the Task Force on Climate-related Financial Disclosures (TCFD), an association with the purpose of creating a set of recommendations to improve the quality of voluntary disclosure of climate-related information, and the Council of Institutional Investors (CII), an association for effective corporate governance standards and strong shareowner rights.
We have been increasing our engagement with socially responsible investors and key ESG stakeholders through webinars, roadshows and the development of a dedicated website, the ESG Portal. We have also reviewed studies from leading ESG advisors and index providers (such as ISS, Glass Lewis, MSCI, Sustainalytics, Responsible Mining Index, Dow Jones Sustainability Index), and identified approximately 50 gaps with respect to ESG best practices. Based on this assessment, we mapped out an ESG action plan to address these gaps.
After the rupture of Dam I, we decided to strengthen our interactions with ESG stakeholders to discuss a range of strategy, risk and governance-related matters and accelerate our ESG initiatives. We are committed to eliminating our ESG gaps by 2030 (our "2030 Commitments").
In 2019, we launched our ESG Portal, providing greater transparency about our initiatives. These include, among other actions: (a) doubling the percentage of women in the workforce by 2030; (b) obtaining ISO 14001 certification for all operations, (c) establishing an audit committee, (d) establishing a human rights due diligence process, (e) structuring social key performance indicators (KPIs) with short, medium and long-term goals, and (f) establishing long-term compensation with correlation to ESG metrics.
| | | | |
| | 21 | | |
Business Overview
Below are the highlights of our main ESG accomplishments in 2019 and ongoing initiatives:
Environmental
(i) Climate Change
We are committed to supporting actions towards a sustainable low carbon economy and we have established targets for scope 1 and 2 emissions in line with the Paris Agreement goal of limiting global warming to below 2°C pre-industrial levels. We are also targeting carbon neutrality with respect to scopes 1 and 2 emissions by 2050, and in that process, we expect to help customers reach their goals in terms of emissions reductions with our high-grade iron-ore pellets and products.
(ii) Energy
The electricity consumed in our operations comes mostly from clean sources—around 80% of our worldwide electricity consumption comes from renewable sources, but only part of this energy is self-produced (close to 60%). Our target is to achieve energy self-sufficiency from clean sources in Brazil by 2025, and globally by 2030.
(iii) Water
We are committed to reducing fresh water use in our activities by investing in new technologies, in the expansion of our monitoring network and in other initiatives to control total water collection, especially by promoting water reuse. We are currently developing programs and implementing actions that go beyond compliance with the legal requirements to optimize water use and consumption. Our water reuse represents 83% of total production demand. We want to reduce by 10% the new water captured and used in processes per ton produced, which means a smaller volume of fresh water captured for the same volume of production.
(iv) Forest conservation
Our ambition is to act as a global catalyst for forest conservation and reforestation. Currently, we help to protect 1,018,405 hectares of forest as a result of compensation measures, voluntary initiatives and partnerships. We are committed to protecting and reforesting additional 500,000 hectares by 2030, bolstering our 2018 target.
Social
(i) Human Rights
We are committed to the Guiding Principles on Business and Human Rights of the United Nations Human Rights Council. In 2019, we made a Human Rights risk self-assessment in 51 ventures, including operations. An external due diligence assessment is planned for 2020 and subsequent years, in addition to our self-assessment of Human Rights risks. Also in 2019, we held a public consultation on our website to revise our Human Rights Policy.
| | | | |
| | 22 | | |
Business Overview
(ii) Gender Balance
We have announced the goal to double our female workforce by 2030, from 13% to 26% and to double the female presence in leadership roles from 12% to 20%. We have also disclosed the median salary by gender and seniority level.
(iii) Health and Safety
We are committed to improving the health and safety of our workers. Our long-term goals are: (i) reduction to zero recordable injuries with potential for fatality or changed lives, (ii) 50% reduction in the exposure of employees to the top 10 health risks by 2025 and (iii) elimination of the most significant risk scenarios by 2025.
(iv) Socioeconomic Contribution
We are committed to positively impacting society, by investing in socioeconomic actions and projects focused on community development. In particular, we are investing in actions that contribute to the development and improvement of urban infrastructure and mobility, traditional communities, education, culture, health, and work generation and income in the places where we operate. We spent over US$ 112 million on social initiatives in 2019, of which 62% was on voluntary programs.
(v) Indigenous People and Traditional Communities
Our guidelines with respect to indigenous people and traditional communities are built upon the ICMM's position statement on Mining and Indigenous People, the International Labour Organization (ILO) Indigenous and Tribal Peoples Convention (C169), and the United Nations Declaration on the Rights of Indigenous Peoples. We are committed to respecting the principle of Free, Prior and Informed Consent (FPIC), which entails a process of informing, negotiating in good faith and allowing the Indigenous or traditional communities to freely make decisions.
Governance
(i) Board of Directors
In the 2019 election of members of the Board of Directors, our shareholders elected a third independent member. In addition, our Board of Directors created three Independent Ad Hoc Consulting Committees to conduct an independent investigation into the causes of the rupture of Dam I, monitor our measures to support the affected communities and remediate the affected areas, and to monitor our safety initiatives, risk management and risk mitigation efforts related to dams and recommend measures. In 2019, we also engaged external advisors to conduct an investigation into the causes of the dam rupture.
In March 2020, we adopted additional measures to enhance our governance structure, establishing our Audit Committee and assigning to our Personnel and Governance Committee the role of Nomination Committee until 2021, when a specific Committee will be set up for this purpose.
(ii) Compensation
We are committed to aligning our compensation programs to our business strategy and the goal of making Vale a safer company. We implemented a number of changes, such as the adoption of amalus clause under which the Board of Directors may reduce variable compensation of executives upon the
| | | | |
| | 23 | | |
Business Overview
occurrence of events of exceptional severity, and the implementation of new share ownership guidelines for Executive Officers.
In 2019, 60% of Executive Directors performance goals were based on Health and Safety, Sustainability metrics and actions to repair the damage caused by the Dam I rupture. For 2020, we approved new standards: for short-term compensation, at least 30% of performance goals will be ESG-driven and directly related to safety, risk management and sustainability targets, and with respect to long-term compensation, at least 20% of performance goals will be based on ESG metrics. Overall, 12% of total remuneration will be linked to ESG metrics.
(iii) Risk Management
In 2019, we enhanced our defense line model, creating a new Safety and Operational Excellence Office, with compensation structures that are not correlated to the results of our operations. We established four executive committees created to advise our management with respect to each of these risks: (i) operational risks, (ii) geotechnical risks, (iii) strategy, finance and cyber risks, and (iv) compliance risks. In February 2019, we also launched two Geotechnical Monitoring Centers (CMG), one located in Nova Lima, and the other in Itabira, both in the state of Minas Gerais, which operate 24-hours a day, covering our critical geotechnical structures in Brazil. To oversee the third line of defense, our Board of Directors decided to establish a Compliance Office headed by a Chief Compliance Officer, who will report directly to our Board of Directors and interact with the Audit Committee. The Chief Compliance Officer will be responsible for the integrity department, the internal audit and the Whistleblower Channel. The proposal to amend our bylaws in order to implement this decision will be submitted to our shareholders in our next shareholders' meeting.
(iv) Integrity
We have a Code of Conduct that applies to our employees and to the members of our Board of Directors and our Board of Executive Officers. Any breaches of our Code of Conduct, policies and standards can be reported by anyone, including employees, contractors, suppliers, members of affected communities and other stakeholders, via our Whistleblower Channel. In 2019, our Whistleblower Channel received 3,507 complaints and closed 3,382 cases, of which (i) 2,937 lead to investigations, that confirmed violations of our Code of Conduct in 38% of these cases, (ii) 291 referred to complaints that were not investigated due to lack of information or pertinence to the scope of the Ethics and Conduct Office, (iii) 154 were consultations, which were answered by the Ethics and Conduct Office, but did not lead to an investigation. All confirmed violations triggered correction plans. These investigations resulted in 1,833 corrective actions, including the termination of 227 employees. SeeAdditional Information—Code of conduct.
| | | | |
| | 24 | | |
The tables below present selected consolidated financial information as of and for the years indicated. You should read this information together with our consolidated financial statements in this annual report.
Consolidated statement of income data
| | For the year ended December 31, | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | ||||||||||
| | (US$ million) | | ||||||||||||||||||
Net operating revenues | | 37,570 | | | 36,575 | | | 33,967 | | | 27,488 | | | 23,384 | | | |||||
Cost of goods sold and services rendered | | (21,187 | ) | | (22,109 | ) | | (21,039 | ) | | (17,650 | ) | | (18,751 | ) | | |||||
Selling, general, administrative and other operating expenses, net | | (992 | ) | | (968 | ) | | (951 | ) | | (774 | ) | | (819 | ) | | |||||
Research and evaluation expenses | | (443 | ) | | (373 | ) | | (340 | ) | | (319 | ) | | (395 | ) | | |||||
Pre-operating and operational stoppage | | (1,153 | ) | | (271 | ) | | (413 | ) | | (453 | ) | | (942 | ) | | |||||
Brumadinho event | | (7,402 | ) | | – | | | – | | | – | | | – | | | |||||
| | | | | | | | | | | | ||||||||||
Impairment and disposal of non-current assets | | (5,074 | ) | | (899 | ) | | (294 | ) | | (1,240 | ) | | (8,708 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Operating income (loss) | | 1,319 | | | 11,955 | | | 10,930 | | | 7,052 | | | (6,231 | ) | | |||||
Non-operating income (expenses): | | | | | | | | | | | | ||||||||||
Financial income (expenses), net | | (3,413 | ) | | (4,957 | ) | | (3,019 | ) | | 1,843 | | | (10,654 | ) | | |||||
Equity results and other results in associates and joint ventures | | (681 | ) | | (182 | ) | | (82 | ) | | (911 | ) | | (794 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Income (loss) before income taxes | | (2,775 | ) | | 6,816 | | | 7,829 | | | 7,984 | | | (17,679 | ) | | |||||
Current and deferred taxes | | 595 | | | 172 | | | (1,495 | ) | | (2,781 | ) | | 5,249 | | | |||||
| | | | | | | | | | | | ||||||||||
Net income (loss) from continuing operations | | (2,180 | ) | | 6,988 | | | 6,334 | | | 5,203 | | | (12,430 | ) | | |||||
Net income (loss) attributable to non-controlling interests | | (497 | ) | | 36 | | | 21 | | | (8 | ) | | (501 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Net income (loss) from continuing operations attributable to Vale's stockholders | | (1,683 | ) | | 6,952 | | | 6,313 | | | 5,211 | | | (11,929 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Net income (loss) from discontinued operations attributable to Vale's stockholders | | – | | | (92 | ) | | (806 | ) | | (1,229 | ) | | (200 | ) | | |||||
Net income (loss) attributable to Vale's stockholders | | (1,683 | ) | | 6,860 | | | 5,507 | | | 3,982 | | | (12,129 | ) | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | ||||||||||
Net income (loss) attributable to non-controlling interests | | (497 | ) | | 36 | | | 14 | | ��� | (6 | ) | | (491 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Net income (loss) | | (2,180 | ) | | 6,896 | | | 5,521 | | | 3,976 | | | (12,620 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Total cash paid to stockholders(1) | | – | | | 3,313 | | | 1,456 | | | 250 | | | 1,500 | | |
Earnings (loss) per share
The table below shows our earnings (loss) per share. The earnings (loss) per share for 2015 to 2016 have been retrospectively adjusted to reflect the conversion of our Class A preferred shares into common shares, which was concluded in November 2017, as if the conversion had occurred at the beginning of the earliest year presented.
| | For the year ended December 31, | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | ||||||||||
| | (US$, except as noted) | | ||||||||||||||||||
Earnings (loss) per common share from continuing operations | | (0.33 | ) | | 1.34 | | | 1.21 | | | 1.00 | | | (2.30 | ) | | |||||
Earnings (loss) per common share from discontinued operations | | – | | | (0.02 | ) | | (0.16 | ) | | (0.23 | ) | | (0.03 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Earnings (loss) per common share | | (0.33 | ) | | 1.32 | | | 1.05 | | | 0.77 | | | (2.33 | ) | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | ||||||||||
Weighted average number of shares outstanding (in thousands)(1)(2) | | 5,127,950 | | | 5,178,024 | (3) | | 5,197,432 | | | 5,197,432 | | | 5,197,432 | | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | ||||||||||
Distributions to stockholders per share(2)(4) | | | | | | | | | | | | ||||||||||
Expressed in US$ | | – | | | 0.64 | | | 0.28 | | | 0.05 | | | 0.29 | | | |||||
Expressed in R$ | | – | | | 2.39 | | | 0.90 | | | 0.17 | | | 0.98 | | |
| | | | |
| | 25 | | |
Selected Financial Data
Balance sheet data
| | As of December 31, | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | ||||||||||
| | (US$ million) | | ||||||||||||||||||
Current assets | | 17,042 | | | 15,292 | | | 15,367 | | | 13,978 | | | 11,429 | | | |||||
Non-current assets held for sale | | – | | | – | | | 3,587 | | | 8,589 | | | 4,044 | | | |||||
Property, plant and equipment, net and intangible assets | | 55,075 | | | 56,347 | | | 63,371 | | | 62,290 | | | 59,426 | | | |||||
Investments in associated companies and joint ventures | | 2,798 | | | 3,225 | | | 3,568 | | | 3,696 | | | 2,940 | | | |||||
Non-current assets | | 16,798 | | | 13,326 | | | 13,291 | | | 10,461 | | | 10,653 | | | |||||
| | | | | | | | | | | | ||||||||||
Total assets | | 91,713 | | | 88,190 | | | 99,184 | | | 99,014 | | | 88,492 | | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | ||||||||||
Current liabilities | | 13,845 | | | 9,111 | | | 11,935 | | | 10,142 | | | 10,438 | | | |||||
Liabilities associated with non-current assets held for sale | | – | | | – | | | 1,179 | | | 1,090 | | | 107 | | | |||||
Long-term liabilities(1) | | 27,033 | | | 19,784 | | | 20,512 | | | 19,096 | | | 15,896 | | | |||||
Long-term debt(2) | | 11,842 | | | 14,463 | | | 20,786 | | | 27,662 | | | 26,347 | | | |||||
| | | | | | | | | | | | ||||||||||
Total liabilities | | 52,720 | | | 43,358 | | | 54,412 | | | 57,990 | | | 52,788 | | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | ||||||||||
Stockholders' equity: | | | | | | | | | | | | ||||||||||
Capital stock | | 61,614 | | | 61,614 | | | 61,614 | | | 61,614 | | | 61,614 | | | |||||
Additional paid-in capital | | (2,110 | ) | | (1,122 | ) | | (1,106 | ) | | (851 | ) | | (854 | ) | | |||||
Retained earnings and revenue reserves | | (19,437 | ) | | (16,507 | ) | | (17,050 | ) | | (21,721 | ) | | (27,171 | ) | | |||||
| | | | | | | | | | | | ||||||||||
Total Vale shareholders' equity | | 40,067 | | | 43,985 | | | 43,458 | | | 39,042 | | | 33,589 | | | |||||
| | | | | | | | | | | | ||||||||||
Non-controlling interests | | (1,074 | ) | | 847 | | | 1,314 | | | 1,982 | | | 2,115 | | | |||||
| | | | | | | | | | | | ||||||||||
Total stockholders' equity | | 38,993 | | | 44,832 | | | 44,772 | | | 41,024 | | | 35,704 | | | |||||
| | | | | | | | | | | | ||||||||||
Total liabilities and stockholders' equity | | 91,713 | | | 88,190 | | | 99,184 | | | 99,014 | | | 88,492 | | | |||||
| | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | |
| | | | |
| | 26 | | |
This annual report contains statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Many of those forward-looking statements can be identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "should," "plan," "intend," "estimate" and "potential," among others. Those statements appear in a number of places and include statements regarding our intent, belief or current expectations with respect to:
We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of various factors. These risks and uncertainties include factors relating to (a)(i) economic, political and social issues in the countries in which we operate, (b)including factors relating to the coronavirus pandemic outbreak, (ii) the global economy, (c)(iii) commodity prices, (d)(iv) financial and capital markets, (e)(v) the mining and metals businesses, which are cyclical in nature, and their dependence upon global industrial production, which is also cyclical, (f)(vi) regulation and taxation, (g)(vii) operational incidents or accidents, and (h)(viii) the high degree of global competition in the markets in which we operate. For additional information on factors that could cause our actual results to differ from expectations reflected in forward-looking statements, seeOverview—Risk factors. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments. All forward-looking statements attributed to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement.
| | | | |
| | 27 | | |
Vale S.A. is a stock corporation, orsociedade por ações, that was organized on January 11, 1943 under the laws of the Federative Republic of Brazil for an unlimited period of time. Its head office is located at Avenida das Américas, 700 – bloco 8 – loja 318 – Barra da Tijuca, Rio de Janeiro, RJ, Brazil, and its telephone number is 55-21-3485-5000.
In this report, references to "Vale" are to Vale S.A. References to "we," "us" or the "Company" are to Vale and, except where the context otherwise requires, its consolidated subsidiaries. References to our "preferred shares" are to our preferred class A shares. References to our "ADSs" or "American Depositary Shares" include both our common American Depositary Shares (our "common ADSs"), each of which represents one common share of Vale, and our preferred class A American Depositary Shares (our "preferred ADSs"), each of which represents one class A preferred share of Vale. American Depositary Shares are represented by American Depositary Receipts ("ADRs") issued by the depositary. References to our "HDSs" or "Hong Kong Depositary Shares" include both our common Hong Kong Depositary Shares (our "common HDSs"), each of which represents one common share of Vale, and our class A preferred Hong Kong Depositary Shares (our "preferred HDSs"), each of which represents one preferred Class A share of Vale. Hong Kong Depositary Shares are represented by Hong Kong Depositary Receipts ("HDRs") issued by the depositary.
Unless otherwise specified, we use metric units.
References to "real," "reais" or "R$" are to the official currency of Brazil, the real (singular) or reais (plural). References to "U.S. dollars" or "US$" are to United States dollars. References to "CAD" are to Canadian dollars, and references to "A$" are to Australian dollars.
iv
Developments relating to the outbreak of the coronavirus may have a material adverse impact on our financial conditions or results of operations.
In December 2019, an outbreak of a contagious disease, the Coronavirus Disease 2019 (COVID-19), began in mainland China and has since spread through various countries. There have been reports of multiple fatalities from the virus in various countries, including Brazil and Canada, where we have our main operations. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 outbreak pandemic. During the month of March 2020, governmental authorities in various jurisdictions imposed lockdowns or other restrictions to contain the virus, and various businesses suspended or reduced operations. The final impact on the global economy and financial markets is still uncertain, but is expected to be significant.
The outbreak has begun to advance over the regions where our operations are concentrated. We have ramped down some operations and revisited plans for others. SeeOverview—Business overview—Significant changes in our business. We may face restrictions imposed by regulators and authorities, difficulties related to employee absences resulting in insufficient personnel at some sites, disruption of our supply chain, deterioration of our customers' financial health, higher costs and expenses associated with the suspension of contractors' work on non-essential projects, operational difficulties such as the postponement of the resumption of our production capacity due to delayed inspections, assessments or authorizations, among other operational difficulties. We may need to adopt further contingency measures or eventually suspend additional operations, which may have a material adverse impact on our financial conditions or results of operations.
As a result of this coronavirus pandemic outbreak, business activities all over the world, including construction and manufacturing activities that drive demand for iron ore and other metals, have started to decline and are expected to be significantly impacted. If the coronavirus outbreak continues and efforts to contain the pandemic, whether governmental or otherwise, further limit business activity, or limit our ability to transport our products to customers generally, for an extended period of time, the demand for our products could be adversely impacted. These factors could also have a material adverse impact on our financial conditions or results of operations.
RISKS RELATING TO DAM RUPTURE
The rupture of Dam I in Minas Gerais has adversely affected our business, financial condition and reputation, and the overall impact of the dam rupture on us is still uncertain.
RisksOn January 25, 2019, Dam I failed, resulting in 270 fatalities or presumed fatalities, in addition to personal, property and environmental damages. SeeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine. This event has adversely affected and will continue to adversely affect our operations.
| | | | |
| | 28 | | |
Risk Factors
Overview—Rupture of Dam I. These attachments and asset freezes may adversely impact our business and liquidity.
| | | | |
| | 29 | | |
Risk Factors
measures are costly, may adversely impact our business and financial condition and cause further damage to our reputation.
The rupture of a dam or similar structure may cause severe damages, and the decharacterization of our upstream dams may be long and costly.
We own a number of dams and similar structures. In addition, we own stakes in companies that own a number of dams or similar structures, including Samarco and Mineração Rio do Norte S.A. (MRN). The rupture of any of these structures could cause loss of life and severe personal, property and environmental damages, and could have adverse effects on our business and reputation, as evidenced by the consequences of the rupture of Dam I at Córrego do Feijão. SeeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine. Some of our dams, and some of the dams owned by our investees, such as Samarco and MRN, were built using the "upstream" raising method, which presents specific stability risks.
Recently approved laws and regulations require us to decharacterize all of our upstream dams on a specified timetable. We are still determining the appropriate measures for the decharacterization of each
| | | | |
| | 30 | | |
Risk Factors
upstream dam. This process will require significant expenditures, and the decharacterization process may take a long time. According to our decharacterization plan, we estimate the costs for conclusion of the decharacterization process to be US$2.6 billion, and although we expect to conclude the decharacterization process for all of our upstream dams within five years, we may not be able to do so within such time-frame.
Our obligations and potential liabilities arising from the rupture of a tailings dam owned by Samarco in Minas Gerais could negatively impact our business, our financial conditions and our reputation.
In November 2015, the Fundão tailings dam owned by Samarco failed, causing fatalities and environmental damage in the surrounding area. The rupture of Samarco's tailings dam has adversely affected and will continue to affect our business, and the full impact is still uncertain and cannot be estimated. Below is a discussion of the main effects of the dam rupture on our business.
| | | | |
| | 31 | | |
Risk Factors
EXTERNAL RISKS
Our business is exposed to the cyclicality of global economic activity and requires significant investments of capital.
As a mining company, we are a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and maintain production capacity, build infrastructure, and preserve the environment.environment, prevent fatalities and occupational hazards and minimize social impacts. Sensitivity to industrial production, together with the need for significant long-term capital investments, are important sources of risk for our financial performance and growth prospects.
Adverse economic developmentsAlso, we may not be able to adjust production volume in China could have a negative impact on our revenues, cash flow and profitability.
China has been the main drivertimely or cost-efficient manner in response to changes in demand. Lower utilization of globalcapacity during periods of weak demand for minerals and metals over the last few years. In 2015, Chinese demand represented 69% of global demand for seaborne iron ore, 51% of global demand for nickel and 46% of global demand for copper. The percentagemay expose us to higher unit production costs since a significant portion of our net operating revenues attributablecost structure is fixed in the short-term due to salesthe capital intensity of mining operations. In addition, efforts to customers in China was 35.5% in 2015. Therefore, any contractionreduce costs during periods of China's economic growthweak demand could result in lowerbe limited by labor regulations or previous labor or government agreements. Conversely, during periods of high demand, our ability to rapidly increase production capacity is limited, which could prevent us from meeting demand for our products. Moreover, we may be unable to complete expansions and greenfield projects in time to take advantage of rising demand for iron ore, nickel or other products. When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore fines, iron ore pellets or nickel from joint ventures or unrelated parties processing and reselling it, which would increase our costs and narrow our operating margins. If we are unable to satisfy excess customer demand in this way, we may lose customers. In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.
The prices for our products leadingare subject to lower revenues, cash flowvolatility, which may adversely affect our business.
Global prices for metals are subject to significant fluctuations and profitability. Poor performanceare affected by many factors, including actual and expected global macroeconomic and political conditions, regional and sectorial factors, levels of supply and demand, the availability and cost of substitutes, inventory levels, technological developments, regulatory and international trade matters, investments by commodity funds and others and actions of participants in the Chinese real estate sector,commodity markets. Sustained low market prices for the largest consumerproducts we sell may result in the suspension of carbon steelcertain of our projects and operations, decrease in China, would also negativelyour mineral reserves, impairment of assets, and may adversely affect our cash flows, financial position and results of operations. We expect that the price of our products will be subject to additional volatility in 2020 due to the impact our results.
Our business may be adversely affected by declines in demand for and prices of the products our customers produce, including steel (for our iron ore and coal business), stainless steel (for our nickel business), copper wire (for copper) and agricultural commodities (for our fertilizer nutrients business).COVID-19 pandemic.
Demand for our iron ore, coal and nickel products depends on global demand for steel. Iron ore and iron ore pellets, which together accounted for 62.2%78% of our 20152019 net operating revenues, are used to produce carbon steel. Nickel, which accounted for 18.3%7.7% of our 20152019 net operating revenues, is used mainly to produce stainless and alloy steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectorial factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products. In addition, vertical backward integration of the steel and stainless steel industries and the use of scrap could reduce the global seaborne trade of iron ore and primary nickel. The demand for copper is affected by the demand for copper wire, and a sustained decline in the construction industry could have a negative impact on our copper business. The demand for fertilizers is
We are mostly affected by prices of agricultural commodities in the international and Brazilian markets, and a sustained decline in the price of one or more agricultural commodities could negatively impact our fertilizer nutrients business.
The prices we charge, including prices for iron ore, nickel, copper, coal and fertilizers, are subject to volatility.
Our iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis for determining the customer price. Our prices for nickel and copper are based on reported prices for these metals on commodity exchanges such as the London Metal Exchange ("LME") and the New York Mercantile Exchange ("NYMEX"). Our prices and revenues for these products are consequently volatile, which may adversely affect our cash flow. Global prices for metals are subject to significant fluctuations and are affected by many factors, including actual and expected global macroeconomic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels, investments by commodity funds and others and actions of participants in the commodity markets. A continuous decrease in the market prices for the products we sell may result in the suspension of certain of our projects and operations, decrease in our mineral reserves and the impairment of assets, and it would adversely affect our financial position and results of operations.
In 2015, prices of steelmaking raw materials, such as iron ore, coal and nickel, decreased as supply grew more than demand. Additionally, copper prices dropped as a result of lower demand, in spite of some disruptions in supply.
We are most exposed to movements in iron ore prices. For example, a price reduction of US$1 per dry metric ton unit ("dmt") in the average iron ore price would have reduced our operating income for the year ended December 31, 20152019 by approximately US$320290 million. Average iron ore prices decreased 59%significantly
| | | | |
| | 32 | | |
Risk Factors
changed in the last twofive years, from US$135 per dmt in 2013 to US$97 per dmt in 2014 and US$55.5 per dmt in 2015, US$58.5 per dmt in 2016, US$71.3 per dmt in 2017, US$69.5 per dmt in 2018 and US$93.4 per dmt in 2019, according to the average Platts IODEX (62% Fe CFR China). On February 29, 2016March 18, 2020, the year to dateyear-to-date average Platts IODEX iron ore price was US$44.1090.75 per dmt. In addition to reduced demand for iron ore, an excess in supply has adversely affected our prices since 2014 and may grow with the expected conclusion of certain iron ore projects in coming years.
World nickel prices have also been adversely affected by lower demand and by strong supply growth in the nickel industry, especially in China. Nickel refining in China, primarily using imported nickel ores and related raw materials, increased by an estimated 417,000 metric tons from 2006 to 2015, with Chinese nickel pig iron production representing 19% of global nickel output. Chinese nickel pig iron production has been adversely affected by export restrictions in feed-producing countries, and prices could be further affected if these restrictions are revoked.
For additional information about the average realized prices for the products we sell, seeSeeOperating and financial reviewFinancial Review and prospects—Prospects—Overview—Major factors affecting prices.
Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability.
China has been the main driver of global demand for minerals and metals over recent decades. In 2019, Chinese demand represented 73% of global demand for seaborne iron ore, 56% of global demand for nickel and 51% of global demand for copper. The financial performance and economic viability of certainpercentage of our operationsnet operating revenues attributable to sales to customers in China was 48.6% in 2019. Therefore, any contraction of China's economic growth could result in lower demand for our products, leading to lower revenues, cash flow and profitability. Poor performance in the Chinese real estate sector, the largest consumer of carbon steel in China, would also negatively impact our results. These risks may be significantly impacted by a continuing declineintensified in the demand for and prices of our products. For instance, in 2015, we suspended certain iron ore and manganese operations, and other operations may be suspended in the future. Also, in the case of our nickel operations in New Caledonia,2020 due to the impact of lower prices and demand for nickel is heightened due to the stage of the ramp up of that facility. We are considering various options to ensure the continuation of the operations in New Caledonia as it continues to ramp up. If those options are not available and current conditions continue to be adverse, we may consider a reduction or stoppage of production for a period of time.COVID-19 pandemic.
We may not be able to adjust production volumeChanges in a timely or cost-efficient mannerexchange rates for the currencies in response to changes in demand.which we conduct operations could adversely affect our financial condition and results of operations.
Lower utilization of capacity during periods of weak demand may expose us to higher unit production costs since a significantA substantial portion of our cost structurerevenues, trade receivables and our debt is fixeddenominated in U.S. dollars, and given that our functional currency is the short term dueBrazilianreal, changes in exchange rates may result in (i) losses or gains on our net U.S. dollar-denominated indebtedness and accounts receivable and (ii) fair value losses or gains on currency derivatives we use to the high capital intensitystabilize our cash flow in U.S. dollars. In 2019, we had net foreign exchange gains of mining operations.US$39 million, while we had net foreign exchange losses of US$2.247 million in 2018 and net foreign exchange losses of US$467 million in 2017. In addition, effortschanging values of the Brazilianreal, the Canadian dollar, the Euro, the Indonesian rupiah, the Chineseyuan and other currencies against the U.S. dollar affects our results since most of our costs of goods sold is denominated in currencies other than the U.S. dollar, principally thereal (44% in 2019) and the Canadian dollar (6% in 2019), while our revenues are mostly U.S. dollar-denominated. We expect currency fluctuations to reduce costs during periodscontinue to affect our financial income, expense and cash flow generation.
Significant volatility in currency prices may also result in disruption of weak demandforeign exchange markets, which could be limited by labor regulations or previous labor or government agreements.
Conversely, during periods of high demand,limit our ability to rapidly increase production capacity is limited,transfer or to convert certain currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. The central banks and governments of the countries in which could prevent us from meeting demand for our products. Moreover, we operate may be unable to complete expansionsinstitute restrictive exchange rate policies in the future and greenfield projects in time to take advantage of rising demand for iron ore, nickel or other products. When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore, iron ore pellets or nickel from joint ventures or unrelated parties and reselling it, which would increase our costs and narrow our operating margins. If we are unable to satisfy excess customer demand in this way, we may lose customers. In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.impose taxes on foreign exchange transactions.
Table of ContentsFINANCIAL RISKS
Lower cash flows, resulting from suspension of operations or decreased prices of our products, havemay adversely affectedaffect our credit ratings and the cost and availability of financing.
A continuous decreaseThe suspension of operations or a decline in the prices of our products and the volatility in the global economy may adversely affect our future cash flows, credit ratings and our ability to secure financing at attractive rates. Decreased prices have resulted in lower cash flows, which haveIt may also adversely affected our credit rating and our costs to access the capital markets. This may negatively affect our ability to fund our capital investments, including disbursements required to remediate and compensate damages resulting from the rupture of Dam I, provide the financial assurances required to obtain licenses in certain jurisdictions, pay dividends and comply with the financial covenants in some of our long-term debt instruments. SeeOperating and Financial Review and Prospects—Liquidity and capital resources.
| | | | |
| | 33 | | |
Also, certain Canadian provinces where we operate require us to provide financial assurances, such as letters
Risk Factors
LEGAL, POLITICAL, ECONOMIC, SOCIAL AND REGULATORY RISKS
The failure of a tailings dam of Samarco Mineração S.A. ("Samarco") in Minas Gerais could negatively impact our business.
On November 5, 2015, one of Samarco's tailings dams (Fundão) failed unexpectedly, releasing muddy tailings downstream, reachingLegal proceedings and flooding certain communities and causing environmental damage to the surrounding area. As a result of the failure of the Fundão tailings dam, our Alegria mine, located near the dam, is operating with a dry beneficiation process at a lower mine productivity, and a conveyor belt connecting our Fábrica Nova mine to our Timbopeba beneficiation plant was damaged, decreasing production at the Mariana mining complex in the Brazilian state of Minas Gerais. In addition, we have interrupted the sale of run of mine (ROM) from our Fazendão mine to Samarco. We are still exploring alternatives for these mines; however if we are unable to find adequate alternatives, this may negatively affect our overall production. SeeInformation on the Company—Business overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas Gerais.
We are involved in legal proceedings thatinvestigations could have a material adverse effect on our business in the event of unfavorable outcomes.outcomes
We are involved in legal proceedings in which adverse parties have sought injunctions to suspend certain of our operations or claimed substantial amounts. These include severalamounts against us. Also, under Brazilian law, a broad range of conduct that could be considered to be in violation of Brazilian environmental, labor or tax laws can be considered criminal offenses. Accordingly, our executive officers and employees could be subject to criminal investigations and criminal proceedings in connection with allegations of violation of environmental, labor or tax laws, and we or our subsidiaries could be subject to criminal investigations and criminal proceedings in connection with allegations of violation of environmental laws.
Defending ourselves in these legal proceedings may be costly and investigations relatingtime consuming, Possible consequences of adverse results in some legal proceedings include suspension of operations, payment of significant amounts, triggering of creditor remedies and damage to the failure of Samarco's Fundão tailings dam. For additional information, seeAdditional information—Legal proceedings. Although we are vigorously contesting them, the outcomes of these proceedings are uncertain and may result in obligations that could materially adversely affect our business and the value of our securities.
Our obligations under a settlement agreement arising from the failure of Samarco's tailings damreputation, which could have a material impactadverse effect on our results of operations or financial condition.
Samarco and its shareholders, Vale and BHPB Brasil Ltda. ("BHPB"), a Brazilian subsidiary of BHP Billiton plc ("BHP Billiton"), entered into a settlement agreement on March 2, 2016 with governmental authorities, including the federal Attorney General of Brazil and the two Brazilian states affected by the failure (Espírito Santo and Minas Gerais). Under the agreement, Samarco, Vale and BHPB will create a foundation to develop and implement remediation and compensation programs in substantial amounts over many years. SeeInformation on the Company—Business overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas GeraisAdditional Information—Legal proceedings..
Samarco is currently unable to conduct ordinary mining and processing. Samarco's management is working on a plan that would permit it to resume operations, but the feasibility, timing and scope of restarting remain uncertain. If Samarco does not meet its funding obligations, each of Vale and BHPB is obligated to provide funding to the foundation in proportion to its 50% interest in Samarco. Vale does not currently expect to record a provision in its financial statements in respect of these obligations, but if Samarco is eventually unable to resume operations or to meet its funding obligations, Vale could determine that it should recognize a provision.
Regulatory, political,Political, economic and social conditions in the countries in which we have operations or projects could adversely impact our business and the market price of our securities.business.
Our financial performance may be negatively affected by regulatory, political, economic and social conditions in countries in which we have significant operations or projects.
In many of these jurisdictions, we are exposed to various risks such as potential renegotiation, nullification or forced modification of existing contracts and licenses, expropriation or nationalization of property, foreign exchange controls, changes in local laws, regulations and policies, political instability, bribery, cyber-attacks, extortion, corruption, robbery, sabotage, kidnapping, civil strife, acts of war, guerilla activities, piracy in international shipping lanesroutes and terrorism. We also face the risk of having to submit to the jurisdiction of a foreign court or arbitration panel or having to enforce a judgment against a sovereign nation within its own territory.
Actual or potential political or social changes and changes in economic policy may undermine investor confidence, which may hamper investment and thereby reduce economic growth, and otherwiseThese issues may adversely affect the economic and other conditions under which we operate in ways that could have a materially negative effect on our business.
Political, social and economic instability in Brazil could adversely impact our business and the market price of our securities.
The Brazilian federal government's economic policies may have important effects on Brazilian companies, including us, and on market conditions and prices of securities of Brazilian securities.companies. Our financial condition and results of operations may be adversely affected by the following factors and the Brazilian federal government's response to these factors:
| | | | |
| | 34 | | |
Risk Factors
Historically, the country's political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration, downgrading of credit ratings of the Brazilian government and Brazilian issuers, and heightened volatility in the securities issued abroad by Brazilian companies. Ongoing corruption investigations have led to charges against public officials and members of several political parties. Political instability may aggravate economic uncertainties in Brazil and increase volatility in the Brazilianof securities markets and securities issued byof Brazilian issuers.
In 2015,the last years, Brazil faced an economic recession, adverse fiscal developments and political instability, which have continued in 2016.instability. Brazilian GDP declinedgrew by 3.85%1.1% in 20152019, 1.3% in 2018 and unemployment increased to 6.9%1.3% in 2015 from 4.3% 2014.2017. Unemployment rate was 11.9% in 2019, 12.3% in 2018 and 12.7% in 2017. Inflation, for the year of 2015 was 10.67% (asas reported by IBGE, the Brazilian Institute of Geographyconsumer price index (IPCA), was 4.31% in 2019, 3.75% in 2018 and Statistics), as compared to 6.41%2.95% in 2014.2017. The Brazilian Central Bank's base interest rate (SELIC) increased to 14.25% inwas 4.5% on December 31, 2015 from 11.75% in2019, 6.50% on December 31, 2014.2018 and 7.00% on December 31, 2017. Future economic, social and political developments in Brazil may impair our business, financial condition or results of operations, or cause the market value of our securities to decline.
Disagreements with local communities in which we operate could adversely impact our business and reputation.
Disputes with communities where we operate may arise from time to time. Accidents or incidents involving mines, industrial facilities and related infrastructure, such as the rupture of Dam I, may significantly impact the communities where we operate. In some instances, our operations and mineral reserves are located on or near lands owned or used by indigenous peoplepeoples or other groups of stakeholders. Some of these indigenous peoples may have rights to review or participate in natural resource management. Some of our mining and other operations are located in territories where title may be subject to disputes or uncertainties, or in areas claimed for agriculture or land reform purposes, which may lead to disagreements with landowners, organized social movements, local communities and the government. WeIn some jurisdictions, we may be required to consult and negotiate with these groups as part of the process to obtain licenses required to operate, to mitigate impact on our operations or to obtain access to their lands.
Disagreements or disputes with local communities and groups, including indigenous groups,peoples, organized social movements and local communities, could cause delays in obtaining licenses, increases in planned budget, delays or interruptions to our operations,operations. These issues may adversely affect our reputation or otherwise hamper our ability to develop our reserves and conduct our operations. Protesters have taken actions to disrupt our operations and projects, and they may continue to do so in the future, which may harm our operations and could adversely affect our business. As one of Samarco's shareholders, our reputation, particularly in the affected communities, has been adversely affected by the failure of Samarco's tailings dam in 2015. SeeInformation on the Company—Business overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas GeraisCompany—Regulatory matters andAdditional Information—Legal proceedings.
We could be adversely affected by changes in government policies or by trends such as resource nationalism, including the imposition of new taxes or royalties on mining activities.
Mining is subject to government regulation, including taxes and royalties, which can have a significant financial impact on our operations. In the countries where we are present, governments may imposewe are subject to potential renegotiation, nullification or forced modification of existing contracts and licenses, expropriation or nationalization of property, foreign exchange controls, changes in local laws, regulations and policies and audits and reassessments. We are also subject to new taxes raiseor raising of existing taxes and royalty rates, reducereduction of tax exemptions and benefits, request or force renegotiation of tax stabilization agreements or changechanges on the basis on which taxes are calculated in a manner that is unfavorable to us. Governments that have committed to provide a stable taxation or regulatory environment may alter those commitments or shorten their duration. We also face the risk of having to submit to the jurisdiction of a foreign court or arbitration panel or having to enforce a judgment against a sovereign nation within its own territory. SeeInformation on the Company—Regulatory matters—Royalties and other taxes on mining activities.
We are also required to meet domestic beneficiation requirements in certain countries, in which we operate, such as local processing rules, export taxes or restrictions or charges on unprocessed ores. The imposition of or increase in such requirements, taxes or charges can significantly increase the risk profile and costs of operations in those jurisdictions. We and the mining industry are subject to rising trends of resource nationalism in
| | | | |
| | 35 | | |
Risk Factors
certain countries in which we operate that can result in constraints on our operations, increased taxation or even expropriations and nationalizations.
As a supplier of iron ore, nickel and other raw materials to the global integrated steel industry, we are subject to additional risk from the imposition of duties, tariffs, import and export controls and other trade barriers impacting our products and the products our customers produce. Global trade is subject to a growing trend of increased trade barriers, which could exacerbate commodities' price volatility and in turn result in instability in the prices of our products.
Concessions, authorizations, licenses and permits are subject to expiration, limitation on renewal and various other risks and uncertainties.
Our operations depend on authorizations and concessions from governmental regulatory agencies in the countries in which we operate. We are subject to laws and regulations in many jurisdictions that can change at any time, and changes in laws and regulations may require modifications to our technologies and operations and result in unanticipated capital expenditures.
Some of our mining concessions are subject to fixed expiration dates and might only be renewed a limited number of times for a limited period of time. Apart from mining concessions, we may need to obtain various authorizations, licenses and permits from governmental or other regulatory bodies in connection with the planning, maintenance, operation and closure of our mines and related logistics infrastructure, which may be subject to fixed expiration dates or periodic review or renewal. While we anticipate that renewals will be given as and when sought, thereThere is no assurance that such renewals will be granted as a matter of course and on a timely basis,when sought, and there is no assurance that new conditions will not be imposed in connection with renewal. Fees for mining concessions might increase substantially due to the passage of time from the original issuance of each individual exploration license. If so, the costs of holding or renewing our mining concessions might impedemay render our business objectives.objectives not viable. Accordingly, we need to continually assess the mineral potential of each mining concession, particularly at the time of renewal, to determine if the costs of maintaining the concession are justified by the results of operations to date, and we might elect to let some of our concessions lapse. There can be no assurance that concessions will be obtained on terms favorable to us, or at all, for our future intended mining or exploration targets.
In a number of jurisdictions where we have exploration projects, we may be required to retrocede to the state a certain portion of the area covered by the exploration license as a condition to renewing the license or obtaining a mining concession. This requirement can lead to a substantial loss of part of the mineral deposit originally identified in our feasibility studies. For more information on mining concessions and other similar rights, seeInformation on the Company—Company—Regulatory matters.
After the failure of Samarco's Fundão tailings dam at its iron ore operations in the Brazilian state of Minas Gerais, Brazilian authorities ordered the suspension of its operations in Minas Gerais and other measures. SeeInformation on the Company—Business overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas Gerais.OPERATIONAL RISKS
Our projects are subject to risks that may result in increased costs or delay in their implementation.
We are investing to maintain and further increase our production capacity and logistics capabilities and to expand the scope of the minerals we produce.capabilities. We regularly review the economic viability of our projects. As a result of this review, we may decide to postpone, suspend or interrupt the implementation of certain projects. Our projects are also subject to a number of risks that may adversely affect our growth prospects and profitability, including the following:
| | | | |
| | 36 | | |
Risk Factors
Operational problems could materially and adversely affect our business and financial performance.
Ineffective project management and operational breakdowns might require us to suspend or curtail operations, which could generally reduce our productivity. Operational breakdowns could entail failure of critical plant and machinery. There can be no assurance that ineffective project management or other operational problems will not occur. Any damages to our projects or delays in our operations caused by ineffective project management or operational breakdowns could materially and adversely affect our business and results of operations. Our business is subject to a number of operational risks that may adversely affect our results of operations, such as:
| | | | |
| | 37 | | |
Risk Factors
Our business could be adversely affected by the failure or unavailability of certain critical assets or infrastructure.
We rely on certain critical assets and infrastructure to produce and to transport our products to our customers. These critical assets include mines, industrial facilities, ports, railways, roads and bridges. The failure or unavailability of any critical asset, whether resulting from natural events or operational issues, could have a material adverse effect on our business.
Substantially all of our iron ore production from the Northern system is transported from Carajás, in the Brazilian state of Pará, to the port of Ponta da Madeira, in the Brazilian state of Maranhão, through the Carajás railroad (EFC). Any interruption of the Carajás railroad or of the port of Ponta da Madeira could significantly impact our ability to sell our production from the Northern system. With respect to the Carajás railroad, there is particular risk of interruption at the bridge over the Tocantins river, in which the trains run on a single line railway. In the port of Ponta da Madeira, there is particular risk of interruption at the São Marcos access channel, a deep-water channel that provides access to the port. Also, any failure or interruption of our long distance conveyor belt (TCLD) used to transport our iron ore production from the S11D mine to the beneficiation plant, could adversely impact our operations at the S11D mine.
Our business could be adversely affected by the failure of our counterparties, joint venture partners or joint ventures we do not control to perform their obligationsobligations..
Customers, suppliers, contractors, financial institutions, joint venture partners and other counterparties may fail to perform existing contracts and obligations, which may unfavorably impact our operations and financial results. The ability of suppliers and customers to perform their obligations may be adversely affected in times of financial stress and economic downturn.
We currently operate importantImportant parts of our iron ore, pelletizing, bauxite, nickel, coal, copper, fertilizersenergy and steelother businesses are held through joint ventures. Important partsThis may reduce our degree of control, as well as our electricity investmentsability to identify and projects are operated through consortia or joint ventures.manage risks. Our forecasts and plans for these joint ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide skilled and competent managerial personnel. If any of our partners fails to observe its commitments, the affected joint venture or consortium may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans.
Some of our investments are controlled by joint venture partners or have separate and independent management. These investments may not fully comply with our standards, controls and procedures, including our health, safety, environment and community standards. Failure by any of our partners or joint ventures to adopt adequate standards, controls and procedures could lead to higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely affect our results and reputation.
| | | | |
| | 38 | | |
Risk Factors
We may not have adequate insurance coverage for some business risks.
Our businesses are generally subject to a number of risks and hazards, which could have impact on people, assets and the environment. The insurance we maintain against risks that are typical in our business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental damages, damages resulting from dams breaches, spills or leakage of hazardous substances and interruption of certain business activities) may not be available at a reasonable cost, or at all. Even when it is available, we may self-insure where we determine that is more cost-effective to do so. As a result, accidents or other negative developments involving our mining, production or transportation facilities may not be covered by insurance, and could have a material adverse effect on our operations.
Labor disputes may disrupt our operations from time to time.
A substantial number of our employees, and some of the employees of our subcontractors, are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic negotiation. Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. For more information about labor relations, seeManagement and Employees—Employees. Moreover, we could be adversely affected by labor disruptions involving unrelated parties that may provide us with goods or services.
Higher energy costs or energy shortages would adversely affect our business.
Costs of fuel oil, gas and electricity are a significant component of our cost of production, representing 10.6% of our total cost of goods sold in 2019. To fulfill our energy needs, we rely on the following sources: oil byproducts, which represented 31% of total energy needs in 2019, electricity (29%), natural gas (15%), coal (16%) and other energy sources (5%).
Electricity costs represented 4.0% of our total cost of goods sold in 2019. If we are unable to secure reliable access to electricity at acceptable prices, we may be forced to curtail production or may experience higher production costs, either of which would adversely affect our results of operations. We face the risk of energy shortages in the countries where we have operations and projects, especially Brazil, due to lack of infrastructure or weather conditions, such as floods or droughts. Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply of electricity for our operations.
Failures in our information technology, operational technology, cybersecurity and telecommunications systems may adversely affect our business and reputation.
We rely heavily on information technology, operational technology and telecommunications systems for the operation of many of our business processes. Failures in those systems, whether caused by obsolescence, technical failures, negligence, accident or malicious acts, may result in the disclosure or theft of sensitive information, misappropriation of funds and disruptions to or interruption in our business operations. We may be the target of attempts to gain unauthorized access to information technology and operational technology systems through the internet, including sophisticated and coordinated attempts often referred to as advanced persistent threats. Disruption of critical information technology, operational technology, cybersecurity or telecommunications systems, or breaches of information security, may harm our reputation and have a material adverse effect on our operational performance, earnings and financial condition.
| | | | |
| | 39 | | |
Risk Factors
HEALTH, SAFETY, ENVIRONMENTAL AND SOCIAL RISKS
Our business is subject to environmental, health and safety incidents.
Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the environment and the use of natural resources, and the mining industry is generally subject toresulting in significant risks and hazards, including fire, explosion, toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfallrockfalls, incidents in mining operations and incidentsinvolving dams, failure of other operational structures, as well as activities involving mobile equipment, vehicles or machinery. This couldmachinery and other potentially fatal incidents and accidents. Incidents may occur by accidentdue to deficiencies in identifying and assessing risks or by breach of operatingin implementing sound risk management, and maintenance standards, andonce these risks materialize, they could result in a significant environmental impact,and social impacts, damage to or destruction of mineral propertiesmines or production facilities, personal injury, illness and fatalities, involving employees, contractors or death, environmental damage,community members near our operations, as well as delays in production, monetary losses and possible legal liability. Additionally, our employees may be exposed to tropical and contagious diseases that may affect their health and safety. Notwithstanding our standards, policies, controls and controls,monitoring procedures, our operations remain subject to incidents or accidents that could adversely affectimpact our business, stakeholders or reputation.
In February 2020, a vessel owned and operated by the South Korean company Polaris Shipping suffered damage and run aground after leaving the Ponta da Madeira Maritime Terminal, in the state of Maranhão, loaded with approximately 295 Mt of iron ore produced by us. We are supporting the ship owner with technical-operational and preventive measures to safely remove the fuel and iron ore cargo from this vessel. We successfully concluded de-bunkering operations (removal of bunker oil from the vessel) on March 27, 2020, and the salvage work is ongoing. A minor quantity of bunker oil still remains on board to keep the generators working and support the salvage operation. The authorities are investigating the causes of the incident. A leakage of fuel from this vessel into the sea may cause significant environmental damages, which could adversely impact our business, stakeholders or reputation.
Our business may be adversely affected by social, environmental and health and safety regulation, including regulations pertaining to climate change.
Nearly all aspects of our activities, products and services associated with capital projects and projectsoperations around the world are subject to social, environmental regulations and health and safety regulations, which may expose us to increased liability or increased costs. These regulations require us to obtainhave environmental licenses, permits and authorizations for our operations and projects, and to conduct environmental and social impact assessments, including a hazard identification and risk analysis, in order to get approval for our projects and permission for initiating construction.construction and continuing operating. Significant changes to existing operations are also subject to these requirements. Difficulties in obtaining or renewing permits may lead to construction delays, cost increases, and may adversely impact our production volumes. EnvironmentalSocial, environmental and health and safety regulations also impose standards, procedures, monitoring and operational controls on activities relating to mineral research, mining, beneficiation, pelletizing activities, railway and marine services, ports, decharacterization, decommissioning, refining, distribution and marketing of our products. Such regulation may give rise to significant costs and liabilities.
In addition, communities and other stakeholders may increase demands for socially responsible and environmentally sustainable practices, and their efforts may lead to the creation or revision of government regulations and policies, which could entail significant costs and reduce our profitability. Private litigation Litigation relating to these or other related matters may adversely affect our financial condition or cause harm to our reputation.
EnvironmentalSocial, environmental and health and safety regulationregulations in many countries in which we operate hashave become stricter in recent years, and it is possible that more regulation or more aggressivestringent enforcement of existing regulations will adversely affect us by imposing restrictions on our activities, products, and products,assets, creating new requirements for the issuance or renewal of environmental licenses and labor
| | | | |
| | 40 | | |
Risk Factors
authorizations, resulting in licensing and operation delays, raising our costs or requiring us to engage in expensive reclamation efforts. For example, changes in Brazilian legislation for the protection of caves have required us to conduct extensive technical studies and to negotiate compensatory measures with Brazilian environmental regulators in order to continue to operate in certain sites. It is possible that in certain of our iron ore mining operations or projects, we may be required to limit or modify our mining plans or to incur additional costs to preserve caves or to compensate for the impact on them, with potential consequences for production volumes, costs or reserves in our iron ore business. For more information about Brazilian environmental regulations related to caves, seeInformation on the Company—Regulatory matters—Environmental regulations.
In response to the failurerupture of Samarco's tailings dam in Minas Gerais,Dam I, additional environmental and health and safety laws and regulations have been approved, and other may be forthcoming, in Brazil and authorities may impose more stringent conditions in connection with the licensing process of our projects and operations. Also, we mayWe will encounter more stringent requirements for and delays in the receipt of environmental operating license for other tailings dams.
National policies and international regulations regarding climate change may affect a number of our businesses in different countries, because we operate worldwide. For example, there is legislationvarious countries. The ratification of the Paris Agreement in many countries where we operate that limits greenhouse gas emissions from2016 increased international pressure for the mining industry. There is increased pressure from international organizations for establishingestablishment of a global carbon price, and foron companies and governments to adopt carbon pricing strategies, whichstrategies. The pricing of greenhouse gas emissions may adversely affectimpact our operational costs, mainly through higher price for fossil fuels as mining is an energy intensive industry, and our cost of international freight. In particular, consumption of thermal coal, one of the coal business.
Table of Contentsproducts we sell, is facing pressure from international institutions due to its carbon intensity.
Regulatory initiatives at the national and international levels, thatas evidenced by the 2020 Standard of the International Maritime Organization (IMO) prohibiting high sulfur fuel oil, as well as IMO's goals on greenhouse gas reductions in the industry, could affect our shipping practices, could increasepotentially increasing our costs or requirerequiring us to make new capital expenditures. Other regulations, mainly from the European Union and China, may impose additional requirements for our products related to the safety of downstream users.
Natural disasters may cause severe damage to our operations and projects in the countries where we operate and may have a negative impact on our sales to countries adversely affected by such disasters.
Natural disasters, such as wind storms, droughts, floods, earthquakes and tsunamis may adversely affect our operations and projects in the countries where we operate and may cause a contraction in sales to countries adversely affected due to, among other factors, power outages and the destruction of industrial facilities and infrastructure. The physical impact of climate change on our business remains highly uncertain, but we mayare likely to experience changes in rainfall patterns, increased temperatures, water shortages, rising sea levels, increased storm intensityfrequency and floodingintensity as a result of climate change, which may adversely affect our operations. On some occasions in recent years, we have determined thatforce majeure events have occurred due tobecause of the effect of severe weather on our mining and logistics activities.
RISKS RELATING TO OUR MINING RESERVES
We may not have adequate insurance coverage for some business risks.
Our businesses are generally subject to a number of risks and hazards, which could result in damage to, or destruction of, properties, facilities and equipment. The insurance we maintain against risks that are typical in our business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost, or at all. Even when it is available, we may self-insure where we determine that is more cost-effective to do so. As a result, accidents or other negative developments involving our mining, production or transportation facilities could have a material adverse effect on our operations.
Our reserve estimates may materially differ from mineral quantities that we are actually able to recover; our estimates of mine life may prove inaccurate; more stringent regulations and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.
Our reported reserves are estimated quantities of ore and minerals that we have determined can be economically and legally mined and processed under present and assumed future conditions. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering, and costs, investments, geotechnics,
| | ��� | | |
| | 41 | | |
Risk Factors
geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life may require revisions based on actual production experience, projects, updated exploration drilling data and other modifying factors. For example, lowerLower market prices of minerals and metals, more stringent regulations, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in regulatory requirements (SeeInformation on the Company—Regulatory matters) or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a restatementreduction of reserves. Also, our inability to obtain licenses for new operations, supporting structures or activities, or to renew our existing licenses, can cause a reduction of our reserves. Such a restatementreduction could affect depreciation and amortization rates and have an adverse effect on our financial performance. Starting in the fiscal year ending on December 31, 2021, we will be required to comply with the new SEC reporting rules on mining activities. We are currently reviewing our reported mining reserves, and we may need to adjust our reported reserves to be able to report in compliance with the new rules.
We may not be able to replenish our reserves, which could adversely affect our mining prospects.
We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to sustain our current level of production beyond the remaining lives of our existing mines.
The feasibility of new mineral projects may change over time.
Once mineral deposits are discovered, it can take a number ofseveral years from the initial phases of drilling until production is possible, during which the economic feasibility of production may change. Substantial time and expenditures are required to:
If a project proves not to be economically feasible by the time we are able to exploit it, we may incur substantial losses and be obliged to take write-downs. In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in delays and cost overruns that may render the project not economically feasible.
| | | | |
| | 42 | | |
Risk Factors
We face rising extraction costs orand investment requirements over time as reserves deplete.
Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, mines may move from being open pit to underground, and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at greater depths. As a result, over time, we usually experience rising unit extraction costs with respect to each mine, or we may need to make additional investments, including adaptation or construction of processing plants and expansion or construction of tailings dams. Several of our mines have been operating for long periods, and we will likely experience rising extraction costs per unit in the future at these operations in particular.
RISKS RELATING TO OUR CORPORATE STRUCTURE
Labor disputes may disruptThe shareholders that are party to our operations from time to time.shareholders' agreement have significant power over Vale.
A substantial number ofPursuant to a shareholder's agreement, our employees,major shareholders Litel Participações S.A. ("Litel"), Litela Participações S.A. ("Litela"), Bradespar S.A. ("Bradespar"), Mitsui & Co., Ltd. ("Mitsui") and some of the employees of our subcontractors, are represented by labor unionsBNDES Participações S.A. ("BNDESPAR") undertook to vote jointly on certain key matters. This shareholders' agreement is expected to expire on November 9, 2020. On December 31, 2019, Litela, Litel, Bradespar, Mitsui and are covered by collective bargaining or other labor agreements, which are subject to periodic negotiation. Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. For more information about labor relations, seeManagement and employees—Employees. Moreover, we could be adversely affected by labor disruptions involving unrelated parties that may provide us with goods or services.
Higher energy costs or energy shortages would adversely affect our business.
Energy costs are a significant component of our cost of production, representing 9.1%BNDESPAR together held 35.66% of our total costcapital stock. SeeShare Ownership and Trading—Major shareholders. As long as no other shareholder or group of goods sold in 2015. To fulfill our energy needs, we depend onshareholders owns more shares than the following sources: oil by-products, which represented 43%parties to the Shareholders' Agreement, these major shareholders may elect a majority of total energy needs in 2015, electricity (26%), natural gas (16%), coal (13%) and other energy sources (2%).
Electricity costs represented 2.8%the members of our total costBoard of goods sold in 2015. If we are unable to secure reliable access to electricity at acceptable prices, we may be forced to curtail production or may experience higher production costs, eitherDirectors and control the outcome of which would adversely affect our results of operations. We face the risk of energy shortages in the countries where we have operations and projects, especially Brazil, due to lack of infrastructure or weather conditions, such as floods or droughts. Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply of electricity for our operations.certain actions requiring shareholder approval.
Price volatility—relative to the U.S. dollar—of the currencies in which we conduct operations could adversely affect our financial condition and results of operations.
A substantial portion of our revenues and our debt is denominated in U.S. dollars, and changes in exchange rates may result in (i) losses or gains on our net U.S. dollar-denominated indebtedness and accounts receivable and (ii) fair value losses or gains on currency derivatives we use to stabilize our cash flow in U.S. dollars. In 2015, 2014 and 2013 we had foreign exchange losses of US$7.2 billion, US$2.1 billion and US$2.8 billion, respectively. In addition, the price volatility of theThe Brazilianreal, the Canadian dollar, the Australian dollar, the Indonesian rupiah and other currencies against the U.S. dollar affects our results since most of our costs of goods sold are denominated in currencies other than the U.S. dollar, principally thereal (49% in 2015) and the Canadian dollar (13% in 2015), while our revenues are mostly U.S. dollar-denominated. We expect currency fluctuations to continue to affect our financial income, expense and cash flow generation.
Significant volatility in currency prices may also result in disruption of foreign exchange markets, which could limit our ability to transfer or to convert certain currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. The central banks and governments of the countries in which we operate may institute restrictive exchange rate policies in the future and impose taxes on foreign exchange transactions.
Failures in our information technology systems or difficulties in integrating new enterprise resource planning software may interfere with the normal functioning of our business.
We rely on information technology ("IT") systems for the operation of many of our business processes. Failures in our IT systems, whether caused by accident or malicious acts, may result in the disclosure or theft of sensible information, misappropriation of funds and disruptions to our business operations.
Risks relating to our corporate structure
Our controlling shareholder has significant influence over Vale, and the Brazilian government Government has certain veto rights.
As of February 29, 2016, Valepar S.A. ("Valepar") owned 53.9% of our outstanding common stock and 33.7% of our total outstanding capital. As a result of its share ownership, Valepar can elect the majority of our board of directors and control the outcome of some actions that require shareholder approval. For a description of our ownership structure and of the Valepar shareholders' agreement, seeShare ownership and trading—Major shareholders.
The Brazilian government owns 12 golden shares of Vale, granting it limited veto power over certain company actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining activities. For a detailed description of the Brazilian government's veto powers, seeAdditional information—information—Memorandum and articles of association—association—Common shares and preferredgolden shares.
Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.breaches of legal, accounting or governance standards.
We operate in a global environment, and our activities extend over multiple jurisdictions and complex regulatory frameworks, with increasedincreasing enforcement activities worldwide. Our governance and compliance processes, which include the review of internal control over financial reporting, may not timely identify or prevent future breaches of legal, accounting or governance standards. We may be subject to breaches of our Codecode of Ethics and Conduct,conduct, anti-corruption policies and business conduct protocols and to instances of fraudulent behavior, corrupt practices and dishonesty by our employees, contractors or other agents. Our failure to comply with applicable laws and other standards could subject us to investigations by authorities, litigation, fines, loss of operating licenses, disgorgement of profits, involuntary dissolution and reputational harm.
| | | | |
| | 43 | | |
Risk Factors
It could be difficult for investors to enforce any judgment obtained outside Brazil against us or any of our associates.
Our investors may be located in jurisdictions outside Brazil and could seek to bring actions against us or our directors or officers in the courts of their home jurisdictions. The Company isWe are a Brazilian company, and the majority of our officers and directors are residents of Brazil. The vast majority of our assets and the assets of our officers and directors are likely to be located in jurisdictions other than the home jurisdictions of our foreign investors. It might not be possible for investors outside Brazil to effect service of process within their home jurisdictions on us or on our officers or directors who reside outside their home jurisdictions. In addition, a final conclusive foreign judgment will be enforceable in the courts of Brazil without a re-examination of the merits only if previously confirmed by the Brazilian Superior Court of Justice ((STJ—Superior Tribunal de Justiça), and confirmation will only be granted if the foreign judgment: (a)(i) fulfills all formalities required for its enforceability under the laws of the country where it was issued; (b)(ii) was issued by a competent court after due service of process on the defendant, as required under applicable law; (c)(iii) is not subject to appeal; (iv) does not conflict with a final and unappealable decision issued by a Brazilian court; (v) was authenticated by a Brazilian consulate in the country in which it was issued or is duly apostilled in accordance with the Convention for Abolishing the Requirement of Legalization for Foreign Public Documents and is accompanied by a sworn translation into Portuguese, unless this procedure was exempted by an international treaty entered into by Brazil; (vi) it does not cover matters subject to the Portuguese language;exclusive jurisdiction of the Brazilian courts; and (d)(vii) is not contrary to Brazilian national sovereignty, public policy or good morals. Therefore, investors might not be able to recover against us or our directors and officers on judgments of the courts of their home jurisdictions predicated upon the laws of such jurisdictions.
Risks relating to our depositary sharesRISKS RELATING TO OUR DEPOSITARY SHARES
If ADR holders or HDR holders exchange ADSs or HDSs, respectively, for the underlying shares, they risk losing the ability to remit foreign currency abroad.
The custodian for the shares underlying our ADSs and HDSs maintains a registration with the Central Bank of Brazil entitling itpermitting the custodian to remit U.S. dollars outside Brazil for payments of dividends and other distributions relating to the shares underlying our ADSs and HDSs or upon the disposition of the underlying shares. If an ADR holder or HDR holder exchanges its ADSs or HDSs for the underlying shares, it will be entitled to rely on the custodian's registration for only five business days from the date of exchange. Thereafter, an ADR holder or HDR holder may not be able to obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, the underlying shares unless it obtains its own registration under applicable regulation, which permits qualifying institutional foreign investors to buy and sell securities on the BM&FBOVESPA. For more information regarding these exchange controls, seeregulation. SeeAdditional informationInformation—Exchange controls and other limitations affecting security holders. If an ADR holder or HDR holder attempts to obtain its own registration, it may incur expenses or suffer delays in the application process, which could delay the receipt of dividends or other distributions relating to the underlying shares or the return of capital in a timely manner.
The custodian's registration or any registration obtained could be affected by future legislative changes, and additional restrictions applicable to ADR holders, or HDR holders, the disposition of the underlying shares or the repatriation of the proceeds from disposition could be imposed in the future.
ADR holders may not have all the rights of our shareholders, and HDR holders may be unable to exercise preemptive rights relating to the shares underlying their ADSs and HDSs.ADSs.
TheADR holders may not have the same rights that are attributed to our shareholders by Brazilian law or our bylaws, and the rights of ADR holders may be subject to certain limitations provided in the deposit
| | | | |
| | 44 | | |
Risk Factors
agreement or by the securities intermediaries through which ADR holders hold their securities. Also, the ability of ADR holders and HDR holders to exercise preemptive rights is not assured, particularly if the applicable law in the holder's jurisdiction (for example, the Securities Act in the United States or the Companies Ordinance in Hong Kong)States) requires that either a registration statement be effective or an exemption from registration be available with respect to those rights, as is in the case in the United States, or that any document offering preemptive rights be registered as a prospectus, as is the case in Hong Kong.States. We are not obligated to extend the offer of preemptive rights to holders of ADRs, or HDRs, to file a registration statement in the United States, or to make any other similar filing in any other jurisdiction, relating to preemptive rights or to undertake steps that may be needed to make exemptions from registration available, and we cannot assure holders that we will file any registration statement or take such steps.
ADR holders and HDR holders may encounter difficulties in the exercise of voting rights.
ADR holders and HDR holders do not have the rights of shareholders. They have only the contractual rights set forth for their benefit under the deposit agreements. ADR holders and HDR holders are not permitted to attend shareholders' meetings, and they may only vote by providing instructions to the depositary. In practice, the ability of a holder of ADRs or HDRs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary either directly or through the holder's custodian and clearing system. With respect to ADSs for which instructions are not received, the depositary may, subject to certain limitations, grant a proxy to a person designated by us.
The legal protections for holders of our securities differ from one jurisdiction to another and may be inconsistent, unfamiliar or less effective than investors anticipate.
We are a global company with securities traded in several different markets and investors located in many different countries. The legal regime for the protection of investors varies around the world, sometimes in important ways, and investors in our securities should recognize that the protections and remedies available to them may be different from those to which they are accustomed in their home markets. We are subject to securities legislation in several countries, which have different rules, supervision and enforcement practices. The only corporate law applicable to our parent company is the law of Brazil, with its specific substantive rules and judicial procedures. We are subject to corporate governance rules in several jurisdictions where our securities are listed, but as a foreign private issuer, we are not required to follow many of the corporate governance rules that apply to U.S. domestic issuers with securities listed on the New York Stock Exchange, and we are not subject to the U.S. proxy rules. Similarly, we have been granted waivers and exemptions from certain requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("HKEx Listing Rules"), the Codes on Takeovers and Mergers and Share Repurchases and the Securities and Futures Ordinance of Hong Kong that are generally applicable to issuers listed in Hong Kong.
| | | | |
| | 45 | | |
The tables below present selected consolidated financial information as of and for the periods indicated. You should read this information together with our consolidated financial statements in this annual report.
Consolidated statement of income data
| | For the year ended December 31, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | |||||
| | (US$ million) | | |||||||||||||
Net operating revenues | | 60,075 | | 46,553 | | 46,767 | | 37,539 | | 25,609 | | |||||
Cost of products and services | | (24,528 | ) | (25,390 | ) | (24,245 | ) | (25,064 | ) | (20,513 | ) | |||||
Selling, general and administrative expenses | | (2,271 | ) | (2,172 | ) | (1,302 | ) | (1,099 | ) | (652 | ) | |||||
Research and evaluation expenses | | (1,671 | ) | (1,465 | ) | (801 | ) | (734 | ) | (477 | ) | |||||
Pre-operating and operational stoppage and other operating expenses, net | | (2,775 | ) | (3,588 | ) | (2,843 | ) | (2,145 | ) | (1,233 | ) | |||||
Impairment of non-current assets and onerous contracts | | – | | (4,023 | ) | (2,298 | ) | (1,152 | ) | (8,926 | ) | |||||
Gain (loss) on measurement or sales of non-current assets | | 1,494 | | (506 | ) | (215 | ) | (167 | ) | 61 | | |||||
| | | | | | | | | | | | |||||
Operating income | | 30,324 | | 9,409 | | 15,063 | | 7,178 | | (6,131 | ) | |||||
| | | | | | | | | | | | |||||
Non-operating income (expenses): | | | | | | | ||||||||||
Financial income (expenses), net | | (3,549 | ) | (4,022 | ) | (8,332 | ) | (6,069 | ) | (10,801 | ) | |||||
Equity results in associates and joint controlled entities | | 1,138 | | 645 | | 469 | | 505 | | (439 | ) | |||||
Results on sale of investments from associates and joint ventures | | – | | – | | 41 | | (30 | ) | 97 | | |||||
Impairment on investments | | – | | (1,941 | ) | – | | (31 | ) | (446 | ) | |||||
| | | | | | | | | | | | |||||
Income (loss) before income taxes | | 27,913 | | 4,091 | | 7,241 | | 1,553 | | (17,720 | ) | |||||
Income taxes | | (5,265 | ) | 1,174 | | (6,833 | ) | (1,200 | ) | 5,100 | | |||||
Income (loss) from continuing operations | | 22,648 | | 5,265 | | 408 | | 353 | | (12,620 | ) | |||||
Income (loss) attributable to non-controlling interests | | (233 | ) | (257 | ) | (178 | ) | (304 | ) | (491 | ) | |||||
| | | | | | | | | | | | |||||
Net income (loss) attributable to Company's shareholders, from continuing operations | | 22,881 | | 5,522 | | 586 | | 657 | | (12,129 | ) | |||||
| | | | | | | | | | | | |||||
Loss from discontinued operations, net of tax | | (86 | ) | (68 | ) | (2 | ) | – | | – | | |||||
Net income (loss) attributable to Company's shareholders | | 22,795 | | 5,454 | | 584 | | 657 | | (12,129 | ) | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Income (loss) attributable to non-controlling interests | | (233 | ) | (257 | ) | (178 | ) | (304 | ) | (491 | ) | |||||
| | | | | | | | | | | | |||||
Net income (loss) | | 22,562 | | 5,197 | | 406 | | 353 | | (12,620 | ) | |||||
| | | | | | | | | | | | |||||
Total cash paid to shareholders(1) | | 9,000 | | 6,000 | | 4,500 | | 4,200 | | 1,500 | |
Earnings per share
| | For the year ended December 31, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | |||||
| | (US$, except as noted) | | |||||||||||||
Earnings (loss) per share: | | | | | | | ||||||||||
Per common share | | 4.34 | | 1.06 | | 0.11 | | 0.13 | | (2.35 | ) | |||||
Per preferred share | | 4.34 | | 1.06 | | 0.11 | | 0.13 | | (2.35 | ) | |||||
Weighted average number of shares outstanding (in thousands)(1): | | | | | | | ||||||||||
Common shares | | 3,197,063 | | 3,172,179 | | 3,185,653 | | 3,185,653 | | 3,185,653 | | |||||
Preferred shares | | 1,984,030 | | 1,933,491 | | 1,967,722 | | 1,967,722 | | 1,967,722 | | |||||
Treasury common shares underlying convertible notes | | 18,416 | | – | | – | | – | | – | | |||||
Treasury preferred shares underlying convertible notes | | 47,285 | | – | | – | | – | | – | | |||||
| | | | | | | | | | | | |||||
Total | | 5,246,794 | | 5,105,670 | | 5,153,375 | | 5,153,375 | | 5,153,375 | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Distributions to shareholders per share(2): | | | | | | | ||||||||||
Expressed in US$ | | 1.74 | | 1.17 | | 0.87 | | 0.81 | | 0.29 | | |||||
Expressed in R$ | | 2.89 | | 2.26 | | 1.81 | | 1.89 | | 0.98 | |
Balance sheet data
| | At December 31, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | |||||
| | (US$ million) | | |||||||||||||
Current assets | | 21,538 | | 22,069 | | 20,611 | | 16,594 | | 11,429 | | |||||
Property, plant and equipment, net and intangible assets | | 91,863 | | 94,093 | | 88,536 | | 84,942 | | 59,426 | | |||||
Investments in associated companies and joint ventures | | 8,013 | | 6,384 | | 3,584 | | 4,133 | | 2,940 | | |||||
Other assets | | 5,502 | | 8,031 | | 11,866 | | 10,820 | | 14,697 | | |||||
| | | | | | | | | | | | |||||
Total assets | | 126,916 | | 130,577 | | 124,597 | | 116,489 | | 88,492 | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Current liabilities | | 11,093 | | 12,402 | | 9,164 | | 10,626 | | 10,438 | | |||||
Liabilities associated with assets held for sale and discontinued operations | | – | | 169 | | 448 | | 111 | | 107 | | |||||
Long-term liabilities(1) | | 16,470 | | 16,380 | | 22,379 | | 22,043 | | 15,896 | | |||||
Long-term debt(2) | | 21,538 | | 26,799 | | 27,670 | | 27,388 | | 26,347 | | |||||
| | | | | | | | | | | | |||||
Total liabilities | | 49,101 | | 55,750 | | 59,661 | | 60,168 | | 52,788 | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Shareholders' equity: | | | | | | | ||||||||||
Capital stock | | 60,578 | | 60,578 | | 60,578 | | 61,614 | | 61,614 | | |||||
Additional paid-in capital | | 7 | | (552 | ) | (552 | ) | (601 | ) | (854 | ) | |||||
Mandatorily convertible notes—common ADSs | | 191 | | – | | – | | – | | – | | |||||
Mandatorily convertible notes—preferred ADSs | | 422 | | – | | – | | – | | – | | |||||
Retained earnings and revenue reserves | | 14,902 | | 13,213 | | 3,299 | | (5,891 | ) | (27,171 | ) | |||||
| | | | | | | | | | | | |||||
Total Company shareholders' equity | | 76,100 | | 73,239 | | 63,325 | | 55,122 | | 33,589 | | |||||
| | | | | | | | | | | | |||||
Non-controlling interests | | 1,715 | | 1,588 | | 1,611 | | 1,199 | | 2,115 | | |||||
| | | | | | | | | | | | |||||
Total shareholders' equity | | 77,815 | | 74,827 | | 64,936 | | 56,321 | | 35,704 | | |||||
| | | | | | | | | | | | |||||
Total liabilities and shareholders' equity | | 126,916 | | 130,577 | | 124,597 | | 116,489 | | 88,492 | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | |
I.II. INFORMATION ON THE COMPANY
Summary
We are one of the largest metals and mining companies in the world, based on market capitalization. We are the world's largest producer of iron ore and iron ore pellets and the world's largest producer of nickel. We also produce manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals ("PGMs"), gold, silver, cobalt, potash, phosphates and other fertilizer nutrients. We are engaged in greenfield mineral exploration in six countries around the globe. We operate large logistics systems in Brazil and other regions of the world, including railroads, maritime terminals and ports, which are integrated with our mining operations. In addition, we have a portfolio of maritime freight assets, floating transfer stations and distribution centers to support the distribution of iron ore worldwide. Directly and through affiliates and joint ventures, we also have investments in energy and steel businesses.
The following table presents the breakdown of total net operating revenues attributable to each of our main lines of business.
| | Year ended December 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 | ||||||
| | US$ million | | % of total | | US$ million | | % of total | | US$ million | | % of total |
Ferrous minerals: | | | | | | | ||||||
Iron ore | | 27,844 | | 59.6% | | 19,301 | | 51.4% | | 12,330 | | 48.2% |
Iron ore pellets | | 6,000 | | 12.8 | | 5,263 | | 14.0 | | 3,600 | | 14.1 |
Manganese and ferroalloys | | 523 | | 1.1 | | 392 | | 1.0 | | 162 | | 0.6 |
Other ferrous products and services | | 425 | | 0.9 | | 741 | | 2.0 | | 470 | | 1.8 |
| | | | | | | | | | | | |
Subtotal—ferrous minerals | | 34,792 | | 74.4 | | 25,697 | | 68.4 | | 16,562 | | 64.7 |
| | | | | | | | | | | | |
Coal | | 1,010 | | 2.2 | | 739 | | 2.0 | | 526 | | 2.0 |
Base metals: | | | | | | | ||||||
Nickel and other products(1) | | 5,839 | | 12.5 | | 6,241 | | 16.6 | | 4,693 | | 18.3 |
Copper(2) | | 1,447 | | 3.1 | | 1,451 | | 3.9 | | 1,470 | | 5.8 |
| | | | | | | | | | | | |
Subtotal—base metals | | 7,286 | | 15.6 | | 7,692 | | 20.5 | | 6,163 | | 24.1 |
| | | | | | | | | | | | |
Fertilizer nutrients | | 2,814 | | 6.0 | | 2,415 | | 6.4 | | 2,225 | | 8.7 |
Other(3) | | 865 | | 1.8 | | 996 | | 2.7 | | 133 | | 0.5 |
| | | | | | | | | | | | |
Total net operating revenues from continued operations | | 46,767 | | 100.0% | | 37,539 | | 100.0% | | 25,609 | | 100.0% |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Business strategy
Our mission is to transform natural resources into prosperity and sustainable development. Our vision is to be the number one global natural resources company in creating long-term value through excellence and passion for people and the planet. We are committed to investing mainly in world-class assets, with long life, low cost, potential to expand and high quality output, capable of creating value through different economic cycles. A lean management organization, with teamwork and accountability, excellence in project execution and firm commitment to transparency and shareholder value creation, are principles of paramount importance that guide us towards the achievement of our goals. Health and safety, investment in human capital, a positive work environment and sustainability are also critical to our long-term competitiveness.
We aim to maintain our competitive position in the global iron ore market and to grow through world-class assets while exercising disciplined capital management and maintaining a low cost structure. Iron ore and nickel will continue to be our main businesses while we work to maximize the value of our copper, coal and fertilizer nutrients businesses. To enhance our competitiveness, we will continue to improve our railroads and our global distribution network. We seek opportunities to make strategic partnerships focusing on disciplined capital management. We have also suspended operations of assets in response to market conditions, and disposed of assets that we have determined to be non-strategic or in order to optimize the structure of our business portfolio. The divestiture of assets improves capital allocation and unlocks funds to finance the execution of top priority projects. The preservation of our credit ratings is one of our basic commitments. Below are the highlights of our major business strategies.
Maintaining our competitiveness in the global iron ore market
We are committed to maintaining our competitiveness in the global iron ore market, by focusing our product line to capture industry trends, improving quality and productivity, controlling costs, strengthening our logistics infrastructure of railroads, ports, shipping and distribution centers, and strengthening relationships with customers. Our diversified portfolio of high quality products, strong technical marketing strategy, efficient logistics and long-standing relationships with major customers will help us achieve this goal.
Enhancing our logistics capacity to support our iron ore and coal businesses
We believe that the quality of our railway assets, our extensive experience as a railroad and port operator, and our stakes in MRS and VLI position us as a leader in the logistics business in Brazil. We have been expanding the capacity of our railroads and ports primarily to meet the needs of our iron ore business.
We continue to satisfy our transportation needs through a fleet of capesize vessels and very large ore carriers of 400,000 deadweight tons ("DWT"), primarily used to transport iron ore from Brazil to Asia, which is owned partly by us and partly by ship owners with which we have contracts of affreightment. To support our commercial strategy for our iron ore business, we operate two distribution centers in Malaysia and Oman, and two floating transfer stations ("FTS") in the Philippines.
In order to position ourselves for the future expansion of our coal production in Mozambique and leverage our presence in Africa, we are currently ramping up the expansion of the local railroad capacity by rehabilitating the existing network and building new railroad tracks to develop the logistics corridor from our mine to the newly constructed port at Nacala-à-Velha, in Mozambique.
Maximizing value in the nickel and copper businesses
We are the world's largest nickel producer, with large-scale, long-life and low-cost operations, a substantial resource base, diversified mining operations producing nickel from nickel sulfides and laterites and advanced technology. We have refineries in North America, Europe and Asia, which produce an array of products for use in most nickel applications. We are a leading producer of high-quality nickel products for non-stainless steel applications, such as plating, alloy steels, high nickel alloys and batteries, which represented 58% of our refined nickel sales in 2015. Our long-term goal is to strengthen our competitiveness in the nickel business. We continue to optimize our operations and to review our asset utilization aiming to increase productivity and improve returns.
We produce copper concentrates from our Sossego and Salobo facilities located in the Carajás region. These copper mines benefit from our infrastructure facilities serving the Northern System. The gold we produce at Sossego and Salobo increases the total aggregated value of those operations. Our strategy for our copper assets in the Carajás region is to develop new mines in order to maintain supply for our existing processing facilities. We also have copper operations at Lubambe, in Zambia, through a joint venture. Copper is recovered as a co-product from our nickel operations, principally at Sudbury and Voisey's Bay, in Canada.
Optimizing the coal business
We have coal operations in Moatize (Mozambique) and Australia, and we hold a minority interest in a joint venture in China. We intend to continue pursuing organic growth in the coal business mainly through the expansion of the Moatize operations in Mozambique, where we have entered into a strategic partnership with Mitsui.
Maintaining growth options in fertilizer nutrients business
We have potash and phosphate rock operations as well as potential investments in greenfield and brownfield projects that we believe will allow us to benefit from certain demographic trends: the growing world population, an increase in per capita income in emerging economies and higher global consumption of proteins. We also take advantage of our strategic position to provide goods to the fertilizer-driven agricultural expansion in Brazil.
Developing our resource base
We are taking advantage of our global presence to develop mineral exploration initiatives. We conduct brownfield exploration to maximize results from existing mining areas and to support both projects and operations. We conduct our greenfield exploration activities in six countries, which are Brazil, Peru, Chile, Canada, Australia and Indonesia. In particular, we seek to identify opportunities and develop deposits with the potential for large scale production at low cost. Our exploration activities include iron ore, nickel, copper, coal, potash and phosphates.
Optimizing our energy matrix
As a large consumer of electricity, we have invested in power generation projects to support our operations and to reduce our exposure to the volatility of energy prices and regulatory uncertainties. Accordingly, we have developed hydroelectric power generation plants in Brazil, Canada and Indonesia, and we currently generate 51% of our worldwide electricity needs from our own plants. We are seeking to develop a clean energy mix by investing to develop low carbon energy sources such as biofuels and focusing on reducing our carbon footprint.
Integrating sustainability into our business
We are committed to sustainability, as we cannot grow without taking into account the physical limits of our planet or the well-being of communities in which we operate. Since 2013, we have incorporated environmental and social actions directly into our strategic planning, moving away from a stand-alone investment model. We practice sustainable mining by dedicating resources to education and researching the application of technologies to use natural resources efficiently. We are also committed to reducing the consumption of water in our activities and to use it more efficiently, especially through reuse and recirculation of water. We actively support an open dialogue with our main stakeholders (governments, communities, customers, suppliers, employees and others), because we recognize that only by acting together we can achieve sustainable growth and contribute to social welfare. We follow standards for social action and principles on business and human rights, which are based on the guidelines of the United Nations Human Rights Council. We are also committed to reducing greenhouse gas emissions.
Significant changes in our business
We summarize below major events related to our organic growth, divestitures, acquisitions and other significant developments in our business since the beginning of 2015.
Organic growth
We have an extensive program of investments in the organic growth of our businesses. Our main investment projects are summarized under —Capital expenditures. The most significant projects that have come on stream since the beginning of 2015 are summarized below:
Dispositions and asset sales
We are always seeking to optimize the structure of our portfolio of businesses in order to achieve the most efficient allocation of capital. We summarize below our most significant dispositions since the beginning of 2015.
Partnership in coal assets in Mozambique
In December 2014, we entered into an investment agreement with Mitsui, pursuant to which Mitsui will acquire 15% of our stake in Vale Moçambique, which owns 95% of Moatize mine, and half of our equity stake in the companies holding the railroad and port concessions in the Nacala Corridor, in Mozambique and Malawi. The Mitsui investment is subject to conditions precedent, and is expected to close in 2016.
Restructuring our investments in iron ore shipping
Our strategy with respect to maritime shipping for our iron ore includes securing long-term access to shipping capacity for the transportation of our iron ore from Brazil to Asia and protecting against volatility in freight pricing, without incurring the costs relating to building and owning the ships. In 2014, we entered into framework agreements for strategic cooperation in iron ore transportation with three shipping companies and financial institutions based in China and Hong Kong. Pursuant to these framework agreements, we (i) sold a total of 12 of our very large ore carriers of 400,000 DWT for an aggregate amount of US$1.316 billion and (ii) entered into long-term contracts of affreightment with the Chinese ship owners, to secure the long-term transportation capacity to ship our iron ore from Brazil to Asia and to protect against volatility in freight costs. We also sold three of our capesize vessels for approximately US$23 million in 2015.
Obtaining environmental licenses for expansion of N5S ore body in Carajás
In May 2015, we obtained the environmental license for the expansion of our N5S mine pit located in Carajás, Brazil. This license supports our iron ore production growth process, especially the production plan for 2016.
Restructuring our investments in power generation
In 2015, we concluded transactions with CEMIG Geração e Transmissão S.A. ("CEMIG GT") to (i) sell 49% of our 9% stake in Norte Energia S.A. ("Norte Energia"), the company established to develop and operate the Belo Monte hydroelectric plant, in the Brazilian state of Pará, to CEMIG GT, for approximately R$310 million; and (ii) create two distinct joint ventures: Aliança Geração de Energia S.A. ("Aliança Geração"), which holds the participations previously held by us and CEMIG GT in power generation assets and projects, and Aliança Norte Energia Participações S.A. ("Aliança Norte"), which holds our and CEMIG GT's interests in Norte Energia. Our interests in these joint ventures are 55% and 51%, respectively.
Suspension of certain iron ore operations in the Southern System
In July 2015, we temporarily suspended operations at certain iron ore processing plants with higher beneficiation costs and lower quality products in the Paraopeba mining complex and reduced production of lower quality products at certain mines at the Minas Itabiritos mining complex, both in the Southern System. We have resumed some of these operations, although at lower productivity. The decision is consistent with our strategy to improve product quality and increase profit margins.
Failure of Samarco's tailings dam in Minas Gerais
On November 5, 2015, one of Samarco's tailings dams (Fundão) failed unexpectedly, releasing tailings downstream, reaching and flooding certain communities, including Bento Rodrigues, a small district of 600 people. The failure resulted in 18 fatalities, with one person still missing, and caused property and environmental damage to the affected areas, primarily in the state of Minas Gerais.
Immediately after the dam failure, Samarco, together with the Civil Defense, Fire Department, Military Police and other authorities, provided first aid, food, water, housing, social assistance and financial aid to the affected families and individuals, and both Vale and BHPB, Samarco's shareholders, have been actively involved in supporting Samarco during this crisis.
In addition to these emergency actions, Samarco has been monitoring the affected area, performing emergency work to contain any movement of tailings, reinforcing the structures of its dams and dikes to ensure the safety of the region and mitigating the environmental and social impacts of the event.
Samarco has been cooperating with the investigations being conducted by the Civil Police. Samarco, together with Vale and BHPB hired an external firm to conduct an independent investigation. In order to assess the environmental and socio-economic impacts of the dam failure and assist with the development of a remediation plan, Samarco has also engaged international consulting specialists in engineering, environment and environmental emergencies, health and safety, social and security services.
The dam failure resulted in the immediate stoppage of Samarco's mining operations in the state of Minas Gerais pursuant to order of government authorities. With the exception of two of its dams (the Fundão tailings dam and the Santarém water dam, which was impacted by the overflow of tailings from the Fundão dam), all other Samarco production assets were undamaged.
Vale's operation in the Mariana mining complex, near Samarco's mining area, was also negatively impacted by the failure of Samarco's tailings dam. A major conveyor belt connecting our Fábrica Nova mine to our Timbopeba beneficiation plant was damaged and the Alegria mine is operating with a dry beneficiation process, at lower productivity. These factors caused a decrease in production at the Mariana mining complex in Minas Gerais by 3.0 Mt in 2015, which was offset by increased production from our other mines. The expected impact in 2016 is a decrease of 9��Mt in production at the Mariana mining complex, which we expect to be partially offset by increased production at our other mines. In addition, we have interrupted the sale of run of mine (ROM) from our Fazendão mine to Samarco. We are still exploring alternatives for these mines.
As a consequence of the Fundão dam failure, Samarco incurred expenses, wrote off assets and recognized provisions for remediation, which affected its balance sheet and income statement. Because Samarco is a joint venture, these impacts are reflected on Vale's financial statements under the equity method, limited to its interest in Samarco's capital. Vale's investment in Samarco was reduced to zero and no liability was recognized in Vale's financial statements.
The dam failure had no effect on Vale's cash flow for the year ended December 31, 2015.
Samarco and its shareholders, Vale and BHPB, entered into a settlement agreement on March 2, 2016 with the federal Attorney General of Brazil, the two Brazilian states affected by the failure (Espírito Santo and Minas Gerais) and certain other parties. The settlement agreement, which includes no admission of civil, criminal or administrative liability for the Fundão dam failure, is expected to resolve the lawsuit brought in Brazilian courts by several Brazilian governmental authorities. The settlement agreement is already effective, though the resolution of claims pursuant to the agreement remains subject to judicial approval. SeeAdditional information—Legal proceedings—Legal proceedings related to failure of Samarco's tailings dam in Minas Gerais—Public civil action by the Brazilian government and others. There is no assurance as to whether and when the court will approve the resolution of claims. The term of the agreement is 15 years, renewable for successive one-year periods until all obligations under the agreement have been performed.
Under the settlement agreement, Samarco, Vale and BHPB will establish a foundation to develop and implement remediation programs to restore the environment, local communities and the social condition of the affected areas and compensation programs to provide compensation where remediation is not feasible and, in some cases, beyond strictly compensatory measures.
Samarco has agreed to provide funding to the foundation in the amount of R$2.0 billion in 2016, R$1.2 billion in 2017 and R$1.2 billion in 2018. Amounts Samarco has already spent on remediation and compensation will be applied towards its funding obligations. From 2019 to 2021, Samarco has agreed to provide funding based on the amounts needed to complete remaining remediation and compensation projects, subject to an annual minimum of R$800 million and an annual maximum of R$1.6 billion. The foundation will allocate an annual amount of R$240 million over 15 years to the implementation of compensation programs, and these annual amounts are included in the annual contributions described above for the first six years. Through the end of 2018, the foundation will also set aside R$500 million for basic sanitation in the affected areas.
Samarco is currently unable to conduct ordinary mining and processing. Samarco's management is working on a plan that would permit it to resume operations, but the feasibility, timing and scope of restarting remain uncertain. If Samarco is able to resume operations, we expect that it will be able to generate all or a substantial part of the funding required under the agreement.
To the extent Samarco does not meet its funding obligations, each of Vale and BHPB is obligated to provide funding to the foundation in proportion to its 50% interest in Samarco. Vale does not currently expect to record a provision in its financial statements in respect of these obligations, but if Samarco is eventually unable to resume operations or to meet its funding obligations, Vale could determine that it should recognize a provision.
To comply with the settlement agreement, Samarco will continue to conduct and fund the humanitarian and environmental remediation and compensation works until the foundation is operational, which is likely to occur before the end of 2016.
Vale is subject to a number of other legal and administrative proceedings in connection with the Fundão dam's failure. SeeAdditional information—Legal proceedings—Legal proceedings related to failure of Samarco's tailings dam in Minas Gerais.
Our principal lines of business consist of mining and related logistics. We also have energy assets to supply part of our consumption. This section presents information about operations, production, sales and competition and is organized as follows.follows
1. Ferrous minerals 1.1 Iron ore and iron ore pellets 1.1.1 Iron ore operations 1.1.2 Iron ore production 1.1.3 Iron ore pellets operations 1.1.4 Iron ore pellets production 1.1.5 Customers, sales and marketing 1.1.6 Competition 1.2 Manganese ore and ferroalloys 1.2.1 Manganese ore operations and production 1.2.2 Ferroalloys operations and production 1.2.3 Manganese ore and ferroalloys: sales and competition 2. Base metals 2.1 Nickel 2.1.1 Operations 2.1.2 Production 2.1.3 Customers and sales 2.1.4 Competition 2.2 Copper 2.2.1 Operations 2.2.2 Production 2.2.3 Customers and sales 2.2.4 Competition 2.3 PGMs and other precious metals 2.4 Cobalt | | 3. Coal 3.1 Operations 3.2 Production 3.3 Customers and sales 3.4 Competition 4. terminals |
| | | | |
| | 47 | | |
1. Ferrous minerals
Table of Contents
Lines of Business
1. FERROUS MINERALS
Our ferrous minerals business includes iron ore mining, iron ore pellet production, manganese ore mining and ferroalloy production. Each of these activities is described below.
1.1 Iron ore and Ironiron ore pellets
1.1.1 Iron ore operations
We conduct our iron ore business in Brazil primarily at the parent-company level, and through our wholly-owned subsidiarysubsidiaries Mineração Corumbaense Reunida S.A. ("MCR") and through our subsidiary MBR.Minerações Brasileiras Reunidas S.A. ("MBR"). Our mines, all of which are open pit, and their related operations are mainly concentrated in three systems: the Southeastern, Southern and Northern Systems, each with its own transportation and shipping capabilities. We also conduct mining operations in the Midwestern System, and we have a 50% stake in Samarco. Samarco's operations have been suspended following the failure of one of its tailings dams located in Minas Gerais in November 2015 (seeBusiness overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas Gerais).System. We conduct each of our iron ore operations in Brazil under concessions from the federal government granted for an indefinite period. For more information about these concessions, seeRegulatory matters—Mining rights and regulationperiod, subject to the life of mining activities.mines.
Company/Mining System | | Location | | Description/History | | Mineralization | | Operations | | Power source | | Access/Transportation | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Vale | | | | | | | |||||||
Northern System | | Carajás, state of Pará | | | High-grade hematite ore type (iron grade | | Open-pit mining operations. | | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | | |||
Southeastern System | | Iron Quadrangle, state of Minas Gerais | | Three mining complexes: Itabira (two mines, with three major beneficiation plants), Minas Centrais | | Ore reserves with high ratios of itabirite ore relative to hematite ore type. Itabirite ore type has iron grade of 35-60% | | Open-pit mining operations. We generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining complexes. For status of halted operations see Overview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine. | | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | | EFVM railroad connects these mines to the Tubarão port. |
Southern System | | Iron Quadrangle, state of Minas Gerais | | | Ore reserves with high ratios of itabirite ore type relative to hematite ore type. Itabirite ore has iron grade of 35-60% | | Open-pit mining operations. We generally process the run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed in the beneficiation plants located at the mining complexes. For status of halted operations seeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine. | | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | | MRS transports our iron ore products from the mines to our Guaíba Island and Itaguaí maritime terminals in the Brazilian state of Rio de Janeiro. EFVM railroad connects certain mines to the Tubarão | |
Midwestern | | State of Mato Grosso do Sul | | Two mines and two plants located in the city of Corumbá. | | Hematite ore type, which generates lump ore predominantly. Iron grade of 62% on average. | | Open-pit mining operations. The beneficiation process for the | | Supplied through the national electricity grid. Acquired | | Transported by barges traveling along the Paraguay |
| | | | | ||||||||
| | 48 | | |
Lines of Business
1.1.2 Iron ore production
The following table sets forth information about our iron ore production.
| | | | Production for the year ended December 31, | | | | | | Production for the year ended December 31, | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | 2015 process recovery | | | | Process recovery 2019(2) | ||||||||||||
Mine/Plant | | Type | | 2013 | | 2014 | | 2015 | | Type | | 2019(1) | | 2018(1) | | 2017(1) | ||||
| | | | (million metric tons) | | (%) | | | | (million metric tons) | | (%) | ||||||||
Southeastern System | | | | | | | | | | | ||||||||||
Itabira | | Open pit | | 34.0 | | 35.5 | | 35.5 | | 55.2 | | Open pit | | 35.9 | | 41.7 | | 37.8 | | 50 |
Minas Centrais | | Open pit | | 37.8 | | 33.0 | | 41.2 | | 67.7 | | Open pit | | 25.9 | | 36.0 | | 37.6 | | 72 |
Mariana | | Open pit | | 37.6 | | 38.9 | | 35.9 | | 81.8 | | Open pit | | 11.3 | | 26.7 | | 33.1 | | 86 |
| | | | | | | | | | | | | | | | | | | | |
Total Southeastern System | Total Southeastern System | | 109.4 | | 107.4 | | 112.6 | | | | 73.1 | | 104.4 | | 108.6 | | ||||
| | | | | | | | | | | | | | | | | | | | |
Southern System | | | | | | | | | | | ||||||||||
Minas Itabirito | | Open pit | | 31.0 | | 33.0 | | 31.6 | | 72.3 | ||||||||||
Vargem Grande | | Open pit | | 22.0 | | 25.0 | | 29.3 | | 70.7 | | Open pit | | 13.1 | | 43.1 | | 44.3 | | 91 |
Paraopeba | | Open pit | | 26.0 | | 28.2 | | 25.8 | | 95.1 | | Open pit | | 24.7 | | 41.0 | | 42.1 | | 88 |
| | | | | | | | | | | | | | | | | | | | |
Total Southern System | Total Southern System | | 79.0 | | 86.2 | | 86.7 | | | | 37.8 | | 84.1 | | 86.4 | | ||||
| | | | | | | | | | | | | | | | | | | | |
Northern System | | | | | | | | | | | ||||||||||
Serra Norte | | Open pit | | 104.9 | | 117.4 | | 127.6 | | 98.2 | ||||||||||
Serra Leste | | Open pit | | – | | 2.2 | | 2.0 | | 98.7 | ||||||||||
Serra Norte and Serra Leste | | Open pit | | 115.3 | | 135.6 | | 147.0 | | 96 | ||||||||||
Serra Sul | | Open pit | | 73.4 | | 58.0 | | 22.2 | | 100 | ||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Northern System | Total Northern System | | 104.9 | | 119.6 | | 129.6 | | | | 188.7 | | 193.6 | | 169.2 | | ||||
| | | | | | | | | | | | | | | | | | | | |
Midwestern System | | | | | | | | | | | ||||||||||
Corumba | | Open pit | | 4.5 | | 3.8 | | 2.8 | | 64.1 | ||||||||||
Corumbá | | Open pit | | 2.4 | | 2.5 | | 2.4 | | 71 | ||||||||||
Urucum | | Open pit | | 2.0 | | 2.1 | | 1.7 | | 82.6 | | Open pit | | 0.0 | | 0.0 | | 0.0 | | — |
| | | | | | | | | | | | | | | | | | | | |
Total Midwestern System | Total Midwestern System | | 6.5 | | 5.8 | | 4.5 | | | | 2.4 | | 2.5 | | 2.4 | | ||||
| | | | | | | | | | | | | | | | | | | | |
Total Vale Systems(2) | | | 299.8 | | 319.0 | | 333.4 | | ||||||||||||
| | | | | | | | | | | ||||||||||
Samarco(3) | | Open pit | | 10.9 | | 13.1 | | 12.7 | | 53.6 | ||||||||||
| | | | | | | | | | | ||||||||||
Total | Total | | 310.7 | | 332.1 | | 346.1 | | | | 302.0 | | 384.6 | | 366.5 | | ||||
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | 49 | | |
Lines of Business
1.1.3 Iron ore pelletspellet operations
We produce iron ore pellets in Brazil and Oman, directly and through joint ventures, as set forth in the following table.table below. We also have a 25% interest in two iron ore pelletizing plants in China,Zhuhai YPM Pellet Co., Ltd. ("Zhuhai YPM") andAnyang Yu Vale Yongtong Pellet Co., Ltd. ("Anyang"). Our total estimated nominal capacity is 64.7 Mtpy, including the full capacity of our pelletizing plants in Oman, but not including our joint ventures Samarco, Zhuhai YPM and Anyang. Of our total 2015 pellet production, including the production of our joint ventures, 68.6% was blast furnace pellets and 31.4% was direct reduction pellets, which are used in steel mills that employ the direct reduction process rather than blast furnace technology. We supply all of the iron ore requirements of our wholly-owned pellet plants and part of the iron ore requirements for Samarco and Zhuhai YPM. In 2015, we sold 9.8 million metric tons of run of mine to Samarco and 0.9 million metric tons of pellet feed to Zhuhai YPM. We suspended our sales of run of mine to Samarco following the failure of Samarco's tailings dam in November 2015.
Company/Plant | Description/History | Nominal capacity (Mtpy) | Power source | Other information | Vale's share (%) | Partners | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brazil: | |||||||||||||
Vale | |||||||||||||
Tubarão (state of Espírito Santo) | Three wholly owned pellet plants (Tubarão I, II and VIII) and five leased plants. Receives iron ore from our Southeastern System mines and distribution is made though our logistics infrastructure. Tubarão VIII plant started up in the first half of 2014. | 36.7(1) | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | Operations at the Tubarão I and II pellet plants have been suspended since November 13, 2012 in response to changes in steel industry demand for raw materials, and replaced by Tubarão VIII, a newer and more efficient plant. | 100.0 | – | |||||||
Fábrica (state of Minas Gerais) | Part of the Southern System. Receives iron ore from the João Pereira and Segredo mines. Production is mostly transported by MRS and EFVM. | 4.5 | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | – | 100.0 | – | |||||||
Vargem Grande (state of Minas Gerais) | Part of the Southern System. Receives iron ore from the Sapecado, Galinheiro, Capitão do Mato and Tamanduá mines and the production is mostly transported by MRS. | 7.0 | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | – | 100.0 | – | |||||||
São Luís (state of Maranhão) | Part of the Northern System. Receives iron ore from the Carajás mines and production is shipped to customers through our Ponta da Madeira maritime terminal. | 7.5 | Supplied through the national electricity grid. Produced directly by Vale. | On October 8, 2012, we suspended operations at the São Luís pellet plant for reasons similar to those supporting our suspension of operations at the Tubarão I and II plants. | 100.0 | – | |||||||
Samarco | Four pellet plants with nominal capacity of 30.5 Mtpy. The pellet plants are located in the Ponta Ubu unit, in Anchieta, state of Espírito Santo. The fourth pellet plant started up in the first half of 2014. | 30.5 | Supplied through the national electricity grid. Acquired from regional utility companies or produced directly by Samarco. | In 2014, we started up the fourth pellet plant with a capacity of 8.3 Mtpy, increasing Samarco's total nominal pellet capacity to 30.5 Mtpy. In January 2016, Samarco suspended its pelletizing operations as pelletizing feed became unavailable as a result of the suspension of its mining operations in November 2015. | 50.0 | BHP Billiton Brasil Ltda. |
Company/Plant | Description/History | Nominal capacity (Mtpy) | Power source | Other information | Vale's share (%) | Partners | Description/History | Nominal capacity (Mtpy) | Power source | Other information | Vale's equity interest (%) | Partners | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brazil: | |||||||||||||||||||||||||
Vale | |||||||||||||||||||||||||
Tubarão (state of Espírito Santo) | Three wholly owned pellet plants (Tubarão I, II and VIII) and five leased plants (Itabrasco, Hispanobras, Kobrasco and two Nibrasco plants). These plants receive iron ore primarily from our Southeastern System mines and use our logistics infrastructure for distribution. | 36.7(1) | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | Operations at the Tubarão I and Tubarão II pellet plants were suspended in October 2019 in response to market conditions. | 100.0 | — | |||||||||||||||||||
Fábrica (state of Minas Gerais) | Part of the Southern System. Receives iron ore from the Paraopeba complex and purchases from third parties. Production is mostly transported by MRS and EFVM. | 4.5 | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | Operations at the Fábrica plant have been suspended since February 2019, following a determination of the ANM (seeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine). | 100.0 | — | |||||||||||||||||||
Vargem Grande (state of Minas Gerais) | Part of the Southern System. Receives iron ore from the Vargem Grande complex. Production is mostly transported by MRS. | 7.0 | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | Operations at the Vargem Grande plant have been suspended since February 2019, following a determination of the ANM (seeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine). | 100.0 | — | |||||||||||||||||||
São Luís (state of Maranhão) | Part of the Northern System. Receives iron ore from the Carajás mines. Production is shipped to customers through our Ponta da Madeira maritime terminal. | 7.5 | Supplied through the national electricity grid. Produced directly by Vale or acquired through power purchase agreements. | Operation at the São Luís plant restarted in the second half of 2018. Operations at this plant had been suspended since 2012. | 100.0 | — | |||||||||||||||||||
Oman: | |||||||||||||||||||||||||
Vale Oman Pelletizing Company LLC | Vale's industrial complex. Two pellet plants with a total nominal capacity of 9.0 Mtpy. The pelletizing plants are integrated with our distribution center that has a nominal capacity to handle 40.0 Mtpy. | 9.0 | Supplied through the national electricity grid. | Oman plants are supplied by iron ore from the Iron Quadrangle, state of Minas Gerais through the Tubarão Port. | 70.0 | Oman Oil Company S.A.O.C. | Vale's industrial complex. Two pellet plants with a total nominal capacity of 9.0 Mtpy. The pelletizing plant is integrated with our distribution center that has a nominal capacity of 40.0 Mtpy. | 9.0 | Supplied through the national electricity grid. | The Oman plant is supplied by iron ore from the Iron Quadrangle state of Minas Gerais through the Tubarão port and by iron ore from Carajás through the Ponta da Madeira maritime terminal. | 70.0 | Oman Oil Company S.A.O.C. |
1.1.4 Iron ore pellets production
The following table sets forth information about our main iron ore pellet production.
| | Production for the year ended December 31, | | Production for the year ended December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | | 2013 | | 2014 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (million metric tons) | | (million metric tons) | ||||||||
Vale(1) | | 39.0 | | 43.0 | | 46.2 | | 41.8 | | 55.3 | | 50.3 |
Samarco(2) | | 10.6 | | 12.1 | | 12.3 | ||||||
| | | | | | | | | | | | |
Total | | 49.6 | | 55.1 | | 58.5 | | 41.8 | | 55.3 | | 50.3 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | |
| | 50 | | |
Lines of Business
1.1.5 Customers, sales and marketing
We supply all of our iron ore and iron ore pellets (including our share of joint-venture pellet production) to the steel industry. Prevailing and expected levels of demand for steel products affect demand for our iron ore and iron ore pellets. Demand for steel products is influenced by many factors, such as global manufacturing production, civil construction and infrastructure spending. For further information about demand and prices, seeOperating and financial reviewFinancial Review and prospects—Prospects—Overview—Major factors affecting prices.
In 20152019, China accounted for 54%61% of our iron ore and iron ore pellet shipments, and Asia as a whole accounted for 69%75%. Europe accounted for 15%12%, Brazil accounted for 8%, followed by Brazilthe Middle East with 11%5%. Our 10ten largest customers collectively purchased 126134 million metric tons of iron ore and iron ore pellets from us, representing 38%43% of our 20152019 iron ore and iron ore pellet sales volumes and 35%42% of our total iron ore and iron ore pellet revenues. In 2015,2019, no individual customer accounted for more than 10.0%10% of our iron ore and iron ore pellet shipments.
Of our 2019 pellet production, 55% was blast furnace pellets and 45% was direct reduction pellets. Blast furnace and direct reduction are different technologies employed by steel mills to produce steels, each using different types of pellets. In 2015,2019, the Asian market (mainly Japan, South Korea and Taiwan)Japan), the European market and the Brazilian market were the primary markets for our blast furnace pellets, while the Middle East North America and North AfricaAmerica were the primary markets for our direct reduction pellets.
We strongly emphasizeinvest in customer service in order to improve our competitiveness. We work with our customers to understand their objectives and to provide them with iron ore solutions to meet specific customer needs. Using our expertise in mining, agglomeration and iron-making processes, we search for technical solutions that will balance the best use of our world-class mining assets and the satisfaction of our customers. We believe that our ability to provide customers with a total iron ore solution and the quality of our products are both very important advantages helping us to improve our competitiveness in relation to competitors that may be more conveniently located geographically. In addition to offering technical assistance to our customers, we operate sales supporthave offices in St. Prex (Switzerland), Tokyo (Japan), Seoul (South Korea), Singapore, Dubai (UAE), Shanghai, Beijing and ShanghaiQingdao (China), which support theglobal sales made by Vale International.International, and an office in Brazil, which supports sales to South America. These offices also allow us to stay in close contact with our customers, monitor their requirements and our contract performance, and ensure that our customers receive timely deliveries.
In 2015, we launched a new iron ore fines blended product to better meet market needs. The Brazilian Blend Fines is a mix of fines from Carajás and the Southern System, and has good metallurgical and sintering performance. It is sold from our Teluk Rubiah Maritime Terminal in Malaysia, which reduces the time to reach Asian markets and increases our distribution capillarity by using smaller vessels.
We sell iron ore and iron ore pellets under different arrangements, including long-term contracts with customers and on a spot basis through tenders and trading platforms. Our pricing is generally linked to market price indexes such as IODEX, and uses a variety of mechanisms, including current spot prices and average prices over specified periods. In cases where the products are deliveredpriced before the final price is determinable at delivery, we recognize the sale based on a provisional price with a subsequent adjustment reflecting the final price.
In 2015,2019, we hedged part of our total exposure to bunker oil prices relating to our owned fleet and long-term contracts of affreightment (used in connection with our CFR sales) under our hedge accounting program and relatingconnected to our FOB and domestic sales. Beginning in 2016, we are no longer entering in new bunker oil hedge transactions. Our bunker oil hedge transactions relating to our owned fleet and long-term contracts of affreightment were all settled in 2015, but we still have open hedge positions relating to our FOBCFR international and domestic sales.
1.1.6 Competition
The global iron ore and iron ore pellet markets are highly competitive. The main factors affecting competition are price, quality and range of products offered, reliability, operating costs and shipping costs.
| | | | |
| | 51 | | |
Lines of Business
We are competitive in the Asian market for two main reasons. First, steel companies generally seek to obtain the types (or blends) of iron ore and iron ore pellets that can produce the intended final product in the most economic and efficient manner. Our iron ore has low impurity levels and other properties that generally lead to lower processing costs. For example, in addition to its high grade,high-grade, the alumina content of our iron ore is very low compared to Australian ores, reducing consumption of coke and increasing productivity in blast furnaces, which is particularly important during periods of high demand.demand and environmental restrictions. When market demand is strong, our quality differential generally becomes more valuable to customers. Second, steel companies often develop sales relationships based on a reliable supply of a specific mix of iron ore and iron ore pellets.
Our ownership and operation of logistics facilities in the Northern and Southeastern Systems help us ensure that our products are delivered on time and at a relatively low cost. In addition, we continueWe rely on long-term contracts of affreightment to develop a low-cost freight portfolio aimed at enhancingsecure transport capacity and enhance our ability to offer our products in the Asian market at competitive prices on a CFR basis, despite higher transportationfreight costs compared to Australian producers. To support thisour commercial strategy for our iron ore business, we have builtoperate two distribution centers, one in Malaysia and one in Oman and anotherwe have long-term agreements with seventeen ports in China, which also serve as distribution centers. In 2015, we launched the Brazilian blend fines (BRBF), a product resulting from blending fines from Carajás, which contain a higher concentration of iron and a lower concentration of silica in the ore, with fines from the Southern and Southeastern Systems, which contain a lower concentration of iron in the ore. In August 2018, Metal Bulletin launched a new index, the 62% Fe low-alumina index, which is based on our BRBF. During 2019, the 62% Fe low-alumina index traded with a premium of US$1.07 per dmt over the 62% Fe index. The resulting blend offers strong performance in any kind of sintering operation. It is produced in our Teluk Rubiah Maritime Terminal in Malaysia and operate two floating transshipment stations ("FTS") in the Philippines. We are party to medium- and long-term freight contracts, and we own or charter vessels, including very large ore carriers. They reduce energy consumption and greenhouse emissions by carrying an increased amount of cargoseventeen distribution centers in a single trip, offering lower shipping costs. These investments improve speed and flexibility for customization, and they shortenChina, which reduces the time to reach Asian markets and increases our distribution capillarity by using smaller vessels. In 2019, we announced the launch of the GF88, a new product to supply the growing market requiredof pellet production in China, which consists of Carajás fines (IOCJ) obtained through a grinding process, opening a new market for our products.high quality portfolio.
With respect to pellets, our major competitors are LKAB, Arcelor Mittal Mines Canada (former Quebec Cartier Mining Co.), Iron Ore Company of Canada, (IOC)Ferrexpo Plc, Arcelor-Mittal Mines Canada and Bahrain Steel (former Gulf Industrial Investment Co).Steel.
| | | | |
| | 52 | | |
Lines of Business
1.2 Manganese ore and ferroalloys
1.2.1 Manganese ore operations and production
We conduct our manganese mining operations in Brazil through Vale S.A. and our wholly-ownedwholly owned subsidiaries Vale Manganês S.A. ("Vale Manganês") and MCR. Our mining operations are carried out under concessions from the federal government granted for an indefinite period. Our mines produce three types of manganese ore products:
Mining complex | Company | Location | Description/History | Mineralization | Operations | Power source | Access/ Transportation | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Azul | Vale S.A. | State of Pará | Open-pit mining operations and on-site beneficiation plant. | Crushing, scrubbing and classification steps, producing lumps and fines. | Supplied through the national electricity grid. | Manganese ore is transported by truck and EFC railroad to the Ponta da Madeira maritime terminal. | ||||||||
Morro da Mina | Vale Manganês | State of Minas Gerais | Open-pit mining operations and | Crushing, screening and | Supplied through the national electricity grid. Acquired from regional utility companies. | Manganese ore is transported by | ||||||||
Urucum | MCR | State of Mato Grosso do Sul | Underground mining operations and on-site beneficiation plant. | Crushing, scrubbing and classification steps, producing lumps and fines. | Supplied through the national electricity grid. Acquired | Manganese ore is transported |
| | | | |
| | 53 | | |
Lines of Business
The following table sets forth information about our manganese ore production.production, obtained after beneficiation process, and mass recovery.
| | Production for the year ended December 31, | | | Production for the year ended December 31, | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2015 process recovery | | 2019 process recovery(1) | ||||||||||||||||
Mine | Type | 2013 | 2014 | 2015 | Type | 2019 | 2018 | 2017 | ||||||||||||
| | (million metric tons) | (%) | (million metric tons) | (%) | |||||||||||||||
Azul | Open pit | 1.9 | 1.7 | 1.7 | 54.0 | Open pit | 1.0 | 1.0 | 1.4 | 40 | ||||||||||
Morro da Mina | Open pit | 0.1 | 0.1 | – | – | Open pit | 0.2 | 0.1 | 0.1 | 76 | ||||||||||
Urucum | Underground | 0.4 | 0.6 | 0.7 | 83.0 | Underground | 0.4 | 0.7 | 0.7 | 82 | ||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total | Total | 2.4 | 2.4 | 2.4 | 1.6 | 1.8 | 2.2 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
1.2.2 Manganese ferroalloys operations and production
We conduct our manganese ferroalloys business through our wholly-ownedwholly owned subsidiary Vale Manganês.
The production of manganese ferroalloys consumes significant amounts of electricity, representing 2.7% of our total consumption in Brazil in 2015. The electricity supply to our ferroalloy plantswhich is provided through power purchase agreements. For information on the risks associated with potential energy shortages, seeRisk factors.
We produce several types of manganese ferroalloys, such as high carbon and medium carbon ferro-manganese and ferro-silicon manganese.
Plant | Location | Description/History | Nominal capacity | Power source | ||||
---|---|---|---|---|---|---|---|---|
Minas Gerais Plants | Cities of Barbacena and Ouro Preto | Barbacena has | Supplied through the national electricity grid. Acquired from | |||||
Bahia Plant | City of Simões Filho | Four furnaces, two converters and a sintering plant. | Supplied through the national electricity grid. |
| | | | |
| | 54 | | |
Lines of Business
The following table sets forth information about our manganese ferroalloys production.
| | Production for the year ended December 31, | | Production for the year ended December 31(1), | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Plant | | 2013 | | 2014 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (thousand metric tons) | | (thousand metric tons) | ||||||||
Barbacena | | 45 | | 50 | | 6 | | 54 | | 55 | | 58 |
Ouro Preto | | 48 | | 8 | | 1 | | 11 | | 10 | | 3 |
Simões Filho | | 82 | | 113 | | 92 | | 86 | | 103 | | 88 |
| | | | | | | | | | | | |
Total | | 175 | | 171 | | 99 | | 151 | | 168 | | 149 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
We suspended operations at the Ouro Preto plant in February 2014, due to market conditions. In January 2015, the power purchase agreement pursuant to which we acquire energy for our Barbacena and Ouro Preto plants expired, and we also suspended operations in our Barbacena plant. We are considering alternatives for power supply to these plants, taking into consideration the energy prices and current market conditions for manganese ferroalloys.
1.2.3 Manganese ore and ferroalloys: sales and competition
The markets for manganese ore and ferroalloys are highly competitive. Competition in the manganese ore market takes place in two segments. High-gradeHigh- and medium-grade manganese ore competes on a global seaborne basis, while low-grade ore competes on a regional basis. For some manganese ferroalloys, high-grade ore is mandatory, while for others high- and low-gradeespecially ferromanganese, higher-grade manganese ores are complementary.required to achieve competitive quality and cost, while medium- to lower-grade ores may be used in silicomanganese production. The main suppliers of high-grade ores are located in South Africa, Gabon, Australia and Brazil. The main producers of low-grade ores are located in the Ukraine, China, South Africa, Ghana, Kazakhstan, India and Mexico.
We compete in the seaborne market with both high- and medium-grade ores from the Azul and Urucum mines, where we benefit from extensive synergies with our iron ore operations, from mine to rail to port to vessel operations. Our main competitors in this segment are South32 (Australia and South Africa) and Eramet (Gabon). Our lower-grade ores, especially those from Morro da Mina, are consumed internally in our ferroalloy smelters.
The manganese ferroalloy market is characterized by a large number of participants who compete primarily on the basis of price. Our competitors are located principally in countries that produce manganese ore or carbon steel. Potential entrants and substitutes come from silicon or chrome ferroalloys, which can occasionally shift their furnaces to manganese alloys, and from electrolytic manganese producers. Competitors may be either integrated smelters like us, who feed manganese ore from their own mines, or non-integrated smelters. The principal competitive factors in this market are the costs of manganese ore, electricity, logistics and reductants such as coke, coal and charcoal. We compete with both stand-alone producers and integrated producers thatproducers.
Focusing mainly in the Brazilian, South and North American steelmaking customers, our ferroalloys operations also mine their own ore. Our competitorsbenefit from synergies with our iron ore sales, marketing, procurement and logistics activities. We buy our energy and coke supplies at reasonable market prices both though medium-and long-term contracts. Competitors in the Brazilian market are located principallyabout a dozen smelters with capacities from five to 90 thousand metric tons per year, most of which are not integrated and some of which are customers of our manganese ores. We have a distinctive advantage in countries that producecomparison to them in producing ferroalloys with higher manganese ore or carbon steel. For further information about demand and prices, seecontent.
| | | | |
| | 55 | | |
2. BASE METALS
2. Base metals
2.1 Nickel
2.1 Nickel2.1.1 Operations
2.1.1 Operations
We conduct our nickel operations primarily through our wholly-ownedwholly owned subsidiary Vale Canada Limited, which operates two nickel production systems, one in the North Atlantic region and the other in the Asia Pacific region. We also produce copper as a coproduct in our nickel operations in Canada and, through Vale S.A., operate a third nickel production system, Onça Puma, in the South Atlantic region. Our nickel operations are set forth in the following table.
Company/Mining System | Location | Description/History | Operations | Mining title | Power source | Access/ Transportation | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
North | ||||||||||||
Vale Canada | Integrated mining, milling, smelting and refining operations to process ore into finished nickel with a nominal capacity of 66,000 metric tons of refined nickel per year and additional nickel oxide feed for the refinery in Wales. Mining operations in Sudbury began in 1885. | Nickel. Primarily underground mining operations with nickel sulfide ore bodies, which also contain some copper, cobalt, PGMs, gold and silver. We also Copper. We produce two intermediate copper products, copper concentrate and copper matte, and we also | Patented mineral rights with no expiration date; mineral leases expiring between | Supplied by Ontario's provincial electricity grid and produced directly by | Located by the Trans-Canada highway and the two major railways that pass through the Sudbury area. Finished products are delivered to the North American market by truck. For overseas customers, the products are loaded into containers and travel intermodally (truck/rail/containership) through both east and west coast Canadian ports. | |||||||
Vale Canada | Nickel. Primarily underground mining operations with nickel sulfide ore bodies, which also contain some copper and cobalt.
| Order in Council leases expiring between | Supplied by | |||||||||
Vale Newfoundland & Labrador Limited | Canada — Voisey's Bay and Long Harbour, Newfoundland and Labrador | Integrated open-pit mining and milling operation at Voisey's Bay producing nickel and copper concentrates with refining of nickel concentrate at Long Harbour into finished metal products with an expected nominal capacity of approximately 50,000 metric tons of refined nickel per year upon ramp-up. Voisey's Bay's operations started in 2005 and was purchased by us in 2006. | Comprised of the Ovoid open pit mine, and deposits for underground operations at a later stage. We mine nickel sulfide ore bodies, which also contain copper and cobalt. The Long Harbour facility continued to | Mining lease expiring in 2027, with a right of further renewals for 10-year periods. | Power at Voisey's Bay is 100% supplied through Vale owned diesel generators. Power at the Long Harbour refinery is supplied by | The nickel and copper concentrates from Voisey's Bay are transported to the port by haulage trucks and then shipped by dry bulk vessels to either overseas markets or to our Long Harbour operations for further refining. | ||||||
Vale Europe Limited | U.K. — Clydach, Wales | Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 40,000 metric tons per year. The Clydach refinery commenced operations in | Processes a nickel intermediate product, nickel oxide, supplied from our Sudbury and Matsuzaka operations to produce finished nickel in the form of powders and pellets. | – | Supplied through the national electricity grid. | Transported to final customer in the UK and continental Europe by truck. Products for overseas customers are trucked to the |
| | | | |
| | 56 | | |
Lines of Business
Company/Mining System | Location | Description/History | Operations | Mining title | Power source | Access/ Transportation | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
PT Vale Indonesia Tbk ("PTVI") | Open cast mining area and related processing facility (producer of nickel matte, an intermediate product) with a nominal capacity of approximately 80,000 metric tons of nickel in matte per year. PTVI's shares are traded on the Indonesia Stock Exchange. We indirectly hold | PTVI mines nickel laterite ore and produces nickel matte, which is shipped primarily to our nickel | Contract of work expiring in 2025, entitled to two consecutive ten-year extensions, in the form of a business license, subject to approval of the Indonesian government. | Produced primarily by PTVI's | Trucked approximately 55 km to the river port at Malili and then loaded onto barges in order to load break-bulk vessels for onward shipment. | |||||||
Vale | New | Mining and processing operations (producer of nickel oxide, nickel hydroxide and cobalt carbonate). We hold 95% of VNC's shares | Mining concessions expiring between | Supplied through the national electricity grid and by independent producers. | Products are packed into containers and are trucked approximately 4 km to Prony port and shipped by ocean container. | |||||||
Vale Japan Limited | Japan — Matsuzaka | Stand-alone nickel refinery (producer of intermediate and finished nickel), with a nominal capacity of 60,000 metric tons per year. We own 87.2% of the shares, and Sumitomo owns the remaining shares. The refinery was built in 1965 and was acquired by us in 2006. | Produces intermediate products for further processing in our refineries in Asia and the UK, and finished nickel products using nickel matte sourced from PTVI. | – | Supplied through the national electricity grid. Acquired from regional utility companies. | Products trucked over public roads to customers in Japan. For overseas customers, the product is loaded into containers at the plant and shipped from the ports of Yokkaichi and Nagoya. | ||||||
Vale Taiwan Limited | Taiwan — Kaoshiung | Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 18,000 metric tons per year. The refinery commenced production in 1983 and was acquired by us in 2006. | Produced finished nickel for the stainless steel industry, primarily using intermediate products from our Matsuzaka and New Caledonian operations. We suspended operations at this plant in 2017 due to market conditions and it currently remains under care and maintenance. | – | Supplied through the national electricity grid. Acquired from regional utility companies. | Trucked over public roads to customers in Taiwan. For overseas customers, the product is loaded into containers at the plant and shipped from the port of Kaoshiung. | ||||||
Vale Nickel (Dalian) Co., Ltd | China — Dalian, Liaoning | Stand-alone nickel refinery (producer of finished nickel), with nominal capacity of 32,000 metric tons per year. We own 98.3% of the equity interest and Ningbo Sunhu Chemical Products Co., Ltd. owns the remaining 1.7%. The refinery commenced production in 2008. | Produces finished nickel for the stainless steel industry, primarily using intermediate products from our Matsuzaka and New Caledonian operations. | – | Supplied through the national electricity grid. Acquired from regional utility companies. | Product transported over public roads by truck and by railway to customers in China. It is also shipped in ocean containers to overseas and some domestic customers. |
| | | | |
| | 57 | | |
Lines of Business
Company/Mining System | Location | Description/History | Operations | Mining title | Power source | Access/ Transportation | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
South Atlantic | ||||||||||||
Vale/Onça Puma | Mining and smelting operation producing a | The Onça Puma mine is built | Mining concession for indefinite period. | Supplied through the national electricity grid. Produced directly by Vale or | The ferro-nickel is transported by
|
| | | | |
| | 58 | | |
Lines of Business
2.1.2 Production
The following table sets forth our annual mine production by operating mine (or, on an aggregate basis in the case of the Sulawesi operating areas operated by PTVI in Indonesia, because it is organized by mining areas rather than individual mines) and the average percentage grades of nickel and copper. The mine production at Sulawesi represents the product from PTVI's screening station delivered to PTVI's processing plant and does not include nickel losses due to drying and smelting. For our Sudbury, Thompson and Voisey's Bay operations, the production and average grades represent the mine product delivered to those operations' respective processing plants and do not include adjustments due to beneficiation, smelting or refining. For VNC'sour Onça Puma operation in Brazil and VNC operation in New Caledonia the production and average grade represents in-place ore production and does not include losses due to processing.
| | 2019(1) | | 2018(1) | | 2017 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Grade | | | | Grade | | | | Grade | ||||||
| | Production | | Copper | | Nickel | | Production | | Copper | | Nickel | | Production | | Copper | | Nickel |
Ontario operating mines | | | | | | | | | | |||||||||
Copper Cliff North | | 644 | | 1.72 | | 1.38 | | 746 | | 1.30 | | 1.29 | | 814 | | 1.40 | | 1.30 |
Creighton | | 613 | | 2.67 | | 2.68 | | 608 | | 2.77 | | 2.55 | | 595 | | 2.91 | | 3.17 |
Stobie | | | | | – | | – | | – | | 448 | | 0.53 | | 0.62 | |||
Garson | | 641 | | 1.32 | | 1.77 | | 655 | | 1.35 | | 2.00 | | 635 | | 1.48 | | 1.93 |
Coleman | | 1,102 | | 3.80 | | 1.47 | | 618 | | 3.31 | | 1.40 | | 1,007 | | 3.76 | | 1.53 |
Ellen | | | | | – | | – | | – | | – | | – | | – | |||
Totten | | 669 | | 2.08 | | 1.33 | | 710 | | 2.02 | | 1.39 | | 710 | | 1.90 | | 1.33 |
| | | | | | | | | | | | | | | | | | |
Total Ontario operations | | 3,669 | | 2.50 | | 1.68 | | 3,337 | | 2.10 | | 1.70 | | 4,210 | | 2.18 | | 1.65 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Manitoba operating mines | | | | | | | | | | |||||||||
Thompson | | 859 | | – | | 1.78 | | 1,034 | | – | | 2.05 | | 1,229 | | – | | 1.94 |
Birchtree | | | | | – | | – | | – | | 329 | | – | | 1.30 | |||
| | | | | | | | | | | | | | | | | | |
Total Manitoba operations | | 859 | | – | | 1.78 | | 1,034 | | – | | 2.05 | | 1,557 | | – | | 1.81 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Voisey's Bay operating mines | | | | | | | | | | |||||||||
Ovoid | | 2,116 | | 1.19 | | 2.21 | | 1,895 | | 1.32 | | 2.37 | | 2,378 | | 1.44 | | 2.56 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Sulawesi operating mines | | | | | | | | | | |||||||||
Sorowako(2) | | 4,286 | | – | | 1.89 | | 4,469 | | – | | 1.90 | | 4,569 | | – | | 1.89 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
New Caledonia operating mines | | | | | | | | | | |||||||||
VNC(2) | | 2,495 | | – | | 1.54 | | 2,620 | | – | | 1.46 | | 3,030 | | | 1.47 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Brazil operating mines | | | | | | | | | | |||||||||
Onça Puma(3) | | 321 | | – | | 1.40 | | – | | – | | – | | 964 | | – | | 2.05 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | 59 | | |
| | 2013 | | 2014 | | 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (thousands of metric tons, except percentages) | ||||||||||||||||
| | | | Grade | | | | Grade | | | | Grade | ||||||
| | Production | | % Copper | | % Nickel | | Production | | % Copper | | % Nickel | | Production | | % Copper | | % Nickel |
Ontario operating mines | | | | | | | | | | |||||||||
Copper Cliff North | | 913 | | 1.32 | | 1.28 | | 1,053 | | 1.45 | | 1.34 | | 1,138 | | 1.42 | | 1.38 |
Creighton | | 915 | | 2.01 | | 2.19 | | 903 | | 1.81 | | 2.47 | | 774 | | 2.00 | | 2.33 |
Stobie | | 1,887 | | 0.59 | | 0.65 | | 2,089 | | 0.58 | | 0.66 | | 1,471 | | 0.63 | | 0.73 |
Garson | | 815 | | 1.42 | | 1.75 | | 678 | | 1.39 | | 1.75 | | 778 | | 1.39 | | 1.94 |
Coleman | | 1,515 | | 3.15 | | 1.52 | | 1,385 | | 3.10 | | 1.52 | | 1,309 | | 2.95 | | 1.56 |
Ellen | | 109 | | 0.49 | | 1.00 | | 181 | | 0.62 | | 1.07 | | 165 | | 0.70 | | 0.95 |
Totten | | 64 | | 1.84 | | 1.92 | | 303 | | 1.98 | | 1.50 | | 528 | | 1.88 | | 1.62 |
Gertrude | | 196 | | 0.32 | | 0.89 | | – | | – | | – | | – | | – | | – |
| | | | | | | | | | | | | | | | | | |
Total Ontario operations | | 6,414 | | 1.61% | | 1.3% | | 6,591 | | 1.57% | | 1.36% | | 6,164 | | 1.64% | | 1.46% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Manitoba operating mines | | | | | | | | | | |||||||||
Thompson | | 1,175 | | – | | 2.07 | | 1,184 | | – | | 1.95 | | 1,163 | | – | | 1.82 |
Birchtree | | 613 | | – | | 1.39 | | 545 | | – | | 1.39 | | 564 | | – | | 1.47 |
| | | | | | | | | | | | | | | | | | |
Total Manitoba operations | | 1,788 | | – | | 1.84% | | 1,729 | | – | | 1.78% | | 1,727 | | – | | 1.71% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Voisey's Bay operating mines | | | | | | | | | | |||||||||
Ovoid | | 2,318 | | 1.68% | | 2.89% | | 2,243 | | 1.54% | | 2.58% | | 2,328 | | 1.51% | | 2.57% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Sulawesi operating mining areas | | | | | | | | | | |||||||||
Sorowako | | 4,369 | | – | | 2.00% | | 4,391 | | – | | 1.99% | | 4,694 | | – | | 1.99% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
New Caledonia operating mines | | | | | | | | | | |||||||||
VNC | | 1,860 | | – | | 1.36% | | 2,134 | | – | | 1.44% | | 2,561 | | – | | 1.41% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Brazil operating mines | | | | | | | | | | |||||||||
Onça Puma | | 263 | | – | | 2.28% | | 1,358 | | – | | 2.19% | | 1,024 | | – | | 2.13% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Lines of Business
The following table sets forth information about our nickel production, including: nickel refined through our facilities and intermediates designated for sale. The numbers below are reported on ana contained nickel ore-source basis.
| | | | Production for the year ended December 31, | | | | Finished production by ore source for the year ended December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mine | | Type | | 2013 | | 2014 | | 2015 | | Type | | 2019 | | 2018 | | 2017 |
| | | | (thousand metric tons) | | | | (thousand metric tons contained nickel) | ||||||||
Sudbury | | Underground | | 69.4 | | 64.3 | | 54.4 | | Underground | | 50.8 | | 50.6 | | 61.9 |
Thompson | | Underground | | 24.5 | | 26.1 | | 24.8 | | Underground | | 11.3 | | 14.8 | | 23.0 |
Voisey's Bay | | Open pit | | 63.0 | | 48.3 | | 53.0 | | Open pit | | 35.4 | | 38.6 | | 51.8 |
Sorowako | | Open cast | | 78.8 | | 78.7 | | 79.5 | | Open cast | | 68.2 | | 72.1 | | 73.1 |
Onça Puma | | Open pit | | 1.9 | | 21.4 | | 24.4 | | Open pit | | 11.6 | | 22.9 | | 24.7 |
New Caledonia | | Open pit | | 16.3 | | 18.7 | | 26.9 | | Open pit | | 23.4 | | 32.5 | | 40.3 |
External | | – | | 6.4 | | 17.5 | | 27.6 | | – | | 7.3 | | 13.1 | | 13.1 |
| | | | | | | | | | | | | | | | |
Total | Total | | 260.2 | | 274.9 | | 290.6 | Total | | 208.0 | | 244.6 | | 288.2 | ||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
2.1.3 Customers and sales
Our nickel customers are broadly distributed on a global basis. In 2015, 48%2019, 42% of our refined nickel sales were delivered to customers in Asia, 24%21% to Europe, 32% to North America 27% to Europe and 1%5% to other markets. We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts generally provide stable demand for a significant portion of our annual production.
Nickel is an exchange-traded metal, currently listed on the LME,London Metal Exchange ("LME") and Shanghai Futures Exchange ("SHFE"), and most nickel products are priced according to a discount or premium to the LME price, depending primarily on the nickel product's physical and technical characteristics. Our finished nickel products represent what is known in the industry as "primary" nickel, meaning nickel produced principally from nickel ores (as opposed to "secondary" nickel, which is recovered from recycled nickel-containing material). Finished primary nickel products are distinguishable in terms of the following characteristics, which determine the product price level and the suitability for various end-use applications:
| | | | |
| | 60 | | |
Lines of Business
In 2015,2019, the principal end-usefirst-use applications for primary nickel were:
In 2015, 58%2019, 70% of our refined nickel sales were made into non-stainless steel applications, compared to the industry average for primary nickel producers of 33%, which32%. This brings more diversification and sales volume stability to our sales volumes.nickel revenues. As a result of our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.
We offer sales and technical support to our customers on a global basis.basis through an established marketing network headquartered at our head office in Toronto (Canada). We have a well-established global marketing network for finished nickel, based at our head office in Toronto Canada.(Canada). We also have sales and technical support officesdistributed around the world with presence in Singapore and Toronto (Canada) and have sales managers located in St. Prex (Switzerland), Saddle Brook,Paramus, New Jersey (United States), Tokyo (Japan), Shanghai (China), Singapore and Kaohsiung (Taiwan).at several sites throughout Asia. For information about demand and prices, seeOperating and financial reviewFinancial Review and prospects—Prospects—Overview—Major factors affecting prices.
2.1.4 Competition
The global nickel market is highly competitive. Our key competitive strengths include our long-life mines, our low cash costs of production relative to other nickel producers, sophisticated exploration and processing technologies, and a diversified portfolio of products. Our global marketing reach, diverse product mix, and customer technical support direct our products into applications and geographic regions that offer the highest margins for our products.
Our nickel deliveries represented 15%9% of global consumption for primary nickel in 2015.2019. In addition to us, the largest mine-to-market integrated suppliers in the nickel industry (each with its own integrated facilities, including nickel mining, processing, refining and marketing operations) are Mining and Metallurgical Company Norilsk Nickel,Nornickel, Glencore, Jinchuan Nonferrous Metals Corporation Glencore and South 32.Tsingshan Group and Jiangsu Delong Nickel. Together with us, these companies accounted for about 46%42% of global refined primary nickel production in 2015.2019.
The quality of nickel products determines its market suitability. Upper Class I products, which have higher nickel content and lower levels of deleterious elements, are more suitable for high-end nickel applications, such as utilization in specialty industries (e.g., aircraft and spacecraft) and draw a higher premium. Lower Class I products have slightly higher levels of impurities compared to Upper Class I products and are suitable for more general nickel applications, such as foundry alloys and generally receive a lower premium compared to Upper Class I products. Class II products, which have lower nickel content and higher levels of deleterious elements, are mostly used in the making of stainless steel. Intermediate products do not represent finished nickel production and are generally sold at a discount given that they still need to be processed before being sold to end customers.
The majority of the world nickel production is composed of Class II nickel products (55% of the global market in 2019), which include nickel pig iron (NPI, with nickel content under 15%). Most of our products are high quality nickel products, which makes Vale the supplier of choice for specialty nickel applications.
| | | | |
| | 61 | | |
Lines of Business
In 2019, 48% of our nickel products were Upper Class I, 12% were Lower Class I, 28% were Class II and 12% were Intermediates.
While stainless steel production is a major driver of global nickel demand, stainless steel producers can useobtain nickel products with a wide range of nickel content, including secondary nickel (scrap). The choice between primary and secondary nickel is largely based on their relative prices and availability. Between 2012SeeOperating and 2015, secondary nickel has accounted for about 40-43% of total nickel used for stainless steels,Financial Review and primary nickel has accounted for about 57-60%Prospects—Overview—Major factors affecting prices—Nickel. Nickel pig iron, a low-grade nickel product made primarily in China from imported lateritic ores, is suitable for use in stainless steel production. In recent years, Chinese domestic production of nickel pig iron accounted for the majority of world nickel supply growth. From January 2014 onwards, Chinese nickel pig iron production was adversely affected by export restriction of unprocessed ores from Indonesia. As a result, nickel pig iron production is estimated to have declined 20% year-over-year to approximately 360,000 metric tons, representing 19% of world primary nickel supply. Significant stockpiles of Indonesian ores within China, as well as increased ore exports from the Philippines, mitigated the effect of this decrease in nickel pig iron production in 2015. We anticipate that Chinese nickel pig iron production will decline further in 2016 and 2017, with the depletion of high-grade ore stockpiles in China.
Competition in the nickel market is based primarily on quality and reliability of supply and price. We believe our operations are competitive in the nickel market because of the high quality of our nickel products and our relatively low production costs.
Table of Contents2.2.1 Operations
2.2 Copper
2.2.1 Operations
We conduct our copper operations at the parent-company level in Brazil and through our subsidiaries in Canada.
Mining complex/Location | | Location | | Description/History | | Mineralization/Operations | | Mining title | | Power source | | Access/Transportation |
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | |||||||
Vale/Sossego | | Carajás, state of Pará. | | Two main copper ore bodies, Sossego and Sequeirinho, and a processing facility to concentrate the ore. Sossego was developed by | | The copper ore is mined using the open-pit method, and the run-of-mine is processed by means of standard primary crushing and conveying, SAG milling (a semi-autogenous mill that uses a large rotating drum filled with ore, water and steel grinding balls to transform the ore into a fine slurry), ball milling, copper concentrate flotation, tailings disposal, concentrate thickening, filtration and load out. | | Mining concession for an indefinite period. | | Supplied through the national electricity grid. Produced directly by Vale | | We truck the concentrate to a storage terminal in Parauapebas and then transport it via the EFC railroad to the Itaqui Port in São Luís, |
Vale/Salobo | | Carajás, state of Pará. | | Salobo I processing plant started production in 2012 and has a total capacity of | | Our Salobo copper | | Mining concession for an indefinite period. | | Supplied through the national electricity grid. Acquired through power purchase agreements. | | We truck the concentrate to a storage terminal in Parauapebas and then transport it via the EFC railroad to the Itaqui Port in São Luís, |
| | | | | | |||||||||||
Vale Canada | | Canada—Sudbury, Ontario | | | | | ||||||||||
Vale Canada/ Voisey's Bay | | Canada—Voisey's Bay, Newfoundland and Labrador | | | | |||||||||||
|
| | | | | ||||
| | 62 | | |
Lines of Business
2.2.2 Production
The following table sets forth our annual mine production in our Salobo and Sossego mines and the average percentage grades of copper. The production and average grade represent in-place ore production and do not include losses due to processing. For the annual production of copper as a coproduct in our nickel operations, see—Base metals—Nickel—Production.
| | 2019(1) | | 2018(1) | | 2017(1) | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Production | | Grade | | Production | | Grade | | Production | | Grade |
Brazil | | | | | | | ||||||
Sossego | | 11,735 | | 0.79 | | 15,664 | | 0.72 | | 12,380 | | 0.81 |
Salobo | | 48,468 | | 0.69 | | 50,963 | | 0.69 | | 61,573 | | 0.63 |
| | | | | | | | | | | | |
Total | | 60,202 | | 0.71 | | 66,627 | | 0.70 | | 73,953 | | 0.66 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The following table sets forth information on our copper production.
| | | | Production for the year ended December 31, | | | | Finished production by ore source for the year ended December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mine | | Type | | 2013 | | 2014 | | 2015 | | Type | | 2019 | | 2018 | | 2017 |
| | | | (thousand metric tons) | | | | (thousand metric tons) | ||||||||
Brazil: | | | | | | | | | ||||||||
Sossego | | Open pit | | 66 | | 92 | | 100 | ||||||||
Salobo | | Open pit | | 65 | | 98 | | 155 | | Open pit | | 189 | | 193 | | 193 |
Sossego | | Open pit | | 119 | | 110 | | 104 | ||||||||
Canada: | | | | | ||||||||||||
Canada: (as coproduct of nickel operations) | | | | | ||||||||||||
Sudbury | | Underground | | 103 | | 98 | | 98 | | Underground | | 93 | | 72 | | 98 |
Voisey's Bay | | Open pit | | 36 | | 33 | | 32 | | Open pit | | 25 | | 26 | | 34 |
Thompson | | Underground | | 2 | | 2 | | 1 | | Underground | | 1 | | 1 | | 2 |
External(1) | | – | | 24 | | 29 | | 23 | | – | | 7 | | 11 | | 12 |
Chile: | | | | | ||||||||||||
Tres Valles(2) | | Open pit and underground | | 11 | | – | | – | ||||||||
Zambia: | | | | | ||||||||||||
Lubambe(3) | | Underground | | 9 | | 10 | | 10 | ||||||||
| | | | | | | | | | | | | | | | |
Total | | | 370 | | 380 | | 424 | | | 381 | | 395 | | 439 | ||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
2.2.3 Customers and sales
We sell copper concentrates from Sossego and Salobo under mediummedium- and long-term contracts to copper smelters in Europe, India and Asia. We have medium-term copper supply agreements with Glencore Canada Corporationdomestic customer for the sale of copper anodes and mostpart of the copper concentrates and copper matte produced in Sudbury.Sudbury, which are also sold under long-term contracts in Europe and Asia. We sell copper concentrates from Voisey's Bay under medium-termmedium and long-term contracts to customers in Europe. We sellEurope and electrowon copper cathodes from Sudbury and Long Harbour in North America under short-term sales agreements.
2.2.4 Competition
The global refined copper market is highly competitive. Producers are integrated mining companies and custom smelters, covering all regions of the world, while consumers are principally wire rod and copper-alloy producers. Competition occurs mainly on a regional level and is based primarily on production costs, quality, reliability of supply and logistics costs. The world's largest copper cathode producers are Jiangxi Copper Corporation Ltd., Corporación Nacional del Cobre de Chile ("Codelco"), Tongling Non-Ferrous Metals Group Co., Freeport McMoRan Copper & Gold Inc. ("Freeport-McMoRan"), Aurubis AG Jiangxi Copper Corporation Ltd. and Glencore, each operating at
| | | | |
| | 63 | | |
Lines of Business
the parent-company level or through subsidiaries. Our participation in the global refined copper cathodes market is marginal as we position ourselves more competitively in the copper concentrate market.
Copper concentrate and copper anodematte are intermediate products in the copper production chain. Both the concentrate and anodematte markets are competitive, having numerous producers but fewer participants and smaller volumes than in the copper cathode market due to the high levels of integration by the major copper producers.
In the copper concentrate market, mining occurs on a worldglobal basis with a predominant share from South America, while consumers are custom smelters located mainly in Europe and Asia. Competition in the custom copper concentrate market occurs mainly on a global level and is based on production costs, quality, logistics costs and reliability of supply. The largest competitors in the copper concentrate market are Freeport McMoRan, Glencore, BHP Billiton, Glencore, Freeport McMoRan, Codelco, andAnglo American, Antofagasta plc, Rio Tinto and First Quantum; each operating at the parent-company level or through subsidiaries. Our market share in 20152019 was about 4%2% of the total custom copper concentrate market.
The copper anode/blister market is very limited; generally, anodes are produced to supply each company's integrated refinery. The trade in anodes/blister is limited to those facilities that have more smelting capacity than refining capacity or to those situations where logistics cost savings provide an incentive to source anodes from outside smelters. The largest competitors in the copper anode market in 2015 included Glencore, Codelco, and China Nonferrous Metals, operating at the parent-company level or through subsidiaries.
2.3 PGMs and other precious metals
As by-productsbyproducts of our Sudbury nickel operations in Canada, we recover significant quantities of PGMs, as well as small quantities of gold and silver. We operate a processing facility in Port Colborne, Ontario, which produces PGMs, gold and silver intermediate products using feed from our Sudbury operation. We have aThe refinery in Acton, England, where we process our intermediate products, as well asPGM intermediates and PGM feeds purchased from unrelatedthird parties were processed was closed in 2018 as part of business optimization, and toll-refined materials. In 2015,the PGM concentrates from our Canadian operations supplied about 60% of our PGM production, whichPort Colborne operation are being sold to third parties. Gold and silver intermediates are also includes metals purchased from unrelatedsold to third parties. Our base metals marketing department sells our own PGMs and other precious metals, as well as products from unrelated parties and toll-refined products, on a sales agency basis. Our copper concentrates from our Salobo and Sossego mines in Carajás, in the Brazilian state of Pará, also contain gold, the value of which we realize in the sale of those products.
In February 2013, we sold to Wheaton Precious Metals Corp. (formerly Silver WheatonWheaton) ("Wheaton") 25% of the gold produced as a by-productbyproduct at our Salobo copper mine, in Brazil, for the life of that mine, and 70% of the gold produced as a by-productbyproduct at our Sudbury nickel mines, in Canada, for 20 years. In each of March 2015 and August 2016, we sold to Silver Wheaton an additional 25% of the gold produced as a by-productbyproduct at our Salobo copper mine. In consideration for the August 2016 sale, we received an initial cash payment of US$800 million, an option value of approximately US$23 million from a reduction of the exercise price of the warrants of Wheaton held by Vale since 2013, and ongoing payments of the lesser of US$400 per ounce (subject to a 1% annual inflation adjustment starting January 1, 2019) and the prevailing market price, for each ounce of gold that we deliver under the agreement. We may receive an additional cash payment if we expand our capacity to process Salobo copper ores to more than 28 Mtpy before 2036. The additional cash payment may range from US$113 million to US$953 million, depending on ore grade, timing and size of the expansion. SeeOverview—Business overview—Significant changes in our business. Pursuant to the gold stream contract, Silver Wheaton received 141,879290,000 oz. of gold in 2015.2019. In February 2020, we sold all of our warrants of Wheaton (equivalent to 10,000,000 common shares) for US$2.50 per warrant, totaling US$25 million.
| | | | |
| | 64 | | |
Lines of Business
The following table sets forth information on ourthe contained volume of precious metals production.and platinum group metals (PGMs) as a byproduct of our production of nickel and copper concentrates.
Mine | | Type | | 2013 | | 2014 | | 2015 | | Type | | 2019 | | 2018 | | 2017 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | (thousand troy ounces) | | | | (thousand troy ounces of contained metal) | ||||||||
Sudbury: | | | | | ||||||||||||
Sudbury(1): | | | | | ||||||||||||
Platinum | | Underground | | 145 | | 182 | | 154 | | Underground | | 148 | | 135 | | 144 |
Palladium | | Underground | | 352 | | 398 | | 341 | | Underground | | 182 | | 218 | | 214 |
Gold(1) | | Underground | | 91 | | 83 | | 89 | ||||||||
Gold(2) | | Underground | | 69 | | 57 | | 74 | ||||||||
Salobo: | | | | | | | | | ||||||||
Gold(1) | | Open pit | | 117 | | 160 | | 251 | ||||||||
Gold(2) | | Open pit | | 368 | | 361 | | 346 | ||||||||
Sossego: | | | | | | | | | ||||||||
Gold | | Open pit | | 78 | | 78 | | 80 | | Open pit | | 43 | | 59 | | 65 |
2.4 Cobalt
We recover significant quantities of cobalt as a by-productbyproduct of our nickel operations. In 2015,2019, we produced 1,4481,092 metric tons of refined cobalt metal (in the form of cobalt rounds) at our Port Colborne refinery, 2,9261,583 metric tons of cobalt rounds at our Long Harbour refinery, and 1,703 metric tons of cobalt in a cobalt-based intermediate product at our nickel operations in Canada and New Caledonia, and our remaining cobalt production consisted of 159 metric tons of cobalt contained in other intermediate products (such as nickel concentrates). As a result of the ramp-up of VNC operations in New Caledonia, our production of cobalt intermediate as a by-product of our nickel production is increasing.Caledonia. We sell cobalt on a global basis. OurThe cobalt metal isand the Long-Harbour cobalt rounds are electro-refined at our Port Colborne refinery and hashave very high purity levels (99.8%), which is superior tomeeting the LME contract specification. Cobalt metal is used in the production of various alloys, particularly for aerospace applications, as well as the manufacture of cobalt-based chemicals.
the cobalt produced as a byproduct at our Voisey's Bay mine from January 1, 2021, which includes the ramp-down of production from the existing mine and the life-of-mine production from our underground mine expansion project. In consideration, we received US$690 million in cash from Wheaton and Cobalt 27 upon closing of the transaction on June 28, 2018, and will receive additional payments of 20%, on average, of cobalt prices upon delivery. Vale remains exposed to approximately 40% of future cobalt production from Voisey's Bay, through our retained interest in 25% of cobalt production and the additional payments upon delivery. In addition, we plan to begin marketing our cobalt streams in 2021, once current offtakes are concluded. The following table sets forth information on our cobalt production.
| | | | Production for the year ended December 31, | | | | Finished production by ore source for the year ended December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mine | | Type | | 2013 | | 2014 | | 2015 | | Type | | 2019 | | 2018 | | 2017 |
| | | | (metric tons) | | | | (contained metric tons) | ||||||||
Sudbury | | Underground | | 853 | | 833 | | 751 | | Underground | | 495 | | 520 | | 840 |
Thompson | | Underground | | 292 | | 489 | | 365 | | Underground | | 80 | | 198 | | 138 |
Voisey's Bay | | Open pit | | 1,256 | | 952 | | 849 | | Open pit | | 1,608 | | 1,902 | | 1,829 |
New Caledonia | | Open pit | | 1,117 | | 1,384 | | 2,391 | | Open pit | | 1,703 | | 2,104 | | 2,780 |
External sources(1) | | – | | 13 | | 84 | | 177 | ||||||||
Others(1) | | – | | 490 | | 371 | | 224 | ||||||||
| | | | | | | | | | | | | | | | |
Total | | | 3,532 | | 3,743 | | 4,533 | | | 4,376 | | 5,093 | | 5,811 | ||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | |
| | 65 | | |
3. CoalCOAL
3.1 Operations
We produce metallurgical and thermal coal through our subsidiariessubsidiary Vale Moçambique, which operates the Moatize mine, and Vale Australia, which operates the Carborough Downs mine. We also have a minority interest in a Chinese company, Henan Longyu Energy Resources Co., Ltd. ("Longyu").
In December 2014, we entered into an investment agreement providing for Mitsui to acquire 15% of our stake in Vale Moçambique. Our equity stake in Vale Moçambique will be transferred to a holding company controlled by Vale (85%) and Mitsui (15%). The value attributed to Mitsui's 15% stake in Vale Moçambique is US$450 million, and Mitsui will be responsible for 15% of the capital expenditures incurred since the signing of the agreement. The transaction is subject to certain conditions precedent, and closing is expected for 2016.
Company/ Mining complex | | Location | | Description/History | | Mineralization/ Operations | | Mining title | | Power source | | Access/ Transportation |
---|---|---|---|---|---|---|---|---|---|---|---|---|
Vale Moçambique | | | | | | | ||||||
Moatize | | Tete, Mozambique | | Open-cut mine, which was developed directly by Vale. Operations started in August 2011 and are expected to reach a nominal production capacity of 22 Mtpy, considering the Moatize expansion, comprised of metallurgical and thermal coal and the Nacala Logistics Corridor | | Produces metallurgical and thermal coal. Moatize's main branded | | Mining concession expiring in 2032, | | Supplied by local utility company. Back up supply on site. | | The coal is transported from the mine to the |
3.2 Production
The following table sets forth information on our marketable coal production.
| | | | Production for the year ended December 31, | ||||
---|---|---|---|---|---|---|---|---|
Operation | | Mine type | | 2013 | | 2014 | | 2015 |
| | | | (thousand metric tons) | ||||
Metallurgical coal: | | | | | ||||
Vale Australia | | | | | ||||
Integra Coal(1)(4) | | Underground and open-cut | | 1,410 | | 715 | | – |
Isaac Plains(2)(4) | | Open-cut | | 656 | | 746 | | – |
Carborough Downs(3) | | Underground | | 2,447 | | 1,857 | | 2,383 |
Vale Moçambique | | | | | ||||
Moatize(5) | | Open-cut | | 2,373 | | 3,124 | | 3,401 |
| | | | | | | | |
Total metallurgical coal | | 6,885 | | 6,443 | | 5,784 | ||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Thermal coal: | | | | | ||||
Vale Australia | | | | | ||||
Integra Coal(1) | | Open-cut | | 87 | | 92 | | – |
Isaac Plains(2) | | Open-cut | | 347 | | 326 | | – |
Vale Moçambique | | | | | ||||
Moatize(5) | | Open-cut | | 1,444 | | 1,784 | | 1,560 |
| | | | | | | | |
Total thermal coal | | 1,878 | | 2,202 | | 1,560 | ||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | Production for the year ended December 31, | ||||
---|---|---|---|---|---|---|---|---|
Operation | | Mine type | | 2019 | | 2018 | | 2018 |
| | | | (thousand metric tons) | ||||
Metallurgical coal: | | | | | ||||
Moatize(1) | | Open-cut | | 4,032 | | 6,161 | | 6,953 |
| | | | | | | | |
Thermal coal: | | | | | ||||
Moatize(1) | | Open-cut | | 4,738 | | 5,444 | | 4,307 |
| | | | | | | | |
3.3 Customers and sales
Coal sales from our Australian operations are primarily focused on Asia. Coal sales from our Moatize operations, in Mozambique, target global steel and energy markets, including Asia, Africa, Europe and the Americas. Our Chineseoffice in India supports our sales of coal joint venture directs its sales intoto the Chinese domesticIndian market.
3.4 Competition
The global coal industry comprises markets for black (metallurgicalmetallurgical and thermal) and brown (lignite)thermal coal and is highly competitive.
| | | | |
| | 66 | | |
Lines of Business
The demand for steel, especially in Asia, underpins demand for metallurgical coal, while demand for electricity underpins demand for thermal coal. We expect robust supply and low prices for metallurgical coal in the next few years, which will reduce investments in new greenfield projects and may result in supply imbalances in the long term. Port and rail constraints in certain supply regions, which cannot be solved without significant capital expenditures, could lead only to limited availability of incremental metallurgical coal production.
CompetitionCompetitiveness in the coal industry is primarily based primarily on the economics of production costs, coal quality, transportation costs and transportation costs.proximity to the market. Our key competitive strengths are completion of a new and competitive transportation corridor the proximity to the Atlantic and Indian markets (as compared to our main competitors) and the size and quality of our reserves.
Table The logistics facilities in Mozambique help us ensure that our products are delivered on time and at a relatively low cost in comparison to lengthy waits at the ports in Queensland, Australia and on the east coast of Contentsthe United States. The properties of our coking coal make our product highly competitive.
Major participantsOur main competitors in the seabornemetallurgical coal marketbusiness are located in Australia and Canada and include subsidiaries, affiliates and joint ventures of BHP, Billiton, Glencore, Xstrata, Anglo American, Rio Tinto, Teck Cominco, Peabody, Walter Energy and the Shenhua Group,Jellinbah Resources, among others.
4.1 Phosphates In the thermal coal business, our main competitors are located in Indonesia, South Africa, Australia, Colombia, USA, Russia and nitrogen
We operate our phosphates business throughinclude subsidiaries affiliates and joint ventures as set forth in the following table.of Glencore, Anglo American, Drummond Co, Pt Bumi Resources and PT Adaro, among others.
| | | | |
| | 67 | | |
| | | | Our share of capital | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | | Location | | Voting | | Total | | Partners | ||||||
| | | | (%) | | | ||||||||
Vale Fertilizantes | | Uberaba, Brazil | | | 100.0 | | | | 100.0 | | | – | ||
Compañia Minera Miski Mayo S.R.L., located in Bayóvar, Peru. | | Bayóvar, Peru(1) | | | 51.0 | | | | 40.0 | | | Mosaic, Mitsui |
Vale Fertilizantes is a producer of phosphate rock, phosphate ("P") fertilizers (e.g., monoammonium phosphate ("MAP"), triple superphosphate ("TSP") and single superphosphate ("SSP")), dicalcium phosphate ("DCP") and nitrogen ("N") fertilizers (e.g., ammonia and ammonium nitrate). It is the largest producer of phosphate and nitrogen crop nutrients in Brazil. Vale Fertilizantes operates the following phosphate rock mines, through concessions for indefinite period: Catalão, in the Brazilian state of Goiás, Tapira, Patos de Minas and Araxá, all in the Brazilian state of Minas Gerais, and Cajati, in the Brazilian state of São Paulo. In addition, Vale Fertilizantes has nine processing plants for the production of phosphate and nitrogen nutrients, located in Catalão in the Brazilian state of Goiás; Araxá, Patos de Minas and Uberaba, which are all in the Brazilian state of Minas Gerais; and Guará, Cajati and three plants in Cubatão, which are all in the Brazilian state of São Paulo.
Since 2010 we have also operated the Bayóvar phosphate rock mine in Peru, with nominal capacity of 3.9 Mtpy, through a concession for indefinite period.
The following table sets forth information about our phosphate rock production.
| | | | Production for the year ended December 31, | ||||
---|---|---|---|---|---|---|---|---|
Mine | | Type | | 2013 | | 2014 | | 2015 |
| | | | (thousand metric tons) | ||||
Bayóvar | | Open pit | | 3,546 | | 3,801 | | 3,881 |
Catalão | | Open pit | | 1,057 | | 1,055 | | 1,000 |
Tapira | | Open pit | | 1,869 | | 2,005 | | 1,970 |
Patos de Minas(1) | | Open pit | | 53 | | 73 | | 23 |
Araxá | | Open pit | | 1,111 | | 883 | | 707 |
Cajati | | Open pit | | 640 | | 605 | | 581 |
| | | | | | | | |
Total | | 8,277 | | 8,421 | | 8,163 | ||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The following table sets forth information about our phosphate and nitrogen nutrients production.
| | Production for the year ended December 31, | ||||
---|---|---|---|---|---|---|
Product | | 2013 | | 2014 | | 2015 |
| | (thousand metric tons) | ||||
Monoammonium phosphate (MAP) | | 1,128 | | 1,065 | | 1,097 |
Triple superphosphate (TSP) | | 905 | | 910 | | 866 |
Single superphosphate (SSP) | | 2,102 | | 1,854 | | 1,953 |
Dicalcium phosphate (DCP) | | 444 | | 502 | | 480 |
Ammonia(1) | | 347 | | 178 | | 138 |
Urea(2) | | 219 | | – | | – |
Nitric acid | | 416 | | 469 | | 475 |
Ammonium nitrate | | 419 | | 485 | | 515 |
4.2 Potash
We conduct potash operations in Brazil at the parent-company level, with mining concessions of indefinite duration. We have leased Taquari-Vassouras, the only potash mine in Brazil (in Rosario do Catete, in the Brazilian state of Sergipe), from Petrobras since 1992. In April 2012, we extended the lease for 30 more years. The following table sets forth information on our potash production.
| | | | Production for the year ended December 31, | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | 2015 process recovery | | |||||||||
Mine | | Type | | 2013 | | 2014 | | 2015 | | |||||
| | | | (thousand metric tons) | | (%) | | |||||||
Taquari-Vassouras | | Underground | | 492 | | 492 | | 481 | | | 82.9 | | |
4.3 Customers and sales
All potash sales from the Taquari-Vassouras mine are to the Brazilian market. In 2015, our sales represented approximately 5% of total potash delivered in Brazil. We have a strong presence and long-standing relationships with the major market participants in Brazil, with more than 50% of our sales in 2015 generated from four long-term customers.
Our phosphate products (MAP, TSP, SSP) are mainly sold to fertilizer blenders. In 2015, our sales represented approximately 31% of total phosphate delivered in Brazil. In the high-concentration segment, our production represented 86% of total Brazilian production. In the low-concentration phosphate nutrients segment our production represented 38% of total Brazilian production, with products like SSP.
Our nitrogen segment produces 100% of the ammonium nitrate produced in Brazil. Additionally we are a leading supplier of explosive-grade ammonium nitrate in the Brazilian market.
4.4 Competition
The industry is divided into three major nutrients: potash, phosphate and nitrogen. There are limited resources of potash around the world, with Canada, Russia and Belarus being the most important sources, each of them having only a few producers. The industry requires a high level of investment and a long time for a project to mature. In addition, the potash industry is highly concentrated, with the five major producers accounting for 69% of total world production capacity.
Table of Contents4. INFRASTRUCTURE
Phosphate rock is more available, but the major exporters are located in Morocco, Algeria, Jordan, Egypt and Peru. The top five phosphate rock producing countries (China, Morocco, United States, Russia and Jordan) accounted for 78% of global production in 2015, of which roughly 10% was exported. However, higher value-added products such as MAP and DAP are usually traded instead of phosphate rock due to cost efficiency.
Brazil is one of the largest agribusiness markets in the world due to its high production, exports and consumption of grains and biofuels. It is the fourth-largest consumer of fertilizers in the world and one of the largest importers of potash, phosphates and nitrogen. Brazil imports 95% of its potash consumption, which amounted to approximately 5.1 Mtpy of equivalent K2O (potassium oxide) in 2015, 8% lower than in 2014, from Canadian, Belarusian, Russian, German, Chilean and Israeli producers, in descending order. In terms of global consumption, China, the United States, Brazil and India represented 58% of the total, with Brazil alone representing 14% of total global consumption. Our potash operation and projects are highly competitive in terms of cost and logistics to supply the Brazilian market.
Most phosphate rock concentrate is consumed locally by downstream integrated producers, with the seaborne market corresponding to 14% of total phosphate rock production. Major phosphate rock exporters are concentrated in North Africa, mainly through state-owned companies, with Moroccan OCP Group holding 29% of the total seaborne market. The seaborne trade of phosphate rock supplies non-integrated producers of phosphate fertilizer products such as SSP, TSP and MAP. Brazil imports 54% of its phosphate consumption, which amounted to approximately 2.6 Mtpy of equivalent P2O5 (phosphorus pentoxide) in 2015, 17% lower than in 2014, being the main sources: Morocco, Russia, USA and China, in descending order. Our phosphate operations are highly competitive in terms of cost and logistics to supply the Brazilian market.
Nitrogen-based fertilizers are derived primarily from ammonia (NH3), which, in turn, is made from nitrogen present in the air and natural gas, making this an energy-intensive nutrient. Ammonia is the main component of nitrogen-based fertilizers like ammonium nitrate and urea. Production of nitrogen-based fertilizers has a regional profile due to the high cost associated with transportation and storage of ammonia, which requires refrigerated and pressurized facilities. As a result, only 10% of the ammonia produced worldwide is traded in global markets. Asia receives the largest volume of imports, accounting for 34% of global trade. The main exporting countries are Russia, Trinidad and Canada. Our nitrogen operation is highly competitive in terms of cost and logistics to supply the Brazilian market.
5. Infrastructure
4.1 Logistics
5.1 Logistics
We have developed our logistics business based on the transportation needs of our mining operations and we also provide transportation services for other customers.
We conduct our logistics businesses at the parent-company level and through subsidiaries and joint ventures, as set forth in the table below.
| | | | | | Our share of capital | | | | | | | | Our share of capital | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | | Business | | Location | | Voting | | Total | | Partners | | Business | | Location | | Voting | | Total | | Partners | ||||||||
| | | | | | (%) | | | | | | | | (%) | | | ||||||||||||
Vale | | Railroad (EFVM and EFC), port and maritime terminal operations | | Brazil | | | – | | | – | | – | | Railroad (EFVM and EFC), port and maritime terminal operations | | Brazil | | | – | | | – | | – | ||||
VLI(1) | | Railroad, port, inland terminal and maritime terminal operations. Holding of certain general cargo logistics assets | | Brazil | | | 37.6 | | | 37.6 | | FI-FGTS, Mitsui and Brookfield | | Railroad, port, inland terminal and maritime terminal operations. Holding of certain general cargo logistics assets | | Brazil | | | 37.6 | | | 37.6 | | FI-FGTS, Mitsui and Brookfield | ||||
MRS | | Railroad operations | | Brazil | | | 47.1 | | | 48.2 | | CSN, Usiminas Participações e Logísticas and Gerdau | | Railroad operations | | Brazil | | | 47.6 | | | 47.6 | | CSN, CSN Mineração, Usiminas Participações e Logísticas, Gerdau, Railvest Investments and public investors. | ||||
CPBS | | Port and maritime terminal operations | | Brazil | | | 100 | | | 100 | | – | | Port and maritime terminal operations | | Brazil | | | 100 | | | 100 | | – | ||||
PTVI | | Port and maritime terminal operations | | Indonesia | | | 59.2 | | | 59.2 | | Sumitomo, public investors | | Port and maritime terminal operations | | Indonesia | | | 59.2 | | | 59.2 | | Sumitomo, public investors | ||||
Vale Logística Argentina | | Port operations | | Argentina | | | 100 | | | 100 | | – | ||||||||||||||||
CEAR(2)(4) | | Railroad | | Malawi | | | 43.4 | | | 43.4 | | Portos e Caminhos de Ferro de Moçambique, E.P. | ||||||||||||||||
CDN(3)(4) | | Railroad and maritime terminal operations | | Mozambique | | | 43.4 | | | 43.4 | | Portos e Caminhos de Ferro de Moçambique, E.P. | ||||||||||||||||
CLN(4) | | Railroad and port operations | | Mozambique | | | 80.0 | | | 80.0 | | Portos e Caminhos de Ferro de Moçambique, E.P. | ||||||||||||||||
Vale Logistics Limited(4) | | Railroad operations | | Malawi | | | 100 | | | 100 | | – | ||||||||||||||||
Vale Logística Uruguay | | Port operations | | Uruguay | | | 100 | | | 100 | | – | ||||||||||||||||
Central East African Railways ("CEAR")(2) | | Railroad | | Malawi | | | 46.2 | | | 46.2 | | Mitsui, investors | ||||||||||||||||
Corredor de Desenvolvimento do Norte ("CDN")(2) | | Railroad | | Mozambique | | | 46.2 | | | 46.2 | | Mitsui, investors | ||||||||||||||||
Corredor de Desenvolvimento do Norte—Porto ("CDN Porto")(2) | | Port and maritime terminal operations | | Mozambique | | | 46.2 | | | 46.2 | | Mitsui, investors | ||||||||||||||||
Corredor Logístico Integrado de Nacala S.A. ("CLN")(3) | | Railroad and port operations | | Mozambique | | | 50.0 | | | 50.0 | | Mitsui | ||||||||||||||||
Vale Logistics Limited ("VLL")(4) | | Railroad operations | | Malawi | | | 50.0 | | | 50.0 | | Mitsui | ||||||||||||||||
Transbarge Navegación | | Paraná and Paraguay Waterway System (Convoys) | | Paraguay | | | 100 | | | 100 | | – | | Paraná and Paraguay Waterway System (Convoys) | | Paraguay | | | 100 | | | 100 | | – | ||||
VNC(5) | | Port and maritime terminal operations | | New Caledonia | | | 80.5 | | | 80.5 | | Sumic, SPMSC | ||||||||||||||||
VNC | | Port and maritime terminal operations | | New Caledonia | | | 95.0 | | | 95.0 | | SPMSC | ||||||||||||||||
VMM | | Port and maritime terminal operations | | Malaysia | | | 100 | | | 100 | | – | | Port and maritime terminal operations | | Malaysia | | | 100 | | | 100 | | – | ||||
Vale Newfoundland & Labrador Limited | | Port operations | | Voisey's Bay and Long Harbour, in Newfoundland and Labrador | | | 100 | | | 100 | | – | | Port operations | | Voisey's Bay and Long Harbour, in Newfoundland and Labrador | | | 100 | | | 100 | | – | ||||
Vale Oman Distribution Center LLC | | Port and maritime terminal operations | | Oman | | | 100 | | | 100 | | – | | Port and maritime terminal operations | | Oman | | | 100 | | | 100 | | – |
| | | | |
| | 68 | | |
Lines of Business
4.1.1 Railroads
5.1.1 Railroads
Brazil
Vitória a Minas railroad ("EFVM"). The EFVM railroad links our Southeastern System mines in the Iron Quadrangle region in the Brazilian state of Minas Gerais to the Tubarão Port,port, in Vitória, in the Brazilian state of Espírito Santo. We operate this 905-kilometer888-kilometer railroad under a 30-year renewable concession, which expires in 2027. The EFVM railroad consists of two lines of track extending for a distance of 601584 kilometers to permit continuous railroad travel in opposite directions, and single-track branches of 304 kilometers. Industrial manufacturers are located in this area and major agricultural regions are also accessible to it. VLI has rights to usepurchase railroad transportation capacity on our EFVM railroad. In 2015,2019, the EFVM railroad transported a daily average of 341.6229.5 thousand metric tons of iron ore or a totaland 59.5 thousand metric tons of 80.2 billion ntk of iron ore and other cargo. The EFVM railroad also carried 967 thousand0.98 million passengers in 2015.2019. In 2015,2019, we had a fleet of 333328 locomotives and 15,26319,145 wagons at EFVM.EFVM, which were operated by Vale and third parties.
Carajás railroad ("EFC"). The EFC railroad links our Northern System mines in the Carajás region in the Brazilian state of Pará to the Ponta da Madeira maritime terminal, in São Luis, in the Brazilian state of Maranhão. We operate the EFC railroad under a 30-year renewable concession, which expires in 2027. EFC extends for 892997 kilometers from our Carajás mines to our Ponta da Madeira maritime terminal complex facilities located near the Itaqui Port.facilities. Its main cargo is iron ore, principally carried for us. VLI has rights to usepurchase railroad transportation capacity on our EFC railroad. In 2015,2019, the EFC railroad transported a daily average of 357.9592.2 thousand metric tons of iron ore. In 2015, the EFC railroad carried a total of 120.3 billion ntk of iron ore and 34.3 thousand metric tons of other cargo. EFC also carried 301302 thousand passengers in 2015.2019. EFC supports the largest train, in terms of capacity, in Latin America, which measures 3.5 kilometers, weighs 42.0141.67 thousand gross metric tons when loaded and has 330 cars. In 2015,2019, EFC had a fleet of 284313 locomotives and 17,125 wagons.21,081 wagons, which were operated by Vale and third parties.
The principal items of cargo of the EFVM and EFC railroads are:
We charge market prices for customer freight, including iron ore pellets originating from joint ventures and other enterprises in which we do not have a 100% equity interest. Market prices vary based on the distance traveled, the type of product transported and other criteria, subject to price caps set forth in the weight of the freight in question,relevant concession agreements, and are regulated by the Brazilian transportation regulatory agency, ANTT (Agência Nacional de Transportes Terrestres).
VLI. VLI provides integrated logistics solutions through 7,9207,940 kilometers of railroads in Brazil (FCA and FNS), eight inland terminals with a total storage capacity of 730,000795,000 metric tons and three maritime
| | | | |
| | 69 | | |
Lines of Business
terminals and ports operations. We hold a 37.6% stake in VLI, and are party to a shareholders' agreement with FI-FGTS, Mitsui and Brookfield, which hold the remaining equity interests in VLI. VLI's main assets are:
In 2015,2019, VLI transported a total of 34.838.8 billion ntk of general cargo, including 21.320.7 billion ntk from FCA and FNS and 13.517.1 billion ntk through operational agreements with Vale.
MRS Logística S.A. ("MRS"). The MRS railroad, in which we have a 43.82% equity interest, is 1,643 kilometers long and links the Brazilian states of Rio de Janeiro, São Paulo and Minas Gerais. In 2015, theThe MRS railroad carriedtransports our iron ore products from the Southern System mines to our maritime terminals. In 2019, it transported a totaldaily average of 167 million metric tons of cargo, including 80.7 million233 thousand metric tons of iron ore and 169 thousand metric tons of other cargo from Vale.cargo.
Africa
We are ramping up theThe Nacala Logistics Corridor which(NLC) connects the Moatize mine to the Nacala-à-velha-Velha maritime terminal, located in Nacala, Mozambique, and which crosses into the Republic of Malawi. The Nacala CorridorNLC consists of railway and port infrastructure, including greenfield and rehabilitation of existing railways in Mozambique and Malawi and a new coal port terminal in Mozambique. The Nacala Corridor will allow for the expansion ofNLC transports our coal products from the Moatize mine to our maritime terminal and supportsupports our operations in Southeastern Africa. In Mozambique, we are operating under two concession agreements, one related to the Mozambican greenfield railway and another related to the newly constructed coal port, both held by our subsidiary Corredor Logístico Integrado de Nacala S.A. ("CLN"), which will expire in 2042,2043, subject to renewal. We arehave also rehabilitatingrehabilitated existing railroads under a concession held by our subsidiary, Corredor de Desenvolvimento do Norte S.A. ("CDN"),CDN, which will expire in 2035. In Malawi, we are operating under a concession held by our subsidiary, Vale Logistics Limited ("VLL"),VLL, which will expire in 2044,2046, subject to renewal, and we are rehabilitatinghave also rehabilitated existing railroads under a concession held by our subsidiary, Central East African Railway Company Limited ("CEAR"),CEAR, which was extendedwill expire in 2013 for2046. In 2019, the NLC transported a 30-year period from the commencementdaily average of rail services under VLL's greenfield railway concession.
23.9 thousand metric tons of coal and 1.4 thousand metric tons of other cargo. The NLC also carried 859 thousand passengers in 2019. In December 2014,2019, we entered into an investment agreement providing for Mitsui to acquire halfhad a fleet of our stake in the Nacala Corridor. Our equity stake in CLN, CDN, VLL101 locomotives and CEAR will be transferred to a holding company jointly owned (50% each) and controlled2,677 wagons at NLC, which were operated by Vale and Mitsui. Mitsui will invest US$313 million in this holding company, in equity and quasi-equity instruments. Vale and Mitsui are seeking project financing to replace partCLN.
| | | | |
| | 70 | | |
5.1.2Lines of Business
4.1.2 Ports and maritime terminals
Brazil
We operate a portports and maritime terminals principally as a means to complete the delivery of our iron ore and iron ore pellets to bulk carrier vessels serving the seaborne market. See—Ferrous minerals—Iron ore and iron ore pellets—Iron ore operations. We also use our portports and terminals to handle customers' cargo.
Tubarão and Praia Mole Ports. The Tubarão Port,port, which covers an area of 18 square kilometers, is located near the Vitória Port in the Brazilian state of Espírito Santo and contains the iron ore maritime terminal and the general cargo terminals (Terminal de Granéis Líquidos and theTerminal de Produtos Diversos). The Praia Mole port is also located in the Brazilian state of Espírito Santo.
Ponta da Madeira maritime terminal. Our Ponta da Madeira maritime terminal is located near the Itaqui Port, in the Brazilian state of Maranhão. Pier I can accommodate vessels of up to 420,000 DWT and has a maximum loading rate of 16,000 metric tons per hour. Pier III, which has two berths and three shiploaders, can accommodate vessels of up to 200,000210,000 DWT at the south berth and 180,000 DWT at the north berth (or two vessels of 180,000 DWT simultaneously), subject to tide conditions, and has a maximum loading rate of 8,000 metric tons per hour in each shiploader. Pier IV (south berth) is able to accommodate vessels of up to 420,000 DWT and have two ship loaders that work alternately with a maximum loading rate of 16,000 metric tons per hour. Pier IV (north berth) is able to accommodate vessels of up to 420,000 DWT and have two ship loaders that work alternately with a maximum loading rate of 16,000 metric tons per hour. In 2018, Vale received from the Brazilian tax authorities, the customs authorization for the operations of Pier IV (north berth). Cargo shipped through our Ponta da Madeira maritime terminal consists of our ownthe Northern system production of iron ore, pellets and manganese production.manganese. In 2015, 124.72019, 190 million metric tons of iron ore were handledshipped through the terminal. The Ponta da Madeira maritime terminal has a storage yard with a static capacity of 8.97.2 million tons, which will be expanded to 10.7 millionmetric tons. VLI currently handles and stores fertilizers, grain, pig iron and manganese ore, which are then shipped through the Itaqui Port.
Itaguaí maritime terminal—Cia. Portuária Baía de Sepetiba ("CPBS"). From this terminal we mostly export iron ore from our Southern system. CPBS is a wholly-ownedwholly owned subsidiary that operates the Itaguaí
| | | | |
| | 71 | | |
Lines of Business
terminal, at the Itaguaí Port, in Sepetiba in the Brazilian state of Rio de Janeiro, which is leased from Companhia Docas do Rio de Janeiro—CDRJ.Janeiro (CDRJ). The Itaguaí port terminal has a pier with one berth that allows the loading of ships up to 17.8 meters of draft and approximately 200,000 DWT of capacity. In 2015,2019, the terminal loaded 22.05.7 million metric tons of iron ore.
Guaíba Island maritime terminal. From this terminal we export mostly iron ore from our Southern system. We operate a maritime terminal on Guaíba Island in the Sepetiba Bay, in the Brazilian state of Rio de Janeiro. The iron ore terminal has a pier with two berths that allows the loading of ships of up to 350,000 DWT. In 2015,2019, the terminal loaded 47.321 million metric tons of iron ore.
VLI also operates Inácio Barbosa maritime terminal (TMIB), owned by Petrobras, in the Brazilian state of Sergipe; Santos maritime terminal (TIPLAM), in the Brazilian state of São Paulo, which is jointly owned by VLI and Vale Fertilizantes; and Pier II in the Itaqui Port, which can accommodate vessels of up to 155,000 DWT and has a maximum loading rate of 8,0003,800 metric tons per hour.
Tablehour for pig iron and of Contents3,000 metric tons per hour for grains.
ArgentinaUruguay
Since October 2017, our subsidiary Vale Logística ArgentinaUruguay S.A. ("Vale Logística Argentina"VLU") operates acontracts third-party services to operate the Corporación Navios port terminal at the San Nicolas port located in the provinceNueva Palmira Free Zone in Uruguay. The port terminal provides facilities for the unloading, storing, weighing and loading of Buenos Aires, Argentina, where Vale Logística Argentina has a permitbulk materials from Corumbá, Brazil, by river barge for transshipment to use a storage yard covering 20,000 square meters until October 2016ocean-going vessels destined for Brazilian, Asian and an agreement with third parties for an extra storage yard of 15,000 square meters. WeEuropean markets. In 2019, we handled 2.71.3 million metric tons of iron and manganese ore through this port in 2015, which came from Corumbá, Brazil, via the Paraguay and Paraná rivers, for shipment to Brazilian, Asian and European markets. The loading rate of this port is 24,000 tons per day and the unloading rate is 13,200 tons per day.Corporación Navios port.
Canada
Vale Newfoundland and& Labrador Limited operates a port as part of our mining operation at Voisey's Bay, Labrador and a port as part of our processing operation at Long Harbour, Newfoundland. The port at Voisey's Bay is used for shipping nickel, copper and re-supply. The port at Long Harbour is used to receivingreceive nickel concentrate from Voisey's Bay along with goods and materials required for the Long Harbour operation.
Oman
Vale Oman Distribution Center LLC is part of the Oman Industrial Complex and operates a blending and distribution center in Liwa, Sultanate of Oman. The maritime terminal has a large deep waterdeep-water jetty, a 600-meter long platform connected to the shore by means of a 700-meter long trestle, and is integrated with a storage yard that has a throughput capacity to handle 40 Mtpy of iron ore and iron ore pellets per year. The loading nominal capacity is 10,000 metric tons per hour and the nominal unloading capacity is 9,000 metric tons per hour.
Indonesia
PTVI owns and operates two ports in Indonesia to support its nickel mining activities.
| | | | |
| | 72 | | |
Lines of Business
New Caledonia
We own and operate a port in Prony Bay, Province Sud, New Caledonia. This port has three terminals, including a passenger ferry terminal able to berth two ships up to 50m long, a dry bulk wharf where vessels of up to 55,00058,000 DWT can unload at a rate of 8,000 metric tons per day and a general cargo wharf where vessels up to 215m200m long can berth. The general cargo wharf can move containers at a rate of 10seven per hour and liquid fuels (LPG, HFO, Diesel)diesel) at a rate of 350 cubic meters per hour, and break-bulk. The port's container yard, covering an area of approximately 13,000 square meters, can receive up to 1,0001,300 units. A bulk storage yard is linked to the port by a conveyor and has a storage capacity of 94,000 metric tons of limestone, 95,000 metric tons of sulfur, and 60,000 metric tons of coal.
Malaysia
Teluk Rubiah Maritime Terminal ("TRMT"). TRMT is located in the Malaysian state of Perak and has a pier with two berths that allows the unloading of vessels of approximately 400,000 DWT of capacity and the loading of vessels up to 220,000 DWT of capacity. In 2015,2019, the terminal unloaded 15.224 million metric tons of iron ore and loaded 14.224 million metric tons of iron ore.
4.1.3 Shipping
5.1.3 Shipping
We operate a low-cost fleetMaritime shipping of vessels, comprised of our own ships and ships chartered pursuant to medium and long-term contracts to transport our cargoes from Brazil to our markets. We have 18 vessels in operation, including seven very large ore carriers, with a capacity of 400,000 DWT each, and 11 capesize vessels with capacities ranging from 150,000 to 250,000 DWT. We have 27 very large ore carriers under long-term contracts. To support our iron ore delivery strategy, Vale owns and operates two floating transfer stations in Subic Bay, Philippines that transfer iron ore from very large ore carriers to smaller vessels that deliver the cargo to its destinations. We expect this service to enhance our ability to offer our iron ore products in the Asian market at competitive prices. pellets
In 2015,2019, we shipped approximately 188217 million metric tons of iron ore and pellets onin transactions in which we were responsible for transportation. We ship a CFR and Cost, Insurance & Freight (CIF) basis.
In 2014, we entered into framework agreements for strategic cooperation inlarge amount of our iron ore transportation with shipping companies and financial institutions based in China and Hong Kong. Pursuantproducts from Brazil to these framework agreements, we (i) sold 12 of our very large ore carriers of 400,000 for an aggregate amount of US$1.316 billion in December 2015 and (ii) negotiatedAsia through long-term contracts of affreightment with Chinese ship owners to secure the long-term transportation capacity to ship ourof very large ore carriers (VLOCs). These vessels reduce energy consumption and greenhouse emissions by carrying an increased amount of cargo in a single trip, offering lower shipping costs. In 2019, approximately 84 million metric tons of iron ore from Brazilproducts were transported under long term contracts of affreightment on VLOCs of 400,000 DWT and 325,000 DWT.
In light of the IMO regulation that limits global sulphur emissions to Asia and0.5%, which became effective on January 2020, we negotiated the fitting of scrubbers on most of its dedicated fleet. These scrubbers will allow us to protect against volatility in freight costs. In addition, we sold threecontinue bunkering high-sulphur fuel oil, while complying with the new regulation. We expect 95% of our capesize vessels for approximately US$23 million in 2015.
Indedicated fleet to be scrubber-fitted by the end of 2022.
Paraná and —Paraguay waterway system
Through our subsidiary, Transbarge Navegación, and other chartered convoys, we transport iron ore and manganese ores through the Paraná and Paraguay waterway system. The barges are unloaded in our subsidiary Transbarge Navegación, whichlocal customers' terminals in Argentina or in a contracted terminal in the Nueva Palmira Free Zone in Uruguay, where we load the ore into ocean going vessels. We transported 3.862.1 million metric tons through the waterway system in 2015, and other chartered convoys. The barges are discharged in2019, including 0.6 million metric tons of ore through our local customers' terminals in contracted terminals in Argentina or in the facilities of our subsidiary Vale Logística Argentina, which load the ore into ocean-going vessels. Vale Logística Argentina loaded 2.1and 1.5 million metric tons of ore through a port in Uruguay.
| | | | |
| | 73 | | |
Table of a total loading capacityContents
Lines of 3 million tons, at San Nicolas port into ocean-going vessels in 2015.Business
Tugboats
We manage a fleet of 25 tugboats in total, of which we own.15 owned tugboats. We directly operate nine tugboats which are operated in the ports of Vitória and Mangaratiba, in the Brazilian states of Espírito Santo and Rio de Janeiro, respectively. Four tug boats, operatedWe have a 50% stake in a consortium that operates five tugboats in the portsport of São Luís and Aracaju, in the Brazilian states of Maranhão and Sergipe respectively, are operated by consortium companies,o. We also own two tugboats in which we have a 50% stake. Twelve other tug boats are freighted to and operated by third parties, under their responsibility, in other ports in Brazil.New Caledonia.
5.24.2 Energy
We have developed our energy assets based on the current and projected energy needs of our operations, with the goal of reducing our energy costs and minimizing the risk of energy shortages.
Brazil
Energy management and efficient supply in Brazil are priorities for us, given the uncertainties associated with changes in the regulatory environment and the risk of rising electricity prices. In 2015,2019, our installed capacity in Brazil was 1.2 GW.1.8 GW, sourced from both directly and indirectly owned power plants. We use the electricity produced by these plants for our internal consumption needs. We currently own direct stakes in three hydroelectric power plants and fourthree small hydroelectric power plants in operation. The hydroelectric power plant of Candonga, the operations of which remain suspended since November 2015 as a result of the rupture of the Samarco Dam, is located in the Southeastern region, Machadinho is located in the Southern region, and Estreito is located in the Northern region. The small hydroelectric power plants of Ituerê, Melo,Mello, Glória and Nova Maurício are located in the Southeastern region. WeIn 2018, we sold the Ituerê hydroelectric power plant, located in the Southeastern region, due to its high required investments, low capacity and high cash cost when compared to our other assets. Through our 55% participation in Aliança Geração de Energia S.A. ("Aliança Geração"), we also have indirect stakes in the hydroelectric power plants of Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I, Capim Branco II, through our 55% participation in Aliança Geração. These hydroelectric power plants are located in the Southeastern regionRegion and, partadditionally, we have indirect stake in Santo Inácio, a Wind Complex located in the Brazilian state of itsCeará, which started operations in December 2017. Part of the electricity generated electricity are directedby these assets is supplied to Vale'sour operations through a power purchase agreementagreements with Aliança Geração. SeeBusiness overview—Significant changes
In order to achieve electricity self-sufficiency in our business.Brazil by 2025 and increase renewable energy sources, we signed a long-term energy supply contract for 20 years, which will be supplied by the Folha Larga Sul wind farm, a 151.2 MW project in Campo Formoso, Bahia, Brazil. This project is expected to begin commercial operation by the second half of 2020. The agreement also includes a future asset call option held by Vale. We also approved the construction of two wind farms (Gravier and Acauã) in the Brazilian states of Ceará and Rio Grande do Norte, respectively, through Aliança Geração. Projects have together 180.6 MW of installed capacity and will begin commercial operations by the end of 2021.
We also have a 4.59% indirect stake in Norte Energia S.A. ("Norte Energia"), the company established to develop and operate the Belo Monte hydroelectric plant in the Brazilian state of Pará, which is expected to startstarted operations in April 2016 and accomplished the first quarterstartup of 2016. In April 2015, we sold 49%the last of our 9% stakeits 24 turbines in Norte Energia to CEMIG GT for approximately R$310 million, reducing our stake to 4.59%.2019. Our participation in the Belo Monte project gives us the right to purchase 9% of the electricity generated by the plant, which has already been contracted through a long-term power purchase agreement entered into with Norte Energia. This power purchase agreement has not been affected by the transactions described inBusiness overview—Significant changes in our business—Restructuring our investments in power generation.
We also produce, through our subsidiary Biopalma da Amazônia S.A.S.A—Reflorestamento, Indústria e Comércio. ("Biopalma"), palm oil in the Brazilian state of Pará, with the main objective to produce biodiesel in the future through an extraction plant to be installed by Biopalma. The biodiesel will be blended with regular diesel to produce a fuel called B20 (containing 20% biodiesel), which will be used to power.
| | | | |
| | 74 | | |
Lines of Business
Canada
In 2019, our fleet of mining trucks, heavy machinery and locomotives in the Northern System operations.
Canada
In 2015, our wholly-ownedwholly owned and operated hydroelectric power plants in Sudbury generated 17%19% of the electricity requirements of our Sudbury operations. The power plants consist of five separate generation stations with an installed generator nameplate capacity of 5655 MW. The output of the plants is limited by water availability, as well as by constraints imposed by a water management plan regulated by the provincial government of Ontario. Over the course of 2015,2019, average demand for electrical energy was 195168 MW to all surface plants and mines in the Sudbury area.
In 2015,2019, diesel generation provided 100% of the electric requirements of our Voisey's Bay operations. We also have six diesel generators on-site, with capacityoutput ranging from 12 to 14 MW, in order to meet seasonal demands.
Indonesia
Energy costs are a significant component of our nickel production costs for the processing of lateritic and saprolitic oresore at our PTVI operations in Indonesia. A major portion of PTVI's electric furnace power requirements is supplied at a low cost by its three hydroelectric power plants on the Larona River: (i) the Larona plant, which has an average generating capacity of 165 MW, (ii) the Balambano plant, which has an average capacity of 110 MW and (iii) the Karebbe plant, with 90 MW of average generating capacity. These plants help reduce production costs by substituting oil used for power generation with hydroelectric power, reduce CO2 emissions by replacing non-renewable power generation, and enable us to increase our current nickel production capacity in Indonesia.
Table of Contents5. Other investments
Below is a list of our main other investments:
We have a 25% stake in two iron ore pelletizing plants in China, Zhuhai YPM and Anyang. The remaining stake in Zhuhai YPM is owned by Zhuhai Yueyufeng Iron and Steel Co. Ltd. and Halswell Enterprises Limited, and the remaining stake in Anyang is owned by Anyang Iron & Steel Co., Ltd.
We have a 25% stake in Longyu (in the Henan province) coal operations in China. Longyu produces metallurgical and thermal coal and other related products, and the remaining interests are owned by Yongmei Group Co., Ltd. (former Yongcheng Coal & Electricity (Group) Co. Ltd.), Shanghai Baosteel International Economic & Trading Co., Ltd. and other minority shareholders. In April 2015, we concluded the divestment of our 25% ownership in Yankuang International Coking Company Limited ("Yankuang"), which we held since 2004, with no impact in our cash flow or indebtedness.
tons.
| | | | |
| | 75 | | |
Lines of Business
| | | | |
| | 76 | | |
We have agreed to sell our onshore hydrocarbon exploration licenses in Peru, subject to regulatory approvals. We also have offshore exploration licenses in Brazil, which are being relinquished, subject to regulatory approvals.
Presentation of information concerning reservesPRESENTATION OF INFORMATION CONCERNING RESERVES
The estimates of proven and probable ore reserves at our mines and projects and the estimates of mine life included in this annual report have been prepared by our staff of experienced geologists and engineers, unless otherwise stated, and in accordance with the technical definitions established by the SEC. Under the SEC's Industry Guide 7:
We periodically revise our reserve estimates when we have new geological data, economic assumptions or mining plans. During 2015,2019, we performed an analysis of our reserve estimates for certain projects and operations, which is reflectedpresented in new estimates as of December 31, 2015.this report. Reserve estimates for each operation assume that we either have or expect to obtain all of the necessary rights and permits to mine, extract and process oremineral reserves at each mine. For some of our operations, the projected exhaustion date includes stockpile reclamation. Where we own less than 100% of the operation, reserve estimates have not been adjusted to reflect our proportional ownership interest. Certain figures in the tables, discussions and notes have been rounded. For a description of risks relating to reserves and reserve estimates, seeOverview—Risk factors.
TableAs a part of ContentsVale internal governance process, we have a Mineral Resources and Mineral Reserves Global Committee coordinated by our Exploration and Mineral Projects department and composed of representatives of all business units (Ferrous, Coal and Base Metals) and the Sustainability, Investor Relations and Capital Projects departments. The purpose of these committee is ensuring the transparency, consistency, professional competence and reliability of all information prepared for internal purposes and public reporting. It is also responsible for overseeing the governance of our estimation and reporting of mineral reserves, which include external audits when applicable.
We continue to report our reserves in accordance with the SEC's Industry Guide 7, and we expect to start complying with the new SEC rules governing disclosures on mining properties, including reporting of reserves and resources in our annual report on Form 20-F for the fiscal year ending December 31, 2021. The new SEC rules align SEC disclosure requirements more closely with global regulatory practices and standards, as embodied in standards developed by CRIRSCO (Committee for Mineral Reserves International Reporting Standards). We already estimate our reserves under CRIRSCO standards. However, our reserves estimates may require revisions when reported pursuant to the new SEC standards, which is similar but more prescriptive in some points in comparison with CRIRSCO.
Our reserve estimates are based on certain assumptions about future prices. We have determined that our reported reserves could be economically produced if prices for the products identified in the following
| | | | |
| | 77 | | |
Reserves
table were equal to the three-year average historical prices through December 31, 2015.2019. For this purpose, we used the three-year historical average prices set forth in the following table.
Commodity | | Three-year average historical price | | Pricing source |
---|---|---|---|---|
Iron ore: | | | ||
Vale(1) | | | Average Platts IODEX (62% Fe CFR China) | |
| | | ||
| | | ||
| | | ||
| ||||
| ||||
Base metals: | | | ||
Nickel(3) | | | LME Ni | |
Copper | | | LME Cu | |
Nickel | | | ||
Platinum | | | Average realized price | |
Palladium | | | Average realized price | |
Gold | | | Average realized price | |
Cobalt(3) | | | 99.3% low cobalt metal (source: Metal Bulletin) | |
| ||||
| ||||
| ||||
Manganese ore(4): | | | ||
Manganese | | | Average | |
|
Iron ore reservesIRON ORE RESERVES
The following tables below set forth our iron ore reserves and other information about our iron ore mines. We have changed the presentation of ourOur reserve table to better reflectreflects our production and operational plans, which are based on the facilities (consisting of both mines and processing plants) within each system, rather than the individual mines.
The decrease in totalWe classify our iron ore reserves from 2014as proven reserves to 2015 is mainly duethe extent that they satisfy the requirements of the definition of proven (measured) reserves, as described above, and that we have obtained the environmental licenses for the corresponding pit operation and have at least a reasonable expectation of obtaining on a timely basis any additional licenses necessary to depletion by mine production. conduct the operations.
We periodically review the economic viability of our iron ore reserves in light of changes in the iron ore industry. In our most recent annual review, weWe have determined that our previously reported reserves atthe Urucum and CorumbaCorumbá mines are no longernot economically viable based on expected long-term prices, andthree-year average historical prices. Accordingly, we are accordingly not reporting reserves at those facilities. facilities since 2015.
Variations in iron ore reserves from 2018 to 2019 reflect depletion resulting from mine production for all mines. Our reserves for N4, N5 and Serra Leste (located at the Serra Norte complex in our Northern System) and Segredo (located at the Paraopeba complex in our Southern System) have been positively affected by new geological information and estimates.
We might further reviseare also reporting, for the first time, reserves for our reportedMorro Agudo mine (located at the Minas Centrais complex in our Southeastern System). We are not in a position to disclose the corresponding reserves for Ferrous Resources Limited as the company is still in the future as we continue to reassess the effectsprocess of changing price expectations.being integrated into our operations.
| | | | |
| | 78 | | |
FollowingReserves
After the failurecompletion of the Fundão tailings dam in November 2015integration process we will review the reserves estimates and the shutdownstandards adopted for such estimates, pursuant to our rules for disclosure.
As a result of its operations, Samarco isnew regulations on dams and pursuant to our strategy, we are reviewing and modifying some of our long-term projects, and we are no longer reporting reserves for the operation's reserves. Under these circumstances, Vale is currently notTimbopeba Itabiritos and Alegria Adequação projects located at the Mariana complex in our Southeastern System and Pico Itabiritos, Fábrica Itabiritos and Fábrica Adequação projects in our Southern System, which results in a position to reportreduction of approximately 1.7 billion metric tonnes of total reserves. After conclusion of these studies and our strategic review, we may resume reporting reserves for Samarco as of December 31, 2015.those mines.
| Iron ore reserves(1) | | | Iron ore reserves(1) (As of December 31, 2019) | | |||||||||||||||||||||||||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | |||||||||||||||||||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | ||||||||||||||||||
Southeastern System(2) | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Itabira(3) | | 605.5 | | 47.0 | | 141.2 | | 48.3 | | 746.7 | | 47.2 | | 800.3 | | 47.3 | | | 418.9 | | 47.3 | | 377.4 | | 44.2 | | 796.2 | | 45.8 | | 861.4 | | 45.7 | | ||||||||||||||||
Minas Centrais(4) | | 232.4 | | 51.0 | | 858.7 | | 54.0 | | 1,091.1 | | 53.3 | | 1,123.1 | | 53.2 | | | 141.3 | | 48.3 | | 627.7 | | 56.2 | | 769.0 | | 54.7 | | 734.4 | | 55.4 | | ||||||||||||||||
Mariana(5) | | 833.3 | | 44.5 | | 2,343.8 | | 43.6 | | 3,177.1 | | 43.8 | | 3,216.7 | | 43.9 | | | 194.0 | | 48.1 | | 2,902.3 | | 45.5 | | 3,096.3 | | 45.7 | | 3,874.5 | | 44.7 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Total Southeastern System | | 1,671.3 | | 46.3 | | 3,343.6 | | 46.5 | | 5,014.9 | | 46.4 | | 5,140.1 | | 46.5 | | | 754.2 | | 47.7 | | 3,907.5 | | 47.1 | | 4,661.6 | | 47.2 | | 5,470.4 | | 46.3 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Southern System(6) | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Minas Itabirito(7) | | 1,315.6 | | 43.7 | | 1,571.4 | | 42.8 | | 2,887.0 | | 43.2 | | 2,931.2 | | 43.2 | | |||||||||||||||||||||||||||||||||
Vargem Grande(8) | | 554.4 | | 46.1 | | 1,887.5 | | 44.0 | | 2,441.9 | | 44.5 | | 2,479.4 | | 44.7 | | | 645.3 | | 49.7 | | 2,843.5 | | 46.2 | | 3,488.8 | | 46.8 | | 4,021.6 | | 46.4 | | ||||||||||||||||
Paraopeba(9) | | 129.9 | | 62.5 | | 24.9 | | 59.2 | | 154.8 | | 62.0 | | 171.1 | | 62.1 | | | 184.9 | | 52.8 | | 436.6 | | 54.9 | | 621.5 | | 54.2 | | 1,364.3 | | 45.0 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Total Southern System | | 1,999.9 | | 45.6 | | 3,483.8 | | 43.5 | | 5,483.7 | | 44.3 | | 5,581.7 | | 44.5 | | | 830.2 | | 50.4 | | 3,280.1 | | 47.3 | | 4,110.2 | | 47.9 | | 5,385.9 | | 46.1 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Northern System(10) | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Serra Norte(11) | | 1,408.4 | | 66.6 | | 1,018.0 | | 66.9 | | 2,426.4 | | 66.7 | | 2,535.4 | | 66.7 | | | 596.1 | | 66.2 | | 2,227.6 | | 65.3 | | 2,823.7 | | 65.5 | | 2,019.9 | | 65.9 | | ||||||||||||||||
Serra Sul (S11)(12) | | 3,045.8 | | 66.8 | | 1,193.7 | | 66.7 | | 4,239.6 | | 66.7 | | 4,239.6 | | 66.7 | | |||||||||||||||||||||||||||||||||
Serra Sul(12) | | 1,871.5 | | 66.2 | | 2,326.6 | | 66.4 | | 4,198.1 | | 66.3 | | 4,288.1 | | 66.3 | | |||||||||||||||||||||||||||||||||
Serra Leste | | 140.4 | | 65.7 | | 163.1 | | 65.2 | | 303.5 | | 65.4 | | 305.6 | | 65.4 | | | 0.0 | | 0.0 | | 324.5 | | 65.1 | | 324.5 | | 65.1 | | 256.2 | | 65.4 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Total Northern System | | 4,594.6 | | 66.7 | | 2,374.8 | | 66.6 | | 6,969.4 | | 66.7 | | 7,080.6 | | 66.6 | | | 2,467.6 | | 66.2 | | 4,878.7 | | 65.8 | | 7,346.3 | | 65.9 | | 6,564.1 | | 66.1 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Midwestern System(13) | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Urucum | | – | | – | | – | | – | | – | | – | | 28.9 | | 62.4 | | |||||||||||||||||||||||||||||||||
Corumba(MCR) | | – | | – | | – | | – | | – | | – | | 310.8 | | 62.2 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Total Midwestern System | | – | | – | | – | | – | | – | | – | | 339.7 | | 62.2 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Total Vale Systems | | 8,265.7 | | 57.5 | | 9,220.3 | | 50.6 | | 17,468.0 | | 53.8 | | 18,142.3 | | 54.0 | | | 4,051.9 | | 59.5 | | 12,066.2 | | 54.7 | | 16,118.2 | | 55.9 | | 17,420.4 | | 53.7 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Samarco(14) | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Alegria(15) | | – | | – | | – | | – | | – | | – | | 2,829.4 | | 39.6 | | |||||||||||||||||||||||||||||||||
Germano | | – | | – | | – | | – | | – | | – | | 80.2 | | 39.8 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Total Samarco | | – | | – | | – | | – | | – | | – | | 2,909.7 | | 39.6 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Total | | 8,265.7 | | 57.5 | | 9,220.3 | | 50.6 | | 17,468.0 | | 53.8 | | 21,052.0 | | 52.0 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | 79 | | |
The mine exhaustion schedule has been adjusted due to our new production plan and our revision of project capacity. As a result of the Fundão dam failure, the Alegria and Germano operations' projected exhaustion dates are currently being reevaluated as part of Samarco's general review of its iron ore resources and reserves.
| | Iron ore integrated operations | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Southeastern System | | | | | | | | | | | | |||||||
Itabira | | Open pit | | | 1957 | | | | 2025 | | | | 100.0 | | | |||
Minas Centrais(1) | | Open pit | | | 1994 | | | | 2051 | | | | 100.0 | | | |||
Mariana | | Open pit | | | 1976 | | | | 2083 | | | | 100.0 | | | |||
Southern System | | | | | | | | | | | | |||||||
Minas Itabirito | | Open pit | | | 1942 | | | | 2050 | | | | 100.0 | | | |||
Vargem Grande | | Open pit | | | 1993 | | | | 2079 | | | | 100.0 | | | |||
Paraopeba | | Open pit | | | 2001 | | | | 2027 | | | | 100.0 | | | |||
Northern System | | | | | | | | | | | | |||||||
Serra Norte | | Open pit | | | 1984 | | | | 2034 | | | | 100.0 | | | |||
Serra Sul (S11CD) | | Open pit | | | – | | | | 2065 | | | | 100.0 | | | |||
Serra Leste (SL1) | | Open pit | | | 2014 | | | | 2066 | | | | 100.0 | | | |||
Midwestern System | | | | | | | | | | | | |||||||
Urucum | | Open pit | | | 1994 | | | | – | | | | 100.0 | | | |||
Corumba (MCR) | | Open pit | | | 1978 | | | | – | | | | 100.0 | | | |||
Samarco | | | | | | | | | | | | |||||||
Alegria | | Open pit | | | 2000 | | | | – | | | | 50.0 | | | |||
Germano | | Open pit | | | 2000 | | | | – | | | | 50.0 | | |
Table of ContentsReserves
Manganese ore reserves
The following tables set forth manganese ore reserves and other information about our mines. In our most recent annual review, we determined that our previously reported manganese reserves at Urucum are no longer economically viable based on expected long-term prices, and we are accordingly not reporting reserves at this facility. Azul reserves decreased from 2014 to 2015 due to mine production depletion. Morro da Mina ore reserves decreased due to the revision of the mining design following new geotechnical studies.
| Manganese ore reserves(1)(2) | | |||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | |||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | |||||||||
Azul | | 41.5 | | 29.5 | | 2.2 | | 25.7 | | 43.6 | | 29.3 | | 47.0 | | 29.4 | | ||||||||
Urucum | | – | | – | | – | | – | | – | | – | | 11.2 | | 46.4 | | ||||||||
Morro da Mina(3) | | 5.8 | | 31.0 | | 2.8 | | 29.7 | | 8.6 | | 30.6 | | 14.3 | | 25.4 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
Total | | 47.3 | | 29.7 | | 5.0 | | 27.9 | | 52.2 | | 29.6 | | 72.4 | | 31.2 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | |
| | Manganese ore mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Azul | | Open pit | | | 1985 | | | | 2029 | | | | 100.0 | | | |||
Urucum | | Underground | | | 1976 | | | | – | | | | 100.0 | | | |||
Morro da Mina | | Open pit | | | 1902 | | | | 2050 | | | | 100.0 | | |
The mine exhaustion schedule has been adjusted due to our new production plan and our revision of project capacity.
| | Iron ore integrated operations | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date(1) | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Southeastern System | | | | | | | | | | | | |||||||
Itabira | | Open pit | | | 1957 | | | | 2029 | | | | 100.0 | | | |||
Minas Centrais | | Open pit | | | 1994 | | | | 2065 | | | | 96.0 | | | |||
Mariana | | Open pit | | | 1976 | | | | 2091 | | | | 100.0 | | | |||
Southern System | | | | | | | | | | | | |||||||
Vargem Grande(2) | | Open pit | | | 1942 | | | | 2119 | | | | 100.0 | | | |||
Paraopeba(2) | | Open pit | | | 2003 | | | | 2073 | | | | 100.0 | | | |||
Northern System | | | | | | | | | | | | |||||||
Serra Norte | | Open pit | | | 1984 | | | | 2047 | | | | 100.0 | | | |||
Serra Sul | | Open pit | | | 2016 | | | | 2056 | | | | 100.0 | | | |||
Serra Leste | | Open pit | | | 2014 | | | | 2054 | | | | 100.0 | | |
Coal reservesMANGANESE ORE RESERVES
The following tables set forth manganese ore reserves and other information about our mines. The variation in the mine's ore reserves from 2018 to 2019 predominantly reflects depletion through mine production. Our manganese ore reserves information for Urucum are currently being reviewed to consider new economic assumptions and ongoing geotechnical studies, which are expected to be completed by 2020. Although the Urucum mine continues to operate, we are not in a position to report reserves for the Urucum mine until the conclusion of these studies.
| Manganese ore reserves(1)(2) (As of December 31, 2019) | | |||||||||||||||||||||||
| Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | |||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | ||||||||||
Azul | | 9.1 | | 26.5 | | 4.0 | | 27.5 | | 13.1 | | 26.8 | | 14.7 | | 26.8 | | ||||||||
Morro da Mina | | 4.6 | | 28.5 | | 3.6 | | 24.6 | | 8.3 | | 26.8 | | 8.5 | | 26.7 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
Total | | 13.7 | | 27.2 | | 7.7 | | 26.2 | | 21.4 | | 26.8 | | 23.2 | | 26.7 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | |
The mine exhaustion schedule has been adjusted to reflect our new production plan.
| | Manganese ore mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Azul | | Open pit | | | 1985 | | | | 2025 | | | | 100.0 | | | |||
Morro da Mina | | Open pit | | | 1902 | | | | 2055 | | | | 100.0 | | |
| | | | |
| | 80 | | |
Reserves
COAL RESERVES
Our coal reserve estimates have been provided on an in-place material basis after adjustments for depletion moisture content,through mine production, anticipated mining losses and dilution. Marketable reserves include adjustments for losses associated with beneficiation of raw coal mined to meet saleable product requirements. Our coal reserve estimate decreased by approximately 16 million metric tons after the conclusion of an extensive infill exploration program in the last 2 years, which included a drilling campaign and bidimensional seismic surveys, and consequent review of geological factors such as the presence of complex structures and a better definition of the extent of heat affected coal. Our reported reserve estimates also decreased in approximately 21 million metric tons due to the existence of an interference with local infrastructure, which we plan to reevaluate in the coming years.
We continue our brownfield exploration program in Moatize aiming to reduce geological uncertainties, improve the confidence of our mining plans and expand our reserves. The results of this campaign are still under analysis and have not been reflected in our ore reserve disclosure, they are expected for 2021.
| | Coal ore reserves(1) | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | ROM(2) | | | | | | ||||||||||||||||||||
| | Marketable reserves(3) | | ||||||||||||||||||||||||
| | | | Proven – 2015 | | Probable – 2015 | | | | | | | | | | ||||||||||||
| | Coal type | | Total – 2015 | | Total – 2014 | | 2015 | | 2014 | | ||||||||||||||||
| | (tonnage) | | (tonnage) | | (calorific value) | | (tonnage) | | (calorific value) | | (tonnage) | | (tonnage) | | ||||||||||||
Carborough Downs—Underground(4) | | Metallurgical & PCI | | 4.0 | | – | | 4.0 | | 31.2 (PCI) | | 23.7 | | 31.2 (PCI) | | | 3.0 | | | | 15.7 | | | ||||
Moatize | | Metallurgical & thermal l | | 264.3 | | 1,148.2 | | 1,412.5 | | 28.3 (thermal) | | 1,424.5 | | 28.3 (thermal) | | | 505.6 | | | | 510.5 | | | ||||
| | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | 268.3 | | 1,148.2 | | 1,416.5 | | | 1,448.2 | | | | 508.6 | | | | 526.2 | | | |||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | |
| Coal ore reserves(1) (As of December 31, 2019) | |||||||||||||||||
| ROM(2) | | Marketable reserves(3) | |||||||||||||||
| | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | 2019 | | 2018 | ||||||
| Coal type | | Tonnage | | Tonnage | | Tonnage | CV | | Tonnage | | CV | | Tonnage | | Tonnage | ||
Moatize | | Metallurgical & thermal | | 194.6 | | 719.2 | | 913.8 | | 26 | | 985.7 | | 26.0 | | 364.9 | | 403.0 |
| | Coal mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Moatize | | Open pit | | | 2011 | | | | 2039 | | | | 80.75 | | |
| | | | |
| | 81 | | |
Reserves at Carborough Downs reduced based on updated economic price forecasts and Moatize decreased in 2015 due to production depletion.
| | Coal mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Carborough Downs | | Underground | | | 2006 | | | | 2017 | | | | 90.0 | | | |||
Moatize(1) | | Open pit | | | 2011 | | | | 2042 | | | | 95.0 | | |
Nickel ore reservesReserves
NICKEL ORE RESERVES
Our nickel mineral reserve estimates are of in-place material after adjustments for depletion and mining losses (or screening and drying in the casescase of PTVI and VNC)PTVI) and recoveries, with no adjustments made for metal losses due to processing.
| Nickel ore reserves(1) (As of December 31, 2019) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nickel ore reserves(1) | | | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | Recovery | | |||||||||||||||||||||||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | Recovery | | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | range | | ||||||||||||||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | range (%) | | | | | | | | | | | (%) | | |||||||||||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sudbury | | 41.4 | | 1.32 | | 35.0 | | 1.21 | | 76.4 | | 1.27 | | 85.2 | | 1.26 | | 75 – 85 | | | 19.0 | | 1.59 | | 39.1 | | 1.28 | | 58.1 | | 1.38 | | 61.7 | | 1.40 | | 75 – 85 | | ||||||||||||||||||
Thompson | | 6.5 | | 1.86 | | 14.1 | | 1.64 | | 20.6 | | 1.71 | | 21.8 | | 1.76 | | 85 – 90 | | | – | | – | | – | | – | | – | | – | | – | | – | | 85 – 90 | | ||||||||||||||||||
Voisey's Bay | | 17.9 | | 2.66 | | 18.2 | | 1.82 | | 36.1 | | 2.24 | | 14.7 | | 2.37 | | 80 – 90 | | | 13.4 | | 2.24 | | 15.5 | | 2.00 | | 28.9 | | 2.11 | | 31.0 | | 2.12 | | 80 – 90 | | ||||||||||||||||||
Indonesia | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
PTVI | | 96.9 | | 1.80 | | 22.3 | | 1.73 | | 119.3 | | 1.78 | | 125.4 | | 1.79 | | 85 – 90 | | | 66.2 | | 1.72 | | 41.4 | | 1.75 | | 107.6 | | 1.73 | | 116.4 | | 1.74 | | 85 – 90 | | ||||||||||||||||||
New Caledonia | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
VNC | | – | | – | | – | | – | | – | | – | | 122.3 | | 1.42 | | 80 – 90 | | | – | | – | | – | | – | | – | | – | | – | | – | | – | | ||||||||||||||||||
Brazil | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Onça Puma | | 57.5 | | 1.67 | | 40.0 | | 1.39 | | 97.4 | | 1.56 | | 98.7 | | 1.56 | | 85 – 90 | | |||||||||||||||||||||||||||||||||||||
Onça Puma(2) | | 60.3 | | 1.66 | | 53.1 | | 1.38 | | 113.3 | | 1.53 | | 113.8 | | 1.53 | | 85 – 90 | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total | | 220.2 | | 1.75 | | 129.6 | | 1.49 | | 349.8 | | 1.65 | | 468.1 | | 1.57 | | | | 158.9 | | 1.73 | | 149.1 | | 1.52 | | 307.9 | | 1.63 | | 322.9 | | 1.64 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Canada, our Sudbury operationsand Voisey's Bay operation's mineral reserves decreased in 2019 due to mining depletions,depletion. In Indonesia, the reclassification of mineral reserves to mineral resource at Garson, downgrading of mineral reserve to exploration target at Stobie and a decrease of mineral reserves at Copper Cliffthe PTVI operations decreased due to re-interpretationdepletion and planning changes. Mineral reserves at Thompson decreased mainly due to mining depletion. The Voisey's Bay operations mineral reserves increased due to the addition of the Underground Project mineral reserves.pit optimization studies. The mineral reserves at PTVIOnça Puma, in Brazil, decreased due to mining depletion, pit redesigns, reclassification to mineral resource, decreases at Petea to reflect the production reconciliation data,reclaiming stockpiles and sterilization relateddue to the establishmentresumption of waste disposal areas. mining operations in the third quarter of 2019. (seeOverview—Business overview—Resumption of operations in Onça Puma).
We are not reporting the mineral reserves of VNC and Thompson as of December 31, 2015,2019, because the mineral reserves for our operations in New Caledonia and Thompson would not be economically viable at the three-year historical average price, due to the decline in nickel prices in the past three years. However, based on our expectations about future prices, our operations in New Caledonia and Thompson continue to be economically viable. VNC continuesand Thompson continue to operate and isare currently conducting studies to identify measures to reduce itstheir costs of production.
| | | | |
| | 82 | | |
Reserves
| | Nickel ore mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Canada | | | | | | | | | | | | |||||||
Sudbury | | Underground | | | 1885 | | | | 2043 | | | | 100.0 | | | |||
Thompson | | Underground | | | 1961 | | | | – | | | | 100.0 | | | |||
Voisey's Bay(1) | | Open pit/Underground | | | 2005 | | | | 2034 | | | | 100.0 | | | |||
Indonesia | | | | | | | | | | | | |||||||
PTVI | | Open pit | | | 1977 | | | | 2044 | (2) | | | 59.28 | | | |||
New Caledonia | | | | | | | | | | | | |||||||
VNC | | Open pit | | | 2011 | | | | – | | | | 95.0 | | | |||
Brazil | | | | | | | | | | | | |||||||
Onça Puma | | Open pit | | | 2011 | | | | 2072 | | | | 100.0 | | |
| | Nickel ore mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Canada | | | | | | | | | | | | |||||||
Sudbury | | Underground | | | 1885 | | | | 2039 | | | | 100.0 | | | |||
Thompson | | Underground | | | 1961 | | | | 2032 | | | | 100.0 | | | |||
Voisey's Bay | | Open pit | | | 2005 | | | | 2032 | | | | 100.0 | | | |||
Indonesia | | | | | | | | | | | | |||||||
PTVI | | Open pit | | | 1977 | | | | 2035 | | | | 59.2 | | | |||
New Caledonia | | | | | | | | | | | | |||||||
VNC | | Open pit | | | 2011 | | | | – | | | | 80.5 | | | |||
Brazil | | | | | | | | | | | | |||||||
Onça Puma | | Open pit | | | 2011 | | | | 2056 | | | | 100.0 | | |
Copper ore reservesCOPPER ORE RESERVES
Our copper mineral reserve estimates are of in-place material after adjustments for depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.
| Copper ore reserves(1) (As of December 31, 2019) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Copper ore reserves(1) | | | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | Recovery | | |||||||||||||||||||||||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | Recovery | | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | range | | ||||||||||||||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | range (%) | | | | | | | | | | | % | | |||||||||||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sudbury | | 41.4 | | 1.83 | | 35.0 | | 1.36 | | 76.4 | | 1.61 | | 85.2 | | 1.61 | | 90 – 95 | | | 19.0 | | 2.38 | | 39.1 | | 1.45 | | 58.1 | | 1.75 | | 61.7 | | 1.78 | | 90 – 95 | | ||||||||||||||||||
Voisey's Bay | | 17.9 | | 1.29 | | 18.2 | | 0.81 | | 36.1 | | 1.05 | | 14.7 | | 1.32 | | 90 – 95 | | | 13.4 | | 0.98 | | 15.5 | | 0.88 | | 28.9 | | 0.92 | | 31.0 | | 0.94 | | 90 – 95 | | ||||||||||||||||||
Brazil | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sossego | | 103.9 | | 0.66 | | 13.9 | | 0.70 | | 117.8 | | 0.67 | | 126.6 | | 0.70 | | 90 – 95 | | |||||||||||||||||||||||||||||||||||||
Salobo | | 654.5 | | 0.71 | | 502.3 | | 0.61 | | 1,156.8 | | 0.67 | | 1,179.1 | | 0.67 | | 80 – 90 | | |||||||||||||||||||||||||||||||||||||
Zambia | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||
Lubambe | | 5.1 | | 2.27 | | 43.5 | | 2.25 | | 48.6 | | 2.25 | | 43.1 | | 2.24 | | 85 – 90 | | |||||||||||||||||||||||||||||||||||||
Sossego(2) | | 96.6 | | 0.69 | | 12.6 | | 0.52 | | 109.3 | | 0.67 | | 109.0 | | 0.66 | | 90 – 95 | | |||||||||||||||||||||||||||||||||||||
Salobo(3) | | 316.1 | | 0.57 | | 832.4 | | 0.62 | | 1,148.4 | | 0.60 | | 1,156.9 | | 0.61 | | 80 – 90 | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total | | 822.8 | | 0.78 | | 612.9 | | 0.78 | | 1,435.7 | | 0.78 | | 1,448.7 | | 0.78 | | | | 445.1 | | 0.69 | | 899.6 | | 0.66 | | 1,344.7 | | 0.67 | | 1,358.5 | | 0.67 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Canada, our Sudbury operationsand Voisey's Bay operations' mineral reserves decreased in 2019 due to mining depletions, the reclassification of mineral reserves to mineral resource at Garson, downgrading of mineral reserve to exploration target at Stobie and a decrease of mineral reserves at Copper Cliff due to re-interpretation and planning changes. The Voisey's Bay operations mineral reserves increased due to the addition of the Underground Project mineral reserves.depletion. In Brazil, the Sossego operationsoperation's mineral reserves decreased due to miningremained relatively constant with depletion partially offset by the addition of mineralan increase from conversion to reserves located in the bottom of the pits.from resources. The mineral reserve estimates at the Salobo operation decreased due to mining depletion. The Lubambedepletion, partially offset by medium and low-grade stockpile additions and conversion from resources to reserves. Furthermore, approximately 292 million metric tons of proven mineral reserves increasedwere re-categorized as probable reserves due to re-interpretation and changes in certain factors relating to mining recovery and dilution.a drill spacing study for resource classification.
| | | | |
| | 83 | | |
Reserves
| | Copper ore mines | | | Copper ore mines | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | | Type | | Operating since | | Projected exhaustion date | | Vale interest | | ||||||||||||||||||
| | | | | | | | (%) | | | | | | | | | (%) | | ||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Sudbury | | Underground | | | 1885 | | | 2039 | | | 100.0 | | | | Underground | | | 1885 | | | 2043 | | | 100.0 | | | ||||||||||
Voisey's Bay | | Open pit | | | 2005 | | | 2032 | | | 100.0 | | | | Open pit/Underground | | | 2005 | | | 2034 | | | 100.0 | | | ||||||||||
Brazil | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Sossego | | Open pit | | | 2004 | | | 2024 | | | 100.0 | | | | Open pit | | | 2004 | | | 2028 | | | 100.0 | | | ||||||||||
Salobo | | Open pit | | | 2012 | | | 2065 | | | 100.0 | | | | Open pit | | | 2012 | | | 2052 | | | 100.0 | | | ||||||||||
Zambia | | | | | | | | | | |||||||||||||||||||||||||||
Lubambe | | Underground | | | 2013 | | | 2038 | | | 40.0 | | |
PGMs and other precious metals reservesPGMS AND OTHER PRECIOUS METALS RESERVES
We expect to recover significant quantities of precious metals as by-productsbyproducts of our Sudbury, Sossego and Salobo operations. Our mineral reserve estimates are of in-place material after adjustments for mining depletion and mining losses and recoveries, with no adjustments made for metal losses due to processing.
| Precious metals reserves(1) (As of December 31, 2019) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Precious metals reserves(1) | | | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | Recovery | | |||||||||||||||||||||||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | Recovery | | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | range | | ||||||||||||||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | range (%) | | | | | | | | | | | (%) | | |||||||||||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sudbury | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Platinum | | 41.4 | | 1.0 | | 35.0 | | 1.2 | | 76.4 | | 1.1 | | 85.2 | | 1.0 | | 80 – 90 | | | 19.0 | | 1.37 | | 39.1 | | 1.20 | | 58.1 | | 1.26 | | 61.7 | | 1.2 | | 80 – 90 | | ||||||||||||||||||
Palladium | | 41.4 | | 1.1 | | 35.0 | | 1.1 | | 76.4 | | 1.1 | | 85.2 | | 1.2 | | 80 – 90 | | | 19.0 | | 1.55 | | 39.1 | | 1.50 | | 58.1 | | 1.52 | | 61.7 | | 1.5 | | 80 – 90 | | ||||||||||||||||||
Gold | | 41.4 | | 0.4 | | 35.0 | | 0.4 | | 76.4 | | 0.4 | | 85.2 | | 0.4 | | 80 – 90 | | | 19.0 | | 0.56 | | 39.1 | | 0.43 | | 58.1 | | 0.47 | | 61.7 | | 0.5 | | 80 – 90 | | ||||||||||||||||||
Brazil | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sossego | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Gold | | 103.9 | | 0.2 | | 13.9 | | 0.2 | | 117.8 | | 0.2 | | 126.6 | | 0.2 | | 75 – 80 | | |||||||||||||||||||||||||||||||||||||
Gold(2) | | 96.6 | | 0.19 | | 12.6 | | 0.14 | | 109.3 | | 0.18 | | 109.0 | | 0.2 | | 75 – 80 | | |||||||||||||||||||||||||||||||||||||
Salobo | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Gold | | 654.5 | | 0.4 | | 502.3 | | 0.4 | | 1,156.8 | | 0.4 | | 1,179.1 | | 0.4 | | 60 – 70 | | |||||||||||||||||||||||||||||||||||||
Gold(3) | | 316.1 | | 0.30 | | 832.4 | | 0.32 | | 1,148.4 | | 0.32 | | 1,156.9 | | 0.3 | | 60 – 70 | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total Pt + Pd(2) | | 41.4 | | 2.1 | | 35.0 | | 2.3 | | 76.4 | | 2.2 | | 85.2 | | 2.2 | | | ||||||||||||||||||||||||||||||||||||||
Total Pt + Pd(4) | | 19.0 | | 2.92 | | 39.1 | | 2.70 | | 58.1 | | 2.77 | | 61.7 | | 2.8 | | | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total Gold | | 799.8 | | 0.4 | | 551.2 | | 0.4 | | 1,351.0 | | 0.4 | | 1,390.9 | | 0.4 | | | | 431.7 | | 0.29 | | 884.1 | | 0.32 | | 1,315.8 | | 0.31 | | 1,327.6 | | 0.3 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Sudbury, our mineral reserve estimates for platinum, palladium and gold decreased for the same reasons discussed above in connection with the nickel mineral reserves. In Brazil, mineral reserve estimates for gold changed for the same reasons discussed above in connection with the copper mineral reserves.
| | Precious metals mines | | | Precious metals mines | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | | Type | | Operating since | | Projected exhaustion date | | Vale interest | | ||||||||||||||||||
| | | | | | | | (%) | | | | | | | | | (%) | | ||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Sudbury | | Underground | | | 1885 | | | 2039 | | | 100.0 | | | | Underground | | | 1885 | | | 2043 | | | 100.0 | | | ||||||||||
Brazil | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Sossego | | Open pit | | | 2004 | | | 2024 | | | 100.0 | | | | Open pit | | | 2004 | | | 2028 | | | 100.0 | | | ||||||||||
Salobo | | Open pit | | | 2012 | | | 2065 | | | 100.0 | | | | Open pit | | | 2012 | | | 2052 | | | 100.0 | | |
| | | | |
| | 84 | | |
Reserves
COBALT ORE RESERVES
We expect to recover significant quantities of cobalt as a by-productbyproduct of our Sudbury and Voisey's Bay operations. Our cobalt reserve estimates are of in-place material after adjustments for depletion and mining losses, with no adjustments for metal losses due to processing.
| Cobalt ore reserves(1) (As of December 31, 2019) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cobalt ore reserves(1) | | | Proven – 2019 | | Probable – 2019 | | Total – 2019 | | Total – 2018 | | Recovery | | |||||||||||||||||||||||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | Recovery | | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | Grade | | Tonnage | | Grade | | range | | ||||||||||||||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | range (%) | | | | | | | | | | | % | | |||||||||||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sudbury | | 41.4 | | 0.04 | | 35.0 | | 0.03 | | 76.4 | | 0.04 | | 85.2 | | 0.04 | | 20 – 40 | | | 19.0 | | 0.04 | | 39.1 | | 0.04 | | 58.1 | | 0.04 | | 61.7 | | 0.03 | | 20 – 40 | | ||||||||||||||||||
Voisey's Bay | | 17.9 | | 0.15 | | 18.2 | | 0.11 | | 36.1 | | 0.13 | | 14.7 | | 0.11 | | 70 – 80 | | | 13.4 | | 0.13 | | 15.5 | | 0.12 | | 28.9 | | 0.13 | | 31.0 | | 0.13 | | 70 – 80 | | ||||||||||||||||||
New Caledonia | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
VNC | | – | | – | | – | | – | | – | | – | | 122.3 | | 0.11 | | 80 – 90 | | | – | | – | | – | | – | | | | | | – | | – | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total | | 59.3 | | 0.07 | | 53.2 | | 0.06 | | 112.5 | | 0.07 | | 222.2 | | 0.08 | | | | 32.4 | | 0.08 | | 54.6 | | 0.06 | | 87.0 | | 0.07 | | 92.7 | | 0.06 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | |
Our cobalt reserve estimates decreased in 20152019 for the same reasons discussed above in connection with the nickel mineral reserves.
| | Cobalt ore mines | | | Cobalt ore mines | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | | Type | | Operating since | | Projected exhaustion date | | Vale interest | | ||||||||||||||||||
| | | | | | | | (%) | | | | | | | | | (%) | | ||||||||||||||||||
Canada | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Sudbury | | Underground | | | 1885 | | | 2039 | | | 100.0 | | | | Underground | | | 1885 | | | 2043 | | | 100.0 | | | ||||||||||
Voisey's Bay | | Open pit | | | 2005 | | | 2032 | | | 100.0 | | | | Open pit/ Underground | | | 2005 | | | 2034 | | | 100.0 | | | ||||||||||
New Caledonia | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
VNC | | Open pit | | | 2011 | | | – | | | 80.5 | | | | Open pit | | | 2011 | | | – | | | 95.0 | | |
Phosphate reserves
Our phosphate reserves estimates are of in-place material after adjustments for depletion and mining dilution. The total phosphate reserves have decreased due to production and the reclassification of 40.2 million dmt of mineral reserves of secondary ore to mineral resources at Araxá. The remaining phosphate reserves decreased due to mine production depletion.
| | | | |
| | 85 | | |
| Phosphate reserves(1)(2) | | |||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | |||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | |||||||||
Bayóvar(3) | | 153.1 | | 16.2 | | 248.9 | | 14.9 | | 402.0 | | 15.4 | | 409.3 | | 15.4 | | ||||||||
Catalão | | 63.3 | | 10.5 | | 30.3 | | 10.6 | | 93.5 | | 10.5 | | 97.9 | | 10.5 | | ||||||||
Tapira | | 288.6 | | 7.8 | | 378.1 | | 7.4 | | 666.6 | | 7.6 | | 679.2 | | 7.6 | | ||||||||
Araxá | | 84.5 | | 11.9 | | 2.1 | | 8.4 | | 86.6 | | 11.9 | | 130.6 | | 11.6 | | ||||||||
Cajati | | 59.3 | | 5.6 | | 45.5 | | 4.7 | | 104.8 | | 5.2 | | 109.6 | | 5.2 | | ||||||||
Patrocinio project(4) | | 183.8 | | 13.7 | | 302.3 | | 11.1 | | 486.1 | | 12.1 | | 486.1 | | 12.1 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
Total | | 832.5 | | 11.1 | | 1,007.2 | | 10.3 | | 1,893.6 | | 10.7 | | 1,912.5 | | 10.7 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | |
| | Phosphate rock ore mine | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Bayóvar | | Open pit | | | 2010 | | | | 2045 | (1) | | | 40.0 | | | |||
Catalão | | Open pit | | | 1982 | | | | 2033 | | | | 100.0 | | | |||
Tapira | | Open pit | | | 1979 | | | | 2054 | | | | 100.0 | | | |||
Araxá | | Open pit | | | 1977 | | | | 2024 | | | | 100.0 | | | |||
Cajati | | Open pit | | | 1970 | | | | 2035 | | | | 100.0 | | | |||
Patrocinio project | | Open pit | | | – | | | | 2045 | (1) | | | 100.0 | | |
Potash ore reserves
The total potash reserves of the Taquari-Vassouras mine have decreased mainly due to mine production depletion and as result of a mine planning revision. The reserve estimates are of in-place material after adjustments for depletion, mining losses and recoveries, with no adjustments made for metal losses due to processing.
| Potash ore reserves(1)(2) | | |||||||||||||||||||||||
| Proven – 2015 | | Probable – 2015 | | Total – 2015 | | Total – 2014 | | |||||||||||||||||
| Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | Tonnage | | Grade | | |||||||||
Taquari-Vassouras(3) | | 3.2 | | 25.6 | | 4.5 | | 22.4 | | 7.7 | | 23.7 | | 10.6 | | 24.2 | | ||||||||
Carnalita Project | | 247.1 | | 12.2 | | 54.5 | | 12.2 | | 301.6 | | 12.2 | | 301.6 | | 12.2 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
Total | | 250.3 | | 12.4 | | 59.0 | | 13.0 | | 309.3 | | 12.5 | | 312.2 | | 12.6 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | |
| | Potash ore mines | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Type | | Operating since | | Projected exhaustion date | | Vale interest | | |||||||||
| | | | | | | | (%) | | |||||||||
Taquari-Vassouras(1) | | Underground | | | 1986 | | | | 2018 | | | | 100.0 | | | |||
Carnalita Project(2) | | Solution mining | | | – | | | | 2042 | | | | 100.0 | | |
We have an extensive program of investmentsOur investment budget for capital expenditures in the organic growth of2020 is approximately US$5 billion, including approximately US$4.1 billion to sustaining our businesses. The figures discussed in this section are for project execution and sustaining existing operations and replacement projects.
The 2016 investment budget approved by our Board of Directors isprojects and approximately US$3.172 billion900 million for project execution, reflecting a 50.1% decrease35% increase compared to the 2015 investment budget, and US$2.995 billion for sustaining existing operations and replacement projects, reflecting a 21.3% decrease compared to 2015. This is the fifth consecutive year of lower capital expenditures, maintaining capital discipline and focusing only on world class projects.
In February 2016, our Board of Directors approved a contingency plan for 2016, pursuant to which we target reducing the investment budget for 2016 to US$5.561 billion, being US$3.130 billion for project execution and US$2.431 billion for sustaining existing operations and replacement projects.
2019. Most of the capital expenditures budget for project execution will be invested in Brazil (90%) and in Mozambique (10%(93%).
| | 2014 expenditures | | 2015 expenditures | | 2016 budget | | | 2020 budget | | 2019 expenditures(1) | | 2018 expenditures(1) | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (US$ million) | | (US$ million) | | (US$ million) | | (% of total) | | | (US$ million) | | (% of total) | | (US$ million) | | ||||||||||
Project execution | | 7,920 | | 5,548 | | 3,172 | | 51% | | |||||||||||||||||
Investments to sustain existing operations and replacement projects | | 4,059 | | 2,853 | | 2,995 | | 49% | | |||||||||||||||||
Project execution (construction in progress) | | 900 | | 18.0% | | | 544 | | | 888 | | | ||||||||||||||
Investments to sustain existing operations and replacement projects (property, plant and equipment) | | 4,100 | | 82.0% | | | 3,160 | | | 2,896 | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Total | | US$11,979 | | US$8,401 | | US$6,167 | | 100% | | | US$ | 5,000 | | 100% | | | 3,704 | | | US$ | 3,784 | | | |||
| | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | | |
We are developing aOur project portfolio is comprised of few projects, largely under development, focused on organic growth portfolioand with fewer projects, but higher expectedexpectations of high rates of return. Our two main initiative,initiatives, the S11DSalobo III project accountsand the Northern System 240Mt Program, account for 72.3%61% of the US$3.172 billion budgeted900 million budget for project execution in 2016.
Table2020. With respect to replacement projects, the VBME and the Gelado projects account for 15% of Contentsthe US$ 4.1 billion budget for sustaining existing operations and replacement projects.
The following table sets forth total expenditures in 20152019 for our main investment projects and expenditures budgeted for those projects in 2016,2020, together with estimated total expenditures for each project and the actual or estimated start-up date of each project as of December 31, 2015.2019.
| | | | | | Executed CAPEX | | Expected CAPEX | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Business area | | Main projects(1) | | Actual or estimated start-up | | 2015(2) | | Total executed(3) | | 2016(4) | | Total expected(5) |
| | | | | | (US$ million) | ||||||
Iron ore | | Carajás Serra Sul S11D(6) | | 2H16 | | 1,163 | | 4,655 | | 921 | | 6,405 |
| CLN S11D(7) | | 1H14 to 2H18 | | 1,814 | | 4,467 | | 1,372 | | 7,850 | |
| Conceição Itabiritos II(8) | | 1H15 | | 153 | | 1,016 | | 34 | | 1,137 | |
| Cauê Itabiritos(8)(9) | | 2H15 | | 240 | | 926 | | 85 | | 1,066 | |
Coal mining and logistics | | Moatize II | | 1H16 | | 558 | | 1,942 | | 105 | | 2,068 |
| Nacala Corridor(8) | | 2H14 to 2H15 | | 902 | | 3,795 | | 225 | | 4,444 | |
Steelmaking | | CSP(10) | | 1H16 | | – | | 1,055 | | 188 | | 1,224 |
Fertilizers | | Phosphate ROM(11) | | 1H17 | | 2 | | 66 | | 115 | | 209 |
Base Metals | | Voisey's Bay Underground(11) | | 1H20 | | – | | – | | 74 | | 1,904 |
| | | | | | Executed CAPEX | | Expected CAPEX | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Business area | | Main projects(1) | | Actual or estimated start-up | | 2019(2) | | Total executed(3) | | 2020(4) | | Total expected(5) |
| | | | | | (US$ million) | ||||||
Iron ore | | CLN S11D | | 2H19(6) | | 179 | | 7,333 | | 147 | | 7,679 |
Base Metals—North Atlantic | | VBME | | 1H21 | | 249 | | 471 | | 499 | | 1,694 |
Iron ore | | Gelado | | 2H21 | | 70 | | 75 | | 121 | | 428 |
Base Metals—South Atlantic | | Salobo III | | 1H22 | | 133 | | 136 | | 323 | | 1,128 |
Iron ore | | Northern System 240 Mt Program | | 2H22 | | 69 | | 69 | | 224 | | 772 |
The paragraphs below describe the status of each project as of December 31, 2015 and have not been updated to reflect any developments after that date.
Ferrous minerals and logisticsOur key investment projects
Iron ore mining and logistics projects: are described in more detail below:
| | | | |
| | 86 | | |
Base metals projectsCapital Expenditures
capital expenditures (total cash outflows) of US$7.333 billion. Until 2022, the project will be in a monitored ramp-up phase with additional works expected on adjustments.
Fertilizers projects
Coal miningprojects:
Steel projects
| | | | |
| | 87 | | |
We are subject to a wide range of governmental regulation in all the jurisdictions in which we operate worldwide. The following discussion summarizes the kinds of regulation that have the most significant impact on our operations.
Mining rights and regulation of mining activitiesMINING RIGHTS AND REGULATION OF MINING ACTIVITIES
Mining and mineral processing are subject to extensive regulation. In order to conduct these activities, we are generally required to obtain and maintain some form of governmental or private permits, which may include concessions, licenses, claims, tenements, leases or permits (all of which we refer to below as "concessions"). The legal and regulatory regime applicable to the mining industry and governing concessions differs among jurisdictions, often in important ways. In most jurisdictions, including Brazil, mineral resources belong to the State and may only be exploited pursuant to a governmental concession. In other jurisdictions, such as Ontario in Canada, a substantial part of our mining operations is conducted pursuant to mining rights we own (private permits). Government agencies are typically in charge of granting mining concessions and monitoring compliance with mining law and regulations.
The table below summarizes our principal concessions and other similar rights.rights for our continuing operations.
Location | | Mining title | | Approximate area covered (in hectares) | | Expiration date |
---|---|---|---|---|---|---|
Brazil | | Mining concessions (including under applications) | | 682,913 | | Indefinite |
| | | | | | |
Canada(1) | | Mining concessions (terminology varies among provinces) | | 330,560 | | 2016 – 2036 |
| | | | | | |
Indonesia(2) | | Contract of work | | 118,435 | | 2025 |
| | | | | | |
Australia | | Mining leases | | 11,135 | | 2021 – 2041 |
| | | | | | |
New Caledonia | | Mining concessions | | 21,269 | | 2016 – 2051 |
| | | | | | |
Peru(3) | | Mining concessions | | 199,398 | | Indefinite |
| | | | | | |
Argentina(4) | | Mining concessions | | 33,866 | | Indefinite |
| | | | | | |
Mozambique(5) | | Mining concessions | | 23,780 | | 2032 |
Location | | Mining title | | Approximate area covered (in hectares) | | Expiration date |
---|---|---|---|---|---|---|
Brazil(1) | | Mining concessions (including under applications) | | 597,877 | | Indefinite |
Canada(2) | | Mining concessions (terminology varies among provinces) | | 218,761 | | 2020 – 2040 |
Indonesia(3) | | Contract of work | | 118,017 | | 2025 |
New Caledonia(4) | | Mining concessions | | 21,077 | | 2022 – 2051 |
Mozambique(5) | | Mining concessions | | 23,780 | | 2032 |
In addition to the concessions listed above, we have exploration licenses and exploration applications covering 4.83.50 million hectares in Brazil and 1.71.05 million hectares in other countries.
There are several proposed or recently adopted changes in mining legislation and regulations in the jurisdictions where we have operations that could materially affect us. In 2013, the Brazilian government sent to Congress a bill with proposed changes2019, there were several developments to the Brazilian mining law. This bill provides forlegislative and regulatory framework concerning the preservationoperation of dams, including but not limited to the prohibition of the main provisions applicable toconstruction, maintenance or raising of dams by the existing mining rights as of the date of its enactment, a new royalties regime, a new regime for mining concessionsupstream raising method throughout Brazil and the creation of a mining agency. The bill is under discussion in Congress.
Additionally, in New Caledonia, a mining law passed in 2009 requires mining projectsobligation to obtain authorization from governmental authorities, rather than a declaration, as required under the former statute. We submitted an updated application for this authorization in October 2015 and the official response is expected by December 2016. Our existing mining declaration will remain valid and effective until our application is approved. Although we believe it is unlikely that our application will be rejected, the authorities may impose new conditions in connection with the authorization. Also, in 2014, the local authorities of New Caledonia created a protected wetland area, which covers 27% of the surface area of the total VNC tenements and could affect potential mining activities. Part of this protected wetland area is adjacenttake out insurance and/or provide financial guarantees to the location of VNC's next tailings storage facility, and may impact the design of the facility, which, in turn may result in additional capital costs.
Royaltiessupport recovery, compensatory indemnities and other taxes onexpenditures related to eventual accidents or the mining activitiesclosure process.
ROYALTIES AND OTHER TAXES ON MINING ACTIVITIES
We are required in many jurisdictions to pay royalties or taxes on our revenues or profits from mineral extractions and sales. These payments are an important element of the economic performance of a
| | | | |
| | 88 | | |
Regulatory Matters
mining operation. The following royalties and taxes apply in some of the jurisdictions in which we have our largest operations:
Environmental regulationsENVIRONMENTAL REGULATIONS
We are also subject to environmental regulations that apply to the specific types of mining and processing activities we conduct. We are required to obtain approvals, licenses, permits or authorizations from governmental authorities to construct and operate. In most jurisdictions, the development of new facilities requires us to submit environmental impact statementsand social impacts assessments for approval and often to make investments to mitigate environmental and social impacts, and we must operate our facilities in compliance with the terms of the approvals, licenses, permits or authorizations.
| | | | |
| | 89 | | |
Regulatory Matters
We are taking several steps to improve the efficiency of the licensing process, including stronger integration of our environmental and project development teams, the implementationfunding research into new and alternative technologies to reduce environmental and social impacts, use and continuous improvement of a Best Practices Guide for Environmental Licensing and the Environment, the deployment of highly-skilled specialist teams, identification and mitigation of principal risks and closer interaction with environmental regulators and the creation of an executive committee to expedite internal decisions regarding licensing.regulators.
Environmental regulations affecting our operations relate, among other matters, to emissions of pollutants into the air, soil and water;water, including greenhouse gas and climate change regulations; recycling and waste management; protection and preservation of forests, coastlines, caves, cultural heritage sites, watersheds and other features of the ecosystem; water use; and financial provisions and closure plans needed since therequired for mining license; climate changelicenses, including decharacterization, decommissioning, environmental liabilities and decommissioningreclamation and reclamation.remediation costs. Environmental legislation is becoming stricter worldwide, which could lead to greater costs for environmental compliance. In particular, we expect heightened attention from various governments to reducing greenhouse gas emissions as a result of concern over climate change, especially following the entry into force of the Paris Climate ConferenceAgreement in late 2015. 2016.
There are several examples of environmental regulation and compliance initiatives that could affect our operations.
BRAZILIAN REGULATION OF MINING DAMS
In May 2017, the DNPM (predecessor to the ANM) created new obligations for companies operating mining dams in Brazil, primarily:
| | | | |
| | 90 | | |
RegulationTable of Contents
Regulatory Matters
In February 2019, the ANM issued a resolution on dam safety requiring companies that own upstream dams to submit a technical decharacterization project and to fully decharacterize such structures within the upcoming years. Also, a wide range of measures were imposed to ensure the stability and safety of mining dams and their monitoring and warning systems. In addition, the resolution sets forth a minimum safety factor and the obligation for a Dam Stability Condition Statement to be signed by an individual at a higher level in the hierarchy of the company jointly with the technical individual responsible for its preparation. This resolution was updated in August 2019 and further adjustments are expected for 2020.
In February 2019, a statute approved by the state of Minas Gerais prohibits the increase, modification or construction of any upstream dam. The statute also prohibits the increase, modification or construction of any dam if communities are established within its Self-Rescue Zone, an area which encompasses the portion of the valley downstream of the dam where timely evacuation and intervention by the competent authorities in emergency situations is not possible. In general, it imposes certain restrictions on the use of any other activitiestype of tailings dams and significant restrictions on our ability to increase any existing dam.
REGULATION OF OTHER ACTIVITIES
In addition to mining and environmental regulation, we are subject to comprehensive regulatory regimes for some of our other activities, including rail transport, port operations and electricity generation. We are also subject to more general legislation on workers' health and safety, safety and support of communities near mines, and other matters. The following descriptions relate to some of the other regulatory regimes applicable to our operations:
| | | | |
| | 91 | | |
Table of the Federal Government (SEP). In 2014, we renewed theContents
Regulatory Matters
(SNP), whose purpose is to formulate policies and guidelines. The agreements pursuant to which the SEP grants us rights to operate our private terminals are valid until 2039 and may be renewed for equal periods, with the exception of the agreement with CPBS, which will expire in 2026. These2026 and may be renewed agreements will be effective until 2039.
| | | | |
| | 92 | | |
II.III. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OurThe rupture of Dam I and its consequences had extensive impact on our financial performance and results of operations for the year of 2019. For a discussion of the impact of the dam rupture on our results, seeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine.
In 2019, we recorded a loss attributable to our stockholders of US$1.683 billion, compared to net income of US$6.860 billion in 20152018. This loss was stronglymainly driven by: (i) provisions of US$7.402 billion for emergency actions, reparation and remediation measures associated with the rupture of Dam I, including the plan for decharacterization of our other upstream dams, (ii) impairment charges of US$4.202 billion on our nickel assets in New Caledonia and coal mine assets in Mozambique, and (iii) additional provisions for the Renova Foundation and the decharacterization of Samarco's Germano dam, in the total amount of US$758 million. These factors were partially offset by (iv) a US$2.555 billion decrease in foreign exchange losses in 2019, compared to 2018. Expenses associated with the rupture of Dam I also affected our Adjusted EBITDA, which decreased to US$10.585 billion in 2019 from US$16.590 billion in 2018. This decrease was partially offset by declining commodity prices. Despite this impact, we had record annual production ofhigher iron ore nickel and copper, we succeeded in reducing costs and expenses, we advanced our major capital expenditure projects, we proceeded with planned asset dispositions, and we maintained a stable net debt position. We reduced our capital expenditures for the fifth consecutive year, fromsales prices (with an impact of US$11.9795.445 billion in 2014our Adjusted EBITDA), mainly due to US$8.401 billionthe increase in 2015.
We hadthe average realized price for iron ore in 2019 (a 31.6% increase compared to the average realized price in 2018). Adjusted EBITDA is a non-GAAP measure, which is calculated using net income or loss of US$12.129 billionand adding (i) depreciation, depletion and amortization, (ii) income taxes, (iii) financial results, net, (iv) equity results and other results in 2015 in spiteassociates and joint ventures, (v) impairment and disposal of these achievements. The result was significantly affected by two primarily non-cash impacts: (i) US$9.372 billion in impairment charges on non-current assets, and investments(vi) dividends received and provisionsinterest from associates and joint ventures. For more information and the reconciliation of our Adjusted EBITDA to our net income (loss), seeOperating and Financial Review and Prospects—Results of operations—Adjusted EBITDA by segment.
COVID-19
The COVID-19 pandemic is having a significant impact on the global economy and financial markets. At this time, the outbreak has not caused a significant impact to our operations, logistics or sales, but if it continues for onerous contracts, driven primarily byan extended period of time, our financial conditions or results of operations in 2020 may be adversely impacted. Below is a summary of the usekey impacts on our business and the risks we are facing in 2020:
| | | | |
| | 93 | | |
Overview
continues for an extended period of time, particularly in China, our revenues and cash generation are expected to be reversed in partadversely impacted.
Our cash proceeds from asset sales in 2015 consisted of US$1.316 billion from the sale of 12 very large ore carriers to Chinese shipowners, US$900 million from the gold stream transaction and US$97 million from the sale of energy assets. Additionally, we received US$1.089 billion from our sale of preferred shares representing a 36.4% stake of MBR. The aggregate proceeds from these transactions totaled US$3.402 billion.
Our accomplishments in a very challenging macro-economic environment were overshadowed by the tragic failure in early November 2015 of oneachievement of the tailings dams at Samarco,benefits of our expansion plans, revision of operations or resumption of production capacity, among other difficulties.
For more information on the risks related to the affected areas, primarily in the state of Minas Gerais. The full consequences of these events for the people of the region,COVID-19 pandemic and for Samarco and its shareholders, are not yet known for certain. Seeour response seeInformation on the Company—Overview—Business overview—Significant changes in our business—FailureDevelopments relating to the outbreak of Samarco's tailings dam in Minas Geraisthe coronavirus andOverview—Risk factors—Developments relating to the outbreak of the coronavirus may have a material adverse impact on our financial conditions or results of operations.
Major factors affecting pricesMAJOR FACTORS AFFECTING PRICES
Iron ore and iron ore pellets
Iron ore and iron ore pellets are priced based on a wide array of quality levels and physical characteristics. VariousPrice differences derive from various factors, influence price differences among the several types of iron ore, such as the iron content of specific ore deposits, the various beneficiation processes required to produce the desired final product, particle size, moisture content and the type and concentration of contaminants (such as phosphorus, alumina, silica and manganese ore) in the ore. Fines,Also, fines, lump ore and pellets typically command different prices.
Demand for our iron ore and iron ore pellets is a function of global demand for carbon steel. Demand for carbon steel, in turn, is strongly influenced by real estate and infrastructure construction and global industrial production. Demand from China has been the principal driver of world demand and prices. We expect China's economic growth to slow down in 2016 principally due to lower fixed asset investment growth, especially in the real estate and manufacturing sectors, which will be partially offset by infrastructure investments.
Prices are also influenced by the supply of iron ore and iron ore pellets in the international market. In 2015,2019, an excess in the iron ore supply had a negativeshortage from main suppliers, driven by disruptions on supply side and attributable mainly to the Brumadinho event in Brazil and to the impact on prices. The expected conclusion of certaincyclone Veronica in Australia, heavily impacted global seaborne supply. During the year, iron ore projectsprice levels were mainly sustained by these constraints, combined with firm steel consumption in China. Chinese steel mills increased their productivity in response to the comingincrease in demand, which supported price growth for all iron ore grades. Steel production cuts in Europe are expected to adversely impact iron ore demand, while iron ore supply cuts due to lockdowns could soften the impact.
China's steel sector outperformed expectations in 2019, mainly driven by real estate, machinery, and home appliance sectors. The real estate sector outperformed expectations during the year especially in Australia and in Brazil, may result in additional pressures on prices, posing additional challenges for higher cost producersdue to strong levels of iron ore.construction starts. The infrastructure sector underperformed during the year, mainly driven by
| | | | |
| | 94 | | |
OurOverview
continued controls on shadow credit. Manufactured goods demand was tepid as external demand slowed due to continued uncertainty in trade and internal demand weakened mainly driven by lower consumption of automobiles. Strong construction demand has led China to deliver a record high steel production of 996 Mt in 2019, an increase of 8.3% year on year as per the World Steel Association.
Global steel production, excluding China, was weak in 2019 with an output of 882 Mt, a decrease of 0.3% year-on-year, as the steel sector was affected by trade war tensions, political uncertainties, such as Brexit, and growing tensions in the Middle East, all of which impacted global trade and manufacturing of consumer and capital goods, and blocked investments from materializing.
The price differentials between high- and low-grade iron ores are a structural change that should continue to impact the market in the coming years. The move towards a more efficient steel industry, with the enforcement of stricter environmental policies in China, should support the demand for high-quality ores that enable productivity and lower emission levels like pellets and IOCJ.
Iron ore Platts IODEX 62% averaged US$93.4/dmt in 2019, a significant increase the 2018 level of US$69.5/dmt, as the gap between iron ore supply and demand widened and led to higher iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis for determiningand premiums across the customer price. Our pricing is generally based on published indexes and uses a variety of mechanisms, including current spot prices and average prices over an agreed period (quarter-lagged) and future prices on delivery. In cases where the final price is only determinable on a future date after shipment, we recognize the sale based on a provisional price at the time of shipment with a subsequent adjustment reflecting the final price.
Coal
Demand for metallurgical coal is driven by steel demand, and future growth continues to be expected in Asia. Asia, including India, accounts for more than half of the steel market and consumes approximately 70% of seaborne metallurgical coal. Chinese seaborne demand decreased by 22% to 48 million metric tons in 2015 compared to 62 million metric tons imported in 2014. This was partially offset by a 14% increase in Indian demand from 40 million metric tons in 2014 to approximately 46 million metric tons in 2015.world.
A 4% drop in global metallurgical imports in 2015 resulted in oversupply and continuous price depression. Seaborne exports were steady, with Australian exports holding a 65% global market share. In 2015, there was little growth in volume from Indonesia and Mozambique, offset by decreases in the United States, Canada and Russia due to mine closures, supply problems and political instability in Ukraine. Due to market conditions, there is no incentive to expand metallurgical coal supply in the short term beyond existing projects. We expect that thereiron ore prices will be further supply adjustments before prices beginsubject to recover.
Demand for thermal coal is closely relatedadditional volatility in 2020 due to electricity consumption, which continues to be driven by global economic growth and urbanization, with the highest levels of growth found in Asia and emerging markets. Coal fired generation capacity growth in India drove thermal coal imports up in 2015, but did not offset the decline in China's imports. Preliminary data from China show a decrease of almost 33% in its imports by sea, while India's imports increased 10%. Improvement in the transmission infrastructure to coastal regions in China has contributed to a weaker thermal coal demand in the country. Additionally, there is an increased pressure from international organizations for establishing a global carbon price and for companies and governments to adopt carbon pricing strategies. This increased pressure, as well as the mid-term rise in non-coal fired power generation sources, has also contributed to weaker import thermal coal demand in China. Global seaborne demand decreased by approximately 5% in 2015 for the first time since 2008. The depreciationimpact of the Chinese yuan and domestic protectionist policies put further downward pressure on the seaborne market.COVID-19 pandemic.
Various other factors influence coal prices. The depreciation of commodity currencies (such as the Australian dollar, Canadian dollar, Russian ruble and South African rand) against the U.S. dollar throughout 2015 provided ongoing relief to producers and sustained the low price environment.
Nickel
Nickel is an exchange-traded metal, listed on the LME and, as ofstarting in 2015, on the Shanghai Futures Exchange.SHFE. Most nickel products are priced usingbased on a discount or premium to the LME price, depending on the nickel product's physical and technical characteristics. Demand for nickel is strongly affected by stainless steel production, which represents on average, 67%68% of global primary nickel consumption.consumption in 2019.
We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts, together with our sales for non-stainless steel applications (alloy steels, high nickel alloys, plating and batteries), provide stable demand for a significant portion of our annual production. In 2015, 58%2019, 70% of our refined nickel sales were made for non-stainless steel applications, compared to the industry average for primary nickel producers of 33%32%, bringing more stability to our sales volumes. As a result of our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.
Stainless steel is a significant driver of demand for nickel, particularly in China. In 2019, stainless steel production in China represented 65% of total nickel demand. As a consequence, changes in Chinese stainless steel production have a large impact on global nickel demand. In 2019, Chinese stainless steel production grew 11% compared to 2% in 2018. Also, the growth in stainless steel focused on 300-series grade steels, which contains relatively high amounts of nickel, due to superior physical characteristics compared to other austenitic stainless steel series.
While stainless steel production is a major driver of global nickel demand, stainless steel producers can obtain nickel with a wide range of nickel content, including secondary nickel (scrap). The choice between primary and secondary nickel is largely based on their relative prices and availability. On average between 2015 and 2019, secondary nickel accounted for approximately 40% of total nickel used for stainless steel. Regional availability and consumption of secondary nickel varies. In China, due to low availability of scrap, the use of secondary nickel represents 21% of the total nickel used for stainless steel, while nickel pig iron,
| | | | |
| | 95 | | |
PrimaryOverview
a relatively low grade nickel (including ferro-nickel,product made primarily in China from imported lateritic ores, accounts for approximately 37%.
In recent years, Chinese domestic production of nickel pig iron and nickel cathode) and secondary nickel (i.e., scrap) are competing nickel sources for stainless steel production. The choice between different types of primary and secondary nickel is largely driven by their relative price and availability. Between 2012 and 2015, secondary nickel has accounted for about 40-43%the majority of totalworld nickel used for stainless steels, andsupply growth. In 2019, approximately 570kt, representing 24% of world primary nickel has accounted for about 57-60%. In 2015,supply was produced as nickel pig iron in China using nickel ore from the Philippines and Indonesia. Chinese nickel pig iron production was estimated at approximately 360,000 metric tons, representing 19%adversely affected by export restriction of world primary nickel supply, compared to 23% and 25% ofunprocessed ores from Indonesia, beginning in 2014. In January 2017, the world's supply in 2014 and 2013, respectively. The implementation ofIndonesian government issued a ministerial decree changing the 2009 mining law in Indonesia that restrictsbanned the export of unprocessed and semi-processed ores from the country. The ministerial decree allows for the controlled recommencement of limited nickel ore exports from Indonesia allowing availability of ores for the production of nickel pig iron in China, with the expectation of re-enforcing the export ban in 2022. As a result, the bottleneck for production has adversely affected Chineseshifted away from ore availability to nickel pig iron capacity. In 2019, the Indonesian government advanced the export ore ban from the beginning of 2022 to the beginning of 2020. These dynamics have allowed Indonesia to emerge as a large producer of nickel pig iron. In 2019, 383kt of nickel as nickel pig iron was produced in Indonesia much of it integrated directly to produce stainless steel. We expect nickel pig iron production since 2014. We anticipate that Chinesein Indonesia to continue to grow, while China's nickel pig iron production will decline in 2016, as previously imported stockpilesto be impacted by the Indonesian ore export ban advancement.
In addition, the high-value segment, which consists of Indonesian ores within China are depleted. Development of processing plants, primarily smelters, in Indonesia to process oreboth Upper Class and Lower Class I products, is ongoing with a number of plants completed in 2015. We expect this increased development in Indonesia to impact the supplysecond largest market, making up 26% of nickel demand in 2019. Global high-value markets declined slightly by 1% compared to a growth of 1% in 2018, with China (the largest consumer in the high-value market, representing 28% of the market in 2019) leading the future.contraction with a 3% decline compared to 2018 demand.
The nickel market was in deficit in 2019 by approximately 23kt. Global exchange inventories (London Metals Exchange and Shanghai Future Exchange) declined 28,418 metric tons from January 1, 2019 to December 31, 2019, implying some off-exchange inventory holding. For 2020, due to recent events, mostly related to the COVID-19, we expect the market to be in surplus.
In the long term, the battery segment shows important upside potential as electric vehicle production continues to attract significant investments, which could positively affect nickel price and our nickel premiums. As currently foreseeable, commercially viable electric vehicle battery technologies utilize nickel; increasing nickel content in such batteries results in improved energy storage and lower cost. As a result, nickel demand is expected to surge, particularly given the expected increase in production of electric vehicles and the trends towards increased battery size and increased nickel content in batteries to improve performance and lower cost.
Copper
Copper demand in recent years has been driven primarily by China, given the important role copper plays in construction in addition to electrical and consumer applications. Copper prices are determined on the basis of (i) prices of copper metal on terminal markets, such as the LME, SHFE and the NYMEX,COMEX, and (ii) in the case of intermediate products, such as copper concentrate (which comprise most of our sales) and copper anode, treatment and refining charges negotiated with each customer. Under a pricing system referred to as MAMA ("month after month of arrival"), sales of copper concentrates and anodes are provisionally priced at the time of shipment, and final prices are settled on the basis of the LME price for a future period, generally one to three months after the shipment date.
Demand for refined copper grew by an estimated 2%was relatively flat in 2015, and2019, with China was responsible for an equivalent of 46%approximately 51% of worldwide consumption. The supplyPredominant use of refined copper increased with a 3%was in construction and in the electrical grid. Supply disruptions due to labor negotiations and mine closures in 2019 resulted in mine production growth in global mine output in 2015, as a resultbeing relatively flat compared to 2018. In the first half of the ramp upyear, a positive macroeconomic environment helped improve copper prices. Yet, this trend reversed during the second half of new projects. During the year of 2015, prices remained under pressure. For 2016, we expect to see continued ramping up of production at mines where recent capital investments have been made.trade war
| | | | |
| | 96 | | |
Demand for fertilizers is based on market fundamentals similar to those underlying global demand for minerals, metals and energy. Rapid per capita income growth in emerging economies generally causes dietary changes marked by an increase in the consumption of proteins, which ultimately contributes to increased demand for fertilizer nutrients, including potash and phosphates, as they help boost production of grains to feed more livestock. Demand is also driven by the demand for bio-fuels, which have emerged as an alternative source of energy to reduce world reliance on sources of climate-changing greenhouse gases, because key inputs for the production of biofuels—sugar cane, corn and palm—are intensive in the use of fertilizers.
Sales of fertilizers are mainly on a spot basis using international benchmarks, although some large importers in China and India often sign annual contracts. Seasonality is an important factor for price determination throughout the year, since agricultural production in each region depends on climate conditions for crop production.
In 2015, global fertilizer market conditions were weak due to lower agriculture commodities prices. Demand in Brazil was further undermined by the depreciation of the Brazilianreal against the U.S. dollar, and the shortage of credit to farmers.
Impairment chargesOverview
disputes between China and the United States were exacerbated, placing downward pressure on copper prices. For 2020, we anticipate that the market will be in surplus; however, relatively small given the market size and due to recent events, mostly related to the COVID-19.
Coal
Demand for metallurgical coal is fundamentally driven by steel demand, and future growth continues to be expected in Asia. Asia, including India, accounts for more than 70% of the steel market and consumes approximately 75% of seaborne metallurgical coal. Chinese total coking coal imports increased by 14% to almost 73 million metric tons in 2019 compared to approximately 64 million metric tons imported in 2018, mainly due to increased pig iron production. Global demand, excluding China, has reduced by approximately 1% in 2019, compared to 2018, mainly driven by BF production cuts in Europe and JKT.
In recent years we have recognized significant impairmentsthe international market, price volatility continued in 2019. Premium coking coal average price reduced by 14.5% year-on-year from US$207 per metric ton in 2018 to US$177 per metric ton in 2019. Seaborne coking coal prices were strong at US$200 per metric and higher in early January amid severe weather conditions and logistics constraints. Prices remained above US$200 per metric ton in 1H19 driven by strong crude steel production in China, India and stable production across other regions. However, prices started to decline since the beginning of the second half of 2019, mainly due to a rise in supply from Australia over the closure of the financial year, reduced steel production in India over monsoons, weak infrastructure, macro-economic conditions, automobile consumption, BF production cuts in Europe with a rise in prices for steel making raw materials and carbon reducing steel margins. The prices dropped to as low as US$133 per metric ton. The price of metallurgical coal on January 10, 2020 was US$152.50 per metric ton.
Demand for thermal coal is closely related to electricity consumption, which continues to be driven by global economic growth and urbanization, with the highest levels of growth found in Asia and emerging markets. The Chinese seaborne thermal coal import posted a third year in a row increase, reaching approximately 226 million metric tons in 2019, up 4.3% year on year, as a result of a slight rise in power demand, reduced domestic coal over safety inspections and price arbitrage against seaborne coal. Demand in Asian countries (excluding China) has been on the rise with Vietnam almost doubling imports from 23 million metric tons in 2018 to 45 million metric tons in 2019. Coal consumption for power generation has fallen for the fifth consecutive year in Europe, and demand is estimated to drop by more than 12% year-on-year. The European seaborne import decrease was largely impacted by the decline in coal consumption in the UK and Germany, and continued competition against gas and renewables. In India, year-on-year thermal coal demand remained firm, and seaborne imports increased by approximately 9% in 2019, compared to 2018, due to increased power generation and lower than expected domestic production. The power sector in India is expected to grow in the near term and domestic production plans set by the Indian government are unlikely to reach targets due to a number of land acquisition issues and infrastructure projects.
The Newcastle Index average in 2019 reached US$77.50 per metric ton, a decrease by 28% year on year, while the Richards Bay Coal Index decreased by 27% to US$71.50 per metric ton. Thermal coal prices started the year strong, supported by healthy demand in India, but gradually declined throughout the year due to reduced coal demand resulting from warm winters in Europe and China, cheaper natural gas and high renewables in Europe, a rise in nuclear generation in Japan and Korea and weak demand from the Indian cement and sponge iron sector. The drop in benchmark prices saw discounts of off-specification coal return to historical average levels of US$7 to US$10 per metric ton in Richards Bay.
Climate change policies may continue to adversely impact coal demand in Europe, North America and China. However, consumption in other developing Asian economies such as Southeast Asia and South Asia
| | | | |
| | 97 | | |
Overview
is expected to expand. On the supply side, current investments are low and the lack of new project development is expected to keep supply at current levels. Weather (warm winters, rains, summer temperatures) and alternative energy (natural gas and renewables) should play a prominent role on coal demand and prices during 2020.
RUPTURE OF DAM I
The rupture of Dam I had an extensive impact on our financial performance and results of operations as of and for the year ended December 31, 2019. The key impacts are summarized below:
The main impairment charges we recognized in 2015 were:
These amounts were partially offset by impairment reversalsdamages resulting from the recoverydam rupture. As of Onça Puma's nickel production,December 31, 2019, US$1.608 billion of our assets remained restricted, of which US$125 million consisted of cash in our bank accounts and US$1.483 billion were converted into judicial deposits. We have obtained bank
| | | | |
| | 98 | | |
Overview
guarantees and surety bonds in the amount of US$252 million,1.396 billion, and fromhave applied to the devaluationrelevant courts to have part of the Brazilianour judicial deposits replaced with these guarantees.
real against the U.S. dollar, which benefited the Brazilian phosphate operations (US$391 million).RUPTURE OF SAMARCO'S FUNDÃO TAILINGS DAM
Impairments of investments in associates and joint ventures totaled US$446 million in 2015, of which US$132 million related to our investment in Samarco and US$314 million related to our investment in TEAL, the joint venture of Vale with ARM, which holds an 80% stake in the Lubambe copper operation in Zambia.
Failure of Samarco's Fundão tailings dam
Vale ownsWe own a 50% interest in Samarco and accountsaccount for it under the equity method. AsBelow is a resultsummary of the impact of the rupture of Samarco's dam, which occurred in November 2015, failure of Samarco's Fundão tailings dam, Samarco incurred expenses, wrote off assets and recognized provisionsin our financial statements:
2015.
Samarco is currently unableJanuary 2017. These funds will be released as needed, but we have not undertaken an obligation to conduct ordinary mining and processing. Samarco's management is working on a plan that would permit it to resume operations, but the feasibility, timing and scope of restarting remain uncertain. If Samarco is able to resume operations, we expectSamarco. BHPB has stated that it will be ablemake available to generate all or a substantial part of the funding required under the agreement. If Samarco does not meet its funding obligations, each of Valeshort-term facilities with similar terms and BHPB is obligated to provide funding to the foundation in proportion to its 50% interest in Samarco.
Vale does not currently expect to record a provision in its financial statements in respect of these obligations, but if Samarco is eventually unable to resume operations or to meet its funding obligations, Vale could determine that it should recognize a provision.
Effect of lower oil prices
Global freight rates declined in 2015, primarily because of lower fuel costs, but our freight cost is not perfectly correlated with the freight spot market. We have a portfolio of short-, medium- and long-term affreightment agreements, in addition to our own fleet, and our freight cost is impacted by changes in routes, resulting from sales to different geographical areas. Our freight cost is also impacted by the time lag between the date of the spot contract and the date of recognition of the expenditure, which is booked when the revenue from the sale of the iron ore cargo is recognized.
The effect of lower prices for bunker oil, the fuel used in ships, on our performance in 2015 was partially offset by the results of our hedge positions. The impact is recognized in two ways.
Beginning in 2016, we are no longer hedging our exposure to bunker oil prices relating to our owned fleet and long-term affreightment agreements, but we still have open hedge positions relating to our FOB and domestic sales.
Effect of devaluation of Brazilian currencyEFFECT OF CURRENCY EXCHANGE VARIATION
Our results of operations are affected in several ways by changes in currencythe value of the Brazilianreal. Year-end exchange rates. rate variations impact our financial results, while the average exchange rate impacts our operational performance.
In 2015,2019, the Brazilianreal depreciated 47%4% against the U.S. dollar, from an exchange rate of R$2.663.87 to US$1.00 on December 31, 20142018 to R$3.904.03 to US$1.00 on December 31, 2015.2019. The most important effects arewere non-cash gains, as described below.
| | | | |
| | 99 | | |
Overview
An increase inIn 2019, the value ofannual average exchange rate for Brazilianreais against the U.S. dollar suchdepreciated by 7.9%, from an average exchange rate of R$3.66 to US$1.00 in 2018 to R$3.95 to US$1.00 in 2019. This had a positive impact on our operational result and cash flows. The most important effect is described below:
Under our hedge accounting program, our debt denominated in U.S. dollars and Euros serves as occurreda hedge instrument for our investments in 2015, adversely affectsVale International. With the program, the impact of exchange rate variations on debt denominated in U.S. dollars and Euros has been partially recorded under other comprehensive income, reducing the volatility of our financial results dueperformance.
Since January 1, 2019, we have considered certain long-term intercompany loans payable by Vale S.A. to Vale International, for which settlement is neither planned nor likely to occur in the foreseeable future, as part of Vale S.A.'s net investment in foreign operation. This accounting change does not affect the tax criteria applicable to exchange lossesvariation. Until December 31, 2018, the impact of the exchange variation on these intercompany loans was reflected on our consolidated income statement. With the change in the accounting treatment, the foreign exchange differences associated with our net U.S. dollar-denominatedinvestment in Vale International are recognized in other comprehensive income in in our stockholders' equity. This amount would be reclassified from stockholders' equity to income statement in case of disposal or partial disposal of the net investment in Vale International. In 2019, we recognized a loss of US$483 million (US$319 million, net of taxes), in the "Cumulative translation adjustments" in stockholders' equity.
CHANGES IN ACCOUNTING POLICIES
Certain new accounting standards became effective for the accounting periods beginning on or after January 1, 2019. The key changes to accounting policies are described below:
| | | | |
| | 100 | | |
Overview
We apply significant judgement in identifying uncertainties over income tax treatments, which could impact our consolidated financial statements. We operate in multiple jurisdictions where uncertainties arise in the application of complex tax regulations. We and our subsidiaries are subject to reviews of income tax filings and other tax payments, and disputes can arise with the taxing authorities over the interpretation of the applicable laws and regulations
Upon the adoption of this interpretation, we considered whether we have any uncertain tax positions, particularly those relating to the deduction of social security contributions on the net income ("CSLL") in Brazil, and determined that, although there is an uncertainty that could affect the 2018 year end, it is deemed probable that our treatments will be accepted by the Brazilian tax authority. We did not identify any other uncertain tax positions that could result in a liability material to us.
We used the following practical expedients in applying IFRS 16: (i) applied a single discount rate to a portfolio of leases with similar characteristics; (ii) applied the exemption not to recognize right-of-use assets and liabilities (US$7.166for leases with less than 12 months of lease term and/or leases of low-value assets. The payments associated to these leases will be recognized as an expense on a straight-line basis over the lease term; and (iii) used hindsight when determining the lease term, to determine if the contract contains options to extend or terminate the lease.
As a result of IFRS 16 adoption, we have changed our accounting policy for lease contracts, except for mineral leases, as the standard excludes from its scope leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources.
As of December 31, 2019, we have recognized right-of-use assets and lease liabilities of US$1.692 billion and US$1.791 billion, respectively. We have non-cancellable lease commitments in 2015) and fair value losses onthe nominal amount of US$2.383 billion.
For more information, see note 2 to our currency derivatives (US$1.502 billion in 2015). It also generally has a positive effect on our operating costs, as it did in 2015.consolidated financial statements.
| | | | |
| | 101 | | |
Consolidated RevenuesFor commentary on our results of operations for the year 2018 compared with 2017, please see pages 96-109 of our Form 20-F for the year ended December 31, 2018.
CONSOLIDATED REVENUES
In 2015,2019, our net operating revenues decreased 31.8% tofrom continuing operations were US$25.60937.570 billion, primarily resulting from lower prices2.7% higher than the net operating revenues for the same period in 2018, which were US$36.575 billion. The increase was a result of higher iron ore fines (an impact of US$8.614 billion on net revenues),and iron ore pellets (US$2.030sales prices (impact of US$6.172 billion), nickel (US$1.394 billion) and other commodities. This wasreflecting the increase in the market reference price, partially offset by higher sales volume (an impact of US$2.239 billion on net revenues) oflower iron ore fines,and iron ore pellets and nickel, mainly due to increases in the capacitysales volumes (impact of our facilities resultingUS$3.886 billion), as well as lower sales volumes from our capital expenditures for expansionbase metals business (impact of mine life. Net operating results of each segment are discussed below under—Results of operations by segmentUS$622 million).
Our revenue depends, among other factors, on the volume of production at our facilities and the prices for our products. We publish a quarterly production report that is availableFor more information on our website and furnished toproduction, seeInformation on the SEC on Form 6-K.Company—Lines of business. Increases in the capacity of our facilities resulting from our capital expenditure program have an important effect on our performance. Our production is also affected by acquisitions and dispositions.
The following table summarizes, for each of the years indicated, the distribution of our net operating revenues from continuing operations based on the geographical location of our customers.
| | Net operating revenues by destination | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | ||||||||||
| | (US$ million) | | (% of total) | | (US$ million) | | (% of total) | | ||||||
North America | | | | | | | | ||||||||
Canada | | 717 | | 1.9 | % | | 656 | | 1.8 | % | | ||||
United States | | 1,335 | | 3.6 | | | 1,353 | | 3.7 | | | ||||
| | | | | | | | | | ||||||
| 2,052 | | 5.5 | | | 2,009 | | 5.5 | | | |||||
| | | | | | | | | | ||||||
South and Central America | | | | | | | | ||||||||
Brazil | | 3,348 | | 8.9 | | | 3,248 | | 8.9 | | | ||||
Other | | 641 | | 1.7 | | | 822 | | 2.2 | | | ||||
| | | | | | | | | | ||||||
| 3,989 | | 10.6 | | | 4,070 | | 11.1 | | | |||||
| | | | | | | | | | ||||||
Asia | | | | | | | | ||||||||
China | | 18,242 | | 48.6 | | | 15,242 | | 41.7 | | | ||||
Japan | | 2,603 | | 6.9 | | | 2,743 | | 7.5 | | | ||||
South Korea | | 1,278 | | 3.4 | | | 1,299 | | 3.6 | | | ||||
Taiwan | | 943 | | 2.5 | | | 513 | | 1.4 | | | ||||
Other | | 1,091 | | 2.9 | | | 1,854 | | 5.1 | | | ||||
| | | | | | | | | | ||||||
| 24,157 | | 64.3 | | | 21,651 | | 59.2 | | | |||||
| | | | | | | | | | ||||||
Europe | | | | | | | | ||||||||
Germany | | 1,683 | | 4.5 | | | 1,653 | | 4.5 | | | ||||
United Kingdom | | 168 | | 0.4 | | | 327 | | 0.9 | | | ||||
Italy | | 356 | | 0.9 | | | 553 | | 1.5 | | | ||||
France | | 517 | | 1.4 | | | 655 | | 1.8 | | | ||||
Other | | 2,470 | | 6.6 | | | 2,919 | | 8.0 | | | ||||
| | | | | | | | | | ||||||
| 5,194 | | 13.8 | | | 6,107 | | 16.7 | | | |||||
| | | | | | | | | | ||||||
Rest of the world | | 2,178 | | 5.8 | | | 2,738 | | 7.5 | | | ||||
| | | | | | | | | | ||||||
Total | | 37,570 | | 100 | % | | 36,575 | | 100 | % | | ||||
| | | | | | | | | | ||||||
| | | | | | | | | | | | ||||
| | | | | | | | | |
CONSOLIDATED OPERATING COSTS AND EXPENSES
Our cost of goods sold and services rendered from continuing operations decreased by US$922 million, or 4.2%, to US$21.187 billion in 2019 from US$22.109 billion in 2018. Excluding depreciation, depletion and
| | | | |
| | 102 | | |
Results of Operations
amortization, our cost of goods sold and services rendered from continuing operations decreased by US$1.114 billion reflecting lower sales volumes (US$2.198 billion impact) and the positive effect of foreign exchange rates (US$496 million impact), which were partially offset by higher costs (US$1.581 billion impact), mainly ferrous minerals costs (US$849 million impact), due to increased volumes and prices of third-party iron ore fines acquisition, demurrage, maintenance and royalties.
Our selling and administrative expenses were US$487 million in 2019, a 6.9% decrease from US$523 million recorded in 2018. The decrease was mainly due to the positive effect of exchange rate variation (US$20 million impact).
Our research and evaluation expenses totaled US$443 million in 2019, an increase of US$70 million, or 18.8%, from the US$373 million expenses recorded in 2018, mostly due to an increase in our research and evaluation expenses associated with base metals businesses.
Our pre-operating and operational stoppage expenses totaled US$1.153 billion in 2019, an increase of US$882 million from the US$271 million recorded in 2018, mainly due to the higher stoppage expenses related to the rupture of Dam I (US$983 million impact), partially offset by lower pre-operating expenses at our S11D mine (US$137 million impact).
Our other operating expenses, net, were US$505 million in 2019, a 13.5% increase from US$445 million recorded in 2018. The increase was mainly due to higher provisions for litigation, partially offset by lower provisions for a profit sharing program for eligible employees.
Expenses associated with the rupture of Dam I were US$7.402 billion in 2019. These expenses consisted of obligations assumed, including decharacterization of the dams, indemnification and donations to those affected by the event, remediation of the affected areas and compensation to affected communities.
RESULTS OF OPERATIONS BY SEGMENT
Net operating revenue by productsegment
The following table summarizes our net operating revenues from continuing operations by product for the periodsyears indicated.
| | Year ended December 31, | | | Year ended December 31, | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | % change | | 2014 | | % change | | 2015 | | | 2019 | | % change | | 2018 | | % change | | |||
| | (US$ million, except for %) | | | (US$ million, except for %) | | |||||||||||||||||
Ferrous minerals: | | | | | | | | | | | | ||||||||||||
Iron ore | | US$27,844 | | (30.7)% | | US$19,301 | | (36.1)% | | US$12,330 | | | 23,343 | | 14.7 | | 20,354 | | 9.9 | | |||
Iron ore pellets | | 6,000 | | (12.3) | | 5,263 | | (31.6) | | 3,600 | | ||||||||||||
Pellets | | 5,948 | | (10.6) | | 6,651 | | 17.7 | | ||||||||||||||
Ferroalloys and manganese | | 523 | | (25.1) | | 392 | | (58.7) | | 162 | | | 282 | | (37.9) | | 454 | | (3.2) | | |||
Other ferrous products and services | | 425 | | 74.4 | | 741 | | (36.6) | | 470 | | | 432 | | (8.9) | | 474 | | (1.9) | | |||
| | | | | | | | | | | | | | | | | | | | | |||
Subtotal | | 34,792 | | (26.1) | | 25,697 | | (35.5) | | 16,562 | | | 30,005 | | 7.4 | | 27,933 | | 11.2 | | |||
| | | | | | | | | | | | ||||||||||||
Coal | | 1,010 | | (26.8) | | 739 | | (28.8) | | 526 | | ||||||||||||
| | | | | | | | | | | | ||||||||||||
Base metals: | | | | | | | | | | | | ||||||||||||
Nickel and other products(1) | | 5,839 | | 6.9 | | 6,241 | | (24.8) | | 4,693 | | | 4,257 | | (7.7) | | 4,610 | | (1.2) | | |||
Copper concentrate(2) | | 1,447 | | 0.3 | | 1,451 | | 1.3 | | 1,470 | | | 1,904 | | (9.0) | | 2,093 | | (5.0) | | |||
| | | | | | | | | | | | | | | | | | | | | |||
Subtotal | | 7,286 | | 5.6 | | 7,692 | | (19.9) | | 6,163 | | | 6,161 | | (8.1) | | 6,703 | | (2.4) | | |||
| | | | | | | | | | | | ||||||||||||
Fertilizers: | | | | | | | |||||||||||||||||
Potash | | 201 | | (23.4) | | 154 | | (14.3) | | 132 | | ||||||||||||
Phosphates | | 2,065 | | (11.9) | | 1,820 | | (4.8) | | 1,733 | | ||||||||||||
Nitrogen | | 469 | | (25.6) | | 349 | | (13.2) | | 303 | | ||||||||||||
Other fertilizer products | | 79 | | 16.5 | | 92 | | (38.0) | | 57 | | ||||||||||||
| | | | | | | | | | | | ||||||||||||
Subtotal | | 2,814 | | (14.2) | | 2,415 | | (7.9) | | 2,225 | | ||||||||||||
| | | | | | | | | | | | ||||||||||||
Other products and services(3) | | 865 | | 15.1 | | 996 | | (86.6) | | 133 | | ||||||||||||
Coal | | 1,021 | | (37.9) | | 1,643 | | 4.9 | | ||||||||||||||
Other products and services | | 383 | | 29.4 | | 296 | | (26.0) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||
Net operating revenues | | US$46,767 | | (19.7)% | | US$37,539 | | (31.8)% | | US$25,609 | | | 37,570 | | 2.7 | | 36,575 | | 7.7 | | |||
| | | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | |
| | | | |
�� | | 103 | | |
Results of Operations
Sales volumes
Production and sales of iron ore fines and iron ore pellets decreased mainly as a result of the suspension of operations following the rupture of Dam I and the stronger than usual weather-related seasonality. The following table sets forth for our principal products and the total volumes we sold of each product in each of the periods indicated.years indicated:
| | Year ended December 31, | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 | | |||
| | (thousand metric tons) | | |||||||
Ferrous minerals: | | | | | ||||||
Iron ore fines | | 251,029 | | 255,877 | | 276,393 | | |||
Iron ore pellets | | 40,991 | | 43,682 | | 46,284 | | |||
Manganese | | 2,115 | | 1,879 | | 1,764 | | |||
Ferroalloys | | 183 | | 150 | | 69 | | |||
Coal: | | | | | ||||||
Thermal coal | | 726 | | 1,152 | | 892 | | |||
Metallurgical coal | | 7,353 | | 6,330 | | 5,614 | | |||
Base metals: | | | | | ||||||
Nickel | | 261 | | 272 | | 292 | | |||
Copper | | 352 | | 353 | | 397 | | |||
PGMs (oz) | | 510 | | 577 | | 519 | | |||
Gold (oz) | | 297 | | 351 | | 425 | | |||
Silver (oz) | | 2,154 | | 1,889 | | 2,303 | | |||
Cobalt | | 2,939 | | 3,188 | | 3,840 | | |||
Fertilizers: | | | | | ||||||
Potash | | 531 | | 475 | | 463 | | |||
Phosphates: | | | | | ||||||
MAP | | 1,133 | | 1,040 | | 1,081 | | |||
TSP | | 681 | | 749 | | 744 | | |||
SSP | | 1,969 | | 2,091 | | 1,847 | | |||
DCP | | 461 | | 493 | | 459 | | |||
Phosphate rock | | 3,154 | | 3,259 | | 3,193 | | |||
Nitrogen | | 890 | | 680 | | 641 | |
| | Year ended December 31, | ||
---|---|---|---|---|
| | 2019 | | 2018 |
| | (thousand metric tons, except where indicated) | ||
Ferrous minerals: | | | ||
Iron ore fines | | 267,992 | | 307,433 |
Pellets | | 43,199 | | 56,592 |
Manganese | | 1,063 | | 1,572 |
Ferroalloys | | 127 | | 141 |
ROM (run of mine) | | 1,314 | | 1,548 |
Coal: | | | ||
Thermal coal | | 4,356 | | 5,393 |
Metallurgical coal | | 4,427 | | 6,240 |
Base metals: | | | ||
Nickel | | 206 | | 236 |
Copper | | 244 | | 274 |
Copper as nickel subproduct | | 122 | | 105 |
PGMs (000' oz.) | | 319 | | 374 |
Gold (000' oz.) | | 459 | | 484 |
Silver (000' oz.) | | 1,830 | | 2,169 |
Cobalt (metric tons) | | 4,273 | | 4,974 |
Average realized prices
The following table sets forth our average realized prices for our principal products for each of the periodsyears indicated. We determine average realized prices based on our net operating revenues, which consist of the price charged to customers, excluding certain items that we deduct in arriving at net operating revenues, mainly value-added tax.
| | Year ended December 31, | | | Year ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 | | | 2019 | | 2018 | |||
| | (US$ per metric ton, except where indicated) | | | (US$ per metric ton, except where indicated) | |||||||||
Ferrous minerals: | | | | | | | ||||||||
Iron ore | | 112.05 | | 75.43 | | 44.61 | | | 87.10 | | 66.21 | |||
Iron ore pellets | | 150.22 | | 124.17 | | 77.78 | | |||||||
Pellets | | 137.69 | | 117.52 | ||||||||||
Manganese | | 157.37 | | 120.28 | | 56.44 | | | 139.05 | | 162.51 | |||
Ferroalloys | | 1,303.92 | | 1,453.33 | | 904.16 | | | 1,057.23 | | 1,178.50 | |||
Coal: | | | | | | | ||||||||
Thermal coal | | 81.17 | | 67.65 | | 52.42 | | | 59.15 | | 84.19 | |||
Metallurgical coal | | 129.34 | | 104.37 | | 85.55 | | | 172.53 | | 190.60 | |||
Base metals: | | | | | | | ||||||||
Nickel | | 14,900.24 | | 16,426.47 | | 11,684.30 | | | 14,064.04 | | 13,666.83 | |||
Copper | | 6,709.18 | | 6,015.47 | | 4,363 | | | 5,445.05 | | 5,637.80 | |||
Platinum (US$/oz) | | 1,469.78 | | 1,261.87 | | 1,020.14 | | |||||||
Copper as nickel subproduct | | 5,414.50 | | 5,440.00 | ||||||||||
Gold (US$/oz) | | 1,339.37 | | 1,192.51 | | 1,123.07 | | | 1,418.52 | | 1,254.15 | |||
Silver (US$/oz) | | 20.02 | | 19.42 | | 12.63 | | | 15.44 | | 14.43 | |||
Cobalt (US$/lb) | | 10.95 | | 10.67 | | 9.95 | | |||||||
Fertilizers: | | | | | ||||||||||
Potash | | 417.32 | | 355.79 | | 318.32 | | |||||||
Phosphates: | | | | | ||||||||||
MAP | | 571.86 | | 542.44 | | 511.70 | | |||||||
TSP | | 472.51 | | 428.98 | | 398.05 | | |||||||
SSP | | 271.88 | | 212.61 | | 204.45 | | |||||||
DCP | | 611.54 | | 591.51 | | 554.88 | | |||||||
Phosphate rock | | 90.68 | | 70.88 | | 82.55 | | |||||||
Nitrogen | | 610.27 | | 604.41 | | 554.32 | | |||||||
Cobalt | | 26,093.40 | | 62,910.72 |
| | | | |
| | 104 | | |
The following table summarizes, for the periods indicated, the distributionResults of our net operating revenues based on the geographical location of our customers.
| | Net operating revenues by destination | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 | |||||||||
| | (US$ million) | | (% of total) | | (US$ million) | | (% of total) | | (US$ million) | | (% of total) | |||
North America | | | | | | | |||||||||
Canada | | US$1,043 | | 2.2% | | US$1,393 | | 3.7% | | US$1,122 | | 4.4% | |||
United States | | 1,311 | | 2.8 | | 1,368 | | 3.6 | | 855 | | 3.3 | |||
| | | | | | | | | | | | | |||
| 2,354 | | 5.0 | | 2,761 | | 7.3 | | 1,977 | | 7.7 | ||||
| | | | | | | | | | | | | |||
South America | | | | | | | |||||||||
Brazil | | 6,190 | | 13.2 | | 5,927 | | 15.8 | | 3,967 | | 15.5 | |||
Other | | 776 | | 1.7 | | 685 | | 1.8 | | 298 | | 1.1 | |||
| | | | | | | | | | | | | |||
| 6,966 | | 14.9 | | 6,612 | | 17.6 | | 4,255 | | 16.6 | ||||
| | | | | | | | | | | | | |||
Asia | | | | | | | |||||||||
China | | 18,920 | | 40.5 | | 12,657 | | 33.7 | | 9,095 | | 35.5 | |||
Japan | | 4,035 | | 8.6 | | 3,627 | | 9.7 | | 1,959 | | 7.7 | |||
South Korea | | 1,795 | | 3.8 | | 1,555 | | 4.1 | | 790 | | 3.1 | |||
Taiwan | | 982 | | 2.1 | | 721 | | 1.9 | | 620 | | 2.4 | |||
Other | | 825 | | 1.8 | | 1,029 | | 2.8 | | 904 | | 3.5 | |||
| | | | | | | | | | | | | |||
| 26,558 | | 56.8 | | 19,589 | | 52.2 | | 13,368 | | 52.2 | ||||
| | | | | | | | | | | | | |||
Europe | | | | | | | |||||||||
Germany | | 3,285 | | 7.0 | | 2,111 | | 5.6 | | 1,433 | | 5.6 | |||
United Kingdom | | 1,003 | | 2.1 | | 709 | | 1.9 | | 399 | | 1.6 | |||
Italy | | 1,055 | | 2.3 | | 849 | | 2.3 | | 461 | | 1.8 | |||
France | | 977 | | 2.1 | | 565 | | 1.5 | | 331 | | 1.3 | |||
Other | | 2,442 | | 5.2 | | 2,463 | | 6.5 | | 2,032 | | 7.9 | |||
| | | | | | | | | | | | | |||
| 8,762 | | 18.7 | | 6,697 | | 17.8 | | 4,656 | | 18.2 | ||||
| | | | | | | | | | | | | |||
Rest of the world | | 2,128 | | 4.6 | | 1,880 | | 5.1 | | 1,353 | | 5.3 | |||
| | | | | | | | | | | | | |||
Total | | US$46,767 | | 100.0% | | US$37,539 | | 100.0% | | US$25,609 | | 100.0% | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | |
Consolidated operating costs and expenses
Our cost of goods sold declined by US$4.551 billion in 2015, reflecting an impact of US$4.152 billion due to the positive effect of exchange rate variation and other cost reductions of US$1.370 billion, including US$1.183 billion in lower freight expenses mainly due to lower fuel prices. In 2015, we successfully implemented measures that resulted in a reduction of our costs, including the ramp-up of the N4WS and N5S extension mines in Carajás, and Vargem Grande, Conceição I and II itabirites projects in Minas Gerais. These effects were partially offset by US$971 million of higher costs associated mainly with higher volume of iron ore sold and the recognition of bunker oil hedge costs totaling US$439 million.
Our selling, general and administrative and other expenses (net of revenues) decreased by 33.9% in 2015, on a constant currency basis, mostly due to reduction in personnel expenses, conclusion of some IT projects (particularly the implementation of our SAP system) and other cost-cutting measures. We reduced our research and evaluation expenses by 35%, to US$477 million in 2015 from US$734 million in 2014. Our pre-operating and stoppage expenses reduced by US$61 million in 2015, primarily because the ramp-up of our nickel operation in New Caledonia is approaching the operational targets, partially offset by higher pre-operating expenses in Long Harbour and Nacala. Other operating expenses declined mainly due to a reversal of provisions for asset retirement obligations in the amount of US$331 million, as a result of mining plan revisions, which extended the life of some assets and the scope of work used to determine asset retirement costs.
Impairment of non-current assets was US$8.926 billion in 2015 and US$1.152 billion in 2014. In 2015, we recognized impairment charges in connection with certain of our iron ore, nickel, coal and potash assets, primarily due to revised price assumptions, while in 2014 we recorded an impairment in connection with our iron ore project in Simandou, in Guinea. See—Impairment.Operations
Cost of goods sold by productsegment (excluding depreciation, depletion and amortization)
The following table presents, for each year indicated, period, our cost of goods sold and services rendered (excluding depreciation, depletion and amortization) by productsegment and the percentage change from year to year. The percentage change is presented both as reported in our financial statements and as adjusted to remove the effects of exchange rate variation (constant currency basis).
| | Year ended December 31, | | | Year ended December 31, | | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | Change | | 2014 | | Change | | 2015 | | | 2019 | | 2018 | | % change | | ||||||||||||||||
| | Cost of goods sold (US$ million) | | As reported (%) | | Constant currency (%) | | Cost of goods sold (US$ million) | | As reported (%) | | Constant currency (%) | | Cost of goods sold (US$ million) | | | (US$ million, except for %) | | ||||||||||||||||
Ferrous minerals: | | | | | | | | | | | | | | | ||||||||||||||||||||
Iron ore | | 9,067 | | 5.2 | | 11.5 | | 9,532 | | (20.2 | ) | (6.0 | ) | 7,604 | | | 8,778 | | 9,048 | | | (3.0 | )% | | ||||||||||
Iron ore pellets | | 2,299 | | 17.7 | | 26.6 | | 2,705 | | (21.6 | ) | (2.0 | ) | 2,121 | | | 2,666 | | 3,393 | | | (21.4 | ) | | ||||||||||
Ferroalloys and manganese | | 317 | | (17.7 | ) | (10.6 | ) | 261 | | (33.0 | ) | (6.9 | ) | 175 | | | 220 | | 290 | | | (24.1 | ) | | ||||||||||
Other ferrous products and services | | 166 | | 240.4 | | 279.2 | | 565 | | (39.6 | ) | (11.4 | ) | 341 | | | 324 | | 313 | | | 3.5 | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Subtotal | | 11,849 | | 10.3 | | 17.4 | | 13,063 | | (21.6 | ) | (5.4 | ) | 10,241 | | | 11,988 | | 13,044 | | | (8.1 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Coal | | 1,147 | | (6.6 | ) | (3.0 | ) | 1,071 | | (21.7 | ) | (15.3 | ) | 839 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Base metals: | | | | | | | | | | | | | | | ||||||||||||||||||||
Nickel and other products(1) | | 3,657 | | 1.4 | | 4.6 | | 3,710 | | (8.5 | ) | 0.6 | | 3,393 | | | 2,867 | | 3,060 | | | (6.3 | ) | | ||||||||||
Copper (2) | | 1,008 | | (13.0 | ) | (5.4 | ) | 877 | | 3.0 | | 45.9 | | 903 | | |||||||||||||||||||
Copper(2) | | 905 | | 960 | | | (5.7 | ) | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Subtotal | | 4,665 | | (1.7 | ) | 2.5 | | 4,587 | | (6.3 | ) | 7.7 | | 4,296 | | | 3,772 | | 4,020 | | | (6.2 | ) | | ||||||||||
Coal | | 1,638 | | 1,575 | | | 4.0 | | | |||||||||||||||||||||||||
Others | | 390 | | 263 | | | 48.3 | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Fertilizers: | | | | | | | | | ||||||||||||||||||||||||||
Potash | | 127 | | 4.7 | | 13.7 | | 133 | | (33.1 | ) | (5.3 | ) | 89 | | |||||||||||||||||||
Phosphates | | 1,681 | | (9.9 | ) | (5.7 | ) | 1,514 | | (22.5 | ) | (5.6 | ) | 1,173 | | |||||||||||||||||||
Nitrogen | | 382 | | (37.7 | ) | (35.1 | ) | 238 | | (13.0 | ) | – | | 207 | | |||||||||||||||||||
Other fertilizer products | | – | | – | | – | | – | | – | | – | | – | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Subtotal | | 2,190 | | (13.9 | ) | (9.8 | ) | 1,885 | | (22.1 | ) | (4.8 | ) | 1,469 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Other(3) | | 669 | | (10.2 | ) | (5.1 | ) | 601 | | (76.9 | ) | (71.6 | ) | 139 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Total (excluding depreciation) | | 20,520 | | 3.3 | | 9.2 | | 21,207 | | (19.9 | ) | (4.8 | ) | 16,984 | | |||||||||||||||||||
Total (excluding depreciation, depletion and amortization) | | 17,788 | | 18,902 | | | (5.9 | ) | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Depreciation | | 3,724 | | 3.5 | | 5.3 | | 3,856 | | (8.5 | ) | 15.1 | | 3,529 | | |||||||||||||||||||
Depreciation, depletion and amortization | | 3,399 | | 3,207 | | | 6.0 | | | |||||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||||||
Total (including depreciation, depletion and amortization) | | 21,187 | | 22,109 | | | (4.2 | )% | | |||||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | |
Expenses by productsegment (excluding impairment charges)depreciation, depletion and amortization)
The following table summarizes, for each year indicated, period, our expenses (including(consisting of selling, general and administrative, research and evaluation, pre-operating, stoppage and other expenses, net of other revenues) by productoperating segment (excluding depreciation, depletion and amortization) and the percentage change from year to year. The percentage change is presented both as reported in our financial statements and as adjusted to remove the effects of exchange rate variation (constant currency basis). The table excludes the effect of impairment charges. See—Impairment.
| | Year ended December 31, | | | Year ended December 31, | | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | Change | | 2014 | | Change | | 2015 | | | 2019 | | 2018 | | % change | | ||||||||||||||||
| | Expenses (US$ million) | | As reported (%) | | Constant currency (%) | | Expenses (US$ million) | | As reported (%) | | Constant currency (%) | | Expenses (US$ million) | | | (US$ million, except for %) | | ||||||||||||||||
Ferrous minerals: | | | | | | | | | | | | | | | ||||||||||||||||||||
Iron ore | | 1,819 | | (4.5 | ) | (11.6 | ) | 1,737 | | (63.0 | ) | (46.3 | ) | 643 | | | 1,196 | | 301 | | | 297.3 | % | | ||||||||||
Iron ore pellets | | 252 | | (76.6 | ) | (77.7 | ) | 59 | | (67.8 | ) | (60.4 | ) | 19 | | | 108 | | 56 | | | 92.9 | | | ||||||||||
Ferroalloys and manganese | | 47 | | (23.4 | ) | (28.0 | ) | 36 | | (50.0 | ) | (33.3 | ) | 18 | | | 11 | | 4 | | | 175.0 | | | ||||||||||
Other ferrous products and services | | (3 | ) | – | | – | | 7 | | – | | – | | (3 | ) | | 1 | | 6 | | | (83.3 | ) | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Subtotal | | 2,115 | | (13.0 | ) | (19.2 | ) | 1,839 | | (63.2 | ) | (47.1 | ) | 677 | | | 1,316 | | 367 | | | 258.6 | | | ||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Coal | | 358 | | 2.0 | | 1.1 | | 365 | | (38.9 | ) | (37.5 | ) | 223 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Base metals: | | | | | | | | | | | | | | | ||||||||||||||||||||
Nickel and other products(2) | | 1,049 | | (47.5 | ) | (47.8 | ) | 551 | | 21.2 | | 27.5 | | 668 | | |||||||||||||||||||
Copper (3) | | 177 | | (81.4 | ) | (81.9 | ) | 33 | | 24.2 | | 70.8 | | 41 | | |||||||||||||||||||
Other base metal products | | (244 | ) | – | | – | | – | | – | | – | | (230 | ) | |||||||||||||||||||
Nickel and other products(1) | | 147 | | 119 | | | 23.5 | | | |||||||||||||||||||||||||
Copper(2) | | 68 | | 22 | | | 209.1 | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Subtotal | | 982 | | (40.5 | ) | (41.2 | ) | 584 | | (18.0 | ) | (12.6 | ) | 479 | | | 215 | | 141 | | | 52.5 | | | ||||||||||
Coal | | 29 | | 30 | | | (3.3 | ) | | |||||||||||||||||||||||||
Brumadinho event(3) | | 7,402 | | — | | | N/A | | | |||||||||||||||||||||||||
Others | | 701 | | 930 | | | (24.6 | ) | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Fertilizers: | | | | | | | | | ||||||||||||||||||||||||||
Potash | | 439 | | (87.2 | ) | (87.4 | ) | 56 | | 26.8 | | 31.5 | | 71 | | |||||||||||||||||||
Phosphates | | 205 | | (16.1 | ) | (22.9 | ) | 172 | | (38.4 | ) | (19.7 | ) | 106 | | |||||||||||||||||||
Nitrogen | | 32 | | (25.0 | ) | (29.4 | ) | 24 | | (50.0 | ) | (29.4 | ) | 12 | | |||||||||||||||||||
Other fertilizer products | | 2 | | – | | – | | – | | – | | – | | – | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Subtotal | | 678 | | (62.8 | ) | (64.0 | ) | 252 | | (25.0 | ) | (6.9 | ) | 189 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Other(4) | | 388 | | 30.7 | | 23.1 | | 507 | | (42.0 | ) | (16.9 | ) | 294 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Total (excluding depreciation) | | 4,521 | | (21.5 | ) | (25.2 | ) | 3,547 | | (47.5 | ) | (32.1 | ) | 1,862 | | |||||||||||||||||||
Total (excluding depreciation, depletion and amortization) | | 9,663 | | 1,468 | | | 558.2 | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||
Depreciation | | 425 | | 1.4 | | (2.0 | ) | 431 | | 16.0 | | 0.4 | | 500 | | |||||||||||||||||||
Total with depreciation | | 4,946 | | (19.6 | ) | (23.3 | ) | 3,978 | | (40.6 | ) | (27.1 | ) | 2,362 | | |||||||||||||||||||
Depreciation, depletion and amortization | | 327 | | 144 | | | 127.1 | | | |||||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||||||
Total (including depreciation, depletion and amortization) | | 9,990 | | 1,612 | | | 519.7 | % | | |||||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | |
| | | | |
| | 105 | | |
Results of Operations
ResultsAdjusted EBITDA
The table below shows a reconciliation of our consolidated Adjusted EBITDA from continuing operations by segmentwith our net income (loss) from continuing operations for the years indicated.
| | Year ended December 31, | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | ||||||
| | (US$ million) | | ||||||||
Income (loss) from continuing operations attributable to Vale's stockholders | | | (1,683 | ) | | | 6,952 | | | ||
Income (loss) attributable to non-controlling interests | | | (497 | ) | | | 36 | | | ||
| | | | | | ||||||
Income (loss) from continuing operations | | | (2,180 | ) | | | 6,988 | | | ||
Depreciation, depletion and amortization | | | 3,726 | | | | 3,351 | | | ||
Income taxes | | | (595 | ) | | | (172 | ) | | ||
Financial results, net | | | 3,413 | | | | 4,957 | | | ||
Equity results and other results in associates and joint ventures(1) | | | 681 | | | | 182 | | | ||
Dividends received and interest from associates and joint ventures(2) | | | 466 | | | | 388 | | | ||
Impairment and disposal of non-current assets(3) | | | 5,074 | | | | 899 | | | ||
| | | | | | ||||||
Adjusted EBITDA from continuing operations | | | 10,585 | | | | 16,593 | | | ||
| | | | | | ||||||
Adjusted EBITDA from discontinued operations (Fertilizers) | | | — | | | | (3 | ) | | ||
| | | | | | ||||||
Total Adjusted EBITDA | | | 10,585 | | | | 16,590 | | | ||
| | | | | | ||||||
| | | | | | | | | | ||
| | | | | |
Our management uses adjusted earnings before interest, taxes, depreciation and amortization, or adjustedAdjusted EBITDA as the measure to assess the contribution of each segment's contributionsegment to our performance and to support decisions about resource allocation.decision-making in allocating resources. Adjusted EBITDA is a non-GAAP measure, which is calculated for each segment using operating income or loss from continuing operations plus dividends received and interest from associates and joint ventures, and associates, and adding back the amounts charged as (i) depreciation, depletion and amortization and (ii) impairment of non-current assets and onerous contracts and (iii) results on measurement or saledisposal of non-current assets. For more information, and a reconciliation of our operating income or loss to adjusted EBITDA, see Note 3note 4 to our consolidated financial statements.
| | | | |
| | 106 | | |
Results of Operations
The following table summarizes operating income or loss andour consolidated Adjusted EBITDA for each of our segments.
| | Year ended December 31, | | | Year ended December 31, | | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 | | | 2019 | | 2018 | | |||||||||||||||||||||||||||
| | Operating income (loss) | | Adjustments (1) | | Adjusted EBITDA | | Operating income (loss) | | Adjustments (1) | | Adjusted EBITDA | | Operating income (loss) | | Adjustments (1) | | Adjusted EBITDA | | | Adjusted EBITDA | | Adjusted EBITDA | | |||||||||||||||
| | (US$ million) | | | (US$ million) | | |||||||||||||||||||||||||||||||||
Ferrous minerals: | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Iron ore | | 15,565 | | 1,456 | | 17,021 | | 5,383 | | 2,693 | | 8,076 | | 1,794 | | 2,311 | | 4,105 | | | | 13,398 | | | 11,033 | | | ||||||||||||
Iron ore pellets | | 3,083 | | 1,018 | | 4,101 | | 2,225 | | 756 | | 2,981 | | 1,075 | | 610 | | 1,685 | | ||||||||||||||||||||
Pellets | | | 3,432 | | | 3,356 | | | |||||||||||||||||||||||||||||||
Ferroalloys and manganese | | 130 | | 29 | | 159 | | 63 | | 32 | | 95 | | (54 | ) | 23 | | (31 | ) | | | 51 | | | 160 | | | ||||||||||||
Other ferrous products and services | | 122 | | 140 | | 262 | | 59 | | 110 | | 169 | | 35 | | 105 | | 140 | | | | 116 | | | 162 | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Subtotal | | 18,900 | | 2,643 | | 21,543 | | 7,730 | | 3,591 | | 11,321 | | 2,850 | | 3,049 | | 5,899 | | | | 16,997 | | | 14,711 | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Coal | | (668 | ) | 213 | | (455 | ) | (1,160 | ) | 491 | | (669 | ) | (3,766 | ) | 3,258 | | (508 | ) | | | (533 | ) | | 181 | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Base metals: | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Nickel and other products | | (459 | ) | 1,592 | | 1,133 | | 1,575 | | 405 | | 1,980 | | (5,712 | ) | 6,344 | | 632 | | | | 1,243 | | | 1,431 | | | ||||||||||||
Copper | | (127 | ) | 389 | | 262 | | 367 | | 174 | | 541 | | 297 | | 229 | | 526 | | | | 931 | | | 1,111 | | | ||||||||||||
Other | | 244 | | – | | 244 | | – | | – | | – | | 230 | | – | | 230 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Subtotal | | (342 | ) | 1,981 | | 1,639 | | 1,942 | | 579 | | 2,521 | | (5,185 | ) | 6,573 | | 1,388 | | | | 2,174 | | | 2,542 | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Fertilizers: | | | | | | | | | | | |||||||||||||||||||||||||||||
Potash | | (2,525 | ) | 2,160 | | (365 | ) | (61 | ) | 26 | | (35 | ) | (607 | ) | 579 | | (28 | ) | ||||||||||||||||||||
Phosphates | | (133 | ) | 312 | | 179 | | (1,264 | ) | 1,398 | | 134 | | 587 | | (133 | ) | 454 | | ||||||||||||||||||||
Nitrogen | | (20 | ) | 75 | | 55 | | 39 | | 48 | | 87 | | 63 | | 21 | | 84 | | ||||||||||||||||||||
Other fertilizer products | | 77 | | 0 | | 77 | | 92 | | – | | 92 | | 57 | | – | | 57 | | ||||||||||||||||||||
Brumadinho Event (3) | | | (7,402 | ) | | — | | | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Subtotal | | (2,601 | ) | 2,547 | | (54 | ) | (1,194 | ) | 1,472 | | 278 | | 100 | | 467 | | 567 | | ||||||||||||||||||||
Other (4) | | | (651 | ) | | (841 | ) | | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Other(4) | | (226 | ) | 113 | | (113 | ) | (140 | ) | 42 | | (98 | ) | (130 | ) | (135 | ) | (265 | ) | ||||||||||||||||||||
Total Adjusted EBITDA from continuing operations | | | 10,585 | | | 16,593 | | | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Total | | 15,063 | | 7,497 | | 22,560 | | 7,178 | | 6,175 | | 13,353 | | (6,131 | ) | 13,212 | | 7,081 | | ||||||||||||||||||||
Adjusted EBITDA from discontinued operations (Fertilizers) | | | — | | | (3 | ) | | |||||||||||||||||||||||||||||||
| | | | | | ||||||||||||||||||||||||||||||||||
Total Adjusted EBITDA | | | 10,585 | | | 16,590 | | | |||||||||||||||||||||||||||||||
| | | | | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | |||||||||||||||||||||||||||||||
| | | | | |
We discuss below, for each segment, the changes in our net operating revenues, cost of goods sold and services rendered (excluding depreciation, depletion and amortization), expenses (excluding depreciation, depletion and amortization and excluding impairment charges), adjusted EBITDA and Adjusted EBITDA. The expenses incurred in connection with remediation, indemnification and donations in respect of the rupture of Dam I are not directly related to our operating income.activities and are therefore not allocated to any operating segment.
Ferrous minerals
2015 compared to 2014.
| | | | |
| | 107 | | |
Results of Operations
Our operating income from ferrous minerals was US$2.850 billion in 2015 and US$7.730 billion in 2014. This 63.1% decrease reflects,expenses, in addition to the effectsincrease in revenues and expenses and reductions in costs discussed above, the effect of the US$992 million impairment charge on our Corumbá mines, provisions for losses associated with long-term river freight agreements in the Paraná and Paraguay waterway systems and stoppage of our pelletizing plants in the Northern System.above.
Base metals
2014 compared to 2013.
| | | | |
| | 108 | | |
Our operating income from ferrous mineralsResults of Operations was US$7.730 billion in 2014 and US$18.900 billion in 2013. The 59.1% decrease reflects, in addition to the effects discussed above, the impairment of Vale's equity stake in VBG's operations in Guinea in the amount of US$1.135 billion.
Coal
2015 compared to 2014.
IMPAIRMENT AND DISPOSAL OF NON-CURRENT ASSETS
In 2019, we had a lossrecorded impairment and disposal of non-current assets of US$669 million, reflecting the decline in coal prices and lower sales volume5.074 billion. We recorded impairment of: (i) US$2.511 billion due to the suspensionreduction in expected production levels of refined nickel product for the Isaac Plains and Integra Coal minesremaining useful life of our nickel mine in Australia. Dividends received from joint ventures and associates operating in the coal segment amounted toNew Caledonia, (ii) US$28 million in 2015 and US$29 million in 2014.
Our operating loss from coal increased from US$1.1601.691 billion in 2014 to US$3.766 billion in 2015, reflecting, in additiondue to the negative effects discussed above, (i) a US$635 million impairment charge on our assets in Australia, based on lowerreview of expected productivity for metallurgical coal prices, and (ii) a US$2.403 billion impairment charge on ourthermal coal assets in Mozambique, and (iii) US$119 million due to the decreasereview of the business plan related to certain forestry assets, leading to a reduction in the net recoverable amount as a resultexpected operational capacity of lower expected coal pricesthese assets.
We also recorded an additional provision of US$240 million in relation to onerous contracts in our Midwest system for fluvial transportation and increased logistic costs.port structure. In 2014,2019, we recorded an impairmenta loss on disposal of non-current assets of US$343513 million related to our Isaac Plansnon-viable projects and Integra Coal mines.
2014 compared to 2013.
Our net operating revenues from salesassets written off through sale or obsolescence, which includes the assets write-offs of coal decreased to US$739 million in 2014, from US$1.010 billion in 2013. This 26.8% decrease primarily reflected lower prices for both thermal and metallurgical coal, and lower volume sold for metallurgical coal, partially offset by higher sales volume of thermal coal.
Our cost of goods sold from coal, excluding depreciation, decreased to US$1.071 billion, or 3.0% on a constant currency basis, due to the increased participation from Mozambique sales and decreased participation from Australia sales.
Our net expenses from coal, excluding depreciation and impairment charges, increased by 1.1% on a constant currency basis, to US$365 million in 2014, due to expenses registered in 2014 related to the suspension of certain operations in Australia and inventory adjustment in Mozambique.
Our adjusted EBITDA from coal was a loss of US$669 million in 2014, 47.0% higher than the US$455 million loss in 2013, reflecting mainly lower prices. Dividends received from joint ventures and associates operating in the coal segment amounted to US$29 million in 2014 and US$40 million in 2013.
Our operating loss from coal increased by 73.7%, from US$668 million in 2013 to US$1.160 billion in 2014, reflecting, in addition to the negative effects discussed above, a US$343 million impairment charge on our assets in Australia.
Base metals
2015 compared to 2014.
Our net operating revenues from sales of base metals decreased to US$6.163 billion in 2015 from US$7.692 billion in 2014. The 19.9% decrease primarily reflected lower prices for nickel and copper, partially offset by higher nickel sales volumes, resulting from ramp-up of our operations in New Caledonia and of Onça Puma, in Brazil, and higher copper sales volume, resulting from the ramp-up of Salobo operations.
Our cost of goods sold from base metals, excluding depreciation, increased 7.7% on a constant currency basis, due to higher costs related to ramp-up of Onça Puma and Salobo operations and increased allocation of VNC pre-operating expenses to costs of goods sold.
Our net expenses from base metals, excluding depreciation and impairment charges, decreased 12.6% on constant currency basis, mainly due to lower pre-operating expenses and a US$230 million gain on the gold stream transaction in 2015, partly offset by lower insurance proceeds in 2015 of US$212 million (US$64 million in 2015 compared to US$276 million in 2014).
Our adjusted EBITDA from base metals was US$1.388 billion in 2015, 44.9% lower than in 2014. Despite the lower nickel and copper prices, certain non-recurring items contributed to our income generation, such as insurance proceeds received in 2014Córrego do Feijão mine and the proceeds receivedother upstream dams in the gold stream transaction in 2015.Brazil.
| | | | |
| | 109 | | |
Our operating loss from base metals was US$5.185 billion in 2015, while we generated an operating income of US$1.942 billion in 2014. In 2015, we had a US$4.984 billion impairment charge on our nickel assets in New Caledonia and in Newfoundland and Labrador, in Canada, as a result of the reduction of long term prices projections, partially offset by an additional reversal of the impairment on our Onça Puma nickel assets in the amount of US$252 million. In 2014, we benefited from a reversal of the impairment on our Onça Puma nickel assets in the amount of US$1.617 billion.
2014 compared to 2013.
Our net operating revenues from sales of base metals increased to US$7.692 billion in 2014 from US$7.286 billion in 2013. The 5.6% increase primarily reflected higher nickel prices, resulting from market recovery after a cycle of decrease, and higher nickel sales volume due to the ramp-up of Onça Puma operations.
Our cost of goods sold from base metals, excluding depreciation increased 2.5%, on a constant currency basis, due to higher sales volumes of nickel, cobalt, PGMs and gold.
Our net expenses from base metals, excluding depreciation and impairment charges, decreased 41.2% on a constant currency basis, due to a reduction of pre-operating expenses and higher insurance proceeds received.
Our adjusted EBITDA from base metals was US$2.521 billion in 2014, 53.8% higher than in 2013. In addition to the lower costs and expenses, adjusted by the increase in sales volume, certain non-recurring items, such as insurance proceeds received in 2014 and the proceeds in the amount of US$244 million received in the gold stream transaction in 2013, contributed to our income generation.
Our operating income from base metals was US$1.942 billion in 2014, while we had an operating loss of US$342 million in 2013. The partial reversal of the impairment on our Onça Puma nickel assets positively affected our operating income in 2014.
FertilizersResults of Operations
FINANCIAL RESULTS, NET
2015 comparedThe following table details our financial results, net, from continuing operations for the years indicated.
| | Year ended December 31, | | ||
---|---|---|---|---|---|
| | 2019 | | 2018 | |
| | (US$ million) | | ||
Financial income(1) | | 527 | | 423 | |
Financial expenses(2) | | (3,806 | ) | (2,345 | ) |
Gains (losses) on derivatives, net | | 244 | | (266 | ) |
Net foreign exchange losses—Loans and borrowings | | (111 | ) | (2,666 | ) |
Other foreign exchange gains (losses), net | | 150 | | 419 | |
Indexation losses, net | | (417 | ) | (522 | ) |
| | | | | |
Financial results, net | | (3,413 | ) | (4,957 | ) |
| | | | | |
| | | | | |
| | | | | |
Our net operating revenues from salesour consolidated financial statements)
Our cost of goods sold from fertilizers, excluding depreciation, decreased 4.8% on a constant currency basis, due to decrease in volume sold and cost saving initiatives, which were partly offset by inflation.
OurIn 2019, our financial results, net, expenses from fertilizers, excluding depreciation and impairment charges, decreased 6.9% on a constant currency basis, due to downsizing initiatives, which was partly offset by inflation. Also pre-operating and stoppage expenses decreased mainly as a result of a reduction in stoppage expenses in the amount of US$15 million.
Our adjusted EBITDA from fertilizers increased from US$278 million in 2014 to a US$567 million in 2015. The increase resulted from exchange rate impacts in the amount of US$246 million, costs saving initiatives and expense reductions, partly offset by inflation, lower volumes, higher research and evaluation expenses and lower sales prices.
Our operating result from fertilizers was an operating incomeexpense of US$100 million in 20153.413 billion compared to an operatingexpense of US$4.957 billion in 2018. This mainly resulted from:
2014 compared to 2013.
Our net operating revenues from sales of fertilizers decreased to US$2.4152.574 billion in 2014, from US$2.814 billion2018), in 2013. The 14.2% decrease was a result2019 those foreign exchange differences were recognized as other comprehensive income. As of lower prices and lower sales volumes due to the sale of our Araucaria nitrogen operation in June 2013.
Our cost of goods sold from fertilizers, excluding depreciation, decreased 9.8%, on a constant currency basis, due to cost saving initiatives and lower ammonia/sulfur prices.
Our net expenses from fertilizers, excluding depreciation and impairment charges, decreased 64.0%, on a constant currency basis, primarily due to a reduction of stoppage expenses associated with our Rio Colorado project in the amount of US$376 million.
Our adjusted EBITDA from fertilizers was an income of US$278 million in 2014, againstDecember 31, 2019, we recognized a loss of US$54483 million (US$319 million, net of taxes) as "cumulative translation adjustments" in 2013. The increase resulted from the reduction of costs and expenses of US$355 million, the reduction of the stoppage expenses with the Rio Colorado project in the amount of US$376 million, which were partially off-set by lower prices (US$276 million).
Our operating loss from fertilizers was US$1.194 billion in 2014 compared to an operating loss of US$2.601 billion in 2013. These losses primarily reflected the impairment of fertilizers assets in 2014, in the amount of US$1.053 billion, and the impairment of the Rio Colorado project in 2013, in the amount of US$2.116 billion. Lower costs and lower stoppage expenses in the Rio Colorado project contributed to mitigate these operating losses.
Financial results
The following table details our net non-operating income (expenses) for the periods indicated.
| | Year ended December 31, | ||||
---|---|---|---|---|---|---|
| | 2013 | | 2014 | | 2015 |
| | (US$ million) | ||||
Financial income | | US$643 | | US$401 | | US$270 |
Financial expenses | | (5,002) | | (2,936) | | (1,112) |
Gains (losses) on derivatives, net | | (1,033) | | (1,334) | | (2,478) |
Foreign exchange gains (losses), net | | (2,765) | | (2,115) | | (7,166) |
Indexation gains (losses), net | | (175) | | (85) | | (315) |
| | | | | | |
Non-operating income (expenses) | | US$(8,332) | | US$(6,069) | | US$(10,801) |
| | | | | | |
| | | | | | |
| | | | | | |
2015 compared to 2014. Our non-operating expenses increased 78.0%, to US$10.801 billion in 2015 from US$6.069 billion in 2014. This principally resulted from:
| | | | |
| | 110 | | |
Results of Operations
Table of ContentsEQUITY RESULTS AND OTHER RESULTS IN ASSOCIATES AND JOINT VENTURES
2014 compared to 2013. Our non-operating expenses decreased 27.2%, to US$6.069 billionIn 2019, the equity results and other results in 2014 from US$8.332 billion in 2013. This decrease principally resulted from:
Equity results in associates and joint ventures
2015 compared to 2014. Ourpositive equity results in associates and joint ventures in 2015 decreasedventures.
INCOME TAXES
In 2019, we recorded a net income tax benefit of US$595 million, compared to a lossnet income tax benefit of US$439 million from an income of US$505172 million in 2014, mostly2018. In 2019, our effective tax rate was 21.4%, and it differed from our statutory tax rate, which is 34%, mainly due to: (i) unrecognized tax losses in the year (impact of US$1.059 billion), (ii) tax benefit from the payment of interest on stockholders' equity (impact of US$601 million), and (iii) savings derived from tax incentives from our iron ore, pellets, copper and nickel operations in the North and Northeast regions of Brazil (impact of US$189 million) compared to the negative resultssame period in 2018. The reconciliation from Companhia Siderúrgica do Pecém (US$307 million lossstatutory tax rate to our effective tax rate is presented in 2015) and from Samarco (US$167 million loss in 2015) while in 2014 we had a positive result from Samarco (US$392 million income).
2014 comparednote 8 to 2013.our consolidated financial statements.
| | | | |
| | 111 | | |
Results on sale or disposal of investments in associates and joint ventures
2015 compared to 2014. Our results on sale or disposal of investments in associates and joint ventures increased to an income of US$97 million in 2015 from loss of US$30 million in 2014. In 2015, we had positive results from coal asset sale in the amount of US$79 million and energy generation assets in the amount of US$18 million. In 2014, the US$30 million loss refers to Vale Florestar.
2014 compared to 2013. While in 2014 we registered a loss of US$30 million related to the sale of our interest at Vale Florestar, in 2013 the income of US$41 million is related to a gain on the sale of Log-In and a gain related to disposal of Fosbrasil, resulting in an income of US$27 million.
Impairment of investments in associates and joint ventures
Impairments of investments in associates and joint ventures totaled US$446 million in 2015, of which US$132 million related to our investment in Samarco and US$314 million related to our investment in TEAL. In 2014, we recognized an impairment of US$31 million on our investment in Vale Soluções em Energia S.A. In 2013, we recognized no impairment of investments in associates and joint ventures.
Income taxes
For 2015, we recorded net income tax gain of US$5.100 billion, compared to a net income tax expense of US$1.200 billion in 2014. In 2015, our effective tax rate was 28.8%. Tax legislation that became effective in 2015 provides that income of our foreign subsidiaries will be taxed in Brazil, on an accrual basis, applying the differential between the local rate and the Brazilian tax rates. Accordingly, the effective tax rate was different from the statutory rate mainly due to: (i) unrecognized tax losses and (ii) nondeductible impairment, partially offset by the constitution of tax loss forward related to losses at foreign subsidiaries that we were able to recognize due to change of law. Under the legislation that became effective in 2015, the accumulated losses of our foreign subsidiaries as of December 31, 2014 were available to offset their future profits. On September 30, 2015, we filed the required tax return and completed the review of the income tax loss carryforwards available in each foreign subsidiary as of December 31, 2014, which permitted us to recognize a deferred tax asset of US$2.952 billion related to accumulated losses in certain of our foreign subsidiaries.
For 2014, we recorded net income tax expense of US$1.200 billion, compared to an income tax expense of US$6.833 billion in 2013. In 2014, we had a nondeductible impairment related to our iron ore operations in Guinea and our nickel operations in New Caledonia. Excluding the effect of these impairment charges and the reversal for tax loss carryforwards, the effective tax rate would have been 35.5%.
In 2013, we had a tax expense from continued operations of US$4.048 billion in connection with the REFIS, a federal tax settlement program for payment of amounts relating to Brazilian corporate income tax and social contribution, in order to settle the claims related to the net income of our non-Brazilian subsidiaries and associates from 2003 to 2012. Our participation in the REFIS resulted in a substantial reduction in the amounts in dispute. For more information, seeAdditional information—Legal proceedings—Litigation on Brazilian taxation of foreign subsidiaries and Notes 6, 20 and 21 to our consolidated financial statements. The effective tax rate on our pretax income, excluding the income tax expense and financial expenses in connection with the REFIS, as well as the impairment of fixed assets, was 23.3%, which is lower than the statutory rate, mainly because of the tax benefit of shareholder distributions categorized as interest on shareholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
Overview
In the ordinary course of business, our principal funding requirements are for capital expenditures, dividend payments and debt service. We have historically metexpect to meet these requirements, in line with our historical practice, by using cash generated from operating activities and through borrowings, supplemented by dispositions of assets.borrowings.
For 2016, we have budgetedOur investment budget for capital expenditures ofin 2020 is approximately US$6.1675 billion, including approximately US$3.1724.1 billion for project execution and US$2.995 billion fordedicated to sustaining our existing operations and replacement projects. Our Board of Directors approved a contingency planprojects and approximately US$900 million for 2016, pursuant to which we target reducing the investment budget for 2016 to US$5.561 billion. Our Board of Executive Officers has proposed that we not make dividend payments in 2016, subject to approval by our Board of Directors.project execution. A principal amount of US$2.0121.011 billion of our debt matures in 2016, including US$951 million which matured in January 2016.
As a result of the decrease in global commodity prices, we expect our operating cash flow to decrease in 2016.2020. We have taken measures to reduce our capital expenditures, and we are constantly evaluating opportunities for additional cash generation, in order to mitigate the effect of this expected decrease in our operating cash flow. In 2015, for example, we entered into transactions to recover part of our investments in our business in Mozambique, and we are seeking project financing for the Nacala project. Additionally, we received an upfront payment of US$900 million and ongoing payments in consideration of the sale to Silver Wheaton of 25% of the gold stream from our Salobo copper mine, and we sold 12 of our very large ore carriers for US$1.316 billion. We continue to consider the sale of certain assets and investments, and joint ventures for certain of our businesses.generation. Finally, we are committed to continue the reduction in our costs and expenses, to reduce our debt leverage and to maintain discipline in capital allocation.
We also regularly review acquisition and investment opportunities and, when suitable opportunities arise, we make acquisitions and investments to implement our business strategy. We may fund these investments with borrowings.
Sources of fundsSOURCES OF FUNDS
Our principal sources of funds are our operating cash flow and borrowings. The amount of operating cash flow is strongly affected by global prices for our products. In 2015,2019, our operating activities generatedprovided by cash flows from continuedcontinuing operations of US$4.49112.110 billion, in line with the US$12.901 billion provided in 2018. In 2019, our cash and cash equivalents were US$7.350 billion compared to US$12.8075.784 billion in 2014, reflecting primarily the lower prices of iron ore and pellets.2018.
In 2015,2019, we borrowed US$4.03.142 billion under our new export financing lines, long-term debts and existing financing agreements. Our major new borrowing transactionscredit lines, compared to new borrowings of US$1.225 billion in 20152018.
USES OF FUNDS
In the ordinary course of business, our principal funding requirements are summarized below.
In 2015, we received approximately US$3.4 billion as a result of divestments and sales of interests in certain joint ventures and investments. The main divestment transactions in 2015 are described below:
In September 2015, we received a cash payment of R$4 billion (US$1.089 billion) from an affiliate of Banco Bradesco S.A., as proceeds from the sale of preferred shares representing 36.4% stake of MBR. SeeInformation on the Company—Business overview—Significant changes in our business.connection with communication services, accommodation and humanitarian assistance, equipment, legal services, water, food aid, taxes, among others.
Uses of funds
Capital expenditures
CapitalOur capital expenditures in 20152019 amounted to US$8.4013.704 billion, including US$5.548 billion for project execution and US$2.8533.160 billion dedicated to sustaining our existing operations. Our actual capital expenditures detailed in other part of these report may differ from those reported in our cash flow statements, because actual figures include some amounts that are treated as current expenses for accounting purposes, such as expensesoperations and US$544 million for project development and maintenance of existing assets. There may also be differences due to the fact that some actual figures are converted into U.S. dollars at the exchange rate on the date of each cash disbursement, while figures reportedexecution (construction in our cash flow statements are converted into U.S. dollars based on average exchange rates.progress). For more information about the specific projects for which we have budgeted funds, seeInformation on the Company—Capital expenditures.
Acquisitions
In 2019, we paid an aggregate amount of US$926 million, net of cash received, to acquire New Steel Global NV ("New Steel") and Ferrous Resources Limited ("Ferrous Resources").
| | | | |
| | 112 | | |
Liquidity and Capital Resources
Distributions and repurchases
We paid total dividends of US$1.5 billion in 2015 (including distributions classified as interest on shareholders' equity), consisting of US$1 billion in April and US$500 million in October. Our Board of Executive Officers proposed that we not distribute dividends in 2016, subject to approval by our Board of Directors. We did not pay dividends or repurchase any of our shares in 2015.2019.
In December 2019, our board of directors approved the declaration of interest on capital in the gross amount of US$1.767 billion (R$7.253 billion), equivalent to R$1.414364369 per share, based on profit reserves. The decision regarding the interest on capital allocation will be made in due course, and it will not occur until we lift the suspension of our Shareholder Remuneration Policy.
Tax payments
We paid US$527 million1.376 billion in income tax in 2015,2019, excluding the payments in connection with REFIS tax settlement, compared to US$504676 million in 2014.2018. In connection with our participation in the REFIS, our outstanding commitment totals US$4.431 billion, which will be paid in 154 monthly installments. In 2015,2019, we paid a total of US$384433 million in connection with the REFIS.REFIS, compared to US$452 million in the same period in 2018.
Table of ContentsLiability Management
In 2019, we repaid US$5.417 billion under our financing agreements, including a US$2.270 billion early repurchase of bonds (through a cash tender offer and a bond redemption consummated in September and December 2019), the repayment of US$2.142 billion of credit lines drawn in the first quarter of 2019 and the repayment of US$1.005 billion in loans with development banks.
DebtDEBT
As of December 31, 2015,2019, our total outstanding debt was US$28.85313.056 billion (including US$28.22912.845 billion of principal and US$624211 million of accrued interest) compared with US$28.80715.466 billion at the endas of 2014.December 31, 2018. As of December 31, 2015,2019, US$495220 million of our debt was secured by liens on some of our assets.property, plant and equipment. As of December 31, 2015,2019, the weighted average of the remaining term of our debt was 8.138.5 years, compared to 9.108.9 years in 2014.2018.
As of December 31, 2015,2019, the short termshort-term debt and the current portion of long-term debt was US$2.5061.214 billion, including charges.accrued interest.
Our major categories of long-term indebtedness are as follows.described below. The principal amounts givenshown below, include the current portion of long-term debt and excludeexcluding accrued charges.interest.
| | | | |
| | 113 | | |
Liquidity and Capital Resources
We have a variety of credit lines available, including the following, as of December 31, 2015:2019:
Some of our long-term debt instruments contain financial covenants. In particular, instruments representing approximately 21%18.8% of the aggregate principal amount of our total debt require that we maintain, as of the end of each quarter, (a)(i) a consolidated ratio of total debt to adjusted EBITDA for the past twelve12 months not exceeding 4.5 to one and (b)(ii) a consolidated interest coverage ratio of at least 2.0 to one. These covenants appear in our financing agreements with BNDES, with other export and development agencies, and with some other lenders. During the last quarter of 2015, we agreed with lenders under these agreements to amend the leverage ratio to require a ratio of 5.5 to one through the end of 2016, which will give us flexibility to finalize our investment cycle. On December 31, 2015, (i) our consolidated ratio of total debt to adjusted EBITDA for the past twelve months was 4.1 to one and (ii) our consolidated interest coverage ratio was 4.8 to one.
As of December 31, 2015,2019, we were in compliance with our financial covenants.
As of December 31, 2019, the corporate financial guarantees we provided (corresponding to our(within the limit of its direct or indirect interest) for the companies Norte Energia S.A.certain associates and Companhia Siderúrgica do Pecém S.A.joint ventures totaled US$274 million and US$1.172 billion, respectively. As a result1.655 billion.
| | | | |
| | 114 | | |
The following table summarizes our contractual obligations as of December 31, 2015.2019. This table excludes other common non-contractualnon contractual obligations that we may have, including pension obligations, deferred tax liabilities and contingent obligations arising from uncertain tax positions, all of which are discussed in the notes to our consolidated financial statements.
| | Payments due by period | | | Payments due by period | | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Total | | Less than 1 year | | 2017 – 2018 | | 2019 – 2020 | | Thereafter | | | Total | | Less than 1 year | | 2021 | | 2022 | | 2023 | | Thereafter | | |||||||||||||||||||
| | (US$ million) | | | (US$ million) | | |||||||||||||||||||||||||||||||||||||
Debt less accrued interest | | US$28,229 | | | US$2,011 | | | US$6,714 | | | US$6,459 | | | US$13,045 | | | | 12,845 | | 1,012 | | 788 | | 1,026 | | 1,192 | | 8,827 | | ||||||||||||||
Interest payments(1) | | 17,393 | | | 1,477 | | | 3,064 | | | 2,669 | | | 10,183 | | | | 7,260 | | 702 | | 641 | | 608 | | 568 | | 4,741 | | ||||||||||||||
Operating lease obligations(2) | | 286 | | | 56 | | | 121 | | | 109 | | | – | | | |||||||||||||||||||||||||||
Purchase obligations(3) | | 9,100 | | | 4,225 | | | 2,566 | | | 791 | | | 1,518 | | | |||||||||||||||||||||||||||
Purchase obligations(2) | | 9,077 | | 3,956 | | 1,029 | | 710 | | 552 | | 2,830 | | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Total | | US$55,008 | | | US$7,769 | | | US$12,465 | | | US$10,028 | | | US$24,746 | | | | 29,182 | | 5,670 | | 2,458 | | 2,344 | | 2,312 | | 16,398 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | 115 | | |
Table of iron ore from mining companies located in Brazil.Contents
OFF-BALANCE SHEET ARRANGEMENTS
AtAs of December 31, 2015,2019, we did not have any off-balance sheet arrangements as defined in the SEC's Form 20-F. For information on our contingent liabilities see Note 30 to our consolidated financial statements.
| | | | |
| | 116 | | |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe that the following are our critical accounting policies. We consider an accounting policy to be critical if it is important to our financial condition and results of operations and if it requires significant judgments and estimates on the part of our management. For a summary of all of our significant accounting policies, see Note 32 to our consolidated financial statements.
Table of ContentsCONSOLIDATION
Mineral reservesIn some circumstances, our judgment is required to determine whether, after considering all relevant factors, we have either control, joint control or significant influence over an entity. Significant influence includes situations of collective control. We hold the majority of the voting capital in five joint arrangements (Aliança Geração de Energia S.A., Aliança Norte Energia Participações S.A., Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and useful lifeCompanhia Nipo-Brasileira de Pelotização), but our management has concluded that we do not have a sufficiently dominant voting interest to have the power to direct the activities of minesthe entity, as the power to make relevant decisions shared with other parties, pursuant to the terms of shareholders' agreements. As a result, these entities are accounted for under the equity method.
MINERAL RESERVES AND MINES USEFUL LIFE
We regularly evaluate and update our estimates of proven and probable mineral reserves. Our proven and probable mineralThese reserves are determined using generally accepted estimation techniques. Calculating our reserves requires us to make assumptions about future conditions that are uncertain, including future ore and metal prices, currency prices, inflation rates, mining technology, availability of permits, production and capital costs. Changes in some or all of these assumptions could have a significant impact on our recorded proven and probable reserves.
OneThe estimated volume of mineral reserves is used as basis for the calculation of depletion of the ways we make our ore reserve estimatesmineral properties and also for the estimated useful life, which is a major factor to determinequantify the mine closure dates used in recording the fair value of ourprovision for asset retirement obligations forobligation, environmental recovery of mines and site reclamation costsimpairment of long-lived assets. Any changes to the estimates of the volume of mine reserves and the periods over which we amortize our mining assets. Any change in our estimatesuseful lives of total expected future mine or asset lives couldassets may have ana significant impact on the depreciation, depletion and amortization charges recorded in our consolidated financial statements under costand assessments of goods sold and impairment test. Changes in the estimated lives of our mines could also significantly impact our estimates of environmental and site reclamation costs, which are described in greater detail below.impairment.
Asset retirement obligationASSET RETIREMENT OBLIGATIONS
Expenditures relating to ongoing compliance with environmental regulations are charged against earnings or capitalized as appropriate. These ongoing programs are designed to minimize the environmental impact of our activities.
We recognize a liability for the fair value of our estimated asset retirement obligations in the period in which they are incurred, if a reasonable estimate can be made. We consider the accounting estimates related to reclamation and closure costs to be critical accounting estimates because:
| | | | |
| | 117 | | |
Critical Accounting Policies and Estimates
Our Environmental Department defines the policies and procedures that should be used to evaluate our asset retirement obligations. The future costs of retirement of our mines and processing assets at all our sites are reviewed annually, in each case considering the actual stage of exhaustion and the projected exhaustion date of each mine and site. The future estimated retirement costs are discounted using applicable discount rates that reflect current market assessments of the time value of money and of the risks specific to present value using a credit-adjusted risk-free interest rate.the liability.
As of December 31, 2015,2019, we estimated the fair value of our aggregate total asset retirement obligations to be US$2.4743.960 billion.
Table of ContentsIMPAIRMENT OF NON-CURRENT ASSETS AND ONEROUS CONTRACTS
Impairment of non-currentNon-financial assets
We annually assess whether there is any objective evidence of are reviewed for impairment of our financial assets and long-lived, non-financial assets. For financial assets measured through amortized cost, we comparewhenever events or changes in circumstances indicate that the carrying amount withmight not be recoverable. An impairment loss is recognized for the expectedamount by which the asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal ("FVLCD") and value in use ("VIU").
FVLCD is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, adjusted to reflectincluding any expansion prospects, and its eventual disposal. VIU model is determined as the present value. For long-lived, non-financial assets (such as intangible assets or property plant and equipment), when there are indications of impairment, we conduct the test by comparing the recoverable value of thesethe estimated future cash flows expected to arise from the continued use of the asset in its present form. VIU is determined by applying assumptions specific to the company's continued use and cannot take into account future development. These assumptions are different to those used in calculating fair value and consequently the VIU calculation is likely to give a different result to a FVLCD calculation.
Assets that have an indefinite useful life and are not subject to amortization, such as goodwill, are tested annually for impairment.
For the purposes of assessing impairment, assets (which are grouped at the lowest levels for which there are separately identifiable cash flows of(Cash Generating Units ("CGUs")). Goodwill is allocated to CGUs or CGU groups that are expected to benefit from the corresponding cash-generating unit) to their carrying amount. If we identify the need for adjustment for a particular asset, we apply that adjustment consistently for the corresponding cash-generating unit. The recoverable amount for an asset is the higher of (i) its value in use and (ii) its fair value less the cost of selling it.
We determine our discounted cash flows based on approved budgets, considering mineral reserves and mineral resources calculated by internal experts, costs and investments. These determinations also take into account our past performance, sales prices consistent with projections used in industry reports and information about market prices when available and appropriate. Cash flows used in our impairment testing are based on the life of each cash-generating unit, or on the consumption of reserve units in the case of minerals, and considering discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit, depending on their composition and location.
Goodwill balances arising from business combinations intangible assetsin which the goodwill arose and are identified in accordance with indefinite useful lives and lands are tested for impairment at least once a year, regardless of any indication of impairment of their carrying value.the operating segment.
Non-current assets (excluding goodwill) in which wethe company recognized as impairment in the past are reviewed whenever events or changes in circumstances indicate that the impairment may no longer be applicable. In such cases, an impairment reversal will be recognized.
Fair valuesFor onerous contracts, a provision is recognized for certain long-term contracts when the present value of derivativesthe unavoidable cost to meet our obligation exceeds the economic benefits that could be received from those contracts.
| | | | |
| | 118 | | |
Critical Accounting Policies and other financial instrumentsEstimates
Significant judgments, estimates and assumptions are required to determine whether an impairment trigger has occurred and to prepare the our cash flows. Management uses the budgets approved as a starting point and key assumptions are, but not limited to: (i) mineral reserves and mineral resources measured by internal experts; (ii) costs and investments based on the best estimate of projects as supported by past performance; (iii) sale prices consistent with projections available in industry reports, considering the market price when appropriate; (iv) the useful life of each cash-generating unit (ratio between production and mineral reserves); and (v) discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit.
These assumptions are subject to risks and uncertainties and may change our projections and, therefore, may affect the recoverable value of assets.
FAIR VALUES OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivatives transactions that are not qualified asfor hedge accounting are classified and presented as an economic hedge, as we use derivative instruments to manage our financial risks as a way of hedging against these risks. Derivative financial instruments are recognized as assets or liabilities in the balance sheet and are measured at their fair values. Changes in the fair values of derivatives are recorded in the statement of comprehensive income statement or in stockholders' equity when the transaction is eligible to be characterized asfor effective hedge accounting.
We have entered into some cash flow hedges that qualify for hedge accounting. We use well-known market participants' valuation methodologies to compute the fair value of instruments. To evaluate the financial instruments, we use estimates and judgments related to present values, taking into account market curves, projected interest rates, exchange rates, counterparty (credit) risk adjustments, forward market prices and their respective volatilities, when applicable. We evaluate the impact of credit risk on financial instruments and derivative transactions, and we enter into transactions with financial institutions that we consider to have a high credit quality. The exposure limits to financial institutions are proposed annually by the Executive Risk Committee and approved by the Board of Executive Officers. The financial institution's credit risk tracking is performed making use of a credit risk valuation methodology that considers, among other information, published ratings provided by international rating agencies and other management judgments. During 2015, we implemented hedge accounting for foreign exchange hedge and bunker costs hedge. In 2015, we recorded net losses on our income statement of US$2.916 billion in relation to derivative instruments, including US$481 million of realized losses relating to derivatives instruments designated as cash flow hedge accounting.
Table of ContentsDEFERRED INCOME TAXES
Deferred income taxes
We recognize deferred tax effects of tax loss carryforwards and temporary differences in our consolidated financial statements. We recorddo not recognize a valuation allowancetax asset when we believeit is not probable that it is probable that tax assets will not be fully recoverable in the future.
Deferred tax assets arising from tax losses, negative social contribution basis and temporary differences are registered taking into consideration the analysis of future performance, based on economic and financial projections, prepared based on internal assumptions and macroeconomic, trade and tax scenarios that may be subject to changes in future.
When we prepare our consolidated financial statements, the provision for income tax is calculated individually for each entity inof the groupCompany based on Brazilian tax rates, (to comply with Brazilian tax legislation on foreign profits), on an accrual basis, by applying the differential between the nominal local tax rates (based on rules in force in the location of the entity) and the Brazilian rate. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from deferring treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we show on our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not probable, we record a provision against a tax expense in our statement of income. When we reduce the provision, we record a tax benefit in our statement of income.
Determining our provision for income taxes and our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax assets requires significant management judgment, estimates and assumptions about matters that are highly uncertain. For each income tax asset, we evaluate the likelihood of whether some portion or the entire asset will not be
| | | | |
| | 119 | | |
Critical Accounting Policies and Estimates
realized. The valuation allowance madeDeferred tax assets recognized in relation to accumulated tax loss carryforwards depends on our assessment of the probability of generation of future taxable profits within the legal entity in which the related deferred tax asset is recorded, based on our production and sales plans, commodity prices, operating costs, environmental costs, group restructuring plans for subsidiaries and site reclamation costs and planned capital costs.
LitigationLITIGATION
We disclose material contingent liabilities unless the possibility of any loss arising is considered remote, and we disclose material contingent assets where the inflow of economic benefits is probable. We discuss our material contingencies in Note 18note 28 to our consolidated financial statements.
We record an estimated loss from a loss contingency when information available prior to the issuance of our financial statements indicates that it is probable that an outflow of resources will be required to settle an obligation, and the amount of the loss can be reasonably estimated. In particular, given the nature of Brazilian tax legislation, the assessment of potential tax liabilities requires significant management judgment. By their nature, contingencies will only be resolved when one or more future events occurs or fails to occur, and typically those events will occur a number of years in the future. Assessing such liabilities, particularly in the Brazilian legal environment, inherently involves the exercise of significant management judgment and estimates of the outcome of future events.
The provision for litigation atas of December 31, 2015,2019, totaling US$822 million,1.462 billion, consists of provisions of US$454455 million for labor, US$79300 million for civil, US$269696 million for tax and US$2011 million for otherenvironmental claims. These provisions do not include provisions related to the rupture of Dam I, which are reflected in the line Brumadinho Event in our statement of income. Claims wherefor which the likelihood of loss, in our opinion and based on the advice of our legal counsel, the likelihood of loss is reasonably possible but not probable, and for which we have not made provisions, amounted to a total of US$9.90811.938 billion atas of December 31, 2015,2019, including claims of US$1.866 billion773 million for labor claims, US$1.3351.518 billion for civil claims, US$5.3268.395 billion for tax andclaims, US$1.3811.094 billion for otherenvironmental claims and US$158 million for Brumadinho event claims.
Table of ContentsEMPLOYEE POST-RETIREMENT BENEFITS
Employee post-retirement benefits
We sponsor defined benefit pension and other post-retirement benefit plans covering some of our employees. The determination of the amount of our obligations for these benefits depends on certain actuarial assumptions. These assumptions are described in Note 21note 29 to our consolidated financial statements and include, among others, the discount rate, the expected long-term rate of return on plan assets and increases in salaries.
PROVISION RELATED TO SAMARCO MINERAÇÃO S.A.
The provision requires the use of assumptions that may be mainly affected by: (i) changes in scope of work required under the Framework Agreement as result of further technical analysis, (ii) uncertainty regarding the timing of resumption of Samarco's operations; (iii) updates in the discount rate; and (iv) resolution of existing and potential legal claims. As a result, future expenditures may differ from the amounts currently provided and changes to key assumptions could result in a material impact to the amount of the provision in future reporting periods. For each reporting period, we will reassess the key assumptions used by Samarco in the preparation of the projected cash flows and will adjust the provision, if required.
| | | | |
| | 120 | | |
Critical Accounting Policies and Estimates
STREAMING TRANSACTIONS
Defining the gain on sale of mineral interest and the contract liabilities portion of the gold transaction requires the use of critical accounting estimates as follows: (i) discount rates used to measure the present value of future inflows and outflows; (ii) allocation of costs between nickel or copper and gold based on relative prices; and (iii) expected margin for the independent elements (sale of mineral rights and service for gold extraction) based on our best estimate.
THE RUPTURE OF DAM I
Provisions for costs arising from the rupture of Dam I are measured at the present value of management's best estimate of the expenditure required to settle the present obligations at the end of the reporting period. The measurement of the provision requires the use of significant judgments, estimates and assumptions.
The provision reflects the estimated costs to comply with our obligations in relation to the event. The provision may be affected by factors including, but not limited to: (i) changes in laws and regulations; (ii) changes in the current estimated market price of the direct and indirect cost related to products and services, (iii) changes in timing for cash outflows, (iv) changes in the technology considered in measuring the provision, (v) the number of individuals entitled to the indemnification payments, (vi) resolution of existing and potential legal claims, (vii) demographic assumptions, (viii) actuarial assumptions, and (ix) updates to the discount rate.
The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.
Therefore, future expenditures may differ from the amounts currently provided, because the realized assumptions and various other factors are not always under our control. These changes to key assumptions could result in a material impact to the amount of the provision in future reporting periods. At each reporting period, we will reassess the key assumptions used in the preparation of the projected cash flows and will adjust the provision, if required.
| | | | |
| | 121 | | |
The aim of our risk management strategy is to promote enterprise-wide risk management that supports our growth strategy, strategic plan, corporate governance practices and financial flexibility to support maintenance of investment grade status. We have developed an integrated framework for managing the risks to which we are exposed, in order to support the achievement of our objectives, financial strength and flexibility and business continuity. Our risk whichmanagement strategy considers the impact on our business of not only market risk factors (market risk), but also risks arising from third party obligations (credit risk), risks associated with inadequate or failed internal processes, people, systems or external events (operational risk), risks arising from third-party obligations (credit risk), risks from exposure to legal penalties, fines or reputational losses associated with failure to act in accordance with applicable laws and regulations, internal policies or best practices (compliance risk), and risks associated with our business model, governance and political and regulatory conditions in countries in which we operate (political(strategic risk)., among others.
In order to achieve this objectiveRISK GOVERNANCE STRUCTURE
Our Compliance and to further improve our corporate governance practices,Risk Committee advises our Board of Directors with respect to the risks we are exposed.
Our Board of Executive Officers has established a company-widefour advisory committees (the Business Risk Executive Committees) to advise our management with respect to each of these risks: (i) operational risks, (ii) geotechnical risks, (iii) strategy, finance and cyber risks, and (iv) compliance risks. The main responsibilities of these committees are, among others: promoting and spreading the culture of risk management policyin the company; supporting the first line of defense, described below; supporting our management on preventive monitoring of potential operational, geotechnical, strategy, finance and an Executivecyber risks; making preventive recommendations about potential risks; and recommending revisions about management instruments and risk prevention principles, in accordance with the Risk Management Committee. ThePolicy.
In 2019, we approved a Risk Management Policy with the purposes described below.
See Note 24 to our consolidated financial statements for quantitative information aboutassessment of potential operational risks, relating to financial instruments, including financial instruments entered into pursuant togeotechnical risks.
| | | | |
| | 122 | | |
Risk Management
Our integrated risk governance practice is based on a three lines of defense model. We reevaluate our risk practices from time to time to ensure the alignment between strategic decisions, performance and the risk approach determined by our Board of Directors.
Market riskMANAGEMENT OF SPECIFIC RISKS
Market Risk
We are exposed to various market risk factors that can impact our financial stability and cash flow. An assessment of the potential impact of the consolidated market risk exposure is performed periodically to support ourthe decision making processes and growthprocess regarding the risk management strategy, ensure financial flexibility and monitor future cash flow volatility.
When necessary, market risk mitigation strategies are evaluated and implemented. Some of these strategieswhich may incorporate financial instruments, including derivatives. The financial instrument portfolios areportfolio is monitored on a monthly basis, enabling us to properly evaluate financial results and their impact on cash flow, and ensure correlation between the strategies implemented and the proposed objectives.
Considering the nature of our business and operations, the main market risk factors that we are exposed to are:
We are also exposed to interest rate risk on loansinstruments, and financings. of some other assets or liabilities denominated in currencies other than U.S. dollars.
Our floating rate debt consists mainly of loans including export pre-payments, commercial bank loans and multilateral organization loans. In general, the U.S. dollar floating rate debt is subject to changes into LIBOR (London Interbank Offer Rate) in U.S. dollars. To mitigate the impact of interest rate volatility on our cash flows, we take advantage of natural hedges resulting from the correlation between commodity prices and U.S. dollar floating interest rates. If such natural hedges are not present, we may opt to obtain the same effect by using financial instruments.
See note 33 to our consolidated financial statements for quantitative information about risks relating to financial instruments, including financial instruments entered into transactionspursuant to partially hedge our exposure to nickel, copper and bunker oil prices.risk management policies.
Credit riskOperational Risk
Operational risk management is the structured approach we take to manage uncertainty related to internal and external events. Internal events consist of inadequate or failed internal processes, people and systems, while external events include natural and operational catastrophes caused by third parties.
| | | | |
| | 123 | | |
Risk Management
We mitigate operational risk with new controls and improvement of existing ones, new mitigation plans and transfer of risk through insurance. We seek a clear view of the major risks we are exposed to, the cost-benefit on mitigation plans and the controls in place to closely monitor the impact of operational risks and to efficiently allocate capital to reduce it.
Geotechnical Risk
Geotechnical risk management is the structured approach we take to manage the risks of dams, slopes and ore piles ruptures, with the potential to cause fatalities, impacts on the community, the environment and/or interrupt the Company's activities.
It is the structured approach Vale takes to manage, in particular, the risks of dams, slopes and ore piles ruptures with the potential to cause fatalities, impacts on the community, the environment and/or interrupt our activities, which are very significant to our business. Geotechnical risks are continuously monitored and are duly integrated to enterprise risk management. We have been working on the improvement of our tailings management practices by implementing a new tailings management system. This new and more rigorous system is based on the adoption of multiple layers of protection, including internal and external lines of defense.
Operational, Planning and Continuity Risk
Planning and operational continuity risks include risks that may paralyze operations such as the unavailability of critical resources and of place for disposal of tailings, risks of not obtaining or not renewing licenses, concessions and mining rights, logistics risks and risks of availability and quality of reserves.
Cyber Risk
Cybernetic risk management is the approach taken to manage information security risks, such as theft and leakage of information, technology assets unavailability and compromising data integrity. The increase on the threat landscape is a natural trend in our industry and the evolving risks in this space come from a variety of cyber threat actors like nation states, cyber criminals, hacktivists and insiders. We have experienced threats to the security of our information, but none of these had an impact on our business in 2019.
We employ several measures to manage this risk in order to protect, detect and respond to cyber events including information security policies and standards, security protection technologies, detection and monitoring of threats, as well as testing of response and recovery procedures. To encourage vigilance among our employees we create a culture of cybersecurity awareness in the organization through a training program covering topics such as email phishing, information classification and other information security best practices.
Credit Risk
We are exposed to credit risk arising from trade receivables, derivative transactions, guarantees, down payment for suppliers and cash investments. Our credit risk management process provides a framework for assessing and managing counterparties' credit risk and for maintaining our risk at an acceptable level.
Commercial credit risk management
We assign an internal credit rating and a credit limit to each counterparty using our own quantitative methodology for credit risk analysis, which is based on market prices, external credit ratings and financial
| | | | |
| | 124 | | |
Risk Management
information of the counterparty, as well as qualitative information regarding the counterparty's strategic position and history of commercial relations.
Based on the counterparty's credit risk, or based on our consolidated credit risk profile, risk mitigation strategies may be used to manage our credit risk. The main credit risk mitigation strategies include non-recourse discount of receivables, insurance instruments, letters of credit, corporate and bank guarantees, mortgages, among others.
From a geographic standpoint, we have a diversified accounts receivable portfolio, with China,Asia, Europe Brazil and JapanBrazil, the regions with the most significant exposure. According to each region, different guarantees can be used to enhance the credit quality of the receivables. We monitor the counterparty exposure in the portfolio periodically and we block additional salescommercial credit to customers in delinquency.
Treasury credit risk management
To manage the credit exposure arising from cash investments and derivative instruments, our Board of Executive Officers approves, on an annual basis, credit limits by counterparty. Furthermore,are approved to each counterparty to which we have credit exposure. We control the portfolio diversification and monitor different indicators of solvency and liquidity of our different counterparties that were approved for trading.
Compliance Risk
Anti-Corruption Risk
To guide everyone who works in our company or acts on its behalf on how to act with ethics and integrity, we rely on the overall credit riskCode of Conduct, which together with the Global Anti-Corruption Policy and the Global Anti-Corruption Manual comprise the Global Anti-Corruption Program. The program—which is under the responsibility of Corporate Integrity—states that we have zero tolerance for corruption and prohibit bribery in all its forms (direct or indirect).
Our Global Anti-Corruption Program has specific rules related to:
Operational risk
Operational risk managementcorruption is defined. Anti-corruption clauses must be included in the structured approach we take to manage uncertaintycontracts.
Strategic Risk
Strategic risk comprises governance, business model, external environment issues, regulatory, political, economic or failed internal processes, people and systems and to external events.social actions taken by governments or other stakeholders.
| | | | |
| | 125 | | |
We mitigate operational risk with new controls and improvement of existing ones, new mitigation plans and transfer of risk through insurance. As a result, the Company seeks to have a clear view of its major risks, the cost-benefit on mitigation plans and the controls in place to monitor the impact of operational risk closely and to efficiently allocate capital to reduce it.
III.IV. SHARE OWNERSHIP AND TRADING
ValeparOur corporate capital is Vale's controlling shareholder. Valepar is a special-purpose company organized under the lawscurrently composed of Brazil that was incorporated for the sole purpose of holding an interest in Vale. Valepar does not have any other business activity. Valepar acquired its controlling stake in Vale from the Brazilian government in 1997 as part of the first stage of Vale's privatization.
The following table sets forth information regarding ownership of Vale shares by the shareholders we know beneficially own more than 5% of any class of our outstanding capital stock, and by our directors and executive officers as a group.
| | Common shares owned(1) | | % of class | | Preferred shares owned(1) | | % of class |
---|---|---|---|---|---|---|---|---|
Valepar(2) | | 1,716,435,045 | | 53.9% | | 20,340,000 | | 1.0% |
BNDESPAR(3) | | 206,378,882 | | 6.5% | | 66,185,272 | | 3.4% |
Capital Group International, Inc.(4) | | n/a | | n/a | | 205,280,842 | | 10.13% |
Capital Research Global Investors(4) | | n/a | | n/a | | 214,275,432 | | 10.57% |
Directors and executive officers as a group | | 9,300 | | Less than 1.0% | | 1,593,367 | | Less than 1.0% |
The Brazilian government also owns 12 golden shares of Vale, which give itissued to the Brazilian government. The 12 golden shares have veto powers over certain actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining activities.
The following table below sets forth information regarding ownership of Valepar commonVale shares by the shareholders we know beneficially own more than 5% of our outstanding capital stock, and by our directors and executive officers as a group, as of December 31, 2015.February 28, 2020.
| | Common shares owned | | % of class | | |
---|---|---|---|---|---|---|
Valepar shareholders | | | | |||
Litel Participações S.A.(1) | | 637,443,857 | | 49.00% | | |
Eletron S.A. | | 380,708 | | 0.03 | | |
Bradespar S.A.(2) | | 275,965,821 | | 21.21 | | |
Mitsui | | 237,328,059 | | 18.24 | | |
BNDESPAR | | 149,787,385 | | 11.51 | | |
| | | | | | |
Total | | 1,300,905,830 | | 100.00% | | |
| | | | | | |
| | | | | | |
| | | | | |
| | Common shares owned | | % of class |
---|---|---|---|---|
Litela Participações S.A.(1) | | 519,773,209 | | 9.8% |
Litel Participações S.A.(2). | | 74,832,355 | | 1.4% |
Caixa de Previdência dos Funcionários do Banco do Brasil—Previ(3) | | 337,233,710 | | 6.4% |
BNDESPAR(4) | | 323,496,276 | | 6.1% |
Bradespar S.A.(5) | | 293,907,266 | | 5.6% |
Mitsui | | 286,347,055 | | 5.4% |
BlackRock, Inc.(6) | | 272,614,219 | | 5.2% |
Directors and executive officers as a group | | 722,790 | | Less than 1% |
Shares held in treasury | | 156,192,313 | | 2.9% |
The table below sets forth information regarding ownership of LitelLitela Participações S.A., one of Valepar's shareholders, as of December 31, 2015.2019.
| | Common shares owned | | % of class | | | Common shares owned | | % of class | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Litel Participações S.A.shareholders(1) | | | | | | |||||||||
Litela Participações S.A.shareholders(1) | | | | |||||||||||
BB Carteira Ativa | | 193,740,121 | | | 78.40 | | | | 158,594,403 | | 80.6% | | ||
Carteira Ativa II | | 31,688,443 | | | 12.82 | | | |||||||
Carteira Ativa III | | 19,115,620 | | | 7.74 | | | |||||||
Singular | | 2,583,919 | | | 1.05 | | | |||||||
Caixa de Previdência dos Funcionários do Banco do Brasil | | 22 | | | – | | | |||||||
Carteira Ativa II FIA | | 22,625,093 | | 11.5% | | |||||||||
PETROS | | 13,648,434 | | 6.9% | | |||||||||
Others | | 220 | | | – | | | | 1,845,195 | | 0.9 | | ||
| | | | | | | | | | | ||||
Total | | 247,128,345 | | | 100.00 | % | | | 196,713,125 | | 100.0% | | ||
| | | | | | | | | | | | |||
| | | | | | | | | | |
The shareholdersSHAREHOLDERS' AGREEMENT
In 2017, Litel, Bradespar, Mitsui and BNDESPAR executed the Shareholders' Agreement, by means of Valepar are parties to a shareholders' agreement, which expires in 2017. The Valepar shareholders' agreement also:
| | | | |
| | 126 | | |
Pursuant to the Valepar shareholders' agreement, Valepar cannot support any of the following actions with respect to Vale without the consent of at least 75% of the holders of Valepar's common shares:
Major Shareholders
Litel and the merger of the portion split into its subsidiary company Litela, Litela became a party to the Shareholders' Agreement. The following are key provisions of the Shareholders' Agreement:
| | | | |
| | 127 | | |
Major Shareholders
| | | | |
| | 128 | | |
In addition, the shareholders' agreement provides that any issuance of participation certificates by Vale and any disposition by Valepar of Vale shares requires the unanimous consent of all of Valepar's shareholders.
We have a policy on related party transactions, which sets forth rules and principles to ensure transparency and arm's-length terms in our transactions with related parties and other situations of potential conflicts of interest. The definition of related party is based on applicable accounting standards and on this internal policy, which may be more restrictive than applicable laws and regulations under certain circumstances. Our Audit Committee is responsible for issuing reports about potential conflicts of interest between us and our shareholders or management and for reviewing the procedure and terms of related party transactions that are submitted to our Board of Directors for approval. Under the policy, if we identify a conflict of interest with a shareholder, then that shareholder or its representative may not participate in any discussions related to the transaction at any shareholders' meeting and will only have access to publicly available information about the matter. In addition, if we identify a conflict of interest with a member of the Board of Directors or an executive officer, then such member of the Board or executive officer may not participate in any discussions or have access to any information or document related to the matter. The policy also prohibits the extension of any loans to related parties other than our subsidiaries and affiliated companies. For information regarding investments in associate companies and joint ventures and for information regarding transactions with major related parties, see notes 16 and 31 to our consolidated financial statements.
We have engaged, and expect to continue to engage, in arm's-length transactions with certain entities controlled by, or affiliated with, our controlling shareholders, including the following:principal shareholders.
BradescoBRADESCO—
Bradespar a controlling shareholder of Valepar, is controlled by a group of entities that also control Banco Bradesco S.A. ("Bradesco"). Bradesco and its affiliates are full servicefull-service financial institutions that have performed, and may perform in the future, certain investment banking, advisory or general financing and banking services for us and our affiliates, from time to time, in the ordinary course of business. In September 2015, we sold preferred shares representing 36.4% of the total capital of our subsidiary MBR to an affiliate of Bradesco for R$4 billion (US$1.089 billion). See
BANCO DO BRASIL Information on the Company—Business overview—Significant changes in our business.
Previ, a pension fund of the employees of Banco do Brasil S.A. ("Banco do Brasil"), owns 100% of the investment fund BB Carteira Ativa, which holds the majority of the common equity of Litela Participações S.A. and Litel Participações S.A., which holds 49%in turn hold together 11.2% of the common equityshares of Valepar.Vale. Banco do Brasil appoints three out of the six members of Previ's senior management. An affiliate of Banco do Brasil is the manager of BB Carteira Ativa. Banco do Brasil is also a full servicefull-service financial institution, and Banco do Brasil and its affiliates have performed, and may perform in the future, certain investment banking, advisory or general financing and banking services for us and our affiliates, from time to time, in the ordinary course of business.
MITSUI
| | | | |
| | 129 | | |
BNDESRelated Party Transactions
BNDES
BNDES is the Brazilian state-owned development bank isand the parent company of one of our major shareholders, BNDESPAR.
Below is a description of our main transactions with BNDES:
We and BNDES are parties to a contract relating to authorizations for mining exploration. This contract, which we refer to as the Mineral Risk Contract, provides for the joint development of certain unexplored mineral deposits that form part of our Northern System, except for our iron ore and manganese ore deposits which were specifically excluded from the contract, as well as proportional participation in any profits earned from the development of such resources. In 2007, the Mineral Risk Contract was extended indefinitely, with specific rules for all exploration projects and exploration targets and mineral rights covered under the contract.
BNDES has provided us with credit lines of R$7.3 billion, or US$1.9 billion, to finance our investment program, facilities totaling R$985 million, or US$252 million, to finance the acquisition of equipment in Brazil, a R$3.9 billion or US$1.0 billion,(US$1.2 billion) financing for our CLN 150 Mtpy project and a R$6.2 billion or US$1.6 billion,(US$1.9 billion) financing for our S11D project and its infrastructure (CLN S11D).
For more information on our transactions with BNDES, seeOperating and Financial Review and Prospects—Liquidity and capital resources.
BNDES holds a total of R$1.163 billion, or US$298715 million (US$177 million), in debentures of our subsidiary Salobo Metais S.A., with a right to subscribe for Salobo's preferred shares in exchange for part of the outstanding debentures, which right expires two years after Salobo reaches an accumulated revenue equivalent to 200,000 metric tons of copper.
BNDES holds debentures issued by Vale exchangeable into common shares of VLI.
BNDESPAR is in the control group of several Brazilian companies with which we have commercial relationships in the ordinary course of our business.
| | | | |
| | 130 | | |
For more information on our transactions with BNDES, seeOperating and financial review and prospects—Liquidity and capital resources.
Mitsui has direct investments in some of our subsidiaries, joint ventures and associated companies. Mitsui has a minority stake in our subsidiary MVM Resources International B.V., which controls the Bayóvar (Peru) phosphate operations, and is part of a joint venture that holds an equity stake in our subsidiary VNC. Mitsui is also our joint venture partner at VLI, and BNDES holds debentures issued by Vale exchangeable into common shares of VLI. In December 2014, we entered into an investment agreement with Mitsui in connection with our coal business in Mozambique (seeInformation on the Company—Business overview—Significant changes in our business).
We have a policy on Related Party Transactions, which sets forth rules and principles to ensure transparency and arm's-length conditions in our transactions with related parties and other situations of potential conflicts of interest. Pursuant to that policy and our bylaws, our Governance and Sustainability Committee is responsible for issuing reports about potential conflicts of interest between us and our shareholders or management and for reviewing the procedure and terms of related party transactions that are submitted to our Board of Directors for approval. Under the policy, if we identify a conflict of interest with a shareholder, then that shareholder or its representative may not participate in any discussions related to the transaction at any shareholders' meeting and will only have access to publicly available information about the matter. The policy also prohibits the extension of any loans to related parties other than our subsidiaries and affiliated companies.
For information regarding investments in associate companies and joint ventures and for information regarding transactions with major related parties, see Notes 11 and 30 to our consolidated financial statements.
Under our dividend policy, our BoardImmediately following the rupture of Executive Officers announces, by no later than January 31 of each year, a proposal to be approved byDam I, our Board of Directors determined the suspension of a minimum amount, expressed in U.S. dollars, that will be distributed in that year to our shareholders. Distributions may be classified either asdividend policy, and therefore no payment of dividends or interest on shareholders' equity will be made pursuant to Vale's Distribution Policy, and referencesno decision with respect to "dividends" shouldshare buyback will be understood to include all distributions regardlessmade until further determination of their classification, unless stated otherwise. We determine the minimum dividend payment in U.S. dollars, considering our expected free cash flow generation in the year of distribution. The proposal establishes two installments, to be paid in April and October of each year. Each installment is submitted to the Board of Directors for approval at meetings in April and October. Once approved, dividends are converted into and paid inreais at the Brazilianreal/U.S. dollar exchange rates announced by the Central Bank of Brazil on the last business day before the Board meetings in April and October of each year. The Board of Executive Officers can also propose to the Board of Directors, depending on the evolution of our cash flow performance, an additional payment to shareholders of an amount over and above the minimum dividend initially established.
For 2016, our Board of Executive Officers has proposed that we not make dividend payments in 2016, subject to approval by our Board of Directors. We pay the same amount per share on both common and preferred shares in accordance with our bylaws.
Also, we will submit a proposal to modify our current dividend policy for approval of our shareholders at our next shareholders' meeting.
Under Brazilian law and our bylaws, we are required to distribute to our shareholders an annual amount equal to not less than 25% of the distributable amount, referred to as the mandatory dividend, unless the Board of Directors advises our shareholders at our shareholders' meeting that payment of the mandatory dividend for the preceding year is inadvisable in light of our financial condition. For a discussion of dividend distribution provisions under Brazilian corporate law and our bylaws, seeAdditional informationInformation—Memorandum and articles of association.
The tax regime applicable to distributions to ADR and HDR holders and to non-resident shareholders will depend on whether those distributions are classified as dividends or as interest on shareholders' equity. SeeAdditional informationInformation—Taxation—Taxation—Brazilian tax considerations.
By law, we are required to hold an annual shareholders' meeting by April 30 of each year at which an annual dividend may be declared. Additionally, our Board of Directors may declare interim dividends. Under Brazilian corporate law, dividends are generally required to be paid to the holder of record on a dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders' resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A shareholder has a three-year period from the dividend payment date to claim dividends (or payments of interest on shareholders' equity) in respect of its shares, after which we will have no liability for such payments. From 1997 to 2003, all distributions took the form of interest on shareholders' equity. In many years, part of the distribution has been made in the form of interest on shareholders' equity and part as dividends. SeeAdditional information—Memorandum and articles of association—Common shares and preferred shares.
We make cash distributions on the common shares and preferred shares underlying the ADSs inreais to the custodian on behalf of the depositary. The custodian then converts such proceeds into U.S. dollars and transfers such U.S. dollars to be delivered to the depositary for distribution to holders of ADRs and HDRs, net of the depositary's fees. For information on taxation of dividend distributions, seeAdditional informationInformation—Taxation—Taxation—Brazilian tax considerations.
The following table sets forth the cash distributions we paid to holders of common shares and preferred shares for the periodsyears indicated. Amounts have been restated to give effect to stock splits that we carried out in subsequent periods. Amounts are stated before any applicable withholding tax.
| | | | Reais per share | | | | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Year | | Payment date | | Dividends | | Interest on equity | | Total | | U.S. dollars per share(1) | | U.S. dollars total (US$ million)(1) |
2010 | | April 30 | | – | | 0.42 | | 0.42 | | 0.24 | | 1,250 |
| October 31 | | – | | 0.56 | | 0.56 | | 0.34 | | 1,750 | |
2011 | | January 31 | | – | | 0.32 | | 0.32 | | 0.19 | | 1,000 |
| April 29 | | – | | 0.61 | | 0.61 | | 0.38 | | 2,000 | |
| August 26 | | 0.93 | | – | | 0.93 | | 0.58 | | 3,000 | |
| October 31 | | 0.39 | | 0.63 | | 1.02 | | 0.58 | | 3,000 | |
2012 | | April 30 | | – | | 1.08 | | 1.08 | | 0.59 | | 3,000 |
| October 31 | | 0.66 | | 0.53 | | 1.19 | | 0.58 | | 3,000 | |
2013 | | April 30 | | 0.15 | | 0.71 | | 0.86 | | 0.44 | | 2,250 |
| October 31 | | 0.12 | | 0.82 | | 0.94 | | 0.44 | | 2,250 | |
2014 | | April 30 | | – | | 0.90 | | 0.90 | | 0.41 | | 2,100 |
| October 31 | | 0.34 | | 0.65 | | 0.99 | | 0.41 | | 2,100 | |
2015 | | April 30 | | – | | 0.60 | | 0.60 | | 0.19 | | 1,000 |
| October 31 | | 0.37 | | – | | 0.37 | | 0.10 | | 500 |
| | | | Reais per share | | U.S. dollars per share(1) | | U.S. dollars total(1) | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Year | | Payment date | | Dividends | | Interest on equity | | Total | | Total | | (US$ million) |
2015 | | April 30 | | – | | 0.60 | | 0.60 | | 0.19 | | 1,000 |
| October 31 | | 0.37 | | – | | 0.37 | | 0.10 | | 500 | |
2016 | | December 16 | | – | | 0.17 | | 0.17 | | 0.05 | | 250 |
2017 | | April 28 | | – | | 0.91 | | 0.91 | | 0.28(2) | | 1,470(2) |
2018 | | March 15 | | – | | 0.91 | | 0.91 | | 0.28(2) | | 1,451(2) |
| September 20 | | 0.17 | | 1.31 | | 1.48 | | 0.36(2) | | 1.861(2) | |
2019(3) | | – | | – | | 1.41 | | 1.41 | | – | | – |
| | | | |
| | 131 | | |
Our publicly traded share capital consists of common shares, and preferred shares, each without par value. Our common shares and our preferred shares are publicly traded in Brazil on the BM&FBOVESPA,B3, under the ticker symbols VALE3 and VALE5, respectively.symbol VALE3. Our common shares and preferred shares also trade on the LATIBEX, under the ticker symbols XVALO and XVALP, respectively.XVALO. The LATIBEX is a non-regulated electronic market created in 1999 by the Madrid stock exchange in order to enable trading of Latin American equity securities.
Our common ADSs, each representing one common share, and our preferred ADSs, each representing one preferred share, are traded on the New York Stock Exchange ("NYSE"),NYSE, under the ticker symbols VALE and VALE.P, respectively. Our common ADSs and preferred ADSs are traded on Euronext Paris, under the ticker symbols VALE3 and VALE5, respectively.symbol VALE. Citibank N.A. serves as the depositary for both the common and the preferred ADSs, having replaced JPMorgan Chase Bank N.A. onADSs. On December 22, 2015. On February 29, 2016,31, 2019, there were 1,499,728,2151,150,143,671 common ADSs outstanding, 835,578,121 common ADSs and 664,150,094 preferred ADSs, representing 26.2% of our outstanding common shares and 33.8% of our outstanding preferred shares, or 29.1%21.8% of our total share capital.
OurIn December 2019, we concluded the delisting of our common HDSs, each representing one common share, and our preferred HDSs, each representing one class A preferred share, are traded onADSs from the HKEx, under the stock codes 6210 and 6230, respectively. JPMorgan Chase Bank N.A. serves as the depositary for both the common and the preferred HDSs. On February 29, 2016, there were 2,019,850 HDSs outstanding, consisting of 1,813,300 common HDSs and 206,550 preferred HDSs.Euronext Paris.
| | | | |
| | 132 | | |
The following table sets forth trading information for our ADSs, as reported by the New York Stock Exchange and our shares, as reported by the BM&FBOVESPA, for the periods indicated. Share prices in the table have been adjusted to reflect stock splits.
| | BM&F BOVESPA (Reais per share) | | NYSE (US$ per share) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Common share | | Preferred share | | Common ADS | | Preferred ADS | ||||||||
| | High | | Low | | High | | Low | | High | | Low | | High | | Low |
2011 | | 60.92 | | 38.59 | | 53.41 | | 36.54 | | 37.02 | | 20.51 | | 32.50 | | 19.58 |
2012 | | 45.87 | | 32.45 | | 53.41 | | 32.12 | | 37.08 | | 15.88 | | 32.50 | | 15.67 |
2013 | | 44.10 | | 28.39 | | 42.60 | | 26.00 | | 21.49 | | 12.63 | | 20.88 | | 11.47 |
2014 | | | | | | | | | ||||||||
1Q | | 35.71 | | 29.26 | | 32.73 | | 25.90 | | 15.25 | | 12.42 | | 14.01 | | 10.93 |
2Q | | 33.34 | | 28.40 | | 30.12 | | 25.47 | | 15.07 | | 12.62 | | 13.61 | | 11.19 |
3Q | | 32.92 | | 26.54 | | 29.36 | | 23.30 | | 14.83 | | 10.87 | | 13.23 | | 9.49 |
4Q | | 28.31 | | 18.69 | | 24.80 | | 16.00 | | 11.80 | | 6.86 | | 10.31 | | 5.89 |
2015 | | | | | | | | | ||||||||
1Q | | 22.84 | | 17.94 | | 20.10 | | 15.45 | | 8.69 | | 5.65 | | 7.63 | | 4.85 |
2Q | | 27.06 | | 17.54 | | 20.30 | | 14.95 | | 8.80 | | 5.58 | | 6.66 | | 4.77 |
3Q | | 19.94 | | 15.35 | | 16.00 | | 12.27 | | 5.90 | | 4.03 | | 5.00 | | 3.21 |
4Q | | 20.79 | | 11.65 | | 16.26 | | 9.32 | | 5.48 | | 3.07 | | 4.31 | | 2.43 |
Last six months | | | | | | | | | ||||||||
September 2015 | | 19.94 | | 16.48 | | 16.00 | | 13.19 | | 5.19 | | 4.03 | | 4.15 | | 3.21 |
October 2015 | | 20.79 | | 16.14 | | 16.26 | | 13.33 | | 5.48 | | 4.19 | | 4.31 | | 3.46 |
November 2015 | | 17.75 | | 13.17 | | 14.40 | | 10.63 | | 4.72 | | 3.37 | | 3.85 | | 2.68 |
December 2015 | | 13.25 | | 11.65 | | 10.52 | | 9.32 | | 3.45 | | 3.07 | | 2.73 | | 2.43 |
January 2016 | | 13.03 | | 8.89 | | 10.25 | | 6.73 | | 3.29 | | 2.15 | | 2.55 | | 1.60 |
February 2016 | | 13.14 | | 8.60 | | 9.40 | | 6.57 | | 3.34 | | 2.16 | | 2.37 | | 1.63 |
Citibank N.A. serves as the depositary for our ADSs, having replaced JPMorgan Chase Bank N.A. on December 22, 2015. JPMorgan Chase Bank N.A. serves as the depositary for our HDSs.ADSs. ADR holders and HDR holders are required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.
ADR holders and HDR holders are required to pay the depositary amounts in respect of expenses incurred by the depositary or its agents on behalf of ADR holders, and HDR holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission or conversion of foreign currency into U.S. or Hong Kong dollars. In this case, the depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions. The depositary may recover any unpaid taxes or other governmental charges owed by an ADR holder or HDR holder by billing such holder, by deducting the fee from one or more cash dividends or other cash distributions, or by selling underlying shares after reasonable attempts to notify the holder, with the holder liable for any remaining deficiency.
ADR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.
Depositary service | | Fee payable by ADR holders |
---|---|---|
Issuance of ADSs upon deposit of shares, excluding issuances as a result of distributions described in the following item | | Up to US$5.00 or less per 100 ADSs (or fraction thereof) issued |
Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares) | | Up to US$5.00 or less per 100 ADSs (or fraction thereof) held |
Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements) | | Up to US$5.00 or less per 100 ADSs (or fraction thereof) held |
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs | | Up to US$5.00 or less per 100 ADSs (or portion thereof) held |
Delivery of deposited property against surrender of ADSs | | Up to US$5.00 or less per 100 ADSs (or portion thereof) |
ADS services | | Up to US$5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the depositary |
The depositary may deduct applicable depositary fees and charges from the funds being distributed in the case of cash distributions. For distributions other than cash, the depositary will invoice the amount of the applicable depositary fees to the applicable holders.
Additional ChargesADDITIONAL CHARGES
The holders, beneficial owners, persons depositing shares and persons surrendering ADSs for cancellation and for the purpose of withdrawing deposited securities are also subject to the following charges: (i) taxes (including applicable interest and penalties) and other governmental charges; (ii) registration fees as may be applicable from time to time; (iii) reimbursement of certain expenses as provided in the deposit agreement; (iv) the expenses and charges incurred by the depositary in the conversion of foreign currency; (v) certain fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements; and (v)(vi) certain fees and expenses incurred in connection with the delivery or servicing of deposited shares, as provided for under the deposit agreement.
HDR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.
| | |
| | |
| | 133 |
| | |
Depositary Shares
The depositary reimburses us for certain expenses we incur in connection with the ADR programs and HDR programs,other expenses, subject to a ceiling agreed between us and the depositary from time to time. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holdersholders. The depositary also agreed to make an additional reimbursement annually based on the issuance and HDRcancellation fees, dividend fees and depositary service fees charged by the depositary to our ADS holders. For the year ended December 31, 2015, the JPMorgan Chase Bank2019, Citibank N.A. reimbursed us US$12.167 million in connection with the ADR and HDR programs.13.083 million.
| | | | |
| | 134 | | |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Vale did not engage in any share repurchase programrepurchases during 2015.2019.
| | | | |
| | 135 | | |
IV.V. MANAGEMENT AND EMPLOYEES
Board of DirectorsBOARD OF DIRECTORS
Our Board of Directors sets general guidelines and policies for our business and monitors the implementation of those guidelines and policies by our executive officers. Our bylaws provide for a Board of Directors consisting of 1113 members and 1113 alternates, each of whom serves on behalf of a particular director. All members (and their respective alternates)One member and his or her alternate are directly elected for the same two-year term atby our employees, in a general shareholders' meeting, can be re-elected, and are subject to removal at any time.separate election. Our bylaws provide that the chief executive officer cannot serve as chairman of the Board of Directors.
The Board of Directors holds regularly scheduled meetings on a monthly basis and holds additional meetings when called by the chairman, vice-chairman or any two directors. Decisions of the Board of Directors require a quorum of a majority of the directors and are taken by majority vote. Alternate directors may attend and vote at meetings in the absence of the director for whom the alternate director is acting.
TenAll members (and their respective alternates) are elected for the same two-year term at a general shareholders' meeting, can be re-elected, and are subject to removal at any time. At the 2019 Shareholders Annual Meeting, 13 members of our 11 current directors (and ninethe Board of our 10 alternate directors)Directors were appointedelected, with 12 members elected by Valepar. This includes an additional director appointed by Valepar, because no individual or group of commonthe cumulative voting process and preferred shareholders met the thresholds described under our bylaws and Brazilian corporate law. One director and his respective alternate are appointed by our employees, pursuant to our bylaws. Non-controlling shareholders holding common shares representing at least 15% of our voting capital, and preferred shares representing at least 10% of our total share capital, have the right to appoint one member elected by the employees, in a separate election. In November and anDecember 2019, two positions of members and one position of alternate to ourmember of the Board of Directors. Our employeesDirectors became vacant due to resignations. The Board of Directors approved the appointment of two new members and our non-controllingone alternate member for a term lasting until the 2020 Annual Shareholders' Meeting, which will be held in April 2020 and at which the shareholders each have the right, aswill vote on a class,proposal to appoint one director and an alternate.elect 12 members. The terms of all of our directors and alternate directors will expire at the Ordinary General Shareholder's meeting of 2017.2021.
Nine of our thirteen current directors (and seven of our ten alternate directors) were appointed by the parties to the Shareholders' Agreement. Non-controlling shareholders holding common shares representing at least 15% of our voting capital may elect a member and an alternate to our Board of Directors, in a separate election process. Shareholders representing 5% of our voting capital may demand the adoption of a cumulative voting procedure. SeeAdditional Information—Memorandum and articles of association—Voting rights.
New listing rules applicable to independence requirements for the Novo Mercado came into force in January 2018. Pursuant to the Novo Mercado listing rules and our bylaws, at least two directors or 20% of our directors, whichever number is higher, must be independent. We currently have three independent members of our Board of Directors. To be considered independent under our bylaws and the Novo Mercado listing rules in effect in 2018, a director may not (i) have current professional ties to Vale other than as a member of the Board of Directors or be a significant shareholder of Vale; (ii) have been an employee or executive of Vale or of any party to the Shareholders' Agreement for at least the past three years; (iii) sell goods or services to or purchase goods or services from Vale; (iv) be affiliated with any party to the Shareholders' Agreement; (v) be a relative, to the second degree, of any director or executive of Vale; (vi) have been a member of Vale's audit committee in the past three years; and (vii) be an affiliate of any non-profit organization receiving significant financial resources from Vale. The current composition of Vale's Board of Directors is in compliance with the rules established by the Novo Mercado special segment of B3.
| | | | |
| | 136 | | |
Management
The following table lists the current members of the Board of Directors and each director's alternate.
Director(1) | | Year first elected | | Alternate director(1) | | Year first elected |
---|---|---|---|---|---|---|
Gueitiro Matsuo Genso (chairman) | | 2015 | | Gilberto Antonio Vieira | | 2015 |
Sérgio Alexandre Figueiredo Clemente (vice-chairman) | | 2014 | | Moacir Nachbar Junior | | 2015 |
Dan Antonio Marinho Conrado | | 2012 | | Arthur Prado Silva(4) | | 2015 |
Marcel Juviniano Barros | | 2012 | | Francisco Ferreira Alexandre | | 2013 |
Tarcísio José Massote de Godoy | | 2015 | | Robson Rocha | | 2011 |
Fernando Jorge Buso Gomes | | 2015 | | Luiz Mauricio Leuzinger | | 2012 |
Oscar Augusto de Camargo Filho | | 2003 | | Eduardo de Oliveira Rodrigues Filho | | 2011 |
Luciano Galvão Coutinho | | 2007 | | Victor Guilherme Tito | | 2015 |
Hiroyuki Kato | | 2014 | | Yoshitomo Nishimitsu | | 2015 |
Alberto Ribeiro Guth(2) | | 2015 | | Vacant | | – |
Lucio Azevedo(3) | | 2015 | | Carlos Roberto de Assis Ferreira | | 2015 |
Director | | Year first elected | | Alternate director | | Year first elected |
---|---|---|---|---|---|---|
José Maurício Pereira Coelho (chairman) | | 2019 | | Arthur Prado Silva | | 2015 |
Fernando Jorge Buso Gomes (vice-chairman) | | 2015 | | Johan Albino Ribeiro | | 2019 |
Eduardo de Oliveira Rodrigues Filho | | 2019 | | Vacant | | — |
Isabella Saboya de Albuquerque(1) | | 2017 | | Adriano Cives Seabra(1) | | 2019 |
José Luciano Duarte Penido | | 2019 | | Vacant | | — |
Lucio Azevedo(2) | | 2015 | | Iran da Cunha Santos(2) | | 2019 |
Marcel Juviniano Barros | | 2012 | | Marcia Fragoso Soares | | 2019 |
Murilo Cesar Lemos dos Santos Passos | | 2019 | | Gilmar Dalilo Cezar Wanderley | | 2017 |
Oscar Augusto de Camargo Filho | | 2003 | | Ken Yasuhara | | 2019 |
Patricia Gracindo Marques de Assis Bentes(1) | | 2019 | | Marcelo Gasparino da Silva(1) | | 2019 |
Roger Allan Downey | | 2019 | | Ivan Luiz Modesto Schara | | 2019 |
Sandra Maria Guerra de Azevedo(1) | | 2017 | | Vacant | | — |
Toshiya Asahi | | 2017 | | Hugo Serrado Stoffel | | 2019 |
Below is a summary of the business experience, activities and areas of expertise of our current directors.
| | | | |
JOSÉ MAURÍCIO PEREIRA COELHO | | Born: | | 1966 |
Chairman of the Board, Member of the Personnel and Governance Committee | | First elected: | | 2019 |
| Other current activities and | | • Chief Executive Officer of the Employees' Pension Fund of Banco do Brasil—Previ | |
| | • Director and Member of the Audit and Risk Committee of Ultrapar Participações S.A. | ||
| | • Chairman of the Deliberative Board of Associação Brasileira das Entidades Fechadas de Previdência Complementar ("Abrapp") | ||
| Business experience: | | • Chief Executive Officer of Banco do Brasil ("BB") Seguridade Participações S.A. | |
| | • Vice-President of Finance and Investor Relations of Banco do Brasil S.A. | ||
| | • Finance Director of Banco do Brasil S.A. |
| | | | |
| | 137 | | |
Other current director or officer positions: Member of Vale's Board of Directors since March 2015; Member of the Strategic Committee of Vale since April 2015; Chief executive officer and member of the board of directors of Valepar since April 2015; Chief executive officer of Previ since February 2015.
Professional experience: Executive officer of private customers of Banco do Brasil and member of the board of directors of the Brazilian Interbank Payment Chamber from 2014 to 2015; Member of the fiscal council of Grupo Segurador BB Mapfre from June 2011 to June 2015; Sector officer of the Brazilian Bank Federation (Febraban) from 2010 to 2015; Executive officer of home loans of Banco do Brasil from 2011 to 2014; Executive officer of loans of Banco do Brasil from 2010 to 2011; Executive officer of products of Banco Nossa Caixa S.A. from 2009 to 2010.
Academic background: Degree in business administration from Faculdade SPEI—Curitiba; MBA from Fundação Getúlio Vargas in Cascavel; MBA in agribusiness from Escola Superior de Agricultura Luiz de Queiroz in Piracicaba.
Sérgio Alexandre Figueiredo Clemente, 56: Member of Vale's Board of Directors since May 2014.
Other current director or officer positions: Member of Valepar's board of directors since May 2015; Executive officer of Millenium Security Holdings Corp, a subsidiary of Bradespar, since June 2014; Executive officer of Antares Holdings Ltda. and Brumado Holdings Ltda., both subsidiaries of Bradespar, since April 2014; Executive officer of NCF Participações Ltda., a holding company with investments in Bradespar, since December 2013; Member of the board of directors of BBD Participações S.A., a holding company with investments in Bradespar, since April 2012; Executive vice president of Banco Bradesco since January 2012; Vice president of Bradesco Leasing S.A.—Arrendamento Mercantil since April 2012; member of the (i) integrated risk management and capital allocation committee (since March 2012); (ii) sustainability committee (since September 2014); (iii) ethical conduct committee (since April 2015); and (iv) internal control and compliance committee (since June 2015), all from Banco Bradesco; Officer of Bradespar since April 2014; Member of the board of directors of Cidade de Deus—Companhia Comercial de Participações since April 2012; Officer of Nova Cidade de Deus Participações S.A., a holding company with investments in Bradespar, since April 2012.
Professional experience: Department officer of Banco Bradesco from 2000 to 2006; Executive managing officer of Banco Bradesco from 2006 to 2012.
Academic background: Degree in mechanical engineering from Pontifícia Universidade Católica de Minas Gerais; Executive MBA in finance from IBMEC; Advanced management programs from Fundação Dom Cabral and INSEAD.
Dan Antonio Marinho Conrado, 51: Member of Vale's Board of Directors since October 2012.
Other current director or officer positions: Chairman of Valepar's board of directors since October 2012; Alternate member of the board of directors of Mapfre BBSH2 Participações S.A., a publicly-held insurance company, since June 2011.
Professional experience:Management
| | | | |
FERNANDO JORGE BUSO GOMES | | Born: | | 1956 |
Vice Chairman, Coordinator of the Finance Committee and Personnel and Governance Committee | | First elected: | | 2015 |
| Business experience: | | • Coordinator of Vale's Sustainability Committee | |
| | • Vice Chairman of the Board of Directors of Bradespar S.A. | ||
| | • Chief Executive Officer and Director of Investor Relations of Bradespar S.A. | ||
| | • Member of Vale's Executive Development Committee | ||
| | • Member of Vale's Strategy Committee | ||
| | • Executive Officer of Valepar S.A. | ||
| | • Director of Valepar S.A. (and Vice-Chairman of Board of Directors) | ||
| | • Chairman of the Board of Directors of Smartia Corretora de Seguros S.A. | ||
| | • Chairman of the Board of Directors of SMR Grupo de Investimentos e Participações S.A. | ||
| | • Director of BCPAR S.A. | ||
| | • Director of BR Towers S.A. | ||
| | | | |
EDUARDO DE OLIVEIRA RODRIGUES FILHO | | Born: | | 1954 |
Director, Coordinator of the Compliance and Risk Committee | | First elected: | | 2019 |
| Other current activities and director or officer positions: | | • Managing Partner of CWH Consultoria em Gestão Empresarial | |
| Business experience: | | • Member of Vale's Finance Committee and Sustainability Committee | |
| | • Alternate Director of Valepar S.A. | ||
| | • Commercial Director of Rio Tinto Brasil | ||
| | • Commercial Manager at Minerações Brasileiras Reunidas S.A. | ||
| | | | |
ISABELLA SABOYA DE ALBUQUERQUE | | Born: | | 1970 |
Director and Coordinator of Audit Committee | | First elected: | | 2017 |
| Other current activities and director or officer positions: | | • Director, Coordinator of the Related Parties Committee and Member of the Personnel Committee of Wiz Soluções e Serviços de Corretagem S.A. | |
| | • Member of the Abrapp/Sindapp/ICSS Board of Self-Regulation in Investment Governance | ||
| | • Member of the State Governance Market Advisory Chamber of B3 | ||
| Business experience: | | • Director and Coordinator of the Audit Committee at IBGC | |
| | • Director and Coordinator of the Audit Committee of BR Malls S.A. | ||
| | • Partner at Jardim Botânico Investimentos S.A. |
| | | | |
| | 138 | | |
Academic background: Degree in law from Universidade Dom Bosco, Mato Grosso do Sul; MBA from COPPEAD/Universidade Federal do Rio de Janeiro ("UFRJ"); MBA from Instituto de Ensino e Pesquisa em Administração of Universidade Federal de Mato Grosso.
Marcel Juviniano Barros, 53: Member of Vale's Board of Directors since October 2012; Member of the Executive Development Committee of Vale since February 2013.
Other current director or officer positions: Officer of securities of Previ since 2012; Member of the board of directors of Valepar since 2012; Member of the board of PRI—Principles for Responsible Investment of the UN since 2012.
Professional experience: Between 1987 and 2012 held several positions at Banco do Brasil, a publicly-held financial institution, including the position of union auditor; General secretary of the National Confederation of Financial Branch Workers, where he coordinated international networks from 2008 to 2011.
Academic background: Degree in history from Fundação Municipal de Ensino Superior de Bragança Paulista.
Tarcísio José Massote de Godoy, 51: Member of Vale's Board of Directors since 2015.
Professional experience: Chairman of the board of directors of Banco do Brasil from February 2015 to January 2016; Executive treasury of the Brazilian ministry of finance from January 2015 to December 2015; General officer and executive officer of Bradesco Seguros S.A. ("Bradesco Seguros"), an insurance company, from March 2013 to January 2016; Vice president of Federação Nacional de Seguros Gerais, an insurance company, from 2013 to 2014; Member of the board of directors of IRB Brasil Resseguros ("IRB"), a Brazilian re-insurance company, from March to December 2014; Member of the fiscal council of CEABS—Instituto Brasileiro de Governança Corporativa from March to December 2014; Executive officer of Bradesco Seguros from November 2010 to March 2013; Vice president of Federação Nacional de Previdência Privada e Vida, a Brazilian private pension fund, from February to September 2010; Alternate Member of the Fiscal Council of Vale from 2003 to 2007.
Academic background: Degree in civil engineering from University of Brasília; post-graduate degree in geotechnical engineering; Master's degree in public economy from University of Brasília.
Fernando Jorge Buso Gomes, 59: Member of Vale's Board of Directors since 2015; Coordinator of the Governance Sustainability Committee of Vale since April 2015; Member of the Financial Committee of Vale since April 2015; Member of the Executive Development Committee of Vale since April 2015;
Other current director or officer positions: Executive officer and director of Valepar since April 2015; Chief executive officer and investor relations executive officer of Bradespar since April 2015; Chief executive officer and member of the board of directors of 2b Capital S.A., an investment management company, since 2014.
Professional experience:Management
| | | | |
JOSÉ LUCIANO DUARTE PENIDO | | Born: | | 1948 |
Director, Coordinator of the Sustainability Committee and Member of the Compliance and Risk Committee | | First elected: | | 2019 |
| Other current activities and director or officer positions: | | • Director of Copersucar S.A. • Independent Director, Member of the Human Talent Committee and the Audit and Risk Committee of Algar S.A. | |
| | • Member of Vale's Compliance and Risk Committee and Coordinator of Vale's Sustainability Committee | ||
| Business experience: | | • Director of Banco Santander Brasil | |
| | • Independent Director of Química Amparo Ypê | ||
| | • Chairman of the Board of Directors of Fibria Celulose | ||
| | | | |
LUCIO AZEVEDO | | Born: | | 1958 |
Director | | First elected: | | 2015 |
| Other current activities and director or officer positions: | | • Employee of Vale (currently released for union activity) | |
| | • President of the Employees' Union of Railway Companies of the Brazilian states of Maranhão, Pará and Tocantins | ||
| | | | |
MARCEL JUVINIANO BARROS | | Born: | | 1962 |
Director, Member of the Sustainability Committee | | First elected: | | 2012 |
| Other current activities and director or officer positions: | | • Security Director of PREVI—Pension Fund for Banco do Brasil Employees | |
| Business experience: | | • Member of Vale's Personnel and Governance Committee | |
| | • Member of Vale's Executive Development Committee | ||
| | • Director of UN-PRI (Principles for Responsible Investments) | ||
| | • Effective Director of Valepar |
| | | | |
| | 139 | | |
Academic background: Bachelor's degree in economic sciences from Integrated College Bennett.
Oscar Augusto de Camargo Filho, 78: Member of Vale's Board of Directors since September 2003.
Other current director or officer positions: Member of the board of directors of Valepar since 2003; Member of Vale's Strategy and Executive Development Committees since 2003; managing partner of CWH Consultoria Empresarial, a business consulting firm, since 2003.
Professional experience: Chairman of the board of directors of MRS from 1996 to 2003 and chief executive officer and commercial director of Mineração e Metalurgia S.A. ("CAEMI"), a mining holding company that was acquired by Vale in 2006, where Mr. Camargo Filho also held various positions from 1973 to 2003.
Academic background: Degree in law from Universidade de São Paulo ("USP"); post-graduate degree in international marketing from Cambridge University.
Luciano Galvão Coutinho, 69: Member of Vale's Board of Directors since August 2007.
Other current director or officer positions: President of BNDES since 2007; Member of the board of directors of Petrobras since April 2013; and Member of Vale's Strategic Committee since May 2009; Member of the international advisory board of Fundação Dom Cabral since April 2009; Member of the board of trustees of Fundação Nacional de Qualidade since June 2013; Member of the board of directors of Fundo Nacional de Desenvolvimento Científico e Tecnológico since December 2007; Member of the international advisory board of Conselho Nacional de Desenvolvimento Industrial since 2011.
Professional experience: Mr. Coutinho is an invited professor at the Universidade Estadual de Campinas and has been a visiting professor at USP, the University of Paris XIII, the University of Texas and the Ortega y Gasset Institute.
Academic background: Degree in economics from USP; Master's degree in economics from the Economic Research Institute of USP; Ph.D. in economics from Cornell University.
Hiroyuki Kato, 59: Member of Vale's Board of Directors since April 2014.
Other current director or officer positions: Representative director and senior executive managing officer of Mitsui.
Professional experience: Executive managing officer and chief operating officer of the energy business unit I of Mitsui from April 2012 to March 2014; Managing officer and chief operating officer of energy business unit I of Mitsui from April 2010 to March 2012; General manager of the exploration and production division, energy business unit I, of Mitsui from May 2008 to March 2010; General manager of the coal division, energy business unit I, of Mitsui from April 2007 to April 2008; Member of the board of directors of Canada Oil Sands Co., Ltd., an oil and gas company, from June 2010 to October 2013; Member of the board of directors of Mitsui Oil Co., Ltd., a domestic and overseas sales of petroleum products company, from June 2010 to June 2012.
Academic background:Management
| | | | |
MURILO CÉSAR LEMOS DOS SANTOS PASSOS | | Born: | | 1947 |
Director and Member of the Finance Committee | | Term expires: | | 2021 |
| Other current activities and director or officer positions: | | • Director of Instituto Ecofuturo-Futuro para o Desenvolvimento Sustentável and of Fundação Nacional da Qualidade | |
| | • Member of the Management Committee of Suzano Holding S.A. | ||
| | • Director of São Martinho S.A. | ||
| | • Director of Odontoprev S.A. | ||
| | • Chairman of the Board of Directors of Tegma Gestão e Logística S.A. | ||
| | • Director of IPLF Holding S/A | ||
| | • Director of Suzano Holding S.A. | ||
| Business experience: | | • Charmain of the Board of Directors of CCR S.A. | |
| | • Chairman of the Board of Directors of CPFL Energia | ||
| | • Superintendent-Officer of Bahia Sul Celulose S.A. | ||
| | • Superintendent-Officer of Celulose Nipo-Brasileira S.A.—Cenibra Florestas do Rio Doce S.A | ||
| | • Various positions at Vale in several divisions, such as environment, metallurgy and forest products | ||
| | | | |
OSCAR AUGUSTO DE CAMARGO FILHO | | Born: | | 1938 |
Director | | First elected: | | 2003 |
| Other current activities and director or officer positions: | | • Managing Partner of CWH Consultoria Empresarial | |
| Business experience: | | • Member of Vale's Strategy Committee | |
| | • Coordinator of Vale's Executive Development Committee and Vale's Personnel Committee | ||
| | • Several positions at Grupo Caemi, including Commercial Director of MBR, President of Caemi Internacional (trading), CEO of Caemi (holding) | ||
| | • Director of MRS Logística | ||
| | • Chairman of the Board of Directors of Quebec Cartier Mining Co., Canada | ||
| | | | |
PATRICIA GRACINDO MARQUES DE ASSIS BENTES | | Born: | | 1965 |
Director, Member of the Sustainability Committee | | First elected: | | 2019 |
| Other current activities and director or officer positions: | | • Chairman of the Board of Directors of Cia Melhoramentos de São Paulo | |
| | • Director of Light S.A. | ||
| | • Member of the Fiscal Council of Braskem S.A. | ||
| Business experience: | | • Director of the CEMIG Group | |
| | • Director of Renova Energia S.A. |
| | | | |
| | 140 | | |
Management
| | | | |
ROGER ALLAN DOWNEY | | Born: | | 1967 |
Director and Member of the Compliance and Risk Committee | | First elected: | | 2019 |
| Other current activities and director or officer positions: | | • Director and Chief Executive Officer of Fertimar S.A. (PrimaSea) | |
| Business experience: | | • Chief Executive Officer of Vale Fertilizantes S.A. | |
| | • Chief Executive Officer of MMX Mineração e Metálicos S.A. | ||
| | • Director of Mining & Steel Research of Credit Suisse | ||
| | • Commercial manager of Rio Tinto Brasil | ||
| | | | |
SANDRA MARIA GUERRA DE AZEVEDO | | Born: | | 1955 |
Director and Member of the Personnel and Governance Committee | | First elected: | | 2017 |
| Other current activities and director or officer positions: | | • Founding Partner of Better Governance Consulting Services | |
| | • Member of the Vale's Personnel and Governance Committee and Governance, Compliance and Risk Committee | ||
| | • Accredited Mediator at CEDR—Centre for Effective Dispute Resolution, London | ||
| Business experience: | | • Director of Global Reporting Initiative—GRI | |
| | • Director of Vix Logística S.A. | ||
| | • Director of Companhia Paranaense de Energia—Copel S.A. | ||
| | • Chairman of the Board of Directors of the Brazilian Institute of Corporate Governance—IBGC | ||
| | | | |
TOSHIYA ASAHI | | Born: | | 1966 |
Director | | First elected: | | 2017 |
| Other current activities and director or officer positions: | | • Vice President of Mitsui & Co. (Brasil) S.A. • Director of Petrobras Gás S.A.—Gaspetro | |
| Business experience: | | • Deputy General Manager of New Metals and Aluminum of Mitsui & Co. Ltd. | |
| | • Assistant Executive, Secretariat Div., Mitsui & Co Ltd | ||
| | | | |
ADVISORY COMMITTEES TO THE BOARD OF DIRECTORS
Alberto Ribeiro Guth, 56: Member of Vale's Board of Directors since 2015.
Other current director or officer positions: Founding partner of Angra Partners Gestão de Recursos Ltda., a Brazilian consulting firm and investment fund, since February 2003; Director of Angra Infraestrutura Gestão de Informações Ltda., a Brazilian resource management company, since October 2006; Member of the board of directors of Via Varejo S.A., a household appliances retail company, since May 2012; Member of the board of directors of CELESC since January 2015; Member of the board of executive officers of Futuretel S.A., an investment company, since October 2012; Member of the board of executive officers of Zain Participações S.A., a research and investing information company, since October 2012; Member of the board of executive officers of Sul 116 Participações S.A., a holding and investment company, since October 2012; Member of the board of executive officers of Newtel Participações S.A., a holding and investment company, since October 2012; Member of the board of executive officers of Invitel Legacy S.A., a holding and investment company, since October 2012.
Professional experience: Managing partner of Angra Partners Participações Ltda., from November 2010 to December 2014, and of Angra Partners Assessoria Financeira Ltda., from November 2010 to April 2015; Member of the board of directors of Ediouro Participações S.A., a publishing company, from March 2013 to October 2014; Member of the board of directors of Companhia Providência Indústria e Comércio S.A., a manufacturing company, from February 2013 to May 2014; Member of the board of executive officers of Daleth Participações S.A., a holding and investment company, from October 2012 to February 2015.
Academic background: Degree in engineering from IME; MBA in finance from Wharton Business School.
Lucio Azevedo, 57: Member of Vale's Board of Directors since 2015.
Professional experience: Locomotive driver of Vale since 1985; Chairman of Railway Labor Unions in the Brazilian states of Maranhão, Pará and Tocantins since 2013.
Academic background: Incomplete secondary education.
Our bylaws provide for the following technical and advisory committees to the Board of Directors:Directors, each governed by its own internal rules.
| | | | |
| | 141 | | |
Management
evaluation of the leader responsible for the Governance Secretary; supporting the Board of Directors in the drafting and maintenance of Vale's Nomination Policy, applicable to members of the Board of Directors, Board of Executive Officers and leaders who report directly to the CEO, in accordance with the legal requirements and the best corporate governance practices; periodically evaluating and recommending adjustments to corporate governance best practices concerning the structure, size and composition of the Board of Directors and the Advisory Committees, as well as the balance of experiences, knowledge and diversity of profiles, and the leadership profile of its members, based on research and market evaluations by external consultancies and institutions, identifying, selecting and recommending potential candidates to the Board of Director's election at the Shareholder's General Meeting, including the appointment of new members to the Board of Directors (ii) analyzingin cases of absence, impediment or vacancy, among other matters. Since March 2020, the Personnel and issuing reports toGovernance Committee is also playing the Board of Directors on proposals relating to the annual, global budgetrole as Nomination Committee until 2021, when a specific Committee will be set up for the remuneration of administrators andthis purpose. The current members of the executive officers, (iii) proposingPersonnel and updating methodologiesGovernance Committee are Fernando Jorge Buso Gomes (coordinator), José Maurício Pereira Coelho, Sandra Maria Guerra Azevedo, Arthur Prado Silva and goals for evaluating the performance of our executive officers, and (iv) monitoring the development of the executive officer succession plan.Ana Silvia Matte (external specialist).
TheStrategy Committee, which is responsible for reviewing and making recommendations to the Board of Directors concerning (i) the strategic guidelines and plan submitted annually to the Board of Directors by our executive officers, (ii) investment or divestiture opportunities submitted by executive officers and (iii) mergers and acquisitions and other reorganizations.
TheFinance Committee, which is responsible for (i) reviewingevaluating the structure and making recommendations toconditions of investment and divestment transactions, including mergers, consolidations and spin-offs in which Vale is involved, evaluating the Board of Directors concerning our corporate riskscompatibility and financial policies and the internal financial control systems, compatibilityconsistency between the compensation level of distributions to shareholders and the parameters established in the annual budget and the consistency between ourfinancial scheduling, as well as Vale's general dividend policy on dividends and capital structure, (ii) evaluating ourVale's annual budget and annual investment plan, as well as ourevaluating Vale's annual funding plan and risk exposureindebtedness limits, , (iii) evaluating our risk management procedurescurrent and (iv)capital investments, monitoring the financial execution of our capital expenditure projects, ongoing budget and ongoing budget.cash flow, monitoring financial risks and controls, preparing and approving the Finance Committee's annual work plan, among other matters. The current members of the Finance Committee are Fernando Jorge Buso Gomes (
coordinator), Gilmar Dalilo Cezar Wanderley, Adriano Cives Seabra, Hugo Cerrado Stoffel and Murilo César Lemos dos Santos Passos.
| | | | |
| | 142 | | |
Management
Rodrigues Filho (coordinator), Hugo Cerrado Stoffel, José Luciano Duarte Penido and Roger Allan Downey.
coordinator), Johan Albino Ribeiro, Marcel Juviniano Barros, Patricia Gracindo Marques de Assis Bentes and Carlos Alberto de Oliveira Roxo (external specialist).
INDEPENDENT AD HOC ADVISORY COMMITTEES TO THE BOARD OF DIRECTORS CREATED IN RESPONSE TO THE DAM I RUPTURE
Following the rupture of Dam I, our Board of Directors (iv) issuing reports on potential conflictsalso established three independent ad hoc advisory committees to support the Board in matters relating to the dam rupture: (i) the Independent Ad Hoc Consulting Committee for Investigation (CIAEA), (ii) the Independent Ad Hoc Consulting Committee for Support and Recovery (CIAEA-R) and (iii) the Independent Ad Hoc Consulting Committee for Dam Safety (CIAESB).
The first two committees concluded their work in 2020. SeeOverview—Business overview—Rupture of interest between Vale and its shareholders or management involving related parties, (v) evaluating proposalsthe tailings dam at the Córrego do Feijão mine—Vale's response—Determination of the causes for modifying, analyzing and recommending improvements to our sustainability report, (vi) evaluating Vale's performance with respect to sustainability and recommending improvements based on our long-term strategic vision, (vii) assistingthe rupture of the dam. In March 2020, our Board of Directors as requested, in appointing and evaluatingdecided to extend the annual performanceterm of the CIAESB for one year. The CIAESB was established to evaluate safety conditions of our ombudsman (persondams, prioritizing upstream structures, structures in chargealert zones, among others, with purpose of receiving reports of violation ofidentifying and recommending measures to strengthen safety at these structures, based on national and international advanced methodologies. The committee is responsible for examining the action plans proposed by our Code of Ethics and Conduct), and (viii) assistingmanagement regarding the Board of Directors, as requested, in evaluating our ombudsman in respect of matters involving the ombudsman channel and violationssafety of the code of Ethicsdams, governance related to security management plans and Conduct.to recommend measures for their improvement. The committee is chaired by Flávio Miguez de Mello, and also includes Willy Lacerda and Pedro Repetto, all independent members with unblemished reputation and notable technical expertise.
| | | | |
| | 143 | | |
Executive officersTable of Contents
Management
EXECUTIVE OFFICERS
The executive officers are responsible for day-to-day operations and the implementation of the general policies and guidelines set forth by our Board of Directors. Our bylaws provide for a minimum of six and a maximum of 11 executive officers. The executive officers hold weekly meetings and hold additional meetings when called by any executive officer. Under Brazilian corporate law, executive officers must be Brazilian residents.
The Board of Directors appoints executive officers for two-year terms and may remove them at any time. The following table lists our current executive officers.
Officer | | Year of appointment | | Position | | Age | | ||
---|---|---|---|---|---|---|---|---|---|
Murilo Pinto de Oliveira Ferreira | | 2011 | | Chief Executive Officer | | 62 | | ||
Luciano Siani Pires | | 2012 | | Chief Financial Officer and Executive Officer for Investor Relations | | 46 | | ||
Gerd Peter Poppinga(1) | | 2014 | | Executive Officer (Ferrous Minerals) | | 56 | | ||
Jennifer Anne Maki | | 2015 | | Executive Officer (Base Metals Operations) | | 45 | | ||
Galib Abrahão Chaim | | 2011 | | Executive Officer (Implementation of Capital Projects) | | 65 | | ||
Humberto Ramos de Freitas | | 2011 | | Executive Officer (Logistics and Mineral Research) | | 62 | | ||
Vânia Lucia Chaves Somavilla | | 2011 | | Executive Officer (Human Resources, Health and Safety, Sustainability and Energy) | | 56 | | ||
Roger Allan Downey | | 2012 | | Executive Officer (Fertilizer, Coal and Strategy) | | 48 | |
Officer | | Year of appointment | | Position | |
---|---|---|---|---|---|
Eduardo de Salles Bartolomeo | | 2019 | | Chief Executive Officer | |
Luciano Siani Pires | | 2012 | | Chief Financial Officer and Executive Officer for Investor Relations | |
Marcello Magistrini Spinelli | | 2019 | | Executive Officer (Ferrous Minerals) | |
Vacant | | — | | Executive Officer (Base Metals) | |
Carlos Henrique Senna Medeiros | | 2019 | | Executive Officer (Safety and Operational Excellence) | |
Luiz Eduardo Fróes do Amaral Osorio | | 2017 | | Executive Officer (Sustainability and Institutional Relations) | |
Alexandre Gomes Pereira | | 2017 | | Executive Officer (Business Support) | |
Fabio Schvartsman(1) | | 2017 | | Executive Officer (on leave) |
Below is a summary of the business experience, activities and areas of expertise of our current executive officers.
| | | | |
EDUARDO DE SALLES BARTOLOMEO | | Born: | | 1964 |
Chief Executive Officer | | Appointed: | | 2019 |
| Business experience: | |
Chairman of the Board of Directors of Login Logística Intermodal | |
| | • Executive Officer for Base Metals of Vale | ||
| | • Director of Vale | ||
| | • Coordinator of Vale's Governance, Compliance and Risk Committee | ||
| | • Member of Finance Committee and Strategic Committee of Vale | ||
| | • Chief Executive Officer of Nova Transportadora do Sudeste | ||
| | • Director of Arteris S.A. | ||
| | • Chief Executive Officer of BHG—Brazilian Hospitality Group | ||
| | • Head of Logistical Operations of Vale | ||
| | • Director of MRS Logística S.A. | ||
| | • Chief Executive Officer of Petroflex |
| | | | |
| | 144 | | |
Murilo Pinto de Oliveira Ferreira, 62: Chief Executive Officer of Vale and Participant of Vale's Strategy and Disclosure Committees since May 2011.
Professional experience: Executive Officer of Vale with responsibility over several different departments from 2005 to 2008, including business development, M&A, steel, energy, nickel and base metals; Chief executive officer of Vale Canada from 2007 to 2008 and member of its board of directors from 2006 to 2007; Chairman of the board of directors of Petrobras from May to November 2015, Alunorte from 2005 to 2008, MRN from 2006 to 2008 and Valesul Alumíno S.A. ("Valesul"), a subsidiary of Vale involved in the production of aluminum, from 2006 to 2008; Member of the board of commissioners of PTVI, from 2007 to 2008. Mr. Ferreira has been a member of the board of directors of several companies, including Usiminas, a Brazilian steel company, from 2006 to 2008, and was a partner at Studio Investimentos, an asset management firm with a focus on the Brazilian stock market, from October 2009 to March 2011.
Academic background: Degree in business administration from Fundação Getúlio Vargas in São Paulo; post-graduate degree in business administration and finance from Fundação Getúlio Vargas in Rio de Janeiro; senior executive education program at the IMD Business School in Lausanne, Switzerland.
Luciano Siani Pires, 46: Chief Financial Officer and Executive Officer for Investor Relations of Vale since August 2012 and Member of Vale's Executive Risk Management and Disclosure Committees since August 2012.
Professional experience: Alternate Member of the Board of Directors of Vale, from 2005 to 2007; Global Officer of Strategic Planning, from 2008 to 2009 and in 2011, and Global Officer of Human Resources, from 2009 to 2011 of Vale; Member of the board of directors of Valepar, from 2007 to 2008; Member of the board of directors of Telemar Participações S.A., from 2005 to 2008; Member of the board of directors of Suzano Papel e Celulose S.A., from 2005 to 2008; Several executive positions at BNDES, including executive secretary and chief of staff of the presidency, head of capital markets and head of export finance, from 1992 to 2008; Consultant at McKinsey & Company from 2003 to 2005.
Academic background: Degree in mechanical engineering from Pontifícia Universidade Católica do Rio de Janeiro; MBA in finance from the Stern School of Business, New York University.
Gerd Peter Poppinga, 56: Executive Officer for Ferrous Minerals of Vale since November 2014.
Other current director or officer positions: Member of the board of commissioners of PTVI since April 2009.
Professional experience:Management
| | | | |
LUCIANO SIANI PIRES | | Born: | | 1970 |
Chief Financial Officer, Executive Officer for Investor Relations | | Appointed: | | 2012 |
| Other current activities and director or officer positions: | | • Chairman of the Board of Directors of VLI S.A • Director of The Mosaic Company | |
| Business experience: | |
Member of Finance Committee of Vale | |
| | • Global Officer of Strategic Planning and Global Officer of Human Resources and Governance of Vale | ||
| | • Alternate Director of Vale | ||
| | • Director of Valepar | ||
| | • Director of Telemar Participações S.A. | ||
| | • Director of Suzano Papel e Celulose S.A. | ||
| | • Several executive positions at BNDES, including Executive Secretary and Chief of Staff of the Presidency and Head of Capital Markets and Export Finance | ||
| | • Consultant at McKinsey & Company | ||
| | | | |
MARCELLO MAGISTRINI SPINELLI | | Born: | | 1973 |
Executive Officer for Ferrous Minerals | | Appointed: | | 2019 |
| Business experience: | | • Chief Executive Officer of VLI Logística S.A. | |
| | • Chief Executive Officer of Ferrovia Centro Atlântica | ||
| | • Director of Ferrovia Norte e Sul | ||
| | • Chief Executive Officer of VLI Multimodal S.A. | ||
| | • Chief Executive Officer of VLI Operações Ferroviárias Independente | ||
| | • Chief Executive Officer of VLI Soluções S.A. | ||
| | • Various positions at Vale, including Logistics Officer | ||
| | | | |
CARLOS HENRIQUE SENNA MEDEIROS | | Born: | | 1963 |
Executive Officer for Safety and Operational Excellence | | Appointed: | | 2019 |
| Business experience: | | • Executive President for North and Central America of Ball Corporation | |
| | • Chairman of the Board of Directors of Envases de Centro América | ||
| | • Executive President for South America of Ball Corporation | ||
| | • Executive President for South America of Rexam PLC | ||
| | | | |
LUIZ EDUARDO FRÓES DO AMARAL OSORIO | | Born: | | 1974 |
Executive Officer for Sustainability and Institutional | | Appointed: | | 2017 |
Relations | | Other current activities and director or officer positions: | | • Chairman of the Board of Directors of Instituto Brasileiro de Mineração ("IBRAM") |
| Business experience: | |
Executive Vice-President of Legal and Company Relations of CPFL Energia S.A. | |
| | • Director of CPFL Energias Renováveis S.A. | ||
| | • Vice-Chairman of the Board of Directors of Instituto CPFL | ||
| | • Executive Director of International Markets and Vice President for Sustainable Development and External Affairs of Raízen |
| | | | |
| | 145 | | |
Academic Background: Degree in geology from Universität Clausthal—Zellerfeld, Germany; Participated in geostatistics extension course at Universidade Federal de Ouro Preto (UFOP); participated in the executive MBA from Fundação Dom Cabral; negotiation dynamics at INSEAD; Senior leadership program at M.I.T.; Leadership program at IMD Business School, Lausanne, Switzerland; and strategic megatrends with Asia Focus program at Kellogg Singapore.
Jennifer Anne Maki, 45: Executive Officer for Base Metals of Vale since November 2015.
Other current director or officer positions: President commissioner of PTVI; Member of the board of directors of Vale New Caledonia and Vale's Global Pension Committee; Chairwoman and member of the Canadian pension committee since 2009 and 2007, respectively.
Professional experience: Chief financial officer of Vale Canada from 2007 to 2013, prior to which Ms. Maki held positions in the base metals treasury and controllership areas. From 1993 to 2003, she worked at PricewaterhouseCoopers LLP in roles of increasing responsibility.
Academic background: Degree in business from Queens University; post-graduate degree in accounting from the Institute of Chartered Accountants of Ontario.
Galib Abrahão Chaim, 65: Executive Officer for Implementation of Capital Projects of Vale since November 2011.
Professional experience: Director of Vale's Department of Coal Projects in Australia, Mozambique, Zambia and Indonesia and Country Manager for Mozambique from 2005 to 2011; Industrial officer of Alunorte from 1994 to 2005; Industrial superintendent of Albras from 1984 to 1994; technical superintendent of MRN from 1979 to 1984.
Academic Background: Degree in engineering from Universidade Federal de Minas Gerais; MBA in business management from Fundação Getúlio Vargas.
Humberto Ramos de Freitas, 62: Executive Officer for Logistics and Mineral Research of Vale since November 2011.
Other current director or officer positions: Chairman of the board of the Brazilian Association of Port Terminals since May 2009.
Professional experience: Member of the board of directors of MRS from December 2010 to October 2012; Logistics Operations Officer of Vale from September 2009 to June 2010; Director for Ports and Navigation of Vale from March 2007 to August 2009; Chief executive officer of Valesul from August 2003 to February 2007; General superintendent of ports of CSN from December 1997 to November 1999.
Academic background:Management
| | | | |
ALEXANDRE GOMES PEREIRA | | Born: | | 1969 |
Executive Officer for Global Business Support | | Appointed: | | 2017 |
| Business experience: | | • Senior Vice-President and Global Chief Information Officer of Vale based in Canada | |
| | • Global IT Services Director of Vale | ||
| | • Global Chief Information Officer, Base Metals, of Vale Inco | ||
| | | | |
Vânia Lucia Chaves Somavilla, 56: Executive Officer for Human Resources, Health and Safety, Sustainability and Energy of Vale since May 2011.CONFLICTS OF INTEREST
Other current director or officer positions: President of the board of trustees of Fundação Vale since January 2013; President of the board of directors of Vale Energia S.A. since August 2014; Officer of Vale Energia S.A. since May 2012.
Professional experience: Chief executive officer of Vale Energia S.A. from April 2009 to April 2010; Director of the Department of the Environment and Sustainability at Vale from April 2010 until May 2011; Director Vale's Energy Department from March 2004 until March 2010; Chief executive officer and member of the board of directors of Vale Óleo e Gás from May 2009 to August 2010; Member of the board of directors of Albras from 2009 to 2013; Chief executive officer of Vale Florestar S.A. from November 2010 to November 2012. In connection with her roles at Vale, Ms. Somavilla was also member of the board of directors and the executive board of several companies and consortia in the energy sector from 2004 until 2010. She was also head of new business development for energy generation and project development and implementation for large and small hydroelectric plant projects at Companhia Energética de Minas Gerais—CEMIG, a publicly held company involved in the generation, transmission, distribution and sale of electricity, from 1995 until 2001.
Academic Background: Degree in civil engineering from UFMG; post-graduate degree in dam engineering from Universidade de Ouro Preto; specialization in management of hydro power utilities from SIDA, Stockholm, Sweden; MBA in corporate finance from IBMEC, Belo Horizonte; Transformational leadership program from MIT and mastering leadership program from IMD, Lausanne, Switzerland.
Roger Allan Downey, 48: Executive Officer for Fertilizer, Coal and Strategy of Vale (Executive Officer for Fertilizer and Coal since May 2012 and for Strategy since 2015).
Professional experience: Managing partner of CWH Consultoria Empresarial SC Ltda., a privately-held consulting company, from January 2012 to April 2012; Alternate member of the board of directors of Valepar from February 2012 to April 2012; Chief executive officer of MMX Mineração e Metálicos S.A., a publicly-held mining company, from August 2009 to November 2011; Director of equity research of Banco de Investimentos Credit Suisse (Brasil) S.A., a privately-held brokerage and investment bank, from August 2005 to August 2009; Strategic Marketing Manager for Iron Ore at Vale from 2002 to 2005; Commercial and new business manager of Rio Tinto, a publicly-held mining company, from October 1996 to September 2002; Market coordinator of CAEMI from December 1991 to October 1996.
Academic background: Graduate certificate of management and MBA from the University of Western Australia; Graduate diploma in business administration from the Australian National Business School.
Conflicts of interest
Under Brazilian corporate law, if a director or an executive officer has a conflict of interest with the company in connection with any proposed transaction, such director or executive officer may not vote in any decision of the board of directors or of the board of executive officers regarding such transaction and must disclose the nature and extent of the conflicting interest for transcription in the minutes of the meeting. Under our Policy on Related Party Transactions, any director or executive officer who has a conflict of interest cannot receive any relevant documentation or information and shouldmay not participate in any related discussions. None of our directors or executive officers can transact any business with us, except on reasonable or fair terms and conditions that are identical to the terms and conditions prevailing in the market or offered by unrelated parties. For more details about our Policy on Related Party Transactions seeShare ownershipOwnership and tradingTrading—Related party transactions.
Fiscal CouncilFISCAL COUNCIL
We have a fiscal council established in accordance with Brazilian law. The primary responsibilities of the fiscal council under Brazilian corporate law are to monitor management's activities, review the Company'scompany's financial statements, and report its findings to the shareholders. Our management is required to obtain the Fiscal Council's pre-approval before engaging independent auditors to provide any audit or permitted non-audit services to Vale or its consolidated subsidiaries. Our Fiscal Council has pre-approvedWe have a detailed list of services based on detailed proposals from our auditors up to specified monetary limits.fiscal council established in accordance with Brazilian law. The list of pre-approved services is updated from time to time. Services that are included in this list, or that exceed the specified limits, or that relate to internal controls must be separately approved by the Fiscal Council. The policy also sets forth a list of prohibited services. The Fiscal Council is provided with reports on engagement and performanceprimary responsibilities of the services included infiscal council under Brazilian corporate law are to monitor management's activities, review the list on a periodic basis,company's financial statements, and it also reviews and monitors the Company's external auditor's independence and objectivity. The Fiscal Council has the power to review and evaluate the performance of the Company's external auditors on an annual basis and make a recommendationreport its findings to the Board of Directors on whether the Company should remove and replace its existing external auditors. The Fiscal Council may also recommend withholding the payment of compensation to the independent auditors and has the power to mediate disagreements between management and the auditors regarding financial reporting.shareholders.
Under our bylaws and internal regulations, our Fiscal Council is also responsible for evaluating the effectiveness of the procedures for the receipt, retention and treatment of any complaints related to accounting, controls and audit issues, as well as procedures for the confidential, anonymous submission of concerns regarding such matters.
Brazilian law requires the members of a fiscal council to meet certain eligibility requirements. A member of our Fiscal Council cannot (i) hold office as a member of the board of directors, fiscal council or advisory committee of any company that is a competitor of Vale or otherwise has a conflicting interest with Vale, unless compliance with this requirement is expressly waived by shareholder vote, (ii) be an employee or member of senior management or the Board of Directors of Vale or its subsidiaries or affiliates, or (iii) be a spouse or relative within the third degree by affinity or consanguinity of an officer or director of Vale.
Members of the Fiscal Council are elected by our shareholders for one-year terms. The current members of the Fiscal Council and their respective alternates were elected on April 30, 2019 The terms of the members of the Fiscal Council expire at the next annual shareholders' meeting following election.
Two members of our Fiscal Council (and the respective alternates) may be elected by non-controlling shareholders: one member may be appointed by the holders of our golden shares and one member may be appointed by minority holders of common shares pursuant to applicable CVM rules.
| | | | |
| | 146 | | |
Management
The following table lists the current and alternate members of the Fiscal Council.
Current member | | Year first elected | | Alternate | | Year first elected |
---|---|---|---|---|---|---|
Marcelo Amaral Moraes | | 2004 | | Vacant | | — |
Raphael Manhães Martins(1) | | 2015 | | Gaspar Carreira Junior(1) | | 2017 |
Eduardo Cesar Pasa | | 2017 | | Nelson de Menezes Filho | | 2019 |
Marcus Vinícius Dias Severini | | 2017 | | Vacant | | — |
Marcos Prado Troyjo(2) | | 2019 | | Vacant(2) | | — |
Below is a summary of the business experience, activities and areas of expertise of the members of our Fiscal Council.
| | | | |
MARCELO AMARAL MORAES | | Born: | | 1967 |
| First elected: | | 2004 | |
| Other current activities and director or officer positions: | |
Member of the Fiscal Council of Gol Linhas Aéreas Inteligentes S.A. | |
| | • Member of the Fiscal Council of Linx S.A. | ||
| | • Member of the Fiscal Council of Ultrapar Participações S.A. | ||
| Business experience: | |
Member of the Board of Directors of CPFL Energia S.A. | |
| | • President of the Fiscal Council of Aceco TI S.A. | ||
| | • Member of the Board of Directors of Eternit S.A. | ||
| | • Managing Director of Capital Dynamics Investimentos Ltda. | ||
| | | | |
RAPHAEL MANHÃES MARTINS | | Born: | | 1983 |
| First elected: | | 2015 | |
|
| | • Attorney for Faoro Advogados • Director of Eternit S.A. • Member of the Fiscal Council of OI S.A.—Em Recuperação Judicial • Member of the Fiscal Council of companies of the JHSF Participações S.A. Group | |
| Business experience: | |
Director and Member of the Fiscal Council of companies of Grupo Light S.A. |
| | | | |
| | 147 | | |
Management
| | | | |
EDUARDO CESAR PASA | | Born: | | 1970 |
| First elected: | | 2017 | |
| Other current activities and director or officer positions: | |
Accounting Management Officer of Banco do Brasil S.A. • Member of the Fiscal Council of Petrobras S.A. • Alternate Member of the Fiscal Council of PREVI | |
| Business experience: | |
Member of the Deliberations Council of PREVI • Coordinator of Controlling Committee of Vale • Member of the Fiscal Council of Centrais Elétricas Brasileiras S.A. (Eletrobras) • Member of the Fiscal Council of Cateno Gestão de Contas de Pagamento S.A. • General Accounting Manager of Banco do Brasil S.A. • Alternate Member of the Fiscal Council of Banco Votorantim S.A. • Member of the Fiscal Council of BBTS-BB Tecnologia e Serviços • Member of the Fiscal Council of CASSI | |
| | | | |
MARCUS VINÍCIUS DIAS SEVERINI | | Born: | | 1957 |
| First elected: | | 2017 | |
| Other current activities and director or officer positions: | |
Member of Audit Committee of Valia | |
| Business experience: | |
Member of the Fiscal Council of BRF S.A. • Member of the Fiscal Council of Mills Estruturas e Serviços de Engenharia S.A. • Controller of Vale | |
| | | | |
MARCOS PRADO TROYJO | | Born: | | 1966 |
| First elected: | | 2019 | |
| Other current activities and director or officer positions: | |
Special Secretary of Exterior Commerce and International Issues at Brazilian Economy Ministry | |
| Business experience: | |
Assistant teacher at Columbia University | |
| | | | |
AUDIT COMMITTEE
On March 11, 2020, our Board of Directors established an audit committee in accordance the governance rules of Novo Mercado segment of B3. Please seeAdvisory Committees to the Board of Directors above.
Under our bylaws and the Audit Committee's charter, (i) our Audit Committee shall have at least three members, (ii) each member must comply with the independence requirements of our bylaws of the Novo Mercado listing rules, (iii) at least one member must be an independent member of our Board of Directors, (iv) at least one member must not be a member of our Board of Directors and (v) at least one member must be must satisfy accounting / financial expertise requirements of the CVM. All members of our Audit Committee are appointed by the Board of Directors. The terms of the members of the Audit Committee expire at the end of the term of the members of the Board of Directors or upon removal approved by the Board of Directors, pursuant to the Audit Committee's charter.
We are subject to Rule 10A-3 under the Exchange Act, which requires, absent an exemption, that a listed company maintains a standing audit committee composed of members of the Board of Directors that meet specified requirements. In lieu of establishing an independent audit committee, we have given our Fiscal Council the necessary powers to qualify for the exemption set forth in Exchange Act Rule 10A-3(c)(3). We believe our Fiscal Council satisfies the independence and other requirements of Exchange Act Rule 10A-3 that would apply in the absence of our reliance on the exemption. Pursuant to our undertakings to the HKEx, the Fiscal Council must be comprised of at least three members who satisfy specified independence requirements set out in the HKEx Listing Rules. We have received a written confirmation of independence pursuant to Rule 3.13 of the HKEx Listing Rules from each of the members of our Fiscal Council appointed by Valepar and consider them able to satisfy these independence requirements.
| | | | |
| | 148 | | |
Our BoardManagement
meet specified requirements. Prior to the creation of Directors has determined that one of the members ofour Audit Committee, we relied on our Fiscal Council, Mr. Aníbal Moreira dos Santos, is anwhich had certain additional powers to allow it to meet the requirements for exemption under paragraph (c)(3) of Rule. Since the establishment of our audit committee financial expert. In addition, Mr. Moreira dos Santos meetsin accordance the applicable independence requirements for Fiscal Council membership under Brazilian law and the NYSE independence requirements that would applygovernance rules of Novo Mercado segment of B3, we rely on our Audit Committee to audit committee members in the absence of our reliance onmeet the exemption set forth in Exchange Actrequirements under paragraph (c)(3) of Rule 10A-3(c)(3).
Members of10A-3, and the Fiscal Council are elected by our shareholders for one-year terms. The current members of the Fiscal Council and their respective alternates were elected on April 17, 2015. The terms of the members of the Fiscal Council expire at the next annual shareholders' meeting following election.will no longer have expanded powers.
Two members of our Fiscal Council (and the respective alternates) may be elected by non-controlling shareholders: one member may be appointed by our preferred shareholders and one member may be appointed by minority holders of common shares pursuant to applicable CVM rules.
The following table lists the current and alternate members of the Fiscal Council.Audit Committee.
Current member | | Year first elected | | Alternate | | Year first elected |
---|---|---|---|---|---|---|
Marcelo Barbosa Saintive(1) | | 2015 | | Paulo Fontoura Valle(1) | | 2012 |
Raphael Manhães Martins(2) | | 2015 | | Pedro Paulo de Souza(2) | | 2015 |
Marcelo Amaral Moraes(4) | | 2004 | | Vacant(3) | | – |
Aníbal Moreira dos Santos(4) | | 2005 | | Oswaldo Mário Pêgo de Amorim Azevedo(4) | | 2004 |
Claudio José Zucco(4) | | 2015 | | Marcos Tadeu de Siqueira(4) | | 2015 |
Current member | | Year first elected |
---|---|---|
Isabella Saboya de Albuquerque(1) | | 2020 |
Luciana Pires Dias(2) | | 2020 |
Sergio Ricardo Romani(2)(3) | | 2020 |
Below is a summary of the business experience, activities and areas of expertise of the members of our Fiscal Council.
Marcelo Barbosa Saintive, 49: Member of Vale's Fiscal Council since 2015.
Other director or officer positions: Treasury secretary of Brazil since 2015; General officer of Estruturadora Brasileira de Projetos ("EBP") since 2014; Chairman of the board of directors of IRB, since 2014.
Professional experience: Project officer of EBP from 2011 to 2013.
Academic background: Degree in economics; Master's degree in economic sciences from UFRJ.
Raphael Manhães Martins, 33: Member of Vale's Fiscal Council since April 2015.
Other director or officer positions: Member of the board of directors of Eternit S.A., a public-held company operating in the construction segment, since 2015; Member of the fiscal council of Light S.A. ("Light"), a publicly-held utilities company, since 2014.
Professional experience: Alternate member of the fiscal council of Light from 2012 to 2013; Member of the fiscal council of Embratel Participações S.A., a publicly-held telecommunications company, from September to December 2014.
Academic background: Degree in law from Rio de Janeiro State University.Audit Committee.
| | | | |
ISABELLA SABOYA DE ALBUQUERQUE | | Born: | | 1970 |
| First elected: | | 2020 | |
| Other current activities and director or officer positions: | |
Director, Coordinator of the Related Parties Committee and Member of the Personnel Committee of Wiz Soluções e Serviços de Corretagem S.A. | |
| | • Member of the Abrapp/Sindapp/ICSS Board of Self-Regulation in Investment Governance | ||
| | • Member of the State Governance Market Advisory Chamber of B3 | ||
| Business experience: | |
Director and Coordinator of the Audit Committee at IBGC | |
| | • Director and Coordinator of the Audit Committee of BR Malls S.A. | ||
| | • Partner at Jardim Botânico Investimentos S.A. |
| | | | |
| | 149 | | |
Marcelo Amaral Moraes, 48: Member of Vale's Fiscal Council since April 2004.
Professional experience:Management
| | | | |
LUCIANA PIRES DIAS | | Born: | | 1976 |
| First elected: | | 2020 | |
| Other current activities and director or officer positions: | |
Partner at L. Dias Advogados • Member of the Audit Committee of B3 S.A.—Bolsa, Brasil, Balcão | |
| | • Professor at Fundação Getúlio Vargas | ||
| | • Member of the Audit Committee of CERC Serviços de Desenvolvimento de Sistemas para Recebíveis Ltda. | ||
| | • Director of BNDES Participações S.A. | ||
| Business experience: | |
Member of the Audit Committee of Banco Nacional de Desenvolvimento Econômico e Social—BNDES | |
| | • Member of the Technical Committee of CERC Serviços de Desenvolvimento de Sistemas para Recebíveis Ltda. | ||
| | • Professor at Fundação Getúlio Vargas | ||
| | • Finance Director at Comissão de Valores Mobiliários—CVM | ||
| | | | |
SERGIO RICARDO ROMANI | | Born: | | 1959 |
| First elected: | | 2020 | |
| Other current activities and director or officer positions: | |
Partner at SR Assessoria e Consultoria de Negócios Ltda. | |
| Business experience: | |
Partner and Chief Executive Officer for Latin America South at Ernst & Young (EY) (1983-2019) | |
| | | | |
| | | | |
| | 150 | | |
Academic background: Degree in economics from UFRJ; MBA from UFRJ/COPPEAD; post-graduate degree in corporate law and arbitration from Fundação Getúlio Vargas in São Paulo.
Aníbal Moreira dos Santos, 77: Member of Vale's Fiscal Council since April 2005.
Professional experience: From 1998 until his retirement in 2003, Mr. Moreira dos Santos served as executive officer of several CAEMI subsidiaries, including Caemi Canada Inc., Caemi Canada Investments Inc., CMM Overseas, Ltd., Caemi International Holdings BV and Caemi International Investments NV, and as chief accounting Officer of CAEMI from 1983 to 2003. He also served as member of the fiscal councils of Log-in (from April 2009 to April 2014), CADAM (from 1999 to 2003), and as an alternate member of the board of directors of MBR and Empreedimentos Brasileiros de Mineração, an iron ore asset holding company, from 1998 to 2003.
Academic background: Degree in accounting from Fundação Getúlio Vargas in Rio de Janeiro.
Cláudio José Zucco, 63: Member of Vale's Fiscal Council since April 2015.
Professional experience: Alternate member of the fiscal council of Tupy S.A., a public-held company operating in the cement business, from 2012 to 2013.
Academic background: Degree in law from Univali; post-graduate degree in tax law from the Federal University of Santa Catarina.
Under our bylaws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our Board of Directors, and our Board of Executive Officers, Fiscal Council and Board Committees. Once the total compensation has been approved in our Annual Shareholders' Meeting, it is the responsibility of the Board of Directors, with the support of the Personnel and Governance Committee, allocates the compensation among its members and the members of the Board of Executive Officers.
Our shareholders determine this annual aggregate compensation atOfficers, Fiscal Council and Board Committees. Compensation proposals and policies are prepared with the general shareholders' meeting each year. In ordersupport of the Personnel and Governance Committee, which makes recommendations to establish aggregate director and officer compensation, our shareholders usually take into account various factors, which range from attributes, experience and skills of our directors and executive officers to the recent performance of our operations. Once aggregate compensation is established, our Board of Directors is then responsible for distributing such aggregate compensation in compliance with our bylaws among the directors and executive officers. The Executive Development Committee makes recommendations to the Board concerningregarding the annual aggregateglobal compensation of the executive officers. In addition to fixed compensation,Executive Officers.
As a global company, we require management with a deep knowledge of our business and market and unlimited dedication. Attracting and retaining talent, and engaging and motivating the professionals holding strategic positions, especially our executive officers, is critical for our success.
The compensation proposals are also eligiblebased on benchmarking against the compensation policies and practices of the top global mining companies and large global companies in other similar industries, and various other factors, such as the directors' and officers' responsibilities, time devoted to their duties, professional competence and reputation, market practices in the places where we operate, and the alignment of short- and long-term strategies, shareholder returns and the sustainability of the business.
On January 27, 2019, in the context of events of exceptional severity, the Board of Directors determined the suspension of all variable compensation payments to our executive officers and certain other Vale leaders. We made a payment under the Performance Shares Units (PSU) program on January 15, 2019, prior to the suspension and prior to the rupture of Dam I.
As we continue to work towards the reparation of the impacts caused by the rupture of Dam I and investigation progresses, the Board of Directors has decided to resume variable compensation to executives who are not involved in the investigation discussions related to the rupture of Dam I. As a result, payments of variable compensation and long-term incentive grants suspended in 2019 are being made in 2020 to these executives.
With respect to the executives who have been removed from their activities for bonusesjudicial reasons related to the rupture of Dam I, our Board of Directors understands that short-term and incentive payments.long-term variable compensation should remain suspended and will be individually discussed and defined with each executive who has been removed.
Executive officersEXECUTIVE OFFICERS
As of December 31, 2019, we had seven executive officers: the CEO, five Executive Directors and one Executive Director on leave (due to investigations related to the rupture of Dam I). For the year ended December 31, 2015,2019, the amountaverage annual compensation paid to theour executive officers includingwas R$12.36 million (US$3.13 million), the highest annual compensation accrued forpaid to an executive officer was R$15.10 million (US$3.83 million) and the lowest annual compensation was R$3.28 million (US$0.83 million). The average annual compensation corresponds to the total aggregate compensation paid to executive officers in 2019 divided by the monthly average number of officers that received compensation during the year. The monthly average number of officers that received compensation during 2019 was 6.91. For the year and payable at a later date,ended
| | | | |
| | 151 | | |
Management Compensation
December 31, 2019, the total payments related to executive officers' compensation packages is set forth in the table below.
| | For the year ended December 31, |
---|---|---|
| | ( |
| | |
In-kind benefits and pension plans | | 8.13 |
Variable | | |
| ||
| ||
| ||
| ||
| | |
Total amount paid in 2019 to current executive officers | | 58.72 |
Severance | | 17.90 |
| | |
Total amount paid in 2019 to current and former executive officers | | 76.62 |
Other expenses(2) | | 8.78 |
| | |
Total expenditures related to executive officers' compensation packages | | 85.40 |
One of the core principles for designing the compensation package is the alignment with our performance and return to our shareholders. Under our Compensation Policy, the compensation package offered to our Board of Executive Officers (other than the Chief Executive Officer), assuming the achievement of target average performance, is composed as follows: 33% fixed compensation, 33% short-term (performance target based) variable compensation and 34% long-term (share-based incentives) variable compensation (23% under the Matching Program and 11% of PSU). Under our Compensation Policy, the compensation package offered to our Chief Executive Officer is composed as follows: 27% fixed compensation, 33% short-term (performance target-based) variable compensation and 40% long-term (share-based incentives) variable compensation (23% under the Matching Program and 17% of PSU). Members of our Board of Executive Officers may be entitled to additional compensation pursuant to an exceptional arrangement approved by the Board of Directors.
Fixed compensation and in kindin-kind benefits include a base salary in cash, paid on a monthly basis, reimbursement for certain investments in private pension plans, health care, relocation expenses, life insurance, driver and car expenses.
Variable compensation consists of (i) an annual cash bonus, based on specific targets for each executive officer and on Vale's global cash generation, both approved by our Board of Directors, and (ii) payments tied to the performance of our shares under two programs, the Matching Program and the Performance Shares Units (PSU). PSU. The Board of Directors suspended all the variable compensation payments in 2019 after the rupture of Dam I, and therefore payments under the bonus and Matching Program did not occur in this year, as well as Matching Program and PSU payments related to 2019. As mentioned above, the Board of Directors has decided to resume payments of variable compensation to certain executives who were not under investigation relating to the rupture of Dam I.
Pension, retirement or similar benefits consist of our contributions to Valia, the manager of the pension plans sponsored by us.
The short-term variable compensation component is based on our cash generation, taking into account economic and financial targets that reflect operating performance, as well as health and safety targets, sustainability and the accomplishment of strategic initiatives. The long-term variable portion is composed of our Matching Program and PSU. For the PSU program, payment is a direct function of our Total Shareholder Return (TSR) indicator's performance compared to a preselected group of comparable
| | | | |
| | 152 | | |
Management Compensation
companies. As such, a large portion of the executive compensation package is at risk, and the mix offered can vary according to the performance achieved and the return to our shareholders (pay-for-performance) in each year. Starting in 2020, 20% of the PSU performance indicator will be composed of Environment, Social and Governance (ESG) targets, in addition to the current TSR indicator.
Under our Matching Program, members of our executive officers receiveBoard of Executive Officers shall purchase a cash payment, vested aftercertain number of common shares or ADRs in the market within a purchase window through the plan administrator. At the end of a three-year cycle, participants are entitled to receive a reward equivalent to the market valuesame number of the preferredcommon shares or ADRs ownedheld through the end of the cycle (except where an exceptional arrangement has been approved by them that are subject to the plan.Board of Directors). Participation in our Matching Program is mandatory for the members of our Board of Executive Officers in the years in which we pay cash bonuses. AtMembers of our Board of Executive Officers cannot sell or transfer their common shares or ADRs at any time during the endvesting period and must observe the Securities Trading Policy in order to sell or transfer Matching Program shares after the vesting period. Besides the payment suspension in 2019, the Board of Directors also suspended the official start of the three-year2019 Matching Program cycle eachto our executive officer receivesofficers, but resumed in 2020 for certain executives.
Since 2019, a cash payment matchingstock ownership requisite was introduced, requiring executives to accumulate (through the market valueshare-based compensation programs) and maintain ownership of our shares, in an amount equivalent to at least 36 times the vested shares. monthly fixed compensation for the CEO and 24 times the monthly fixed compensation for other executive officers.
Under our PSU, program, our executive officers receive payments in cash tied to Vale's performance, as compared to a selected group of peermining companies, based on the total shareholder return (dividend or interest on equity payments and share appreciation) of the common shares of those companies during the vesting period. Starting in 2019, the PSU will have three-year cliff vesting (instead of four-year scaled vesting) for each cycle. The 2019 PSU cycle was also suspended to our executive officers in 2019, but resumed in 2020 for certain executives.
Our severance packages for qualified terminations may comprise: (i) a four-year cycle.lump-sum severance payment, corresponding to one-half the annual fixed compensation for executive officers and equal to the annual fixed compensation for the Chief Executive Officer, paid shortly after the termination date; (ii) non-compete agreement compensation, to be paid in equal quarterly installments after termination; (iii) payment of any outstanding long-term variable compensation grants (Matching Program and PSU), paid shortly after the termination date; and (iv) payment of any outstanding short-term incentive plan (bonus), to be paid in April following the termination date. Severance expenditures in 2019 were related to six former executive officers who left the company in 2017, 2018 and 2019.
Pension, retirement or similar benefits consist of our contribution to Valia, the manager of pension plans sponsored by Vale. Social security contributions are mandatory contributions we are required to make to the Brazilian government for our executive officers.
Vale has also entered into indemnification agreements with its officers.
BOARD OF DIRECTORS
As of December 31, 2019 our Board of Directors had 13 members. For the year ended December 31, 2019, the average annual compensation paid to the members of our Board of Directors was R$0.77 million (US$0.19 million), the highest annual compensation paid to a member of the Board of Directors was R$1.22 million (US$0.31 million) and the lowest annual compensation was R$0.54 million (US$0.14 million). The monthly average number of members that received compensation during 2019 was 12.92.
| | | | |
| | 153 | | |
Board of DirectorsManagement Compensation
In 2015,2019, we paid US$1.2R$9.90 million (US$2.51 million) in aggregate to the members of our Board of Directors for services in all capacities, all of which was fixed compensation. There are no pension, retirement or similar benefits for the members of our Board of Directors. On February 29, 2016December 31, 2019, the total number of common shares owned by our directors and executive officers was 16,000, and the total number of preferred shares owned by our directors and executive officers was 1,609,147.662,807. None of our directors or executive officers beneficially owns 1% or more of any class of our shares. Vale has also entered into indemnification agreements with its directors.
FISCAL COUNCIL
As of December 31, 2019 our Fiscal Council had 5 members. For the year ended December 31, 2019, the average, the highest and the lowest annual compensation paid to a member of the Fiscal Council was R$0.44 million (US$0.11 million). The monthly average number of members that received compensation during 2019 was 5.
We paid an aggregate of US$0.38R$2.20 million (US$0.56 million) to members of the Fiscal Council in 2015.2019. In addition, the members of the Fiscal Council are reimbursed for travel expenses related to the performance of their functions.
Advisory committeesBOARD COMMITTEES
We paid an aggregate of US$0.10R$2.45 million (US$0.62 million) to members of our permanent advisory committees in 2015. Under our bylaws, those members2019. Directors who participate in advisory committees are directors or officers of Vale are not entitled to additionalreceive, in addition to the compensation as a board member, compensation for participating onin one or more committees limited to 50% of the amount of a committee.directors' compensation. In 2019, we paid an aggregate of R$1.43 million (US$0.36 million) to the committee members that are also members of our Board of Directors and R$1.02 million (US$0.26 million) to other committee members. In addition, we paid an aggregate of R$14.51 million (US$3.63 million) to members of our independent ad hoc advisory committees in 2019. Members of our advisory committees are also reimbursed for travel expenses related to the performance of their duties.
| | | | |
| | 154 | | |
The following tables set forth the number of our employees by business and by location as of the dates indicated.
| | At December 31,(1) | | As of December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
By business: | | 2013 | | 2014 | | 2015 | | 2019(1) | | 2018(1) | | 2017(1) |
Ferrous minerals | | 52,542 | | 46,832 | | 42,838 | | 42,077 | | 43,504 | | 42,734 |
Coal | | 2,356 | | 1,897 | | 1,608 | | 2,927 | | 2,350 | | 2,258 |
Base metals | | 15,772 | | 15,564 | | 15,554 | | 13,738 | | 14,349 | | 15,243 |
Fertilizer nutrients | | 6,772 | | 6,773 | | 9,181 | | — | | 12 | | 8,055 |
Energy(2) | | 3,809 | | 4,058 | | NA | ||||||
Corporate activities | | 5,844 | | 5,465 | | 4,917 | | 8,598 | | 5,997 | | 5,306 |
| | | | | | | | | | | | |
Total | | 83,286 | | 76,531 | | 74,098 | | 71,149 | | 70,270 | | 73,596 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | At December 31, | | As of December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
By location: | | 2013 | | 2014 | | 2015 | | 2019(1) | | 2018(1) | | 2017(1) |
South America | | 67,392 | | 60,903 | | 58,830 | | 55,641 | | 55,423 | | 58,457 |
Brazil | | 55,439 | | 55,230 | | 57,513 | ||||||
North America | | 6,681 | | 6,673 | | 6,773 | | 6,082 | | 6,032 | | 6,432 |
Europe | | 397 | | 395 | | 385 | | 308 | | 298 | | 375 |
Asia | | 4,235 | | 4,476 | | 4,516 | | 4,455 | | 4,475 | | 4,571 |
Oceania | | 2,279 | | 1,706 | | 1,654 | | 1,384 | | 1,378 | | 1,364 |
Africa | | 2,302 | | 2,378 | | 1,940 | | 3,279 | | 2,664 | | 2,397 |
| | | | | | | | | | | | |
Total | | 83,286 | | 76,531 | | 74,098 | | 71,149 | | 70,270 | | 73,596 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
We negotiate wages and benefits with a large number of unions worldwide that represent our employees. We have collective agreements with unionized employees at our operations in Australia, Brazil, Canada, Indonesia, Malawi, Mozambique, New Caledonia Peru and the United Kingdom.Oman.
Wages and benefitsWAGES AND BENEFITS
Wages and benefits for Vale and its subsidiaries are generally established on a company-by-company basis. Our benefits policy is aligned with our attraction and retention strategy, in accordance with applicable laws and market practice in the countries where we operate. We provide an attractive and competitive benefits package ensuring health, well-being, protection and life quality. Among the main benefits offered are medical and dental assistance, life insurance, private pension plans and short-and long-term disability benefits.
We establish our wage and benefits programs for Vale S.A. and its subsidiaries, other than Vale Canada. In May 2015, Vale Canada reached a five-year agreement with the union representing the production and maintenance employees at the Sudbury and Port Colborne operations, providing for wage and pension enhancements. In December 2015,November 2019, we reached a one-year agreement with the Brazilian unions providing for the paymenta salary increase of a bonus to compensate for the absence of salary increases.3.5% beginning in November 2019. The provisions of our collective bargaining agreements with unions also apply to our non-unionized employees.
Vale Canada also establishes wages and benefits for its unionized employees through collective bargaining agreements. In 2019, collective bargaining took place at our Voisey's Bay and Thompson sites. For non-unionized employees, Vale Canada undertakes an annual review of salaries.salaries and benefits. We also
| | | | |
| | 155 | | |
Employees
provide ourthese employees and their dependents with other benefits, including supplementary medical assistance.a flexible health care benefit plan.
Pension plansPENSION PLANS
Brazilian employees of Vale and of most of its Brazilian subsidiaries are eligible to participate in pension plans managed by Valia.
Most of the participants in plans held by Valia are participants in a plan named "Vale Mais",Mais," which Valia implemented in 2000. This plan is primarily a defined contribution plan with a defined benefit feature relating to service prior to 2000 and another defined benefit feature to cover temporary or permanent disability, pension and financial protection to dependents in case of death. Valia also operates a defined benefit plan, closed to new participants since May 2000, with benefits based on years of service, salary and social security benefits. This plan covers retired participants and their beneficiaries, as well as a relatively small number of employees that declined to transfer from the old plan to the "Vale Mais" plan when it was established in May 2000.
Employees within our Base Metals operations principally in Canada and the United Kingdom, participate in defined benefit pension plans and defined contribution pension plans. AllThe defined benefit plans have been closed to new participants since 2009, and all new employees within our Base Metals operations participate in defined contribution pension plans. Employees in Japan and Taiwan participate in a defined benefit pension plan. Employees in other jurisdictions, including China, Indonesia, Malawi, Switzerland, the United States and Zambia,are eligible to participate in defined contribution pension plans.
Performance-based compensationPERFORMANCE-BASED COMPENSATION
All Vale parent-company employees may receive incentive compensation each year in an amount based on the performance of Vale, which can range from 0 to 200% of a market-based reference amount, depending on certain targets set, and the cash generation in each period. Similar incentive compensation arrangements are in place at our subsidiaries.
Qualifying management personnel are eligible to participate in the PSU and Matching programs.Program. See description of these programs underManagement and Employees—Management compensation—Executive officers.
| | | | |
| | 156 | | |
We and our subsidiaries are defendants in numerous legal actions in the ordinary course of business, including civil, administrative, tax, social security and labor proceedings. The most significant proceedings are discussed below. Except as otherwise noted below, the amounts claimed, and the amounts of our provisions for possible losses, are stated as of December 31, 2015.2019. See Note 18note 28 to our consolidated financial statements for further information.
LegalLEGAL PROCEEDINGS RELATED TO THE RUPTURE OF DAM I
We are engaged in several investigations and legal proceedings relating to the rupture of Dam I. Most of these proceedings are in early stages, and we cannot reasonably estimate the range of loss or the timing for decisions. Other proceedings or investigations relating to the rupture of Dam I are expected. Our potential liabilities resulting from the dam rupture are significant, and additional provisions are expected.
a) Public civil actions brought by the State of Minas Gerais and state public prosecutors for damages resulting from the rupture of Dam I
We are party to public civil actions brought by the State of Minas Gerais and state prosecutors claiming economic and environmental damages resulting from the dam rupture and seeking a broad range of injunctions ordering Vale to take specific remediation and reparation actions. These legal proceedings were initially brought before various state courts in Minas Gerais, but have been consolidated before the 6th Public Treasury Court in the city of Belo Horizonte and then transferred to the 2nd Public Treasury Court in the city of Belo Horizonte. In July 2019, the court decided that we are liable for the damages caused by the dam rupture, but rejected the plaintiffs' request for suspension of our activities and judicial intervention of Vale. The proceeding remains ongoing to quantify the damages.
As part of this proceeding, we entered into preliminary settlement agreements with the authorities in February 2019, as revised in November 2019, to make emergency indemnification payments to individuals, family members and business owners affected by the dam rupture. Experts appointed by the court are preparing a plan for remediation and determination of the damages. In August 2019, the court authorized us to present our plan for remediation, and determined that the measures we take and our plan of remediation be considered by the court-appointed experts in their plan for remediation and determination of the damages.
b)Public civil actions brought by state prosecutors and other authorities regarding safety requirements at other dams
We have been involved in more than twenty public civil actions in which public prosecutors and other authorities sought to suspend or restrict our operations or obtain injunctions compelling us to implement safety measures at other existing tailings dams. Nine actions in Minas Gerais were entirely dismissed following settlement agreements based on procedural matters, and seven actions were partially dismissed following settlement agreements. With respect to four actions, we are negotiating potential settlement with the authorities. Below is a summary of the key pending actions.
| | | | |
| | 157 | | |
Legal Proceedings
(iii) review technical studies and other documents related to the dam, and conduct an external audit on the structure. The injunction requests were granted by the State Court of Itabirito in April 2019. The Maravilhas II tailings dam supports our operations in the Vargem Grande complex, which have been suspended since February 2019. These proceedings were partially dismissed due to an agreement signed by the parties in September 2019. No agreement was reached with respect to the return of the dam's operations.
c) Public civil action brought by labor prosecutors
We were a party to a public civil action brought by labor prosecutors claiming, among other things, a pre-judgment attachment to secure the payment of monetary damages and costs including expert reports, wages, socio-economic relief, funeral expenses and other remediation measures to the workers affected by the rupture of Dam I.
In July 2019, we entered into a final settlement agreement with the public labor prosecutors to indemnify workers who were based at Córrego do Feijão mine or were otherwise victims of the dam rupture. The settlement agreement established standards to indemnify the families of the workers and also provides for employment stability to our employees and outsourced workers, whose workplace was the Córrego do Feijão mine on the day of the dam failure, and to the survivors who were working at the Córrego do Feijão mine at the moment of Samarco'sthe dam failure, for the period of three years from the date of the dam
| | | | |
| | 158 | | |
Legal Proceedings
rupture, with the possibility of conversion of this stability right into the proportional amount of money that these employees and outsourced workers would have received until the date of completion of such three-year period (i.e. January 25, 2022). Spouses or companions and parents of deceased workers will be granted lifetime health insurance and children of deceased workers will be granted health insurance, until the age of 25. As of March 31, 2020, we entered into 615 indemnification agreements with individuals or groups pursuant to this settlement agreement, corresponding to 1,578 beneficiaries and 244 families of deceased workers, providing for payments in the total amount of approximately R$1,007 million. The settlement agreement also provided for the payment of R$400 million as collective moral damages (danos morais coletivos), which we fully paid in 2019. Finally, the settlement agreement determined the release of R$1.6 billion initially blocked from us. SeeOverview—Business overview—Rupture of the tailings dam at the Córrego do Feijão mine—Vale's response—Reparation and remediation efforts.
d) Putative class actions in the United States
We and certain of our current and former executive officers have been named defendants in putative securities class action suits, under U.S. federal securities laws, brought before federal courts in New York by holders of our securities. These complaints were consolidated through an amended complaint brought by the lead plaintiff in October 2019 before the United States District Court for the Eastern District of New York, captioned In re: Vale S.A. Securities Litigation, No. 19 Civ. 526 (RJD) (E.D.N.Y.). The lead plaintiff alleges that we made false and misleading statements or omitted to make disclosures concerning the risks of the operations of Dam I and the adequacy of the related programs and procedures. The lead plaintiff has not specified an amount of alleged damages in these actions.
In December 2019, we made a motion to dismiss the amended complaint and, in January 2020, the lead plaintiff filed an opposition to our motion to dismiss. On February 21, 2020, we filed a reply to the opposition. We will vigorously contest these claims. Given the preliminary status of the actions, it is not possible at this time to determine a range of outcomes or to make reliable estimates of the potential exposure.
e) Criminal proceedings and investigations
In January 2020, the Minas Gerais state police concluded its investigations into the causes and responsibilities for the rupture of Dam I. Based on the results of the police investigation, the state prosecutors brought criminal charges against 16 individuals (including former executive officers of Vale and current and former employees) for a number of potential crimes, including homicide, and against Vale S.A. for alleged environmental crimes. These charges were accepted by the state criminal judge in the city of Brumadinho on February 14, 2020, and a criminal proceeding against these individuals and Vale is ongoing. Vale intends to vigorously defend itself against the criminal claims, and we cannot estimate when a decision on this criminal proceeding will be issued.
In addition, federal prosecutors and the federal police are conducting a separate investigation into the causes of and responsibilities for the rupture of Dam I.
In September 2019, the federal police concluded an investigation on potential fraud and forgery of documents in connection with the certification of stability (Stability Condition Statement, or "DCE") of Dam I prior to the dam rupture, and recommended that prosecutors bring criminal actions against us and some of our employees.
| | | | |
| | 159 | | |
Legal Proceedings
f) Investigation by Brazilian legislative bodies
After the rupture of Dam I, Brazilian federal and Minas Gerais state legislative bodies initiated investigations (Comissão Parlamentar de Inquérito or "CPIs") and hearings into the causes of and responsibilities for the rupture of the dam and to propose changes to the existing legal and regulatory regime applicable to the mining industry and other related matters. The legislative bodies have concluded investigations on the causes of and responsibilities for the rupture of Dam I, and recommended the indictment of Vale and certain of our employees and executive officers, in addition to more stringent laws and rules regarding dam safety.
g) Cooperation with the CVM and the SEC
We have received requests from the CVM and the SEC to provide documents and other information concerning the rupture of Dam I, and we are cooperating with both agencies.
h) Other proceedings
We are a defendant in a number of investigations, arbitrations and proceedings brought by individuals, business entities, investors, associations, unions, non-governmental organizations and other entities seeking remediation and compensation for environmental, property and personal damages resulting from the Dam I rupture, including alleged violations of securities laws. These investigations, arbitrations and proceedings include requests for significant amounts in damages, injunctions, pre-judgment attachment of assets and seizure of our bank accounts. Most of them are in early stages, and we cannot reasonably estimate their impact. Other investigations, arbitrations and proceedings relating to the rupture of the tailings dam in Minas GeraisBrumadinho are expected.
LEGAL PROCEEDINGS RELATED TO THE RUPTURE OF SAMARCO'S TAILINGS DAM IN MINAS GERAIS
We are engaged in several legal proceedings in connection withrelating to the failure inrupture of Samarco's tailings dam in the city of Mariana, in the state of Minas Gerais. Vale has notified its insurers of the dam failure event and related complaints. SeeInformation on the Company—Business overview—Significant changes in our business—Failure of Samarco's tailings dam in Minas Gerais. AllMost of these proceedings are in early stages, and we cannot reasonably estimate the possible loss or range of lossesloss or the timing for a decision.
a) Putative class action in the United States
Vale S.A. and certain of its officers have been named as defendants in civil class action suits in federal court in New York brought by holders of Vale's securities under U.S. federal securities laws. The lawsuits allege that Vale made false and misleading statements or omitted to make disclosures concerning the risks and dangers of the operations of Samarco's Fundão dam and the adequacy of the related programs and procedures. The plaintiffs have not specified an amount of alleged damages in these actions. We intend to vigorously defend these actions and mount a full defense against the allegations. The litigation is at a very early stage. On March 7, 2016, the judge overseeing the securities class action issued an order consolidating these actions and designating lead plaintiffs and counsel. As a consequence of the preliminary nature of these suits, it is not possible to determine a range of outcomes or reliable estimates of the potential exposure at this time, and no provision has been recognized.
b) Public civil action filed by the Brazilian government and others and public civil action filed by the Federal Prosecution Office
In November 2015, the Brazilian federal government, the states of Minas Gerais and Espírito Santo, certain federal and state authorities and certain public entities collectively filed a public civil action before a federal courtthe 12th Federal Court in Belo Horizonte, state of Minas Gerais, against Samarco and its shareholders, Vale and BHPB. The plaintiffs claimed approximately R$20.2 billion (US$5.2 billion) in monetary damages and a number of measures to remediate the environmental damages caused by the Fundão dam failure. Certain claims brought by the plaintiffs refer to specific defendants individually, while other claims are directed at all defendants.rupture.
The federal court in Minas Gerais granted an injunction ordering Samarco to make a deposit of R$2.0 billion for use toward the remediation and compensation activities and preventing Vale from selling or otherwise transferring its mining rights in Brazil.
In March 2016, we, together with Samarco and its shareholders, Vale and BHPB, entered into a settlementframework agreement (the "Settlement Agreement") with the federal Attorney General of Brazil,government, the state governments of Espírito Santo and Minas Gerais and certain other federal and state authorities for compensation for, and remediation of, the environmental and social impacts of the dam failure. Samarco, Vale and BHPB agreed to establish a foundation (the "Foundation") to develop and implement environmental and socio-economic programs to remediate and provide compensation, where remediation is not feasible, for damage caused by the Samarco dam failure.
authorities. The SettlementFramework Agreement has a 15-year term, of 15 years, renewable for successive one-year periods until all the obligations under the SettlementFramework Agreement have been performed. Samarco will fund the Foundation with contributions as follows:
From 2019 to 2021, annual contributions to the Foundation will be set based on an amount sufficient to complete remaining remediation and compensation projects, subject to an annual minimum amount of R$800 million and an annual maximum amount of R$1,600 million.
Under the agreement, the Foundation will allocate an annual amount R$240 million over a period of 15 years to the compensation projects, and these amounts are included in the annual contributions described above for the first six years. Through the end of 2018, the foundation will also set aside R$500 million for basic sanitation in the affected areas. To the extent that SamarcoThe Framework Agreement does not meet its funding obligations, each of Vale and BHPB is obligated to provide funding to the Foundation in proportion to its 50% interest in Samarco. The Settlement Agreement, which does not include anyfor admission of civil, criminal or administrative liability for the Fundão dam rupture. The Framework Agreement provides that, within three years of the date of the agreement, the parties would review its terms to assessing the effectiveness of the ongoing remediation and compensation activities.
| | | | |
| | 160 | | |
Legal Proceedings
In May 2016, the MPF (federal prosecutors) filed a public civil action before the 12th Federal Court in Belo Horizonte against Samarco, Vale, BHPB, BNDES and the governmental authorities that are parties to the Framework Agreement. In this action, the MPF requested that the court order a broad range of specific actions to be taken by the various parties. The MPF also stated in its complaint that the required remedial measures would have a total value of R$155 billion, based on a comparison with the costs of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The MPF also claimed other forms of relief, including injunctions (i) ordering the defendants to implement several measures to mitigate or remediate social, economic and environmental impacts arising from the rupture of the Fundão dam, as well as other emergency measures; (ii) preventing the defendants from encumbering or disposing of their assets; (iii) preventing the defendants from paying dividends; (iv) ordering the defendants to deposit R$7.7 billion into a fund, managed by the defendants, for implementation of social, environmental and emergency programs; (v) ordering the defendants to provide collateral in the amount of R$155 billion to secure their compliance with the final court decision; (vi) ordering the defendants to maintain working capital in the amount of R$2 billion initially, and thereafter in an amount equal to 100% of the expenses of the remediation and compensation measures projected for the subsequent twelve months; and (vii) ordering BNDES to take actions under its credit agreements with the defendants, including cessation of further drawings and acceleration of outstanding principal.
In June 2018, Vale, Samarco, BHPB and the offices of the federal and state (Minas Gerais and Espírito Santo) prosecutors, public defenders and attorneys general, among other parties entered into a comprehensive agreement to improve the governance mechanism of Fundação Renova and establish a process for potential revisions to the remediation programs provided under the Framework Agreement based on the findings of experts hired by Samarco to advise the MPF over a two-year period (the June 2018 Agreement). The June 2018 Agreement terminated certain lawsuits, including public civil actions filed by the Brazilian federal government and the states of Minas Gerais and Espírito Santo. It also contemplates the future termination of other public civil actions upon agreement over the remediation programs under experts' review, and confirmed the collateral provided by the parties to secure the payment of remediation measures in the amount of R$2.2 billion. In January 2020, the 12th Federal Court of Belo Horizonte issued an order to the Brazilian Mining Authority (ANM) confirming the revocation of the decision issued in the public civil actions filed by the Brazilian Federal Government and other plaintiffs and determined the immediate revocation of the restrictions on Vale's mining concessions.
We expect the Framework Agreement and the June 2018 Agreement to represent the first steps for the final settlement of the public civil action brought by the MPF and other related proceedings.
b) Criminal proceeding
In October 2016, the MPF filed criminal charges before the federal court of Ponte Nova, state of Minas Gerais, against us (Vale S.A.), certain of our employees and a former officer, among other corporate and individual defendants. The charges were divided into two parts. The first group of charges involves murder, physical injury and environmental crimes charges against Vale's representatives in Samarco's board and management, and various charges of environmental crimes against Vale S.A. The second group of charges includes charges of environmental crimes against us and one of our employees relating to an alleged omission in the provision of relevant information of environmental interest, false statements and fraud in a public filing, in connection with the alleged failure to disclose that tailings from our Alegria mine were discharged at the Fundão dam. The criminal charges were accepted by the judge in November 2016, and a criminal proceeding commenced against these defendants.
In September 2019, the federal court of Ponte Nova dismissed all criminal charges relating to the first group of charges against Vale and its representatives in Samarco's board and management, but the second group of charges against Vale S.A. and one of our employees remains ongoing.
| | | | |
| | 161 | | |
Legal Proceedings
In March 2020, the judge scheduled a number of hearings to collect defense witnesses' testimonies and intent letters were issued for the same purpose. We cannot estimate when a final decision on the case will be issued.
c) Class actions in the United States
c.1) Related to Vale's American Depositary Receipts
With respect to litigation in the United States concerning Samarco's Fundão dam, we and certain of our current and former officers have been named as defendants in an action captioned In re: Vale S.A. Securities Litigation, No. 15 Civ. 9539 (GHW) (S.D.N.Y.). The suit was brought as a putative class action on behalf of holders of Vale's ADRs, alleging violations of the U.S. federal securities laws on the basis of alleged false and misleading statements or omissions concerning the risks of operations of Samarco's Fundão dam and the adequacy of the related programs and procedures.
On September 27, 2019, the court denied class certification. On December 26, 2019, the court issued an order stating that the parties had informed the court that they had reached a settlement in principle. On February 7, 2020, the parties submitted a motion to approve a proposed stipulation settlement agreement. On February 22, 2020, the court signed our proposed order preliminarily approving the settlement in the total amount of US$25 million, and has also set a settlement conference for June 10, 2020 to discuss final approval of the settlement.
c.2) Related to Samarco's bonds
We were also named as defendants in an action captioned Banco Safra S.A.—Cayman Islands Branch v. Samarco Mineração S.A., et al., No. 16 Civ. 8800 (RMB) (S.D.N.Y.). The suit was brought as a putative class action on behalf of holders of bonds issued by Samarco, alleging violations of the U.S. federal securities laws on the basis of alleged false and misleading statements or omissions concerning the risks of operations of Samarco's Fundão dam and the adequacy of the related programs and procedures.
In June 2019, the court dismissed the complaint. In December 2019, the plaintiff filed a notice of appeal of the decision. On March 10, 2020, the plaintiff filed its opening appeal brief. A letter with the court requesting a deadline for our brief is subjectdue by no later than March 24, 2020. We expect a due date in early June. We believe that the claims have no merit, and we will contest them.
d) Tax proceeding
In September 2018, the federal tax authorities filed a request before the 27th federal court in Belo Horizonte for an order seizing Vale's assets to secure the payment of federal tax debts of the joint venture, in the amount of approximately R$10 billion. In May 2019, a favorable decision was issued dismissing the claim without prejudice, due to lack of procedural interest. The General Attorney of the National Treasury (PGFN) filed an appeal to the local court, approval and if approved, will settlea court ruling is pending.
e) Other proceedings
Vale is a defendant in several public civil actions brought by state prosecutors of Minas Gerais and Espírito Santo, other authorities or civil associations claiming environmental damages as a result of the rupture of Samarco's dam. The relief claimed in these proceedings are generally similar to the claims brought in the public civil action brought by the Brazilian government and others. The Settlement Agreement does not cover private civil claims, otherothers and the public civil claims or criminal charges.action brought by the MPF. In 2017, The Superior Court of Justice (STJ) decided that the 12th Federal Court in Belo Horizonte
| | | | |
| | 162 | | |
c) Minas Gerais and Espírito Santo state prosecutor actionsLegal Proceedings
The state prosecutors inis the city of Governador Valadares, in the state of Minas Gerais, commenced two lawsuits against Vale and Samarco, seeking (1) injunctions ordering (i) Samarco and Valecompetent court to conduct a series of monitoring and remediation interventions to secure water supply and management of solid waste in the city of Governador Valadares, located alongside the Doce River, (ii) the seizure of at least R$100 million in the defendants' bank accounts, in order to secure the implementation of the requested measures, and (2) an amount of at least R$5.0 billion (US$1.3 billion) in damages. The local court of Governador Valadares rejected the requests for injunctions against Vale, but ordered the local water agency, which is a co-defendant in one of the proceedings, to submit a plan for solid waste management and water supply. Both lawsuits are in preliminary stages.
The state prosecutors in the city of Mariana, in the state of Minas Gerais, brought arule on all these public civil action against Samarco, Vale and BHPB, seeking damages and other measures for assistance of residents affected by the dam failure, including provision of healthcare and rescue of displaced people, goods and livestock. The local court of Mariana granted an injunction seizing R$300 million (US$77 million) in Samarco's bank accounts. This amount is still blocked, and has been applied to pay for settlement agreements between Samarco and people affected by the Fundão dam failure. The proceeding is in its preliminary stages.
The state prosecutors in the city of Ponte Nova, in the state of Minas Gerais, and Colatina, in the state of Espírito Santo, have also commenced a lawsuits against Vale, BHPB and Samarco, seeking damages to compensate for the impact of the failure of Samarco's dam in each ofactions. All these cities, as well as the attachment of the defendants' assets to secure payment of these damages. The estimated amounts claimed in each of these proceedings is R$2.0 billion. Both lawsuits are in preliminary stages.
d) Civil associations proceedings
Vale is also a defendant in certain public civil actions brought by civil associations seeking injunctive relief and damage payments in connectionhave been suspended while we negotiate an agreement with the Fundão dam failure.MPF, as discussed in item a) above.
In December 2015, a civil association named Sohumana Sociedade Humanitária Nacional commenced a public civil action in a federal court in Rio de Janeiro against Samarco, Vale and BHPB, seeking R$20 billion (US$5.0 billion) in environmental and property damages allegedly caused by the dam failure. The judge ruled that the federal courts in Rio de Janeiro lacked jurisdiction to hear this action, and the process will be transferred to the federal district court in Belo Horizonte.
Also in December 2015, a civil association named NACAB brought a similar public civil action against Samarco, Vale and BHPB, before the state courts in the city of Ponte Nova, in Minas Gerais, requesting at least R$100 million (US$26 million) in environmental damages and injunctive relief ordering the defendants to implement certain remediation and monitoring measures.
e) Other proceedings
Vale has been named as a defendant in a number of private actions, before different state and federal courts in the states of Minas Gerais and Espírito Santo, brought by individuals, business entities, municipalities and other actionsentities seeking remediation and compensation for environmental, property and personal damages resulting from the Fundão dam failure,rupture. These proceedings include requests for significant amounts in the estimated amountdamages, injunctions, pre-judgment attachment of R$134.4 million (US$34.4 million). Other proceedingsassets and investigationsseizure of our bank accounts. Vale has settled part of these suits, and continues to defend itself in connection with the dam failure are expected.a number of these proceedings.
Samarco is engaged in several other investigations and proceedings claiming damages resulting from the dam failure.rupture. Immediately after the dam failure,rupture, the environmental authority of the state of Minas Gerais and the DNPM an agency of(currently, the Ministry of Mines and Energy of the Brazilian government,ANM) commenced an investigation into the causes of the dam failure,rupture, and determinedordered the suspension of Samarco's operations pending the conclusion of these investigations.
Table of ContentsONÇA PUMA LITIGATION
Tubarão port litigation
In January 2016, as part of an environmental investigation conducted by2012, the Brazilian federal police, a federal court in the Brazilian state of Espírito Santo ordered the suspension of our activities in the Pier II and the coal pier of the Tubarão Port, due to potential environmental damages resulting from the release of iron ore in the sea area around the Pier II and the coal pier. Our operations in the Pier II and the coal pier of the Tubarão Port were suspended for four days, until the Federal Court of Appeals of the Second Region (Tribunal Regional Federal da Segunda Região) suspended the effects of the injunction. The Federal Court of Appeals granted us 60 days to implement certain measures to monitor, control and mitigate the release of iron ore in the terminal. This 60-day period expired on March 25, 2016, and we believe that we are in compliance with the requirements imposed by the Federal Court of Appeals. As part of this proceeding, we may be required to comply with certain additional requirements to prevent or mitigate the release of iron ore in the sea.
The environmental investigation is still ongoing. Depending on the outcome of this investigation, the federal prosecutor may bring other legal proceedings against us in the future.
Onça Puma litigation
In 2009, the federal prosecutorMPF brought a public civil action against Vale and the Brazilian state of Pará, seeking the suspension of our nickel operations in Onça Puma, in the state of Pará, due to the alleged impact on the Xikrin do Cateté and Kayapó indigenous communities located close to the mining site. The federal prosecutor contendsprosecutors contend that (i) that our operations would be contaminating the water of the Catete River, which crosses the communities, (ii) that we have failed to comply with certain conditions under our environmental licenses, and (iii) that the state of Pará should not have granted environmental license to this operation.
In 2015, the federal court in the city of Redenção, in the state of Pará, granted an injunction suspending our nickel operationsOur mining activities in Onça Puma and orderingour nickel processing plant were suspended in September 2017 and June 2019, respectively, when the payment of a cash compensation to the affected indigenous communities. We and the state attorneys representing the state of Pará filed separate appeals against this decision to the Federal Court of Appeals of the First Region (Tribunal Regional da Primeira Região) granted an injunction in favor of the Superiorfederal prosecutor. We have appealed this decision and in September 2019 the Federal Supreme Court (STF) decided that Vale may resume its nickel operations at the Onça Puma mine and plant in Ourilândia do Norte (state of Pará). STF also released, in favor of the indigenous peoples, the amounts already deposited and those that will be deposited by us in a judicial account, for application under the conditions and criteria established in the Conduct Adjustment Agreement (TAC) entered between the MPF and the Xikrin and Kayapó associations.
The Onça Puma action is still ongoing, but we believe that the MPF's claims have no merit. We will continue to vigorously contest this action.
PUBLIC CIVIL ACTION SEEKING SUSPENSION OF S11D MINE
In May 2016, associations representing the indigenous community of Xikrin do Cateté brought a public civil action against Vale, the Federal Environmental Agency (IBAMA), the Federal Indigenous Agency (FUNAI) and the National Bank of Economic and Social Development (BNDES), seeking the suspension of the environmental permitting process of our S11D mine. The associations contend that FUNAI and IBAMA have failed to conduct the appropriate studies regarding the affected indigenous communities during the environmental permitting process, and consequently that the indigenous groups affected by this mine have not provided the required consent. The plaintiffs also requested a monthly payment of R$2 million for each association until the defendants conclude the studies.
| | | | |
| | 163 | | |
Legal Proceedings
Applicable law provides for mandatory consultation with the indigenous communities located within ten kilometers of the mine, and these indigenous communities are located more than 12 kilometers away from the mine. We have submitted our preliminary defense, and in January 2017 the court denied plaintiffs' request for an injunction suspending our S11D mine.
In July 2017, the judge of the Federal Court of Justice (STJ)Marabá partially modified the previous decision and finallyordered that we prepare a study of the Supremeimpacts of the S11D operation on the Xikrin tribe within 180 days. Vale submitted a work plan for the study to FUNAI and the plan was approved. The court then ordered us to present the work plan to the indigenous community and we are awaiting approval to continue with its preparation.
In July 2019, the expert hired to prepare the Indigenous Component Study of S11D Project, accompanied by Vale and FUNAI representatives, presented to the Xikrin tribe a work plan, which was not accepted by the indigenous people, despite being approved by FUNAI. Due to resistance by the indigenous people against the work plan, the judge of the Federal Court (STF). On December 16, 2015,of Marabá ordered FUNAI to present its opinion about the Supreme Court suspendedplan. The judge also ordered the injunction,court experts to analyze and granted us 120 dayspresent their opinion about the work plan after FUNAI's response. A response from FUNAI is pending.
This decision does not affect our operations in S11D. We appealed this decision and will continue to implement certain monitoringvigorously contest this action.
PUBLIC CIVIL ACTION SEEKING SUSPENSION OF SALOBO MINE
In July 2018, associations representing the indigenous community of Xikrin do Cateté brought a public civil action against Vale, the Federal Environmental Agency (IBAMA) and other mitigating measuresthe Federal Indigenous Agency (FUNAI), seeking the suspension of the environmental permitting process of Salobo Mine. The associations contend that FUNAI and IBAMA have failed to comply with certain requirementsconduct the appropriate studies regarding the affected indigenous communities during the environmental permitting process and contends that our operations would be contaminating the water of our environmental license. Wethe Itacaiúnas River and consequently that the indigenous groups affected by this mine have been working togethernot provided the required consent. The plaintiffs also requested a monthly payment of R$2 million for each association until the defendants conclude the studies.
Applicable law provides for mandatory consultation with the stateindigenous communities located within ten kilometers of Paráthe mine, and these indigenous communities are located more than 22 kilometers away from the mine. In October 2017 the court denied plaintiffs' request for an injunction suspending our Salobo Mine.
In February 2019, Vale, IBAMA, and the environmental agency Instituto Chico Mendes de Conservação da Biodiversidade (ICMBio) filed a joint answer in court, rebutting the plaintiff's claims, and reaffirming the legality of the environmental permitting process of Salobo Mine and the fulfillment of all conditions imposed by relevant authorities. In March 2019, the MPF presented an opinion for the suspension of the activities in the Salobo Mine. A decision by the federal prosecutorcourt is pending.
In July 2019, the Judge of the Federal Court of Marabá partially granted an injunction requested by the Indigenous Associations, ordering Vale and Salobo to implement these measures.prepare the Indigenous Component Study of the Salobo Mine project, and rejected all other requests filed by the plaintiff, including project shutdown and monthly fund payments.
In December 2019, in accordance with the procedure established in the legislation for the preparation of indigenous component studies, we presented the curriculum of the professionals who will prepare such
| | | | |
| | 164 | | |
Legal Proceedings
study, as well as the work plan for the acknowledgement and approval by FUNAI. A response from FUNAI is pending.
The decision held by the Federal Court of Marabá does not affect our operations in Salobo mine. We areappealed this decision and will continue to vigorously contestingcontest this action, which we believe to be without merits.action.
Itabira suitsITABIRA SUITS
We are a defendant in two separate actions brought by the municipality of Itabira, in the Brazilian state of Minas Gerais. In the first action, filed in August 1996, the municipality of Itabira alleges that our Itabira iron ore mining operations have caused environmental and social harm, and claims damages with respect to the alleged environmental degradation of the site of one of our mines, as well as the immediate restoration of the affected ecological complex and the performance of compensatory environmental programs in the region. The damages sought, as adjusted from the date of the claim, amount to approximately R$4.060 billion (US$1.010 billion).5.673 billion. An expert report favorable to Vale has been issued, but the court granted the municipality's request for additional expert evidence. The elaborationpreparation of this additional expert evidence is pending. Both parties agreed to suspend the action until the presentation of an expert report, and to reconvene to discuss a potential settlement after such expert report is presented.
In the second action, filed in September 1996, the municipality of Itabira claims the right to be reimbursed for expenses it has incurred in connection with public services rendered as a consequence of our mining activities. The damages sought, as adjusted from the date of the claim, amount to approximately R$4.702 billion (US$1.169 billion).6.7 billion. This proceeding was suspended for a settlement negotiation, but has resumed its normal course as the parties have not reached an agreement, and the evidence production phase will follow. We believe these suits are without merits and will continue to vigorously contest them.
MINISTRY OF LABOR PROCEEDING
In February 2015, following an inspection in the facilities of a company that provided transportation services to us between our mines Mina do Pico and Mina de Fábrica in the state of Minas Gerais, the Ministry of Labor determined that this transportation company had failed to comply with certain obligations relating to health, safety, overtime and other labor matters. By adopting a broad interpretation of the law, the Ministry of Labor concluded that its employees were working in conditions similar to slavery. Upon learning of the findings, we promptly remediated the problems and we eventually terminated the agreement with the transportation company. Nevertheless, the Ministry of Labor commenced two administrative proceedings against us, one alleging illegal outsourcing and another alleging that the illegally outsourced employees were working in conditions similar to slavery. In December 2018, the regional labor court upheld Vale's annulment action and confirmed that the outsourcing of the transportation services in this case was lawful. However, in March 2019 the courts confirmed administrative decision that determined that we had employees in conditions similar to slavery. We appealed this decision and will continue to vigorously contest this action.
ENVIRONMENTAL CRIMINAL PROCEEDING IN MARANHÃO
In February 2019, the state prosecutors of the state of Maranhão commenced an environmental criminal proceeding against Vale S.A. and certain of our former executive officers before a criminal court in the city of São Luis, for alleged discharges of iron ore particles in the atmosphere. The conducts alleged by the prosecutors occurred in 2011. We submitted our preliminary defense in April, 2019, and a decision of the court on the admissibility of this criminal proceeding is pending. If the court rejects our preliminary defense, we will submit our defense on the merits of the case. If we are eventually convicted in this
| | | | |
| | 165 | | |
CFEM-related proceedingsLegal Proceedings
proceeding, we may be required to pay fines. This proceeding is in an early stage, and we cannot reasonably estimate the timing for a decision on the merits. We will continue to vigorously contest this action.
TAX PROCEEDINGS
a) CFEM-related proceedings
We are engaged in numerous administrative and judicial proceedings related to the mining royalty known as the CFEM. For more information about CFEM, seeInformation on the Company—Regulatory matters—Royalties and other taxes on mining activities. These proceedings arise out of a large number of assessments by the DNPM. The proceedings concern different interpretationsDNPM (currently, the ANM), which main discussions involve the deduction of DNPM's method of estimating sales,insurance and transportation costs indicated in the statute of limitations, due process of law,corresponding invoice payment of royalties on pellet sales and CFEM charges on the revenues generatedprovided by our subsidiaries abroad. The aggregate amount claimed in the pending assessments is approximately R$4.95411.2 billion, (US$1.269 million), including interest and penalties through DecemberMarch 31, 2015.2020.
We are contesting DNPM'sthese claims using the available avenues under Brazilian law, beginning with challenges in administrative tribunals and proceeding with challenges in the judicial courts. We have received some favorable and unfavorable decisions, and we cannot predict the amount of time required before final judicial resolutions.
The DNPM'sagency's assessments coverinitially covered a period of up to 20 years before their issuances, underbased on the interpretation that the applicable statute of limitation for CFEM claims would be 20 years. We have challenged all the assessments contending that these claims are subject to a 5-year statute of limitation. In December 2015, the Attorney General's Office issued a legal opinion establishingconcluding that CFEM claims are subject to a 10-year statute of limitations. This legal opinionconclusion is consistent with recentthe decisions of the Superior Court of Justice (STJ). We("STJ"), and we expect that the DNPMANM and the courts will revise all the assessments to exclude charges that are time barred under this recent legal opinion.
We have determined that we have a probable loss in connection with the dispute related to the deductibility of transportation expenditures in the calculation of CFEM. On December 31, 2015, we had a provision of approximately R$338 million (US$87 million) for this probable loss. We have paid the CFEM charges relating to the deductibility of transportation expenditures that were not time barred, assuming a five-year statute of limitation, and will supplement these payments to cover the charges that are not time barred under the recent interpretation of Attorney General's Office.
b) ICMS tax assessments and legal proceedings
We are engaged in several administrative and court proceedings relating to additional charges of value-added tax on services and circulation of goods (ICMS) by the tax authorities of different Brazilian states,states. In each of these proceedings, the tax authorities claim that (i) certain credits we have deducted from our payments of ICMS were not deductible; (ii) we have failed to comply with certain accessory obligations; (iii) we are required to pay the ICMS on electricity purchases and (iv) we are required to pay ICMS in connection with goods that we bring into the total estimated amountState of R$4.6 billion (US$1.2 billion)Pará. The most significantWe estimate our possible losses resulting from these proceedings are described below.to be R$3.057 billion.
The tax authorities of the states of Pará and Minas Gerais have issued tax assessments (autos de infração) against us for additional payments of ICMS on the iron ore we transport from our mining complexes in the Brazilian states of Pará and Minas Gerais to our facilities in the states of Maranhão and Espírito Santo, respectively.
The tax authorities of Pará assert that the calculation of ICMS should be based on the market value of the iron ore transported, as opposed to the cost of production of the ore, which we have used to calculate the ICMS owed in years past. We are engaged in two judicial proceedings challenging the tax assessments issued by the tax authorities of Pará, one of which covers the years 2007, 2008 and 2009, in an aggregate amount of R$777 million (US$199 million), and the other covering the years 2010, 2011 and 2012, in an aggregate amount of R$758 million (US$194 million), as of December 2015. We have provided a bank guarantee in the full amount in dispute to suspend the collection proceeding while our judicial challenge is pending, as required by Brazilian law.
The tax authoritiesState of Minas Gerais assertcontend that we should also payhave paid ICMS onin relation to the costs of transportation cost of the iron ore, but we understand that such taxationICMS is not applicable to this activity because the ore was transported directly by Vale. Withus. In December 2018, the judicial court definitively decided in our favor with respect to the tax assessmentsassessment covering (i) the yearsactivities in 2009 and 2010 in an aggregate amount of R$507 million (US$130 million) and (ii) the years632 million. With respect to activities in 2011, 2012 and 2013, the amount in an aggregate amount ofdispute is R$758 million (US$194 million)1 billion (included in the possible losses mentioned above). We are challenging these tax assessmentsalso expect a favorable outcome in this case.
In connection with a legal proceeding relating to ICMS, prosecutors in the courts.state of Rio de Janeiro are seeking criminal charges against members of management of our subsidiary MBR, alleging tax fraud. The defense has presented its case in the criminal proceeding against these individuals and a decision is
| | | | |
| | 166 | | |
Legal Proceedings
pending. The case has been extinguished for one of the members of management of our subsidiary MBR, but remains pending for the others. We believe that these allegations are without merit.
c) Litigation on Brazilian taxation of foreign subsidiaries
We are engaged in legal proceedings concerning the contention of the Brazilian federal tax authority (Receita Federal) that we should pay Brazilian corporate income tax and social security contributions on the net income of our non-Brazilian subsidiaries and affiliates. The position of the tax authority is based on Article 74 of Brazilian Provisional Measure 2,158-34/2001 ("Article 74"), a tax regulation issued in 2001.
In 2013, we significantly reduced the amount in dispute by participating in the REFIS, a federal tax settlement program for payment of amounts relating to Brazilian corporate income tax and social contribution. We settled the claims related to the net income of our non-Brazilian subsidiaries and affiliates from 2003 to 2012, and we continue to dispute the assessments with respect to 1996 to 2002. Under the REFIS, we paid US$2.6R$5.9 billion in 2013, and we agreed to pay the remaining US$7.0R$16.3 billion in monthly installments, bearing interest at the SELIC rate. SELIC is a variable interest rate, established by the Brazilian central bank, used to update federal tax obligations in Brazil. On December, 31, 2019, the SELIC rate was 4.5% per annum (as compared to 6.5% per annum on December 31, 2018). As of December 31, 2015,2019, the remaining balance was US$4.431R$15.334 billion, to be paid in 154106 further installments.
In December 2019, the total amount in dispute for the period between 1996 and 2002 was R$2.3 billion. The tax authorities agreed to a reduction of such amount to approximately R$900 million, based on a decision by the Federal Supreme Court (STF), and we have requested the cancellation of the entire debt. A decision by the court is pending.
We had initiated a direct legal proceeding (mandado de segurança) in 2003 challenging the tax authority's position. In December 2013, as required by the REFIS statute, we waived the legal arguments with respect to the period between 2003 and 2012.
We are continuing our direct legal proceeding with respect to the years not included in the REFIS. The total amount in dispute for the period between 1996 and 2002 is R$2.051 billion (US$525 million). In 2014, the Superior Court of Justice (STJ) ruled in our favor on certain of our arguments against those assessments. In particular, the STJ ruled that: (a) Article 74 violates certain provisions under the international treaties against double taxation between Brazil and the countries where some of our subsidiaries are based, so profits realized by Vale's subsidiaries in those jurisdictions are not taxable in Brazil under Article 74; and (b) it is illegal to charge income tax and social contribution tax on our interest in the profits of affiliates that we account for under the equity method. The STJ also ruled that the profits realized by Vale's subsidiaries in the Bermuda are subject to taxation in Brazil under Article 74. The tax authorities filed an appeal before the Federal Supreme Court (STF) and a decision is pending.
d) Assessments and legal proceedings related to PIS/COFINS assessments
Between 2011 and 2013, weWe have received several tax assessments from the Brazilian federal tax authority contending that we incorrectly claimed PIS and COFINS tax credits for the period between 2004 and 2010.credits. PIS and COFINS are taxes imposed by the Brazilian government on our gross revenues, which may be partially offset by credits resulting from PIS and COFINS payments made by our suppliers. The tax authorities claim that (i) some credits we have deducted from our payments of our PIS and COFINS were not deductible and (ii) we have not submitted adequate evidence of certain other credits. We are contesting these assessments in the administrative level.and judicial levels. The total amount of these tax assessmentsin dispute is R$1.85.4 billion (US$461 million).as of December 31, 2019, including disputes involving Vale's subsidiaries and divested companies for which we remain liable for taxes prior to divestment.
Table of Contentse) Income tax litigation
Income tax assessments
In 2005,2004, a decision of the Brazilian SupremeSuperior Court of Justice (STJ) granted us the right to deduct the amounts we pay as social security contributions on the net income (CSLL) from our taxable income. In 2006, as a result of a change in the interpretationThe effects of the CSLL deducted from our taxable income between 2003 and 2019 was approximately R$8 billion, as adjusted by the Brazilian Supreme Court on this matter,Central Bank's base interest rate (SELIC) and without penalties. In 2006, the Brazilian federal tax authorities commenced a rescission action (ação rescisória) against us, seeking the rescissionreversal of the 2004 decision. The rescission action was rejected by the federal court in Rio de Janeiro and by the Federal Court of
| | | | |
| | 167 | | |
Legal Proceedings
Appeals (TRF) of the Second Region. The tax authorities have appealed to the Superior Court of Justice (STJ) and to the Federal Supreme Court (STF), and the STJ determined that the TRF had not properly considered one of the questions raised by the federal government, and remanded the case for further decision of the TRF. In November 2019, the TRF decided for the reversal of the 2004 decision, and therefore, we decided to not deduct the CSLL from our taxable income for the years ending after December 31, 2019. We have filed a motion for clarification before the TRF and requested the suspension of the effects of the 2019 determination, and a judicial decision is pending.
f) Fines on the undue deduction of tax credits
We have received multiple assessments from the Brazilian federal tax authority imposing fines due to allegedly undue deduction of tax credits from our payments of income tax and contributions on the net income (CSLL).
In these cases, the tax authority challenged our right to set off certain tax credits and issued assessments imposing fines in the amount of 50% of the amount that was unduly deducted. As of December 31, 2019, the total amount of fines imposed under these assessments were R$1.5 billion, and new assessments are expected. We are challenging these assessments in administrative proceedings. These assessments cover only the fines resulting from the allegedly undue deductions, as the principal amount of unpaid taxes, interest and other penalties for late payment are being discussed in separate administrative proceedings. If we succeed in these separate administrative proceedings, the corresponding fines are expected to be cancelled. The legal grounds for these fines are currently being discussed by another company before the Federal Supreme Court (STF), and a favorable decision to this other company will applicable to other taxpayers, including us.
g) Transfer pricing tax assessment
In November 2019, we received a tax assessment charging corporate income tax (IRPJ) and social contributions on these appeals are pending. The total amount involved, asthe net income (CSLL) for the fiscal years of 2015 and 2016 due to allegedly unwarranted deduction of intermediation costs from the calculation of the transfer pricing over the exportation of iron, copper and manganese to its foreign controlled company in the 2015 and 2016 fiscal years. We may receive similar tax assessments for other fiscal years. As of December 31, 2019, the total amount in dispute is R$ 1.4 billion for the fiscal year of 2016 as well as the reduction of the tax losses in 2015 wasand 2016 in the amount of R$5.775 3.271 billion (US$1.479 billion).and R$900 million, respectively. We have challenged this assessment in all respects and an administrative decision is pending.
UPDATES ON OTHER PROCEEDINGS
Railway litigation
As reported in our annual report on form 20-F for prior years, we are a party to a proceeding relating to environmental investigation in connection with our activities at the Tubarão port. In 1994, prior to our privatization,2018, we entered into a contract with Rede Ferroviária Federal S.A. ("RFFSA"), the Brazilian federal rail network, to build two railway networks in Belo Horizonte, Brazil, which were to be incorporated into an existing railway segment, in a project called "Transposição de Belo Horizonte." We subsequently entered into a relatedsettlement agreement with the Brazilian government to beginMPF, state prosecutors and the constructionenvironmental and water authority of an alternative railway segment, because the initially agreed segments could not be built. In August 2006, RFFSA (now succeeded as defendant by the Brazilian government) filed a breach of contract claim against us stemming from the 1994 contract regarding the construction of two railway networks.
Before the RFFSA lawsuit was filed, we filed a claim against RFFSA challenging the inflation adjustment provisions in the contract with RFFSA. We contend that the method of calculation employed by the Brazilian government is not lawful under Brazilian law. Pursuant to a partial settlement of the original RFFSA lawsuit, if the claim is decided in the Brazilian government's favor, then the construction costs of the new railway segment assumed by Vale will offset the damages due from Vale under such claim, representing a significant reduction in the amount we would be required to pay.
In June 2012, the federal judge rejected both RFFSA's claims and our contractual claim for review of the inflation adjustment provisions. On February 24, 2016, the Federal Court of Appeals (Tribunal Regional Federal) affirmed the June 2012 decision of the federal judge. The current amount claimed, including adjustments for inflation and interest, is approximately of R$4.1 billion (US$1.5 billion).
Praia Mole suit
We are among the defendants in a public civil action filed by the federal prosecutor in November 1997 seeking to annul the concession agreements under which the defendants operate the Praia Mole maritime terminal in the Brazilian state of Espírito Santo. In July 2012,Santo (IEMA), pursuant to which we agreed to take additional measures to prevent or mitigate the Federal Courtrelease of Appeals affirmed the November 2007 decision that rejected the prosecutor's claim and recognized the validity of those concession agreements. The prosecutor has appealed that ruling, and a final decision of the appeal is still pending.
Legal proceedings related to Simandou project in Guinea
We owned a 51% interest in VBG, which held iron ore concession rights and exploration permits in Simandou in Guinea. Following a contract review process, in April 2014 the Government of Guinea cancelled VBG's mining rights. SeeInformation on the Company—Regulatory matters.
On April 30, 2014, Rio Tinto filed a lawsuit against Vale, BSGR, and other defendants in the United States District Court forsea. In the Southern District of New York, alleging violations ofevent that we fail to comply with the U.S. Racketeer Influencedagreement, the relevant authorities may resume the investigative proceedings and Corrupt Organizations Act (RICO) in relation to Rio Tinto's loss of certain Simandou mining rights, the Government of Guinea's assignment of those rights to BSGR, and Vale's subsequent investment in VBG. On November 20, 2015, the District Court dismissed Rio Tinto's RICO claims with prejudice.take additional measures against us.
| | | | |
| | 168 | | |
MEMORANDUM AND ARTICLES OF ASSOCIATION
Company objectives and purposesCOMPANY OBJECTIVES AND PURPOSES
Our corporate purpose is defined by our bylaws to include:
Common shares and preferred sharesCOMMON SHARES AND GOLDEN SHARES
Set forth below is certain information concerning our authorized and issued share capital and a brief summary of certain significant provisions of our bylaws and Brazilian corporate law. This description does not purport to be complete and is qualified by reference to our bylaws (an English translation of which we have filed with the SEC) and to Brazilian corporate law.
Our bylaws authorize the issuance of up to 3.67 billion common shares and up to 7.2 billion preferred shares, in each case based solely on the approval of the Board of Directors without any additional shareholder approval.
EachThe Brazilian government holds 12 golden shares of Vale. Our bylaws do not provide for the conversion of golden shares into common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of common shares are not entitled to any preference relating to our dividends or other distributions.
Holders of preferred shares andshares. In addition, the golden shares do not have any preference upon our liquidation and there are generally entitledno redemption provisions associated with the golden shares.
Voting Rights
Pursuant to the same voting rights as holders of common shares, except with respect to the election of members of the Board of Directors, and are entitled to a preferential dividend as described below. Non-controllingBrazilian corporate law, non-controlling shareholders holding common shares representing at least 15% of oura company's voting capital, and preferred shares representing at least 10% of our total share capital have the right to appoint each one member and an alternate to our Board of Directors. If no group of common or preferred shareholders meets the thresholds described above, shareholders holding preferred or common shares representing at least 10% of our total share capital are entitled to combine their holdings to appoint one member and an alternate to ourthe board of directors. If no group of common shareholders meets this threshold, holders of golden shares may combine their holdings with those of holders of common shares, to reach at least 10% of the total
| | | | |
| | 169 | | |
Memorandum and Articles of Association
share capital in order to appoint one member and an alternate to the Board of Directors. Holders of preferred shares, including the golden shares, may elect one member of the permanent Fiscal Council and the respective alternate. Non-controlling holders of common shares may also elect one member of the Fiscal Council and an alternate, pursuant to applicable CVM rules.
The Brazilian government holds 12the golden shares may elect one member of Vale. the permanent Fiscal Council and the respective alternate.
The golden shares are preferred shares that entitle the holder to the same rights (including with respect to voting and dividend preference) as holders of preferred shares. In addition, the holder of the golden shares is entitled to veto any proposed action relating to the following matters:
Under Brazilian corporate law, minority shareholders representing at least 10% of the company's voting capital have the right to demand that a cumulative voting procedure be adopted to entitle each common share to as many votes as there are board members and to give each common share the right to vote cumulatively for only one candidate of our board of directors or to distribute its votes among several candidates. Pursuant to regulations promulgated by the CVM, the 10% threshold requirement for the exercise of cumulative voting procedures may be reduced depending on the amount of capital stock of the company. For a company like us, the threshold is 5%. Thus, shareholders representing 5% of our voting capital may demand the adoption of a cumulative voting procedure.
Shareholders' meetings
Our Ordinary General Shareholders' Meeting is convened by April of each year for shareholders to resolve upon our financial statements, distribution of profits, election of Directors and Fiscal Council Members, if necessary, and compensation of senior management. Extraordinary General Shareholders' Meetings are convened by the Board of Directors as necessary in order to decide all other matters relating to our corporate purposes and to pass such other resolutions as may be necessary.
Pursuant to Brazilian corporate law, shareholders voting at a general shareholders' meeting have the power, among other powers, to:
| | | | |
| | 170 | | |
Memorandum and Articles of Association
Pursuant to CVM recommendations, all general shareholders' meetings, including the annual shareholders' meeting, require no fewer than 30 days' notice to shareholders prior to the scheduled meeting date. Where any general shareholders' meeting is adjourned, 8 days' prior notice to shareholders of the reconvened meeting is required. Pursuant to Brazilian corporate law, this notice to shareholders is required to be published no fewer than three times, in theDiário Oficial do Estado do Rio de Janeiro and in a newspaper with general circulation in the city where we have our registered office, in Rio de Janeiro—Valor Econômico—Estado do Rio de Janeiro is the newspaper currently designated for this purpose. Such notice must contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the meeting's subject matter. In addition, under our bylaws, the holder of the golden shares is entitled to a minimum of 15 days' prior formal notice to its legal representative of any general shareholders' meeting to consider any proposed action subject to the veto rights accorded to the golden shares.
A shareholders' meeting may be held if shareholders representing at least one-quarter of the voting capital are present, except as otherwise provided, including for meetings convened to amend our bylaws, which require a quorum of at least two-thirds of the voting capital. If no such quorum is present, notice must again be given in the same manner as described above, and a meeting may then be convened without any specific quorum requirement, subject to the minimum quorum and voting requirements for certain matters, as discussed below.
Except as otherwise provided by law, resolutions of a shareholders' meeting are passed by a simple majority vote, abstentions not being taken into account. Under Brazilian corporate law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the types of action described below, as well as, in the case of the first two items below, a majority of issued and outstanding shares of the affected class:
| | | | |
| | 171 | | |
Memorandum and Articles of Association
Whenever the shares of any class of capital stock are entitled to vote, each share is entitled to one vote. Annual shareholders' meetings must be held by April 30 of each year. Shareholders' meetings are called, convened and presided over by the chairman or, in case of his absence, by the vice-chairman of our Board of Directors. In the case of temporary impediment or absence of the chairman or vice-chairman of the Board of Directors, the shareholders' meetings may be chaired by their respective alternates, or in the absence or impediment of such alternates, by a director or other person especially appointed by the chairman of the Board of Directors.
A shareholder may be represented at a general shareholders' meeting by a proxy appointed in accordance with applicable Brazilian law not more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial institution. If the proxy document is in a foreign language, it must be accompanied by corporate documents or a power of attorney, as applicable, each duly translated into Portuguese by a sworn translator. Notarization and consularization of proxies and supporting documents is not required. Proxies and supporting documents in English or Spanish do not require translation.
Redemption rights
Our common shares and golden shares are not redeemable, except that a dissenting shareholder is entitled under Brazilian corporate law to obtain redemption upon a decision made at a shareholders' meeting approving any of the items listed above, as well as:
The right of redemption triggered by shareholder decisions to merge, consolidate or to participate in a centralized group of companies may only be exercised if our shares do not satisfy certain tests of liquidity, among others, at the time of the shareholder resolution. The right of redemption lapses 30 days after publication of the minutes of the relevant general shareholders' meeting, unless the resolution is subject to confirmation by the holder of golden shares (which must be made at a special meeting to be held within one year), in which case the 30-day term is counted from the publication of the minutes of the special meeting.
| | | | |
| | 172 | | |
Memorandum and Articles of Association
We would be entitled to reconsider any action giving rise to redemption rights within 10 days following the expiration of such rights if the redemption of shares of dissenting shareholders would jeopardize our financial stability. Any redemption pursuant to Brazilian corporate law would be made at no less than the book value per share, determined on the basis of the last balance sheet approved by the shareholders; provided that if the general shareholders' meeting giving rise to redemption rights occurred more than 60 days after the date of the last approved balance sheet, a shareholder would be entitled to demand that his or her shares be valued on the basis of a new balance sheet dated within 60 days of such general shareholders' meeting.
Preemptive rights
Each of our shareholders has a general preemptive right to subscribe for shares in any capital increase, in proportion to his or her shareholding. A minimum period of 30 days following the publication of notice of a capital increase is assured for the exercise of the right, and the right is transferable. Under our bylaws and Brazilian corporate law, and subject to the requirement for shareholder approval of any necessary increase to our authorized share capital, our Board of Directors may decide not to extend preemptive rights to our shareholders, or to reduce the 30-day period for the exercise of preemptive rights, in each case with respect to any issuance of shares, debentures convertible into shares or warrants in the context of a public offering.
Tag-along rights and mandatory tender offers
In accordance with Novo Mercado listing rules and our bylaws:
Calculation of distributable amount
At each annual shareholders' meeting, the Board of Directors is required to recommend, based on the executive officers' proposal, how to allocate our earnings for the preceding fiscal year. For purposes of Brazilian corporate law, a company's net income after income taxes and social contribution taxes for such fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees' and management's participation in earnings represents its "net profits" for such fiscal year. In accordance with Brazilian corporate law, an amount equal to our net profits, as further reduced by amounts allocated to the legal reserve, to the fiscal incentive investment reserve, to the contingency reserve or to the
| | | | |
| | 173 | | |
Memorandum and Articles of Association
unrealized income reserve established by us in compliance with applicable law (discussed below) and increased by reversals of reserves constituted in prior years, is available for distribution to shareholders in any given year. Such amount, the adjusted net profits, is referred to herein as the distributable amount. We may also establish discretionary reserves, such as reserves for investment projects.
The Brazilian corporate law provides that all discretionary allocations of net profits, including discretionary reserves, the contingency reserve, the unrealized income reserve and the reserve for investment projects, are subject to approval by the shareholders voting at the annual meeting and can be transferred to capital or used for the payment of dividends in subsequent years. The fiscal incentive investment reserve and legal reserve are also subject to approval by the shareholders voting at the annual meeting and may be transferred to capital but are not available for the payment of dividends in subsequent years.
The sum of certain discretionary reserves may not exceed the amount of our paid-in capital. When such limit is reached, our shareholders may vote to use the excess to pay in capital, increase capital or distribute dividends.
Our calculation of net profits and allocations to reserves for any fiscal year are determined on the basis of the unconsolidated financial statements of our parent company, Vale S.A., inreais, prepared in accordance with Brazilian corporate law. Our consolidated financial statements have been prepared in accordance with IFRS using U.S. dollars as the reporting currency and, although our allocations to reserves and dividends will be reflected in these financial statements, investors will not be able to calculate such allocations or required dividend amounts from our consolidated financial statements in U.S. dollars.
Mandatory dividend
The Brazilian corporate law and our bylaws prescribe that we must distribute to our shareholders in the form of dividends or interest on shareholders' equity an annual amount equal to not less than 25% of the distributable amount, referred to as the mandatory dividend, unless the Board of Directors advises our shareholders at our general shareholders' meeting that payment of the mandatory dividend for the preceding year is inadvisable in light of our financial condition. To date, our Board of Directors has never determined that payment of the mandatory dividend was inadvisable. The Fiscal Council must review any such determination and report it to the shareholders. In addition to the mandatory dividend, our Board of Directors may recommend to the shareholders payment of dividends from other funds legally available therefore. Any payment of interim dividends will be netted against the amount of the mandatory dividend for that fiscal year. The shareholders must also approve the recommendation of the Board of Directors with respect to any required distribution. The amount of the mandatory dividend is subject to the size of the legal reserve, the contingency reserve, and the unrealized income reserve. The amount of the mandatory dividend is not subject to the size of the discretionary tax incentive reserve. See—Additional Information—Memorandum and articles of association—Common shares and golden shares—Calculation of distributable amount.
Dividend preference of preferred shares
Pursuant to our bylaws, holders of preferred shares and the golden shares are entitled to a minimum annual non-cumulative preferential dividend equal to (i) at least 3% of the book value per share, calculated in accordance with the financial statements which serve as reference for the payment of dividends, or (ii) 6% of their pro rata share of our paid-in capital, whichever is higher. To the extent that we declare dividends in any particular year in amounts which exceed the preferential dividends on preferred shares, and after holders of common shares have received distributions equivalent, on a per share basis, to the preferential dividends on preferred shares, holders of common shares and preferred shares shall receive the same additional dividend amount per share. We regularly have had sufficient distributable amounts to be able to distribute equal amounts to both common and preferred shareholders.
Other matters relating to our preferred shares
Our bylaws do not provide for the conversion of preferred shares into common shares. In addition, the preferred shares do not have any preference upon our liquidation and there are no redemption provisions associated with the preferred shares.
Distributions classified as shareholders' equity
Brazilian companies are permitted to pay limited amounts to shareholders and treat such payments as an expense for Brazilian income tax purposes. Our bylaws provide for the distribution of interest on shareholders' equity as an alternative form of payment to shareholders. The interest rate applied is limited to the Brazilian long-term interest rate, or TJLP, for the applicable period. The deduction of the amount of interest paid cannot exceed the greater of (1) 50% of net income (after the deduction of the provision of social contribution on net profits and before the deduction of the provision of the corporate income tax) before taking into account any such distribution for the period in respect of which the
| | | | |
| | 174 | | |
Memorandum and Articles of Association
payment is made or (2) 50% of the sum of retained earnings and profit reserves. Any payment of interest on shareholders' equity is subject to Brazilian withholding income tax. SeeAdditional Information—Taxation—Brazilian tax considerations. Under our bylaws, the amount paid to shareholders as interest on shareholders' equity (net of any withholding tax) may be included as part of any mandatory and minimum dividend. Under Brazilian corporate law, we are obligated to distribute to shareholders an amount sufficient to ensure that the net amount received, after payment by us of applicable Brazilian withholding taxes in respect of the distribution of interest on shareholders' equity, is at least equal to the mandatory dividend.
Voting rights
Each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of preferred shares are entitled to the same voting rights as holders of common shares except for the election of members of the Board of Directors, which will no longer apply in the event of any dividend arrearage, as described below. One of the members of the permanent Fiscal Council and his or her alternate are elected by majority vote of the holders of preferred shares. Holders of preferred shares and common shares may, in certain circumstances, combine their respective holdings to elect members of our Board of Directors, as described under—Common shares and preferred shares.
The golden shares entitle the holder thereof to the same voting rights as holders of preferred shares. The golden shares also confer certain other significant veto rights in respect of particular actions, as described under—Common shares and preferred shares.
The Brazilian corporate law provides that non-voting or restricted-voting shares, such as the preferred shares, acquire unrestricted voting rights beginning when a company has failed for three consecutive fiscal years (or for any shorter period set forth in a company's constituent documents) to pay any fixed or minimum dividend to which such shares are entitled and continuing until payment thereof is made. Our bylaws do not set forth any such shorter period.
Any change in the preferences or advantages of our preferred shares, or the creation of a class of shares having priority over the preferred shares, would require the approval of the holder of the golden shares, who can veto such matters, as well as the approval of the holders of a majority of the outstanding preferred shares, voting as a class at a special meeting.
Shareholders' meetings
Our Ordinary General Shareholders' Meeting is convened by April of each year for shareholders to resolve upon our financial statements, distribution of profits, election of Directors and Fiscal Council Members, if necessary, and compensation of senior management. Extraordinary General Shareholders' Meetings are convened by the Board of Directors as necessary in order to decide all other matters relating to our corporate purposes and to pass such other resolutions as may be necessary.
Pursuant to Brazilian corporate law, shareholders voting at a general shareholders' meeting have the power, among other powers, to:
Pursuant to CVM recommendations and as stipulated in our undertakings to the HKEx, all general shareholders' meetings, including the annual shareholders' meeting, require no fewer than 30 days' notice to shareholders prior to the scheduled meeting date. Where any general shareholders' meeting is adjourned, 15 days' prior notice to shareholders of the reconvened meeting is required. Pursuant to Brazilian corporate law, this notice to shareholders is required to be published no fewer than three times, in theDiário Oficial do Estado do Rio de Janeiro and in a newspaper with general circulation in the city where we have our registered office, in Rio de Janeiro. Our shareholders have previously designatedJornal do Commercio for this purpose. Also, because our shares are traded on the BM&FBOVESPA, we must publish a notice in a São Paulo based newspaper. Such notice must contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the meeting's subject matter. In addition, under our bylaws, the holder of the golden shares is entitled to a minimum of 15 days' prior formal notice to its legal representative of any general shareholders' meeting to consider any proposed action subject to the veto rights accorded to the golden shares. See—Common shares and preferred shares.
A shareholders' meeting may be held if shareholders representing at least one-quarter of the voting capital are present, except as otherwise provided, including for meetings convened to amend our bylaws, which require a quorum of at least two-thirds of the voting capital. If no such quorum is present, notice must again be given in the same manner as described above, and a meeting may then be convened without any specific quorum requirement, subject to the minimum quorum and voting requirements for certain matters, as discussed below. A shareholder without a right to vote may attend a general shareholders' meeting and take part in the discussion of matters submitted for consideration.
Except as otherwise provided by law, resolutions of a shareholders' meeting are passed by a simple majority vote, abstentions not being taken into account. Under Brazilian corporate law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the types of action described below, as well as, in the case of the first two items below, a majority of issued and outstanding shares of the affected class:
Whenever the shares of any class of capital stock are entitled to vote, each share is entitled to one vote. Annual shareholders' meetings must be held by April 30 of each year. Shareholders' meetings are called, convened and presided over by the chairman or, in case of his absence, by the vice-chairman of our Board of Directors. In the case of temporary impediment or absence of the chairman or vice-chairman of the Board of Directors, the shareholders' meetings may be chaired by their respective alternates, or in the absence or impediment of such alternates, by a director especially appointed by the chairman of the Board of Directors. A shareholder may be represented at a general shareholders' meeting by a proxy appointed in accordance with applicable Brazilian law not more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial institution.
Redemption rights
Our common shares and preferred shares are not redeemable, except that a dissenting shareholder is entitled under Brazilian corporate law to obtain redemption upon a decision made at a shareholders' meeting approving any of the items listed above, as well as:
Only holders of shares adversely affected by shareholder decisions altering the rights, privileges or priority of a class of shares or creating a new class of shares may require us to redeem their shares. The right of redemption triggered by shareholder decisions to merge, consolidate or to participate in a centralized group of companies may only be exercised if our shares do not satisfy certain tests of liquidity, among others, at the time of the shareholder resolution. The right of redemption lapses 30 days after publication of the minutes of the relevant general shareholders' meeting, unless, as in the case of resolutions relating to the rights of preferred shares or the creation of a new class of preferred shares, the resolution is subject to confirmation by the preferred shareholders (which must be made at a special meeting to be held within one year), in which case the 30-day term is counted from the publication of the minutes of the special meeting.
We would be entitled to reconsider any action giving rise to redemption rights within 10 days following the expiration of such rights if the redemption of shares of dissenting shareholders would jeopardize our financial stability. Any redemption pursuant to Brazilian corporate law would be made at no less than the book value per share, determined on the basis of the last balance sheet approved by the shareholders; provided that if the general shareholders' meeting giving rise to redemption rights occurred more than 60 days after the date of the last approved balance sheet, a shareholder would be entitled to demand that his or her shares be valued on the basis of a new balance sheet dated within 60 days of such general shareholders' meeting.
Preemptive rights
Each of our shareholders has a general preemptive right to subscribe for shares in any capital increase, in proportion to his or her shareholding. A minimum period of 30 days following the publication of notice of a capital increase is assured for the exercise of the right, and the right is transferable. Under our bylaws and Brazilian corporate law, and subject to the requirement for shareholder approval of any necessary increase to our authorized share capital, our Board of Directors may decide not to extend preemptive rights to our shareholders, or to reduce the 30-day period for the exercise of preemptive rights, in each case with respect to any issuance of shares, debentures convertible into shares or warrants in the context of a public offering. In the event of a capital increase that would maintain or increase the proportion of capital represented by preferred shares, holders of preferred shares will have preemptive rights to subscribe only to newly issued preferred shares. In the event of a capital increase that would reduce the proportion of capital represented by preferred shares, shareholders will have preemptive rights to subscribe for preferred shares, in proportion to their shareholdings, and for common shares only to the extent necessary to prevent dilution of their overall interest in us. In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, shareholders will have preemptive rights to subscribe only to newly issued common shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of common shares will have preemptive rights to subscribe for preferred shares only to the extent necessary to prevent dilution of their overall interest in us.
Tag-along rights
According to Brazilian corporate law, in the event of a sale of control of a company, the acquirer is obliged to offer to holders of voting shares the right to sell their shares for a price equal to at least 80% of the price paid for the voting shares representing control.
Form and transfer of shares
Our preferredcommon shares and commongolden shares are in book-entry form registered in the name of each shareholder. The transfer of such shares is made under Brazilian corporate law, which provides that a transfer of shares is effected by our transfer agent, Banco Bradesco, upon presentation of valid share transfer instructions to us by a transferor or its representative. When preferred shares or common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange's clearing system. Transfers of shares by a foreign investor are made in the same way and are executed by the investor's local agent, who is also responsible for updating the information relating to the foreign investment furnished to the Central Bank of Brazil.
The BM&FBOVESPAB3 operates a central clearing system throughCompanhia Brasileira de Liquidação e Custódia, or CBLC. A holder of our shares may participate in this system and all shares elected to be put into the system will be deposited in custody with CBLC (through a Brazilian institution that is duly authorized to operate by the Central Bank of Brazil and maintains a clearing account with CBLC). The fact that such shares are subject to custody with the relevant stock exchange will be reflected in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of our beneficial shareholders that is maintained by CBLC and will be treated in the same way as registered shareholders.
| | | | |
| | 175 | | |
At the time of the first stage of our privatization in 1997, we issued shareholder revenue interests known in Brazil as "debêntures participativas" to our then-existing shareholders. The terms of the debentures were established to ensure that our pre-privatization shareholders, including the Brazilian government, would participate alongside us in potential future financial benefits that we derive from exploiting certain mineral resources that were not taken into account in determining the minimum purchase price of our shares in the privatization. In accordance with the debentures deed, holders have the right to receive semi-annual payments equal to an agreed percentage of our net revenues (revenues less value-added tax, transport fee and insurance expenses related to the trading of the products) from certain identified mineral resources that we owned at the time of the privatization, to the extent that we exceed defined thresholds of sales volume relating to certain mineral resources, and from the sale of mineral rights that we owned at that time. Our obligation to make payments to the holders will cease when all the relevant mineral resources are exhausted.exhausted, sold or otherwise disposed of by us.
We made available for withdrawal by holders of shareholder debentures the amounts of US$11195 million in 2013,2019, US$118148 million in 20142018 and US$65147 million in 2015. In October 2013, the accumulated sales volume of iron ore from the Northern System reached the relevant threshold established in the debentures deed, which triggered our obligation to make additional semi-annual payments of the premium on iron ore products, starting in 2014.2017. See Note 29note 13 to our consolidated financial statements for a description of the terms of the debentures.
| | | | |
| | 176 | | |
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
Under Brazilian corporate law, there are no restrictions on ownership of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of preferred shares or common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation, which generally requires, among other things, that the relevant investment be registered with the Central Bank of Brazil. These restrictions on the remittance of foreign capital abroad could hinder or prevent the depositary bank and its agents for the preferred shares or common shares represented by ADSs and HDSs from converting dividends, distributions or the proceeds from any sale of preferred shares, common shares or rights, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such amounts abroad. Delays in, or refusal to grant any required government approval for conversions of Brazilian currency payments and remittances abroad of amounts owed to holders of ADSs and HDSs could adversely affect holders of ADRs and HDRs.ADRs.
Under Resolution No. 4,373/2014 of the CMN, which replaced the Central Bank Resolution No. 2,689/2000 and the CMN Resolution No. 1,927/1992,4,373 of 2014 ("Resolution 4,373"), foreign investors, defined to include individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil, may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. In accordance with Resolution No. 4,373/2014, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil.they:
Under Resolution No. 4,373/2014, a foreign investor must:
Resolution No. 4,373/20144,373 specifies the manner of custody and the permitted means for trading securities held by foreign investors under the resolution.
Moreover, the The offshore transfer or assignment of securities or other financial assets held by foreign investors pursuant to Resolution No. 4,373/20144,373 is prohibited, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.
Resolution No. 4,373/20144,373 also provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It provides that the proceeds from the sale of ADSs by holders of ADRs outside Brazil are not subject to Brazilian foreign investment controls and holders of ADSs who are not residents of a low-tax jurisdiction (país com tributação favorecida), as defined by Brazilian law, will be entitled to favorable tax treatment.
An electronic registration has been issued to the custodian in the name of the depositary with respect to the ADSs and HDSs.ADSs. Pursuant to this electronic registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the underlying shares into foreign currency and to remit the proceeds outside Brazil. If a holder exchanges ADSs or HDSs for preferred shares or common shares, the holder must, within five business days, seek to obtain its own electronic registration with the Central Bank of Brazil under Law No. 4,131/4,131 of 1962 and Resolution No. 4,373/2014.4,373. Thereafter, unless the holder has registered its investment with the Central Bank of Brazil, such holder may not convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such preferred shares or common shares.
Under Brazilian law, whenever there is a serious imbalance in Brazil's balance of payments or reasons to foresee a serious imbalance, the Brazilian government may impose temporary restrictions on the
| | | | |
| | 177 | | |
Exchange Controls and Other Limitations Affecting Security Holders
remittance to foreign investors of the proceeds of their investments in Brazil, and on the conversion of Brazilian currency into foreign currencies. Such restrictions may hinder or prevent the custodian or holders who have exchanged ADSs or HDSs for underlying preferred shares or common shares from converting distributions or the proceeds from any sale of such shares, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such U.S. dollars or Hong Kong dollars abroad. In the event the custodian is prevented from converting and remitting amounts owed to foreign investors, the custodian will hold thereais it cannot convert for the account of the holders of ADRs or HDRs who have not been paid. The depositary will not invest thereais and will not be liable for interest on those amounts. Anyreais so held will be subject to devaluation risk against the U.S. dollar or Hong Kong dollar.
| | | | |
| | 178 | | |
The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the ownership and disposition of preferred shares, common shares ADSs or HDSs.ADSs. You should know that this summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a holder of preferred shares, common shares ADSs or HDSs.ADSs.
Holders of preferred shares, common shares ADSs or HDSsADSs should consult their own tax advisors to discuss the tax consequences of the purchase, ownership and disposition of preferred shares, common shares ADSs or HDSs,ADSs, including, in particular, the effect of any state, local or other national tax laws.
Although there is at present no treaty to avoid double taxation between Brazil and the United States, but only a common understanding between the two countries according to which income taxes paid in one may be offset against taxes to be paid in the other, both countries' tax authorities have been having discussions that may result in the execution of such a treaty. In this regard, the two countries signed a Tax Information Exchange Agreement on March 20, 2007, which the Brazilian government approved in May 2013. We cannot predict whether or when such a treaty will enter into force or how, if entered into, such a treaty will affect the U.S. holders, as defined below, of preferred shares, common shares or ADSs.
Brazilian tax considerationsBRAZILIAN TAX CONSIDERATIONS
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of preferred shares, common shares ADSs or HDSsADSs by a holder not deemed to be domiciled in Brazil for purposes of Brazilian taxation ("Non-Brazilian Holder"). It is based on the tax laws of Brazil and regulations thereunder in effect on the date hereof, which are subject to change (possibly with retroactive effect). This discussion does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Brazilian Holder. Therefore, Non-Brazilian Holders should consult their own tax advisors concerning the Brazilian tax consequences of an investment in preferred shares, common shares ADSs or HDSs.ADSs.
Shareholder distributions
For Brazilian corporations, such as the Company,Vale, distributions to shareholders are classified as either dividend or interest on shareholders' equity.
Dividends
Amounts distributed as dividends will generally not be subject to Brazilian withholding income tax if the distribution is paid only from profits for the corresponding year, as determined under Brazilian tax principles. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates depending on the year the profits were generated. Dividends paid from sources other than profits as determined under Brazilian tax principles may be subject to withholding tax.
Interest on shareholders' equity
Amounts distributed as interest on shareholders' equity are generally subject to withholding income tax at the rate of 15%, except where:
| | | | |
| | 179 | | |
Taxation
legislation imposes restrictions on the disclosure of the shareholding structure or the ownership of the investment, in which case the applicable withholding income tax rate is 25%; or
Interest on shareholders' equity is calculated as a percentageinterest rate on the sum of shareholders' equity, as stated in the statutory accounting records.following accounts: (i) share capital, (ii) capital reserves, (iii) profits reserves, (iv) treasury stocks and (v) accumulated losses. The interest rate applied may not exceed the TJLP, the benchmark Brazilian long-term interest rate. In addition, the amount of distributions classified as interest on shareholders' equity may not be more than the greater of (1) 50% of net income (after the deduction of social contribution on net profits but before taking into account such payment of interest and the provision for corporate income tax) for the period in respect of which the payment is made and (2) 50% of the sum of retained earnings and profit reserves.
Payments of interest on shareholders' equity are deductible for the purposes of corporate income tax and social contribution on net profit, to the extent of the limits described above. The tax benefit to the Company in the case of a distribution by way of interest on shareholders' equity is a reduction in the Company's corporate tax charge by an amount equivalent to 34% of such distribution.
Taxation of capital gains
Taxation of Non-Brazilian Holders on capital gains depends on the status of the holder as either:
Investors identified in items (i) or (ii) are subject to favorable tax treatment, as described below.
Capital gains realized by a Non-Brazilian Holder from the disposition of "assets located in Brazil" are subject to taxation in Brazil. Preferred shares and commonCommon shares qualify as assets located in Brazil, and the disposition of such assets by a Non-Brazilian Holder may be subject to income tax on the gains assessed, in accordance with the rules described below, regardless of whether the transaction is carried out with another non-Brazilian resident or with a Brazilian resident.
There is some uncertainty as to whether ADSs or HDSs qualify as "assets located in Brazil" for this purpose. Arguably, neitherthe ADSs nor HDSsdo not constitute assets located in Brazil and therefore the gains realized by a Non-Brazilian Holder on the disposition of ADSs or HDSs to another non-Brazilian resident should not be subject to income tax in Brazil. However, it is not certain that the Brazilian courts will uphold this interpretation of the definition of "assets located in Brazil" in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposition of ADSs or HDSs.ADSs. Consequently, gains on a disposition of ADSs or HDSs by a Non-Brazilian Holder (whether in a transaction carried out with another Non-Brazilian Holder or a person domiciled in Brazil) may be subject to income tax in Brazil in accordance with the rules applicable to a disposition of shares.
| | | | |
| | 180 | | |
Taxation
Although there are groundsarguments to sustain otherwise,the contrary, the deposit of preferred shares or common shares in exchange for ADSs or HDSs may be subject to Brazilian income tax if the acquisition cost of the shares being deposited is lower than the average price, determined as either:
The positive difference between the average price of the preferred shares or common shares calculated as described above and their acquisition cost will be considered to be a capital gain subject to income tax in Brazil. In some circumstances, there are grounds to sustainconclude that such taxation is not applicable with respect to any 4,373 Holder, provided hesuch holder is not located in a Low Tax Jurisdiction.
The withdrawal of preferred shares or common shares by holders in exchange for ADSs or HDSs is not subject to Brazilian income tax, subject to compliance with applicable regulations regarding the registration of the investment with the Central Bank of Brazil.
For the purpose of Brazilian taxation, the income tax rules on gains related to disposition of preferred shares or common shares vary depending on:
The gain realized as a result of a transaction on a Brazilian stock exchange is the difference between: (i) the amount in Brazilian currency realized on the sale or disposition and (ii) the acquisition cost, without any adjustment for inflation, of the securities that are the subject of the transaction.
AnyThrough December 31, 2019, any gain realized by a Non-Brazilian Holder on a sale or disposition of preferred shares or common shares carried out on the Brazilian stock exchange is currently:was:
The sale or disposition of common shares carried out on the Brazilian stock exchange is subject to withholding tax at the rate of 0.005% on the sale value. This withholding tax can be offset against the
| | | | |
| | 181 | | |
Taxation
eventual income tax due on the capital gain. A 4,373 Holder that is not resident or domiciled in a Low Tax Jurisdiction is not subject to this withholding tax.
Any gain realized by a Non-Brazilian HolderBeginning on a sale or disposition of preferred shares or common shares that is not carried out on the Brazilian stock exchange is currently subject to income tax at a 15% rate, except for gain realized by a resident in a Low Tax Jurisdiction, which is currently subject to income tax at the rate of 25%.
In September 2015, the Brazilian President issued a provisional measure, which was converted into Law in March 2016, significantly amendingJanuary 1, 2017, the taxation regime for capital gains in Brazil.Brazil was significantly amended. Under the new regime, capital gains earnedrealized by non-Brazilian residents and individuals residentsresident in Brazil will beare subject to income tax at progressive taxation, and the rates will rangeranging from 15% to 22.5%. We expect, where the new taxation regime to become applicableNon Brazilian Holder either (A)(i) is not a 4,373 Holder and (ii) is not resident or domiciled in January 2017, but ita Low Tax Jurisdiction, or (B)(i) is possible that the tax authorities will apply the new tax regime retroactively to January 2016. We expect that the Brazilian tax authorities will approve regulations to clarify, among other issues, the effective date of the new regime, whether the new regime applies toa 4,373 HoldersHolder and the method for calculation of the tax. You should consult your own tax advisors concerning the implications of these rules(ii)��is resident or domiciled in light of your particular circumstances. The levels of taxation under the new regime are described below:a Low Tax Jurisdiction.
With respect to transactions arranged by a broker that are conducted on the Brazilian non-organized over-the-counter market, a withholding income tax at a rate of 0.005% on the sale value is also levied on the transaction and can be offset against the eventual income tax due on the capital gain. There can be no assurance that the current favorable treatment of 4,373 Holders will continue in the future.
In the case of a redemption of preferred shares, common shares ADSs or HDSsADSs or a capital reduction by a Brazilian corporation, the positive difference between the amount received by any Non-Brazilian Holder and the acquisition cost of the preferred shares, common shares ADSs or HDSsADSs being redeemed is treated as capital gain and is therefore generally subject to income tax at the progressive rate offrom 15% to 22.5%, while the 25% rate applies to residents in a Low Tax Jurisdiction.
Any exercise of pre-emptive rights relating to our preferred shares or common shares will not be subject to Brazilian taxation. Any gain realized by a Non-Brazilian Holder on the disposition of pre-emptive rights relating to preferred shares or common shares in Brazil will be subject to Brazilian income taxation in accordance with the same rules applicable to the sale or disposition of preferred shares or common shares.
Tax on foreign exchange and financial transactions
Foreign exchange transactions
Brazilian law imposes a tax on foreign exchange transactions, or an IOF/Exchange Tax, due on the conversion ofreais into foreign currency and on the conversion of foreign currency intoreais. Currently, for most foreign currency exchange transactions, the rate of IOF/Exchange Tax is 0.38%.
The outflow of resources from Brazil related to investments held by a Non-Brazilian Holder in the Brazilian financial and capital markets is currently subject to IOF/Exchange Tax at a zero percent rate. In any case, the Brazilian government may increase such rates at any time, up to 25%, with no retroactive effect.
Transactions involving securities
Brazilian law imposes a tax on transactions involving securities, or an IOF/Securities Tax, including those carried out on the Brazilian stock exchange. The rate of IOF/Securities Tax applicable to transactions involving publicly traded securities in Brazil is currently zero. The rate of IOF/Securities Tax applicable to a transfer of shares traded on the Brazilian stock exchange to back the issuance of depositary receipts has also been zero since December 24, 2013. However, the Brazilian Government may increase such rates at any time up to 1.5% of the transaction amount per day, but the tax cannot be applied retroactively.
Other Brazilian taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of preferred shares, common shares ADSs or HDSsADSs by a Non-Brazilian Holder, except for gift and inheritance taxes
| | | | |
| | 182 | | |
Taxation
which are levied by some states of Brazil on gifts made or inheritances bestowed by a Non-Brazilian Holder to individuals or entities resident or domiciled within such states in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of preferred shares or common shares or ADSs or HDSs.ADS.
U.S. federal income tax considerationsFEDERAL INCOME TAX CONSIDERATIONS
This summary does not purport to be a comprehensive description of all the U.S. federal income tax consequences of the acquisition, holding or disposition of the preferred shares, common shares or ADSs. This summary applies to U.S. holders, as defined below, who hold their preferred shares, common shares or ADSs as capital assets and does not apply to special classes of holders, such as:
This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as in effect on the date hereof. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. There can be no assurance that the U.S. Internal Revenue Service (the "IRS") will not challenge one or more of the tax consequences discussed herein or that a court will not sustain such a challenge in the event of litigation. This summary does not address the Medicare tax on net investment income, the alternative minimum tax, U.S. federal estate and gift taxes, or any aspect of state, local or non-U.S. tax law.
YOU SHOULD CONSULT YOUR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.
This discussion is also based, in part, on representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
| | | | |
| | 183 | | |
Taxation
For purposes of this discussion, you are a "U.S. holder" if you are a beneficial owner of preferred shares, common shares or ADSs that is, for U.S. federal income tax purposes:
The term U.S. holder also includes certain former citizens of the United States.
In general, if you are the beneficial owner of American depositary receipts evidencing ADSs, you will be treated as the beneficial owner of the preferred shares or common shares represented by those ADSs for U.S. federal income tax purposes. Deposits and withdrawals of preferred shares or common shares by you in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. Your tax basis in such preferred shares or common shares will be the same as your tax basis in such ADSs, and the holding period in such preferred shares or common shares will include the holding period in such ADSs.
Taxation of dividends
The gross amount of a distribution paid on ADSs preferred shares or common shares, including distributions paid in the form of payments of interest on capital for Brazilian tax purposes, out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) generally will be taxable to you as foreign source dividend income and generally will not be eligible for the dividends-received deduction allowed to corporate shareholders under U.S. federal income tax law. The amount of any such distribution will include the amount of Brazilian withholding taxes, if any, withheld on the amount distributed. To the extent that a distribution exceeds our current and accumulated earnings and profits, such distribution will be treated as a nontaxable return of capital to the extent of your basis in the ADSs preferred shares or common shares, as the case may be, with respect to which such distribution is made, and thereafter as a capital gain.
We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. You therefore should expect that distributions generally will be treated as dividends for U.S. federal income tax purposes.
You generally will be required to include dividends paid inreais in income in an amount equal to their U.S. dollar value calculated by reference to an exchange rate in effect on the date such distribution is received by the depositary, in the case of ADSs, or by you, in the case of common shares or preferred shares. If the depositary or you do not convert suchreais into U.S. dollars on the date they are received, it is possible that you will recognize foreign currency loss or gain, which generally would be treated as ordinary loss or gain from sources within the United States, when thereais are converted into U.S. dollars. If you hold ADSs, you will be considered to receive a dividend when the dividend is received by the depositary.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain non-corporate taxpayers, including individuals, will be subject to taxation at the preferential rates applicable to long-term capital gains if the dividends are "qualified dividends." Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign
| | | | |
| | 184 | | |
Taxation
investment company ("PFIC"). The ADSs are listed on the New York Stock Exchange and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on Vale's audited financial statements and relevant market and shareholder data, Vale believes that it was not treated as a PFIC for U.S. federal income tax purposes with respect to its 20152018 or 2019 taxable year.years. In addition, based on Vale's audited financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, Vale does not anticipate becoming a PFIC for its 20162020 taxable year.
Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares and common shares will be treated as qualified dividends (and therefore whether such dividends will qualify for the preferential rates of taxation applicable to long-term capital gains), because the preferred shares and common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs, preferred shares or common stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is unclear whether we will be able to comply with them. You should consult your own tax advisors regarding the availability of the reduced dividend tax rate in light of your own particular circumstances.
Subject to generally applicable limitations and restrictions, you willmay be entitled to a credit against your U.S. federal income tax liability, or a deduction in computing your U.S. federal taxable income, for Brazilian income taxes withheld by us. You must satisfy minimum holding period requirements to be eligible to claim a foreign tax credit for Brazilian taxes withheld on dividends. The limitation on foreign taxes eligible for credit is calculated separately for specific classescategories of income. For this purpose dividends paid by us on our common shares or ADSs will generally constitute "passive income." Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which a U.S. holder's expected economic profit is insubstantial. You should consult your own tax advisors concerning the implications of these rules in light of your particular circumstances.
Taxation of capital gains
Upon a sale or exchange of preferred shares, common shares or ADSs, you generally will recognize a capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realized on the sale or exchange and your adjusted tax basis in the preferred shares, common shares or ADSs. This gain or loss will be long-term capital gain or loss if your holding period in the preferred shares, common shares or ADSs exceeds one year. The net amount of long-term capital gain recognized by individual U.S. holders generally is subject to taxation at preferential rates. Your ability to use capital losses to offset income is subject to limitations.
Any gain or loss generally will be U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, if a Brazilian withholding tax is imposed on the sale or disposition of ADSs preferred shares or common shares, and you do not receive significant foreign source income from other sources, you may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian withholding tax. You should consult your own tax advisor regarding the application of the foreign tax credit rules to your investment in, and disposition of, ADSs preferred shares or common shares.
If a Brazilian tax is withheld on the sale or disposition of common shares or ADSs, the amount realized by a U.S. holder will include the gross amount of the proceeds of such sale or disposition before deduction of the Brazilian tax. See—Brazilian tax considerations above.
Foreign financial asset reporting
Certain U.S. holders that own "specified foreign financial assets" with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year or U.S.$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. "Specified foreign financial assets" include any financial accounts
| | | | |
| | 185 | | |
Taxation
held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. The understatement of income attributable to "specified foreign financial assets" in excess of U.S.$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. holders who fail to report the required information could be subject to substantial penalties. You are encouraged to consult with your own tax advisors regarding the possible application of these rules, including the application of the rules to your particular circumstances.
Information reporting and backup withholding
Information returns may be filed with the IRS in connection with distributions on the preferred shares, common shares or ADSs and the proceeds from their sale or other disposition. You may be subject to United StatesU.S. federal backup withholding tax on these payments if you fail to provide your taxpayer identification number or comply with certain certification procedures or otherwise establish an exemption from backup withholding. If you are required to make such a certification or to establish such an exemption, you generally must do so on IRS Form W-9.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the IRS.
A holder that is a foreign corporation or a non-resident alien individual may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.
| | | | |
| | 186 | | |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2015.2019. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate and that the degree of compliance with the policies or procedures may deteriorate.
Our management has assessed the effectiveness of Vale's internal control over financial reporting as of December 31, 20152019 based on the criteria established in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").Commission. Based on such assessment and criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2015.2019. The effectiveness of our internal control over financial reporting as of December 31, 20152019 has been audited by KPMGPricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.
The adoption of IFRS 16 (Leases) required the implementation of new controls and the modification of certain accounting processes related to leases. Our management identified no changeother changes in our internal control over financial reporting that occurred during our fiscal year ended December 31, 20152019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| | | | |
| | 187 | | |
Under NYSE rules, foreign private issuers are subject to more limited corporate governance requirements than U.S. domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate governance rules: (1) we must satisfy the requirements of Exchange Act Rule 10A-3 relating to audit committees; (2) our chief executive officer must promptly notify the NYSE in writing after any executive officer becomes aware of any non-compliance with the applicable NYSE corporate governance rules; (3) we must provide the NYSE with annual and interim written affirmations as required under the NYSE corporate governance rules; and (4) we must provide a brief description of any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards. The table below briefly describes the significant differences between our practices and the practices of U.S. domestic issuers under NYSE corporate governance rules.
Since 2018, we also report our compliance with the Code of Best Practices for Corporate Governance of the Brazilian Corporate Governance Institute (IBGC), as required by Brazilian regulations. The code is based on the "comply or explain" principle, and we currently fully comply with 77% of the practices recommended by the IBGC and partially comply with 10% of practices recommended by the code.
Section | | NYSE corporate governance rule for U.S. domestic issuers | | Our approach |
---|---|---|---|---|
303A.01 | | A listed company must have a majority of independent directors. | | We |
303A.03 | | The non-management directors of a listed company must meet at regularly scheduled executive sessions without management. | | We do not have any management directors. |
| | |||
303A.04 | | A listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties.
| | We do not have a |
| | According to its charter, | ||
| | · supporting the Board of Directors in the process of selecting and appointing the Chief Executive Officer, and evaluating the appointment, by the latter, of the other members of the Executive Board and other leaders who report directly to the Chief Executive Officer; | ||
| | · supporting the Board of Directors in the elaboration and maintenance of a Nomination Policy applicable to Directors and Officers, and also to other leaders who report directly to the Chief Executive Officer, in accordance with legal requirements and best corporate governance practices; | ||
| | · evaluating | ||
| | · | ||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
| | | | |
| | 188 | | |
Corporate Governance
Section | | NYSE corporate governance rule for U.S. domestic issuers | | Our approach |
---|---|---|---|---|
| | · monitoring the development of the succession plan for the Executive Board and other leaders who report directly to the Chief Executive Officer, as well as their successors and proposing improvements; | ||
| | · periodically evaluating and recommending adjustments to corporate governance best practices concerning the structure, size and composition of the Board of Directors and the Advisory Committees, as well as the balance of experiences, knowledge and diversity of the profiles and style of leadership of their members, based on market research and evaluations by institutions and external consultants; | ||
| | · identifying and recommending potential candidates for the Board of Directors to be submitted by the Board of Directors at the Ordinary General Shareholders' Meeting, and also recommending potential candidates to be members of the Advisory Committees, including eventual substitutions and vacancy cases; | ||
| | · supporting the Chairman of the Board of Directors in organizing the process for performance evaluation of the Board of Directors and Advisory Committees; | ||
| | · evaluating proposals for modifying the corporate governance documents, such as the By-Laws, the Code of Conduct and Internal Rules of Vale's Advisory Committees and Board of Directors, in addition to other policies and documents which are not the responsibility of other committees; | ||
| | · promoting, monitoring and ensuring the development and efficacy of the Vale's governance model, assuring that all initiatives are in line with best practices and are in synergy; | ||
| | · annually reviewing and recommending the necessary changes to improve Vale's corporate governance; | ||
| | · evaluating and monitoring updates related to current norms, regulations and recommendations, in addition to practices and market trends that may impact our activities regarding corporate governance; and | ||
| | · Despite not formally provided for in the charter of the Personnel and Governance Committee, the organ has also as responsibility to perform the role as Nomination Committee until 2021, when a specific committee will be set up for this purpose. | ||
| | According to its charter, the Compliance and Risk Committee is responsible, among other matters, for: | ||
| | · ensuring the adoption and improvement of good practices of compliance and integrity, including evaluating events of potential conflicts of interest; and | ||
| | · monitoring the scope of activities and effectiveness of the departments in charge of our corporate governance, compliance, corporate integrity, risk management and controls and proposing improvements |
| | | | |
| | 189 | | |
Corporate Governance
Section | | NYSE corporate governance rule for U.S. domestic issuers | | Our approach |
---|---|---|---|---|
| | These committees' charters allow for the inclusion of one independent member. For this purpose, an independent member is a person who: | ||
| | · Has no current link to Vale, except for membership on an Advisory Committee or a non-material shareholding in our share capital or investment in our bonds, and is not financially dependent on compensation from us; | ||
| | · Has not been an employee of the Company (or of its subsidiaries) or of a direct or indirect controlling shareholder, or a representative of any direct or indirect controlling shareholder for, at least, three years; | ||
| | · Does not provide, purchase or offer (trade), directly or indirectly, services and/or products to us on a scale that is material to that person or to us; | ||
| | · Is not linked to a controlling shareholder, member of the controlling group or of another group with material shareholding, the spouse or relative up to the second degree of the foregoing, or connected to entities related to a controlling shareholder; | ||
| | · Is not a spouse or relative up to the second degree of any officer or manager of Vale; | ||
| | · Has not been a partner, in the past three years, of an auditing firm that audits or has audited Vale in this same period; and | ||
| | · Is not a member of a non-profit entity that receives significant financial funds from us or from our related parties. | ||
303A.05 | | A listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. | ||
| We do not | have a compensation committee. However, we have | ||
| | · | ||
| | · | ||
| ||||
| | · |
| | | | |
| | 190 | | |
Corporate Governance
Section | | NYSE corporate governance rule for U.S. domestic issuers | | Our approach |
---|---|---|---|---|
303A.06 | | A listed company must have an audit committee with a minimum of three independent directors who satisfy the independence requirements of Rule 10A-3 under the Exchange Act, with a written charter that covers certain minimum specified duties. | | We do not have an audit committee with three independent members who satisfy the independence requirements of Rule 10A-3 under the Exchange Act. In lieu of appointing an audit committee composed of independent members of the Board of Directors, we have established |
| | Under our bylaws and the | ||
| | The responsibilities of the | ||
| ||||
| | · | ||
| | · | ||
| | · | ||
| | · supervising and evaluating the work of the external auditors, |
| | | | |
| | 191 | | |
Corporate Governance
Section | | NYSE corporate governance rule for U.S. domestic issuers | | Our approach |
---|---|---|---|---|
| | · mediating disagreements between management and the independent auditors regarding the company's financial | ||
303A.08 | | Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. | | Under Brazilian corporate law, shareholder pre-approval is required for the adoption of any equity compensation plans. |
303A.09 | | A listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. | | We have not published formal corporate governance guidelines. |
303A.10 | | A listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. | | We have adopted a formal code of |
303A.12 | | a) Each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. | | We are subject to (b) and (c) of these requirements, but not (a). |
| b) Each listed company CEO must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any non-compliance with any applicable provisions of this Section 303A. | | ||
| c) Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. | |
| | | | |
| | 192 | | |
We have a codeCode of ethics and conductConduct that applies to our employees and to the members of our Board of Directors and our Board of Executive Officers, including the chief executive officer and the chief financial officer and the principal accounting officer. We have posted thisthe Code of Ethics and Conduct on our website, at: http://www.vale.com (under English Version/Investors/The Company/Corporate Governance/Policies). Copies of our codeCode of ethics and conductConduct may be obtained without charge by writing to us at the address set forth on the front cover of this Form 20-F. We have not granted any implicit or explicit waivers from any provision of our codeCode of ethics and conductConduct since its adoption,adoption.
Whistleblower Channel
Any breaches of our policies and westandards can be reported by anyone, including employees, contractors, suppliers, members of affected communities and other stakeholders, via our Whistleblower Channel.
Allegations presented to our Whistleblower Channel are communicated to Vale's Ethics and Conduct Office, an independent department reporting directly to the Board of Directors and responsible for handling complaints as well as disseminating Vale's Code of Conduct. In 2019, Vale's Board of Directors approved an updated version of the Code of Conduct, which is available in 8 languages.
Allegations are investigated by the Ethics and Conduct Office, except in the event of (i) lack of information to initiate an examination, in which case the Office will request additional information to the person raising the concern and will proceed with the investigation provided it receives additional information within 15 days, and (ii) lack of pertinence to the Ethics and Conduct Office's scope of work. The Ethics and Conduct Office's scope of work includes not only alleged violation of Vale's Code of Conduct, such as fraud and moral harassment cases, but also the resolution of issues that have not been properly addressed by other lines of reporting in the company, such as delay in payments to contractors.
In 2019, our Whistleblower Channel received 3,507 complaints and closed 3,382 cases, of which (i) 291 referred to complaints that were not investigated due to lack of information or pertinence to the scope of the Ethics and Conduct Office, (ii) 154 were consultations, which were answered by the Ethics and Conduct Office, but did not grant any implicit or explicit waivers from any provisionlead to an investigation, and (iii) 2,937 lead to investigations, that confirmed violations of Vale's Code of Conduct in 38% of these cases. All confirmed violations triggered correction plans, which are presented by company's managers and approved by the Ethics and Conduct Office. As a general rule, these plans contain measures to promote process improvements, training initiatives and feedback to employees. Depending on the seriousness of the previous versionallegations, employees involved may be subject to administrative measures, such as warnings, suspensions or terminations. Suppliers involved in serious violations of our codethe Code of ethics.Conduct are also subject to punitive measures, such as fines or contract termination.
Investigations by the Ethics and Conduct Office in 2019 resulted in 1,833 corrective actions, including the termination of 227 employees.
After the rupture of Dam I, the Ethics and Conduct Office was one of the channels made available for the population to request information and support from Vale. Contacts related to this event amounted to 983 additional inquiries, not included in the above-mentioned numbers. Communications received by the Ethics and Conduct Office in connection with the rupture of Dam I were mainly to: (i) report missing persons (42%), (ii) offer voluntary work (26%), (iii) inform potential victims were safe (8%), (iv) request indemnification (5%) and (v) offer donations (3%).
| | | | |
| | 193 | | |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the fees billedfor professional services and other services rendered to us by our independent auditors PricewaterhouseCoopers Auditores Independentes ("PwC") in 2019 and KPMG Auditores Independentes ("KPMG") for professional services in 2015 and 2014:2018:
| | Year ended December 31, | ||
---|---|---|---|---|
| | 2014 | | 2015 |
| | (US$ thousand) | ||
Audit fees | | 2,569 | | 4,844 |
Audit-related fees | | 36 | | 206 |
Other fees(1) | | 3 | | – |
| | | | |
Total fees | | 2,608 | | 5,050 |
| | | | |
| | | | |
| | | | |
| | Year ended December 31, | ||
---|---|---|---|---|
| | 2019 | | 2018 |
| | (US$ thousand) | ||
Audit fees | | 6,144 | | 4,490 |
Audit-related fees | | 6 | | 15 |
Other fees | | — | | 13 |
| | | | |
Total fees | | 6,150 | | 4,518 |
| | | | |
| | | | |
| | | | |
"Audit"Audit fees" are the aggregate fees billed byfrom KPMG Auditores Independentesand PwC for the audit of our annual financial statements, the audit of the statutory financial statements of our subsidiaries, and reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. They also include fees for services that only the independent auditor reasonably can provide, including the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. "Audit-related fees" are fees charged by KPMG Auditores Independentesand PwC for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees."
KPMG Auditores Independentes,On September 27, 2018, our Board of Directors appointed PwC as our principal accountant, in replacement of KPMG, for the yearsprovision of 2014 and 2015,audit services for a period of five years. PwC was engaged in the secondfirst quarter of 2014.2019. The amounts reported for the year of 20142019 do not include amounts paid to PricewaterhouseCoopers Auditores Independentes in connection with the review of our interim financial statements for the first quarter of 2014.KPMG.
| | | | |
| | 194 | | |
INFORMATION FILED WITH SECURITIES REGULATORS
We are subject to various information and disclosure requirements in those countries in which our securities are traded, and we file financial statements and other periodic reports with the CVM, BM&FBOVESPA, the SEC, the French securities regulator Autorité des Marchés Financiers,B3 and the HKEx.SEC.
| | | | |
| | 195 | | |
The amount of long-term debt securities of Vale or its subsidiaries authorized under any individual outstanding agreement does not exceed 10% of Vale's total assets on a consolidated basis. Vale hereby agrees to furnish the SEC, upon its request, a copy of any instruments defining the rights of holders of its long-term debt or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
| | | | |
| | 196 | | |
Alumina | | Aluminum oxide. It is the main component of bauxite, and extracted from bauxite ore in a chemical refining process. It is the principal raw material in the electro-chemical process from which aluminum is produced. |
Aluminum | | A white metal that is obtained in the electro-chemical process of reducing aluminum oxide. |
| ||
| ||
Austenitic stainless steel | | Steel that contains a significant amount of chromium and sufficient nickel to stabilize the austenite microstructure, giving to the steel good formability and ductility and improving its high temperature resistance. They are used in a wide variety of applications, ranging from consumer products to industrial process equipment, as well as for power generation and transportation equipment, kitchen appliances and many other applications where strength, corrosion and high temperature resistance are required. |
| | |
Bauxite | | A rock composed primarily of hydrated aluminum oxides. It is the principal ore of alumina, the raw material from which aluminum is made. |
Beneficiation | | A variety of processes whereby extracted ore from mining is reduced to particles that can be separated into ore-mineral and waste, the former suitable for further processing or direct use. |
| ||
CFR | | Cost and freight. Indicates that all costs related to the transportation of goods up to a named port of destination will be paid by the seller of the goods. |
Class 2 | | Low purity nickel, containing higher levels of deleterious elements and predominantly iron-bearing, that is primarily destined to the stainless steel market |
Coal | | Coal is a black or brownish-black solid combustible substance formed by the decomposition of vegetable matter without access to air. The rank of coal, which includes anthracite, bituminous coal (both are called hard coal), sub-bituminous coal, and lignite, is based on fixed carbon, volatile matter, and heating value. |
Cobalt | | Cobalt is a hard, lustrous, silver-gray metal found in ores, and used in the preparation of magnetic, wear-resistant, and high-strength alloys (particularly for jet engines and turbines). Its compounds are also used in the production of inks, paints, catalysts and battery materials. |
Coke | | Coal that has been processed in a coke oven, for use as a reduction agent in blast furnaces and in foundries for the purposes of transforming iron ore into pig iron. |
Coking | | Hard coking coal is the highest value segment of the metallurgical coal market segments (see metallurgical coal) because of its high strength factors to form a strong coke. |
Concentration | | Physical, chemical or biological process to increase the grade of the metal or mineral of interest. |
Copper | | A reddish brown metallic element. Copper is highly conductive, both thermally and electrically. It is highly malleable and ductile and is easily rolled into sheet and drawn into wire. |
Copper anode | | Copper anode is a metallic product of the converting stage of smelting process that is cast into blocks and generally contains 99% copper grade, which requires further processing to produce refined copper cathodes. |
Copper cathode | | Copper plate with purity higher than or equal to 99.9% that is produced by an electrolytic process. |
| | | | |
| | 197 | | |
Glossary
Copper concentrate | | Material produced by concentration of copper minerals contained in the copper ore. It is the raw material used in smelters to produce copper metal. |
CVM | | TheComissão de Valores Mobiliários (Brazilian Securities and Exchange Commission). |
| ||
DWT | | Deadweight ton. The measurement unit of a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kg. A vessel's total deadweight is the total weight the vessel can carry when loaded to |
Electrowon copper cathode | | Refined copper cathode is a metallic product produced by an electrochemical process in which copper is recovered from an electrolyte and plated onto an electrode. Electrowon copper cathodes generally contain 99.99% copper grade. |
| ||
| ||
| ||
Ferroalloys | | Manganese ferroalloys are alloys of iron that contain one or more other chemical elements. These alloys are used to add these other elements into molten metal, usually in steelmaking. The principal ferroalloys are those of manganese, silicon and chromium. |
FOB | | Free on board. It indicates that the purchaser pays for shipping, insurance and all the other costs associated with transportation of the goods to their destination. |
Gold | | A precious metal sometimes found free in nature, but usually found in conjunction with silver, quartz, calcite, lead, tellurium, zinc or copper. It is the most malleable and ductile metal, a good conductor of heat and electricity and unaffected by air and most reagents. |
Grade | | The proportion of metal or mineral present in ore or any other host material. |
| ||
Hematite Ore | | Hematite is an iron oxide mineral, but also denotes the high-grade iron ore type within the iron deposits. |
| ||
Iron ore pellets | | Agglomerated ultra-fine iron ore particles of a size and quality suitable for particular iron making processes. Our iron ore pellets range in size from 8 mm to 18 mm. |
Itabirite ore | | Itabirite is a banded iron formation and denotes the low-grade iron ore type within the iron deposits. |
Lower Class 1 | | High purity nickel, containing lower levels of deleterious elements, that is used in low premium applications (e.g., foundry) |
Lump ore | | Iron ore or manganese ore with the coarsest particle size in the range of 6.35 mm to 50 mm in diameter, but varying slightly between different mines and ores. |
Manganese ore | | A hard brittle metallic element found primarily in the minerals pyrolusite, hausmannite and manganite. Manganese ore is essential to the production of virtually all steels and is important in the production of cast iron. |
Metallurgical coal | | Coal used in the production of steel, comprising multiple segments, including hard coking coal (see hard coking coal), semi-hard coking coal, semi-soft coking coal, all used to produce coke to feed a blast furnace; and, PCI (pulverized coal injection) coal used for direct injection fuel source into the blast furnace (see PCI). A bituminous hard coal with a quality that allows the production of coke. Normally used in coke ovens for metallurgical purposes. |
| ||
Mineral deposit(s) | | A mineralized body that has been intersected by a sufficient number of closely spaced drill holes and/or underground/surface samples to support sufficient tonnage and grade of metal(s) or mineral(s) of interest to warrant further exploration-development work. |
Mineral | | A concentration or occurrence of minerals of economic interest in such form and quantity that could justify an eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence through drill holes, trenches and/or outcrops. Mineral resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured Resources. |
| | | | |
| | 198 | | |
Glossary
Mt | | Million metric tons |
Mtpy | | Million metric tons per year. |
Nickel | | A silvery white metal that takes on a high polish. It is hard, malleable, ductile, somewhat ferromagnetic, and a fair conductor of heat and electricity. It belongs to the iron-cobalt group of metals and is chiefly valuable for the alloys it forms, such as stainless steel and other corrosion-resistant alloys. |
Nickel laterite | | Deposits are formed by intensive weathering of olivine-rich ultramafic rocks such as dunite, peridotite and komatite. |
Nickel | ||
| | An intermediate smelter product that must be further refined to obtain pure metal. |
Nickel pig iron | | A low-grade nickel product, made from lateritic ores, suitable primarily for use in stainless steel production. Nickel pig iron typically has a nickel grade of 1.5-6% produced from blast furnaces. Nickel pig iron can also contain chrome, manganese, and impurities such as phosphorus, sulfur and carbon. |
| ||
Nickel sulfide | | Formed through magmatic processes where nickel combines with sulfur to form a sulfide phase. Pentlandite is the most common nickel sulfide ore mineral mined and often occurs with chalcopyrite, a common copper sulfide mineral. |
| ||
| ||
| ||
Ntk | | Net ton (the weight of the goods being transported excluding the weight of the wagon) kilometer. |
Open-pit mining | | Method of extracting rock or minerals from the earth by their removal from an open pit. Open-pit mines for extraction of ore are used when deposits of commercially useful minerals or rock are found near the surface; that is, where the overburden (surface material covering the valuable deposit) is relatively thin or the material of interest is structurally unsuitable for underground mining. |
Oxides | | Compounds of oxygen with another element. For example, magnetite is an oxide mineral formed by the chemical union of iron with oxygen. |
| ||
Palladium | | A silver-white metal that is ductile and malleable, used primarily in automobile-emissions control devices, and electrical applications. |
PCI | | Pulverized coal injection. Type of coal with specific properties ideal for direct injection via the tuyeres of blast furnaces. This type of coal does not require any processing or coke making, and can be directly injected into the blast furnaces, replacing lump cokes to be charged from the top of the blast furnaces. |
| ||
Pelletizing | | Iron ore pelletizing is a process of agglomeration of ultra-fines produced in iron ore exploitation and concentration steps. The three basic stages of the process are: (i) ore preparation (to get the correct fineness); (ii) mixing and balling (additive mixing and ball formation); and (iii) firing (to get ceramic bonding and strength). |
PGMs | | Platinum group metals. Consist of platinum, palladium, rhodium, ruthenium, osmium and iridium. |
Phosphate | | A phosphorous compound, which occurs in natural ores and is used as a raw material for primary production of fertilizer nutrients, animal feeds and detergents. |
Pig iron | | Product of smelting iron ore usually with coke and limestone in a blast furnace. |
Platinum | | A dense, precious, grey-white transition metal that is ductile and malleable and occurs in some nickel and copper ores. Platinum is resistant to corrosion and is used primarily in jewelry, and automobile-emissions control devices. |
| | | | |
| | 199 | | |
Glossary
Precious metals | | Metals valued for their color, malleability, and rarity, with a high economic value driven not only by their practical industrial use, but also by their role as investments. The widely-traded precious metals are gold, silver, platinum and palladium. |
Primary nickel | | Nickel produced directly from mineral ores. |
Probable (indicated) reserves | | Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. |
Proven (measured) reserves | | Reserves for which |
Real, | | The official currency of Brazil is thereal (singular) |
Reserves (ore/mineral) | | The part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. |
| ||
ROM | | Run-of-mine. Ore in its natural (unprocessed) state, as mined, without having been crushed. |
| ||
Secondary or scrap nickel | | Stainless steel or other nickel-containing scrap. |
Seaborne market | | Comprises the total ore trade between countries using ocean bulk vessels. |
Silver | | A ductile and malleable metal used in photography, coins and medal fabrication, and in industrial applications. |
Sinter feed (also known as fines) | | Iron ore fines with particles in the range of 0.15 mm to 6.35 mm in diameter. Suitable for sintering. |
Sintering | | The agglomeration of sinter feed, binder and other materials, into a coherent mass by heating without melting, to be used as metallic charge into a blast furnace. |
| | The most common type of semi-finished steel. Traditional slabs measure 10 inches thick and 30-85 inches wide (and average 20 feet long), while the output of the recently developed "thin slab" casters is two inches thick. Subsequent to casting, slabs are sent to the hot-strip mill to be rolled into coiled sheet and plate products. |
Stainless steel | | Alloy steel containing at least 10% chromium and with superior corrosion resistance. It may also contain other elements such as nickel, manganese, niobium, titanium, molybdenum, copper, in order to improve mechanical, thermal properties and service life. It is primarily classified as austenitic (200 and 300 series), ferritic (400 series), martensitic, duplex or precipitation hardening grades. |
| ||
Thermal coal | | A type of coal that is suitable for energy generation in thermal power stations, cement plants and other coal fired ovens/kilns in general industry. |
Tpy | | Metric tons per year. |
Troy ounce | | One troy ounce equals 31.103 grams. |
Underground mining | | Mineral exploitation in which extraction is carried out beneath the earth's surface. |
Upper Class 1 | | High purity nickel, containing lower levels of deleterious elements, that is used in high premium applications (e.g., plating and super alloys) |
U.S. dollars or US$ | | The United States dollar. |
| | | | |
| | 200 | | |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| VALE S.A. | |||
| By: | | /s/ Name: Title: Chief Executive Officer | |
| By: | | /s/ LUCIANO SIANI PIRES Name: Luciano Siani Pires Title: Chief Financial Officer |
Date: March 31, 2016April 3, 2020
| | | | |
| | 201 | | |
Vale S.A. Financial Statements
| | | | Page |
---|---|---|---|---|
Report of Independent Registered Public Accounting Firm, | | F-3 | ||
Report of Independent Registered Public Accounting Firm, | | |||
Management's Report on Internal Control | | |||
Consolidated Income Statement | | |||
Consolidated Statement of Comprehensive Income | | |||
Consolidated Statement of Cash | | |||
Consolidated | | |||
Consolidated Statement of Changes in Equity | | |||
Notes to the Financial Statements | | F-15 | ||
1. | | Corporate information | | F-15 |
2. | | Basis | | F-15 |
3. | | Brumadinho's dam failure | | F-20 |
4. | | Information by business segment and by geographic area | | |
|
| |||
5. | |
| | |
6. | | Financial results | | F-36 |
7. | | Streaming transactions | | F-37 |
8. | | Income taxes | | F-38 |
9. | | Basic and diluted earnings (loss) per share | | F-42 |
10. | | Accounts receivable | | F-42 |
11. | | Inventories | | F-43 |
12. | | Recoverable taxes | | F-43 |
13. | | Other financial assets and liabilities | | F-44 |
14. | | Acquisitions and divestitures | | |
| |
| | |
|
| |||
|
| |||
|
| |||
| | Investments in associates and joint ventures | | |
| | Noncontrolling interest | | |
| | Intangibles | | |
| | Property, plant and equipment | | |
|
| |||
|
| |||
|
| |||
|
| |||
|
|
| | | | |
| | F-1 | | |
| | | | Page |
---|---|---|---|---|
20. | |
| | |
21. | |
| | |
22. | | Liabilities related to associates and joint ventures | | F-66 |
23. | | Financial instruments classification | | |
| | Fair value estimate | | |
| | Derivative financial instruments | | |
| | Provisions | | F-79 |
27. | | Asset retirement obligations | | F-80 |
28. | | Litigations | | F-81 |
29. | | Employee benefits | | F-87 |
30. | | Stockholders' equity | | |
|
| |||
|
| |||
|
| |||
|
| |||
| | Related parties | | |
|
| |||
32. | |
| | |
33. | |
| | |
34. | | Subsequent events | | F-108 |
35. | | Additional information about derivatives financial instruments | | F-109 |
| | | | |
| | F-2 | | |
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and StockholdersShareholders of
Vale S.A.Rio de Janeiro – RJ
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetstatement of financial position of Vale S.A. and its subsidiaries ("Vale" or "the Company"(the "Company") as of December 31, 2015 and 2014,2019, and the related consolidated statementsincome statement, statement of income, comprehensive income, stockholders'statement of changes in equity and statement of cash flows for the yearsyear then ended.ended, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited Vale'sthe Company's internal control over financial reporting as of December 31, 2015,2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Vale's
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Notes 2 (d) and 19 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on January 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinionopinions on thesethe Company's consolidated financial statements and an opinion on the Vale'sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
| | | | |
| | F-3 | | |
Our auditaudits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1)(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the fiscal council and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating, the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Brumadinho's dam failure
As described in Note 3 to the consolidated financial statements, the Company has incurred costs and recorded provisions, as a consequence of the Brumadinho's Dam failure, which led to a total impact of US$ 7,402 million recognized in the income statement of the year ended December 31, 2019. Management applied significant
| | | | |
| | F-4 | | |
judgment in determining the value of these provisions, which involved the use of significant estimates and assumptions with respect to: (i) the engineering projects and the total expected costs to carry out all de-characterization projects related to the dams built under the upstream method; and (ii) the valuation of the costs to carry out the remediation of the environmental and social impacts of the event in accordance with the agreements reached and under negotiation with the relevant authorities and others. The assumptions used in developing these estimates, with the support of management's specialists, included among others (i) volume of the waste to be removed based on historical data available; (ii) interpretation of the enacted laws and regulations; (iii) location availability for the tailings disposal; (iv) acceptance by the authorities of the proposed engineering methods and solutions; and (v) amount of indemnification payments to those affected by the Brumadinho's Dam failure. In addition, as management has further disclosed, given the nature and uncertainties inherent in this type of event, the amounts recognized and disclosed will be reassessed by the Company and may be adjusted significantly in future periods, as new facts and circumstances become known.
The principal considerations for our determination that performing procedures relating to the Brumadinho's Dam failure provisions is a critical audit matter are there were significant judgments by management, including the use of specialists, when developing the estimates of (i) the engineering projects and the total expected costs to carry out all de-characterization projects related to the dams, and (ii) valuation of the costs related to the agreements entered and under negotiation by the Company. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management's valuation and significant assumptions used. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from at these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's estimates of cost and provision recorded in relation to the Brumadinho's Dam failure. These procedures also included, among others, evaluating the methods and significant assumptions used by management in developing these estimates and cost provisions, and the assessment of future costs in accordance with the agreements reached and under negotiation, and whether these were consistent with internal and external evidence available or obtained in other areas of the audit. The work of management's specialists was used in performing the procedures to evaluate the reasonableness of these estimates. As a basis for using this work, the specialists' qualifications and objectivity were understood, as well as the methods and assumptions used by the specialists. The procedures also included tests of the data used by the management's specialist and an understanding of the specialists' findings. In addition, professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the assumptions used in the engineering projects set out by management.
Assessment of impairment for long-lived non-financial assets
As described in Note 20 to the consolidated financial statements, the Company's management performs on an annual basis an impairment test of goodwill, as well as evaluates impairment indicators for the long-lived non-financial assets, such as intangible, property plant and equipment and investments in associate companies and joint ventures. Potential impairment is identified by management when comparing the higher of the fair value less costs to disposal ("FVLCD") of a cash-generating unit ("CGU") to its carrying value, including goodwill. Fair value less cost of disposal is estimated by management using a discounted cash flow techniques. As part of this assessment, the Company estimates future cash flows expected to arise from the continued use of each CGU from a market
| | | | |
| | F-5 | | |
participant's perspective, including any expansion prospects, considering different internal and external factors, as well as significant judgments and assumptions relating to (i) mineral reserves and mineral resources measured by management's specialists;(ii)costs and capital investments; (iii) long-term future metal prices; (iv) future production volumes; and (v) discount rates. During 2019, the Company has carried out an impairment test for the coal business and for the New Caledonian business, which led to an impairment charge of US$ 1,691 million and US$. 2,511 million, respectively.
The principal considerations for our determination that performing procedures relating to impairment tests for long-lived non-financial assets is a critical audit matter are there were significant judgments by management when developing the FVLCD of each CGU, including the use of specialists when developing the estimates of mineral reserves and mineral resources. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management's cash flow projections and significant assumptions, including long-term future metal prices, future production volumes, discount rates and mineral reserves and mineral resources. In addition, the audit effort involved the use of professionals with specialized skills and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of the controls related to management's long-lived non-financial assets impairment assessment and calculation of the FVLCD for each CGU. These procedures also included, among others, evaluating the appropriateness of the discounted cash flow model, testing management's process for developing the fair value estimate; testing the completeness and accuracy of the underlying data used in the model and evaluating the significant assumptions used by management. Evaluating these significant assumptions involved evaluating whether the assumptions used by management were reasonable considering: (i) the current and past performance of each CGU; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. The work of management's specialists was used in performing the procedures to evaluate the reasonableness of the mineral reserves and mineral resources. As a basis for using this work, the specialists' qualifications and objectivity were understood, as well as the methods and assumptions used by the specialists. The procedures also included tests of the data used by the specialist and an evaluation of the specialists' findings. In addition, professionals with specialized skills and knowledge were used to assist in the evaluation of the appropriateness of the Company's discounted cash flow model, the reasonableness of the long-term future metal prices and the discount rate.
Tax litigation
As described in Note 28 to the consolidated financial statements, the Company has recorded provision for tax litigations of US$ 696 million and has disclosed contingent liabilities related to tax litigation of US$ 8,395 million. The Company recognizes a provision for tax litigation in the consolidated financial statements for the resolution of pending litigation when the Company has a present obligation as a result of a past event and management determines that a loss is probable, and the amount of the loss can be reasonably estimated, with the support of management's specialists. No provision for tax litigation is recognized in the consolidated financial statements for unfavorable outcomes when, after assessing the information available, (i) management concludes that it is not probable that a loss has been incurred in any of the pending litigation; or (ii) management is unable to estimate the loss or range of loss for any of the pending matters. In case of income tax pending litigations, management
| | | | |
| | F-6 | | |
determines whether is probable or not that taxation authority will accept the uncertain tax treatment. If the Company concludes it is not probable that taxation authority will accept the uncertain tax treatment, a provision for income tax is recognized. The Company also discloses the contingency in circumstances where management concludes (i) no loss is probable or reasonably estimable, but it is reasonably possible that a loss may be incurred or, (ii) in case of income tax pending litigations, is probable that the taxation authority will accept the uncertain tax treatment.
The principal considerations for our determination that performing procedures relating to tax litigation are a critical audit matter are there were significant judgments by management when assessing the likelihood and magnitude of a provision and when determining whether a reasonable estimate of the loss or range of loss and possible outcomes for each tax litigation claim can be made, including the use of management's specialists. This, in turn, led to a high degree of auditor judgment, subjectivity and effort in evaluating management's assessment of the loss contingencies associated with tax litigation claims. In addition, the audit effort involved the use of professionals with specialized skills and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's evaluation of tax litigation claims, including controls over determining whether a loss is probable and whether the amount of loss can be reasonably estimated, or whether it is probable the taxation authority will not accept the income tax pending litigation, as well as financial statement disclosures. These procedures also included, among others, obtaining and evaluating the letters of audit inquiry with internal and external legal counsel, evaluating the reasonableness of management's assessment regarding unfavorable outcomes and evaluating the sufficiency of the Company's tax litigation contingencies disclosures. The work of management's specialists was used in performing the procedures to evaluate the reasonableness of the estimates related to the tax litigation claims. As a basis for using this work, the specialists' qualifications and objectivity were understood, as well as the methods and assumptions used by the specialists. The procedures also included an evaluation of the specialists' findings. In addition, professionals with specialized skills and knowledge were used to assist in the evaluation of the reasonableness of the estimate or range of loss and possible outcomes the main tax litigation claims.
/s/ PricewaterhouseCoopers Auditores Independentes Rio de Janeiro, RJ, Brazil February 20, 2020, except for notes 3 (f.iii) and 34 to the consolidated financial statements, as to which the date is April 3, 2020. | | |
We have served as the Company's auditor since 2019. | |
| | | | |
| | F-7 | | |
KPMG Auditores Independentes
Rua do Passeio, 38—Setor 2 - 17° andar—Centro
20021-290—Rio de Janeiro/RJ—Brasil
Caixa Postal 2888—CEP 20001-970—Rio de Janeiro/RJ—Brasil
Telefone +55 (21) 2207-9400
kpmg.com.br
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Vale S.A.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Vale S.A. and its subsidiaries (the "Company") as of December 31, 2018, the related consolidated income statement and statements of comprehensive income, changes in equity and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vale S.A. and subsidiariesthe Company as of December 31, 2015 and 2014,2018, and the results of its operations and its cash flows for each of the years thenin the two year period ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Also in our opinion, Vale maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control—Integrated FrameworkBasis for Opinion (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
|
Report of Independent Registered Public Accounting Firm
To board of directors and shareholders of Vale S.A.:
In our opinion, theThese consolidated statements of income and comprehensive income, of shareholders' equity and of cash flows for the year ended December 31, 2013 present fairly, in all material respects, the results of operations and cash flows of Vale S.A. and its subsidiaries for the year ended December 31, 2013 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these statementsaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Emphasis of matter—Subsequent Event
We draw attention to Note 3 to the consolidated financial statements of the Company, which describes the Brumadinho dam failure which occurred at the Company's operating facilities on January 25, 2019. The Company's management considered that the event is not a condition that existed at the end of the reporting period, and therefore did not require adjustments to the financial statements as of December 31, 2018.
/s/ KPMG Auditores Independentes
KPMG Auditores Independentes
We served as the Company's auditor from 2014 to 2018.
Rio de Janeiro, RJ
April 18, 2019
| | | | |
| | F-8 | | |
Management's Report on Internal Control over Financial Reporting
The management of Vale S.A (Vale) is responsible for establishing and maintaining adequate internal control over financial reporting.
The Vale's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.
Vale's management has assessed the effectiveness of the company's internal control over financial reporting as of December 31, 20152019 based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment and criteria, Vale's management has concluded that the company's internal control over financial reporting are effective as of December 31, 2015.2019.
The effectiveness of the company's internal control over financial reporting as of December 31, 20152019 has been audited by KPMGPricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.
February 24, 201620, 2020.
Eduardo de Salles Bartolomeo
Chief Executive Officer
Luciano Siani
Chief Financial Officer and Investors Relations
| | | | |
| | | ||
| ||||
|
Consolidated Income Statement
In millions of United States dollars, except as otherwise statedearnings per share data
| | Year ended December 31 | | Year ended December 31 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Notes | | 2015 | | 2014 | | 2013 | | Notes | | 2019 | | 2018 | | 2017 | ||||
Continuing operations | | | | | | | | | ||||||||||||
Net operating revenue | | 3(c) | | 25,609 | | 37,539 | | 46,767 | | 4(d) | | 37,570 | | 36,575 | | 33,967 | ||||
Cost of goods sold and services rendered | | 26(a) | | (20,513 | ) | (25,064 | ) | (24,245) | | 5(a) | | (21,187 | ) | (22,109 | ) | (21,039) | ||||
| | | | | | | | | | | | | | | | | ||||
Gross profit | | | 5,096 | | 12,475 | | 22,522 | | | 16,383 | | 14,466 | | 12,928 | ||||||
| | | | | | | | | ||||||||||||
Operating expenses | | | | | |
| | | | |||||||||||
Selling and administrative expenses | | 26(b) | | (652 | ) | (1,099 | ) | (1,302) | | 5(b) | | (487 | ) | (523 | ) | (531) | ||||
Research and evaluation expenses | | | (477 | ) | (734 | ) | (801) | | | (443 | ) | (373 | ) | (340) | ||||||
Pre operating and operational stoppage | | | (1,027 | ) | (1,088 | ) | (1,859) | |||||||||||||
Pre-operating and operational stoppage | | | (1,153 | ) | (271 | ) | (413) | |||||||||||||
Brumadinho event | | 3 | | (7,402 | ) | – | | – | ||||||||||||
Other operating expenses, net | | 26(c) | | (206 | ) | (1,057 | ) | (984) | | 5(c) | | (505 | ) | (445 | ) | (420) | ||||
| | | | | | | | | | | | | | | | | ||||
| | (2,362 | ) | (3,978 | ) | (4,946) | | | (9,990 | ) | (1,612 | ) | (1,704) | |||||||
Impairment and disposals of non-current assets | | 20 | | (5,074 | ) | (899 | ) | (294) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
Impairment of non-current assets and onerous contracts | | 15 | | (8,926 | ) | (1,152 | ) | (2,298) | ||||||||||||
Results on measurement or sale of non-current assets | | 5-6 | | 61 | | (167 | ) | (215) | ||||||||||||
| | | | | | | | | ||||||||||||
Operating income (loss) | | | (6,131 | ) | 7,178 | | 15,063 | |||||||||||||
| | | | | | | | | ||||||||||||
Operating income | | | 1,319 | | 11,955 | | 10,930 | |||||||||||||
Financial income | | 27 | | 7,850 | | 3,770 | | 2,699 | | 6 | | 527 | | 423 | | 478 | ||||
Financial expenses | | 27 | | (18,651 | ) | (9,839 | ) | (11,031) | | 6 | | (3,806 | ) | (2,345 | ) | (3,273) | ||||
Equity results in associates and joint ventures | | 11 | | (439 | ) | 505 | | 469 | ||||||||||||
Results on sale or disposal of investments in associates and joint ventures | | 5-6 | | 97 | | (30 | ) | 41 | ||||||||||||
Impairment of investments in associates and joint ventures | | 15 | | (446 | ) | (31 | ) | – | ||||||||||||
Other financial items, net | | 6 | | (134 | ) | (3,035 | ) | (224) | ||||||||||||
Equity results and other results in associates and joint ventures | | 16 and 22 | | (681 | ) | (182 | ) | (82) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||
Net income (loss) before income taxes | | | (17,720 | ) | 1,553 | | 7,241 | |||||||||||||
Income (loss) before income taxes | | | (2,775 | ) | 6,816 | | 7,829 | |||||||||||||
Income taxes | | 20 | | | | | 8 | | | | ||||||||||
Current tax | | | (389 | ) | (1,051 | ) | (7,786) | | | (1,522 | ) | (752 | ) | (849) | ||||||
Deferred tax | | | 5,489 | | (149 | ) | 953 | | | 2,117 | | 924 | | (646) | ||||||
| | | | | | | | | | | | | | | | | ||||
| | 5,100 | | (1,200 | ) | (6,833) | | | 595 | | 172 | | (1,495) | |||||||
| | | | | | | | | ||||||||||||
Net income (loss) from continuing operations | | | (12,620 | ) | 353 | | 408 | | | (2,180 | ) | 6,988 | | 6,334 | ||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | ||||||||||||
| | | | | | | | | ||||||||||||
Loss attributable to noncontrolling interests | | 12 | | (491 | ) | (304 | ) | (178) | ||||||||||||
Net income (loss) attributable to noncontrolling interests | | | (497 | ) | 36 | | 21 | |||||||||||||
| | | | | | | | | | | | | | | | | ||||
Net income (loss) from continuing operations attributable to Vale's stockholders | | | (12,129 | ) | 657 | | 586 | | | (1,683 | ) | 6,952 | | 6,313 | ||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | ||||
Discontinued operations | | | | | | 14 | | | | |||||||||||
Loss from discontinued operations | | | – | | – | | (2) | | | – | | (92 | ) | (813) | ||||||
Loss attributable to noncontrolling interests | | | – | | – | | (7) | |||||||||||||
| | | | | | | | | | | | | | | | | ||||
Loss from discontinued operations attributable to Vale's stockholders | | | – | | – | | (2) | | | – | | (92 | ) | (806) | ||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | ||||
Net income (loss) | | | (12,620 | ) | 353 | | 406 | | | (2,180 | ) | 6,896 | | 5,521 | ||||||
Loss attributable to noncontrolling interests | | | (491 | ) | (304 | ) | (178) | |||||||||||||
Net income (loss) attributable to noncontrolling interests | | | (497 | ) | 36 | | 14 | |||||||||||||
| | | | | | | | | | | | | | | | | ||||
Net income (loss) attributable to Vale's stockholders | | | (12,129 | ) | 657 | | 584 | | | (1,683 | ) | 6,860 | | 5,507 | ||||||
| | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | ||||
Earnings per share attributable to Vale's stockholders: | | | | | ||||||||||||||||
Basic and diluted earnings per share: | | 25(d) | | | | |||||||||||||||
Preferred share (US$) | | | (2.35 | ) | 0.13 | | 0.11 | |||||||||||||
Earnings (loss) per share attributable to Vale's stockholders: | | | | | ||||||||||||||||
Basic and diluted earnings (loss) per share: | | 9 | | | | |||||||||||||||
Common share (US$) | | | (2.35 | ) | 0.13 | | 0.11 | | | (0.33 | ) | 1.32 | | 1.05 |
The accompanying notes are an integral part of these financial statements.
| | | | |
| | F-10 | | |
Consolidated Statement of Comprehensive Income
In millions of United States dollars
| | Year ended December 31 | |||||||
---|---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | |||
Net income (loss) | | (12,620 | ) | 353 | | 406 | |||
| | | | | | | |||
Other comprehensive income | | | | ||||||
Items that will not be reclassified subsequently to net income | | | | ||||||
Cumulative translation adjustments | | (18,128 | ) | (7,436 | ) | (9,830) | |||
Retirement benefit obligations | | | | ||||||
Gross balance for the year | | 66 | | (279 | ) | 914 | |||
Effect of taxes | | 3 | | 85 | | (284) | |||
Equity results from associates and joint ventures, net taxes | | – | | 2 | | – | |||
| | | | | | | |||
| 69 | | (192 | ) | 630 | ||||
| | | | | | | |||
Total items that will not be reclassified subsequently to net income | | (18,059 | ) | (7,628 | ) | (9,200) | |||
| | | | | | | |||
Items that may be reclassified subsequently to net income | | | | ||||||
Cumulative translation adjustments | | | | ||||||
Gross balance for the year | | 9,340 | | 3,407 | | 2,822 | |||
Effect of taxes | | 904 | | – | | – | |||
Transfer of realized results to net income | | – | | – | | 435 | |||
| | | | | | | |||
| 10,244 | | 3,407 | | 3,257 | ||||
Available-for-sale financial instruments | | | | ||||||
Gross balance for the year | | 1 | | (4 | ) | 193 | |||
Transfer of realized results to net income, net of taxes | | – | | 4 | | (194) | |||
| | | | | | | |||
| 1 | | – | | (1) | ||||
Cash flow hedge | | | | ||||||
Gross balance for the year | | 828 | | (290 | ) | (23) | |||
Effect of taxes | | (7 | ) | (3 | ) | 12 | |||
Equity results from associates and joint ventures, net taxes | | (5 | ) | (1 | ) | – | |||
Transfer of realized results to net income, net of taxes | | (369 | ) | (122 | ) | (40) | |||
| | | | | | | |||
| 447 | | (416 | ) | (51) | ||||
| | | | | | | |||
Total of items that may be reclassified subsequently to net income | | 10,692 | | 2,991 | | 3,205 | |||
| | | | | | | |||
Total comprehensive income | | (19,987 | ) | (4,284 | ) | (5,589) | |||
| | | | | | | |||
| | | | | | | |||
| | | | | | | |||
Comprehensive income attributable to noncontrolling interests | | (543 | ) | (330 | ) | (175) | |||
Comprehensive income attributable to Vale's stockholders | | (19,444 | ) | (3,954 | ) | (5,414) | |||
| | | | | | | |||
| (19,987 | ) | (4,284 | ) | (5,589) | ||||
| | | | | | | |||
| | | | | | | |||
| | | | | | |
| | Year ended December 31 | |||||||
---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | |||
Net income (loss) | | (2,180 | ) | 6,896 | | 5,521 | |||
| | | | | | | |||
Other comprehensive income (loss): | | | | ||||||
Items that will not be subsequently reclassified to income statement | | | | ||||||
Translation adjustments | | (1,677 | ) | (6,762 | ) | (717) | |||
Retirement benefit obligations | | (126 | ) | 41 | | (46) | |||
Fair value adjustment to investment in equity securities | | (184 | ) | 60 | | – | |||
Transfer to reserve | | – | | (16 | ) | – | |||
| | | | | | | |||
Total items that will not be subsequently reclassified to income statement, net of tax | | (1,987 | ) | (6,677 | ) | (763) | |||
| | | | | | | |||
| | | | | | | |||
| | | | | | | |||
Items that may be subsequently reclassified to income statement | | | | ||||||
Translation adjustments | | 1,111 | | 3,899 | | 1,026 | |||
Net investments hedge (note 25c) | | (74 | ) | (543 | ) | (95) | |||
Cash flow hedge | | 102 | | – | | – | |||
Transfer of realized results to net income | | – | | (78 | ) | (11) | |||
| | | | | | | |||
Total of items that may be subsequently reclassified to income statement, net of tax | | 1,139 | | 3,278 | | 920 | |||
| | | | | | | |||
Total comprehensive income (loss) | | (3,028 | ) | 3,497 | | 5,678 | |||
| | | | | | | |||
| | | | | | | |||
| | | | | | | |||
Comprehensive income (loss) attributable to noncontrolling interests | | (512 | ) | (84 | ) | 13 | |||
| | | | | | | |||
Comprehensive income (loss) attributable to Vale's stockholders | | (2,516 | ) | 3,581 | | 5,665 | |||
| | | | | | | |||
| | | | | | | |||
| | | | | | | |||
From continuing operations | | (2,516 | ) | 3,589 | | 5,696 | |||
From discontinued operations | | – | | (8 | ) | (31) | |||
| | | | | | | |||
| (2,516 | ) | 3,581 | | 5,665 | ||||
| | | | | | | |||
| | | | | | | |||
| | | | | | |
Items above are stated net of tax and the related taxes are disclosed in note 8.
The accompanying notes are an integral part of these financial statements.
| | | | |
| | F-11 | | |
Consolidated Statement of Cash FlowFlows
In millions of United States dollars
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Cash flow from continuing operating activities: | | | | |||||
Net income (loss) from continuing operations | | (12,620 | ) | 353 | | 408 | ||
Adjustments for: | | | | |||||
Equity results from associates and joint ventures | | 439 | | (505 | ) | (469) | ||
Results on measurement or sale of non-current assets | | (61 | ) | 167 | | 215 | ||
Results on sale or disposal of investments in associates and joint ventures | | (97 | ) | 30 | | (41) | ||
Results on disposal of property, plant and equipment and intangibles | | (152 | ) | 91 | | (146) | ||
Impairment of non-current assets and onerous contracts | | 9,372 | | 1,183 | | 2,298 | ||
Depreciation, amortization and depletion | | 4,029 | | 4,288 | | 4,150 | ||
Deferred income taxes | | (5,489 | ) | 149 | | (953) | ||
Foreign exchange and indexation, net | | 6,879 | | 1,270 | | 724 | ||
Unrealized derivative loss (gain), net | | 1,714 | | 1,155 | | 791 | ||
Participative stockholders' debentures | | (965 | ) | 315 | | 381 | ||
Others | | 189 | | 347 | | 303 | ||
Changes in assets and liabilities: | | | | |||||
Accounts receivable | | 1,671 | | 2,546 | | 608 | ||
Inventories | | (304 | ) | (535 | ) | 346 | ||
Suppliers and contractors | | 740 | | 1,013 | | (124) | ||
Payroll and related charges | | (603 | ) | (77 | ) | 59 | ||
Income taxes (includes settlement program) | | (99 | ) | 604 | | 5,424 | ||
Net other taxes assets and liabilities | | (258 | ) | (292 | ) | 44 | ||
Deferred revenue—Gold stream (note 28) | | 532 | | – | | 1,319 | ||
Net other assets and liabilities | | (426 | ) | 705 | | (795) | ||
| | | | | | | ||
Net cash provided by continuing operating activities | | 4,491 | | 12,807 | | 14,542 | ||
Net cash provided by discontinued operating activities | | – | | – | | 250 | ||
| | | | | | | ||
Net cash provided by operating activities | | 4,491 | | 12,807 | | 14,792 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Cash flow from continuing investing activities: | | | | |||||
Financial investments redeemed (invested) | | 308 | | (148 | ) | 357 | ||
Loans and advances received (granted) | | (65 | ) | 364 | | (17) | ||
Guarantees and deposits received (granted) | | (17 | ) | 59 | | (147) | ||
Additions to investments | | (66 | ) | (244 | ) | (378) | ||
Acquisition of subsidiary (note 6(f)) | | (90 | ) | – | | – | ||
Additions to property, plant and equipment and intangible (note 3(b)) | | (8,371 | ) | (11,813 | ) | (13,105) | ||
Dividends and interest on capital received from associates and joint ventures (note 11) | | 318 | | 568 | | 834 | ||
Proceeds from disposal of assets and investments | | 1,456 | | 1,246 | | 2,030 | ||
Proceeds from gold stream transaction (note 28) | | 368 | | – | | 581 | ||
| | | | | | | ||
Net cash used in continuing investing activities | | (6,159 | ) | (9,968 | ) | (9,845) | ||
Net cash provided by discontinued investing activities | | – | | – | | (763) | ||
| | | | | | | ||
Net cash used in investing activities | | (6,159 | ) | (9,968 | ) | (10,608) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Cash flow from operations (a) | | 15,608 | | 15,330 | | 15,562 | ||
Interest on loans and borrowings paid (note 21) | | (1,186 | ) | (1,121 | ) | (1,686) | ||
Derivatives received (paid), net | | (324 | ) | (67 | ) | (240) | ||
Interest on participative stockholders' debentures paid | | (179 | ) | (113 | ) | (135) | ||
Income taxes (including settlement program) | | (1,809 | ) | (1,128 | ) | (1,051) | ||
| | | | | | | ||
Net cash provided by operating activities from continuing operations | | 12,110 | | 12,901 | | 12,450 | ||
Cash flow from investing activities: | | | | |||||
Capital expenditures | | (3,704 | ) | (3,784 | ) | (3,831) | ||
Additions to investments | | (76 | ) | (23 | ) | (93) | ||
Acquisition of subsidiary, net of cash (note 14) | | (926 | ) | – | | – | ||
Proceeds from disposal of assets and investments | | 142 | | 1,481 | | 922 | ||
Dividends received from associates and joint ventures | | 353 | | 245 | | 227 | ||
Judicial deposits and restricted cash (note 3) | | (1,638 | ) | – | | – | ||
Short-term investment (LFTs) | | (828 | ) | (50 | ) | (90) | ||
Other investments activities, net(i) | | (312 | ) | 2,290 | | (493) | ||
| | | | | | | ||
Net cash provided by (used in) investing activities from continuing operations | | (6,989 | ) | 159 | | (3,358) | ||
Cash flow from financing activities: | | | | |||||
Loans and borrowings from third-parties (note 21) | | (2,275 | ) | (6,616 | ) | (7,022) | ||
Payments of leasing (note 2d) | | (224 | ) | – | | – | ||
Dividends and interest on capital paid to stockholders | | – | | (3,313 | ) | (1,456) | ||
Dividends and interest on capital paid to noncontrolling interest | | (184 | ) | (182 | ) | (126) | ||
Share buyback program | | – | | (1,000 | ) | – | ||
Transactions with noncontrolling stockholders (note 14) | | (812 | ) | (17 | ) | (98) | ||
| | | | | | | ||
Net cash used in financing activities from continuing operations | | (3,495 | ) | (11,128 | ) | (8,702) | ||
Net cash used in discontinued operations | | – | | (46 | ) | (252) | ||
Increase in cash and cash equivalents | | 1,626 | | 1,886 | | 138 | ||
Cash and cash equivalents in the beginning of the year | | 5,784 | | 4,328 | | 4,262 | ||
Effect of exchange rate changes on cash and cash equivalents | | (60 | ) | (313 | ) | (60) | ||
Effects of disposals of subsidiaries and merger, net of cash and cash equivalents | | – | | (117 | ) | (12) | ||
| | | | | | | ||
Cash and cash equivalents at end of the year | | 7,350 | | 5,784 | | 4,328 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Non-cash transactions: | | | | |||||
Additions to property, plant and equipment—capitalized loans and borrowing costs | | 140 | | 194 | | 370 | ||
Cash flow from operating activities: | | | | |||||
Income (loss) before income taxes from continuing operations | | (2,775 | ) | 6,816 | | 7,829 | ||
Adjusted for: | | | | |||||
Provisions related to Brumadinho (note 3) | | 6,550 | | – | | – | ||
Equity results and other results in associates and joint ventures | | 681 | | 182 | | 82 | ||
Impairment and disposal of non-current assets | | 5,074 | | 899 | | 294 | ||
Depreciation, amortization and depletion | | 3,726 | | 3,351 | | 3,708 | ||
Financial results, net | | 3,413 | | 4,957 | | 3,019 | ||
Changes in assets and liabilities: | | | | |||||
Accounts receivable | | (25 | ) | (156 | ) | 1,277 | ||
Inventories | | 110 | | (817 | ) | (339) | ||
Suppliers and contractors(ii) | | 655 | | (376 | ) | 232 | ||
Provision—Payroll, related charges and other remunerations | | (94 | ) | (11 | ) | 372 | ||
Proceeds from streaming transactions (note 7) | | – | | 690 | | – | ||
Payments related to Brumadinho (note 3)(iii) | | (989 | ) | – | | – | ||
Other assets and liabilities, net | | (718 | ) | (205 | ) | (912) | ||
| | | | | | | ||
Cash flow from operations (a) | | 15,608 | | 15,330 | | 15,562 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
The accompanying notes are an integral part of these financial statements.
| | | | |
| | F-12 | | |
Consolidated Statement of Cash Flow (Continued)Financial Position
In millions of United States dollars
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Cash flow from continuing financing activities: | | | | |||||
Loans and borrowings | | | | |||||
Additions | | 4,995 | | 2,341 | | 3,310 | ||
Repayments | | (2,826 | ) | (1,936 | ) | (3,347) | ||
Transactions with stockholders: | | | | |||||
Dividends and interest on capital paid to Vale's stockholders (note 25(e)) | | (1,500 | ) | (4,200 | ) | (4,500) | ||
Dividends and interest on capital paid to noncontrolling interest | | (15 | ) | (66 | ) | (20) | ||
Transactions with noncontrolling stockholders(i) | | 1,049 | | – | | – | ||
| | | | | | | ||
Net cash provided (used) by continuing financing activities | | 1,703 | | (3,861 | ) | (4,557) | ||
Net cash provided by discontinued financing activities | | – | | – | | 87 | ||
| | | | | | | ||
Net cash provided (used) in financing activities | | 1,703 | | (3,861 | ) | (4,470) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Increase (decrease) in cash and cash equivalents | | 35 | | (1,022 | ) | (286) | ||
Cash and cash equivalents in the beginning of the year | | 3,974 | | 5,321 | | 5,832 | ||
Effect of exchange rate changes on cash and cash equivalents | | (418 | ) | (325 | ) | (225) | ||
| | | | | | | ||
Cash and cash equivalents at end of the year | | 3,591 | | 3,974 | | 5,321 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Cash paid for(ii): | | | | |||||
Interest on loans and borrowings | | (1,462 | ) | (1,560 | ) | (1,535) | ||
Derivatives received (paid), net | | (1,202 | ) | (179 | ) | (242) | ||
Income taxes | | (527 | ) | (504 | ) | (2,405) | ||
Income taxes—Settlement program | | (384 | ) | (494 | ) | (2,594) | ||
Non-cash transactions: | | | | |||||
Additions to property, plant and equipment—capitalized loans and borrowing costs | | 761 | | 588 | | 235 | ||
Additions to property, plant and equipment—costs of assets retirement obligations | | 219 | | 842 | | 190 |
| | Notes | | December 31, 2019 | | December 31, 2018 |
---|---|---|---|---|---|---|
Assets | | | | |||
Current assets | | | | |||
Cash and cash equivalents | | | 7,350 | | 5,784 | |
Short-term investments | | 21 | | 826 | | 32 |
Accounts receivable | | 10 | | 2,529 | | 2,648 |
Other financial assets | | 13 | | 759 | | 403 |
Inventories | | 11 | | 4,274 | | 4,443 |
Prepaid income taxes | | | 370 | | 543 | |
Recoverable taxes | | 12 | | 552 | | 883 |
Others | | | 382 | | 556 | |
| | | | | | |
| | 17,042 | | 15,292 | ||
Non-current assets | | | | |||
Judicial deposits | | 28(c) | | 3,159 | | 1,716 |
Other financial assets | | 13 | | 2,722 | | 3,144 |
Prepaid income taxes | | | 597 | | 544 | |
Recoverable taxes | | 12 | | 607 | | 751 |
Deferred income taxes | | 8(a) | | 9,217 | | 6,908 |
Others | | | 496 | | 263 | |
| | | | | | |
| | 16,798 | | 13,326 | ||
Investments in associates and joint ventures | | 16 | | 2,798 | | 3,225 |
Intangibles | | 18 | | 8,499 | | 7,962 |
Property, plant and equipment | | 19 | | 46,576 | | 48,385 |
| | | | | | |
| | 74,671 | | 72,898 | ||
| | | | | | |
Total assets | | | 91,713 | | 88,190 | |
| | | | | | |
| | | | | | |
| | | | | | |
Liabilities | | | | |||
Current liabilities | | | | |||
Suppliers and contractors | | | 4,107 | | 3,512 | |
Loans and borrowings | | 21 | | 1,214 | | 1,003 |
Leases | | 2(d) | | 225 | | — |
Other financial liabilities | | 13 | | 1,074 | | 1,604 |
Taxes payable | | | 512 | | 428 | |
Settlement program ("REFIS") | | 8(d) | | 431 | | 432 |
Liabilities related to associates and joint ventures | | 22 | | 516 | | 289 |
Provisions | | 26 | | 1,230 | | 1,363 |
Liabilities related to Brumadinho | | 3 | | 1,568 | | — |
De-characterization of dams | | 3 | | 309 | | — |
Interest on capital | | | 1,571 | | — | |
Others | | | 1,088 | | 480 | |
| | | | | | |
| | 13,845 | | 9,111 | ||
Non-current liabilities | | | | |||
Loans and borrowings | | 21 | | 11,842 | | 14,463 |
Leases | | 2(d) | | 1,566 | | — |
Other financial liabilities | | 13 | | 4,372 | | 2,877 |
Settlement program ("REFIS") | | 8(d) | | 3,476 | | 3,917 |
Deferred income taxes | | 8(a) | | 1,882 | | 1,532 |
Provisions | | 26 | | 8,493 | | 7,095 |
Liabilities related to Brumadinho | | 3 | | 1,415 | | — |
De-characterization of dams | | 3 | | 2,180 | | — |
Liabilities related to associates and joint ventures | | 22 | | 1,184 | | 832 |
Streaming transactions | | 7 | | 2,063 | | 2,293 |
Others | | | 402 | | 1,238 | |
| | | | | | |
| | 38,875 | | 34,247 | ||
| | | | | | |
Total liabilities | | | 52,720 | | 43,358 | |
| | | | | | |
| | | | | | |
| | | | | | |
Stockholders' equity | | 30 | | | ||
Equity attributable to Vale's stockholders | | | 40,067 | | 43,985 | |
Equity attributable to noncontrolling interests | | | (1,074) | | 847 | |
| | | | | | |
Total stockholders' equity | | | 38,993 | | 44,832 | |
| | | | | | |
Total liabilities and stockholders' equity | | | 91,713 | | 88,190 | |
| | | | | | |
| | | | | | |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Consolidated Balance SheetIn millions of United States dollars
| | Notes | | December 31, 2015 | | December 31, 2014 |
---|---|---|---|---|---|---|
Assets | | | | |||
Current assets | | | | |||
Cash and cash equivalents | | 7 | | 3,591 | | 3,974 |
Financial investments | | | 28 | | 148 | |
Derivative financial instruments | | 24 | | 121 | | 166 |
Accounts receivable | | 8 | | 1,476 | | 3,275 |
Inventories | | 9 | | 3,528 | | 4,501 |
Prepaid income taxes | | | 900 | | 1,581 | |
Recoverable taxes | | 10 | | 1,404 | | 1,700 |
Related parties | | 30 | | 70 | | 579 |
Others | | | 311 | | 670 | |
| | | | | | |
| | 11,429 | | 16,594 | ||
Assets held for sale | | 5 | | 4,044 | | 3,640 |
| | | | | | |
| | 15,473 | | 20,234 | ||
| | | | | | |
Non-current assets | | | | |||
Derivative financial instruments | | 24 | | 93 | | 87 |
Loans | | | 188 | | 229 | |
Prepaid income taxes | | | 471 | | 478 | |
Recoverable taxes | | 10 | | 501 | | 401 |
Deferred income taxes | | 20 | | 7,904 | | 3,976 |
Judicial deposits | | 18(c) | | 882 | | 1,269 |
Related parties | | 30 | | 1 | | 35 |
Others | | | 613 | | 705 | |
| | | | | | |
| | 10,653 | | 7,180 | ||
Investments in associates and joint ventures | | 11 | | 2,940 | | 4,133 |
Intangibles | | 13 | | 5,324 | | 6,820 |
Property, plant and equipment | | 14 | | 54,102 | | 78,122 |
| | | | | | |
| | 73,019 | | 96,255 | ||
| | | | | | |
Total assets | | | 88,492 | | 116,489 | |
| | | | | | |
| | | | | | |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
Consolidated Balance Sheet (Continued)In millions of United States dollars
| | Notes | | December 31, 2015 | | December 31, 2014 |
---|---|---|---|---|---|---|
Liabilities | | | | |||
Current liabilities | | | | |||
Suppliers and contractors | | | 3,365 | | 4,354 | |
Payroll and related charges | | | 375 | | 1,163 | |
Derivative financial instruments | | 24 | | 2,076 | | 1,416 |
Loans and borrowings | | 16 | | 2,506 | | 1,419 |
Related parties | | 30 | | 475 | | 306 |
Income taxes—Settlement program | | 19 | | 345 | | 457 |
Taxes payable | | | 250 | | 550 | |
Provision for income taxes | | | 241 | | 353 | |
Employee postretirement obligations | | 21(a) | | 68 | | 67 |
Asset retirement obligations | | 17 | | 89 | | 136 |
Others | | | 648 | | 405 | |
| | | | | | |
| | 10,438 | | 10,626 | ||
Liabilities associated with assets held for sale | | 5 | | 107 | | 111 |
| | | | | | |
| | 10,545 | | 10,737 | ||
| | | | | | |
Non-current liabilities | | | | |||
Derivative financial instruments | | 24 | | 1,429 | | 1,610 |
Loans and borrowings | | 16 | | 26,347 | | 27,388 |
Related parties | | 30 | | 213 | | 109 |
Employee postretirement obligations | | 21(a) | | 1,750 | | 2,236 |
Provisions for litigation | | 18(a) | | 822 | | 1,282 |
Income taxes—Settlement program | | 19 | | 4,085 | | 5,863 |
Deferred income taxes | | 20 | | 1,670 | | 3,341 |
Asset retirement obligations | | 17 | | 2,385 | | 3,233 |
Participative stockholders' debentures | | 29(b) | | 342 | | 1,726 |
Redeemable noncontrolling interest | | | – | | 243 | |
Deferred revenue—Gold stream | | 28 | | 1,749 | | 1,323 |
Others | | | 1,451 | | 1,077 | |
| | | | | | |
| | 42,243 | | 49,431 | ||
| | | | | | |
Total liabilities | | | 52,788 | | 60,168 | |
| | | | | | |
Stockholders' equity | | | | |||
Equity attributable to Vale's stockholders | | 25 | | 33,589 | | 55,122 |
Equity attributable to noncontrolling interests | | 12 | | 2,115 | | 1,199 |
| | | | | | |
Total stockholders' equity | | | 35,704 | | 56,321 | |
| | | | | | |
Total liabilities and stockholders' equity | | | 88,492 | | 116,489 | |
| | | | | | |
| | | | | | |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Changes in Equity
In millions of United States dollars
| | Share capital | | Results on conversion of shares | | Results from operation with noncontrolling interest | | Profit reserves | | Treasury stocks | | Unrealized fair value gain (losses) | | Cumulative translation adjustments | | Retained earnings | | Equity attributable to Vale's stockholders | | Equity attributable to noncontrolling interests | | Total stockholder's equity | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2012 | | 60,578 | | (152 | ) | (400 | ) | 38,389 | | (4,477 | ) | (2,044 | ) | (18,663 | ) | 8 | | 73,239 | | 1,588 | | 74,827 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Net income (loss) | | – | | – | | – | | – | | – | | – | | – | | 584 | | 584 | | (178 | ) | 406 | ||||||||||
Other comprehensive income: | | | | | | | | | | | | |||||||||||||||||||||
Retirement benefit obligations | | – | | – | | – | | – | | – | | 630 | | – | | – | | 630 | | – | | 630 | ||||||||||
Cash flow hedge | | – | | – | | – | | – | | – | | (51 | ) | – | | – | | (51 | ) | – | | (51) | ||||||||||
Available-for-sale financial instruments | | – | | – | | – | | – | | – | | (1 | ) | – | | – | | (1 | ) | – | | (1) | ||||||||||
Translation adjustments | | – | | – | | – | | (4,901 | ) | – | | 264 | | (1,925 | ) | (14 | ) | (6,576 | ) | 3 | | (6,573) | ||||||||||
Transactions with stockholders: | | | | | | | | | | | | |||||||||||||||||||||
Dividends and interest on capital of Vale's stockholders | | – | | – | | – | | – | | – | | – | | – | | (4,500 | ) | (4,500 | ) | – | | (4,500) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | – | | (91 | ) | (91) | ||||||||||
Redeemable noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | – | | 211 | | 211 | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | – | | 78 | | 78 | ||||||||||
Realization of reserves | | – | | – | | – | | (3,936 | ) | – | | – | | – | | 3,936 | | – | | – | | – | ||||||||||
Appropriation to undistributed retained earnings | | – | | – | | – | | 14 | | – | | – | | – | | (14 | ) | – | | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2013 | | 60,578 | | (152 | ) | (400 | ) | 29,566 | | (4,477 | ) | (1,202 | ) | (20,588 | ) | – | | 63,325 | | 1,611 | | 64,936 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Net income (loss) | | – | | – | | – | | – | | – | | – | | – | | 657 | | 657 | | (304 | ) | 353 | ||||||||||
Other comprehensive income: | | | | | | | | | | | �� | |||||||||||||||||||||
Retirement benefit obligations | | – | | – | | – | | – | | – | | (192 | ) | – | | – | | (192 | ) | – | | (192) | ||||||||||
Cash flow hedge | | – | | – | | – | | – | | – | | (416 | ) | – | | – | | (416 | ) | – | | (416) | ||||||||||
Translation adjustments | | – | | – | | – | | (2,237 | ) | – | | 97 | | (2,098 | ) | 235 | | (4,003 | ) | (26 | ) | (4,029) |
| | Share capital | | Capital reserve | | Profit reserves | | Treasury stocks | | Other reserves | | Cumulative translation adjustments | | Retained earnings | | Equity attributable to Vale's stockholders | | Equity attributable to noncontrolling interests | | Total stockholders' equity | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2016 | | 61,614 | | – | | 4,203 | | (1,477 | ) | (1,998 | ) | (23,300 | ) | – | | 39,042 | | 1,982 | | 41,024 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Net income | | – | | – | | – | | – | | – | | – | | 5,507 | | 5,507 | | 14 | | 5,521 | | ||||||||||
Other comprehensive income | | – | | – | | (158 | ) | – | | (36 | ) | 352 | | – | | 158 | | (1 | ) | 157 | | ||||||||||
Dividends and interest on capital of Vale's stockholders | | – | | – | | (658 | ) | – | | – | | – | | (1,475 | ) | (2,133 | ) | – | | (2,133 | ) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | (202 | ) | (202 | ) | ||||||||||
Acquisitions and disposal of noncontrolling interest | | – | | – | | – | | – | | (255 | ) | – | | – | | (255 | ) | (512 | ) | (767 | ) | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | 33 | | 33 | | ||||||||||
Appropriation to undistributed retained earnings | | – | | – | | 4,032 | | – | | – | | – | | (4,032 | ) | – | | – | | – | | ||||||||||
Merger of Valepar (note 30) | | – | | 1,139 | | – | | – | | – | | – | | – | | 1,139 | | – | | 1,139 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2017 | | 61,614 | | 1,139 | | 7,419 | | (1,477 | ) | (2,289 | ) | (22,948 | ) | – | | 43,458 | | 1,314 | | 44,772 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Net income | | – | | – | | – | | – | | – | | – | | 6,860 | | 6,860 | | 36 | | 6,896 | | ||||||||||
Other comprehensive income | | – | | – | | (1,257 | ) | – | | 134 | | (2,156 | ) | – | | (3,279 | ) | (120 | ) | (3,399 | ) | ||||||||||
Dividends and interest on capital of Vale's stockholders | | – | | – | | – | | – | | – | | – | | (2,054 | ) | (2,054 | ) | – | | (2,054 | ) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | (166 | ) | (166 | ) | ||||||||||
Acquisitions and disposal of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | (229 | ) | (229 | ) | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | 12 | | 12 | | ||||||||||
Appropriation to undistributed retained earnings | | – | | – | | 4,806 | | – | | – | | – | | (4,806 | ) | – | | – | | – | | ||||||||||
Share buyback program | | – | | – | | – | | (1,000 | ) | – | | – | | – | | (1,000 | ) | – | | (1,000 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2018 | | 61,614 | | 1,139 | | 10,968 | | (2,477 | ) | (2,155 | ) | (25,104 | ) | – | | 43,985 | | 847 | | 44,832 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Loss | | – | | – | | – | | – | | – | | – | | (1,683 | ) | (1,683 | ) | (497 | ) | (2,180 | ) | ||||||||||
Other comprehensive income | | – | | – | | (428 | ) | – | | (298 | ) | (107 | ) | – | | (833 | ) | (15 | ) | (848 | ) | ||||||||||
Interest on capital of Vale's stockholders | | – | | – | | (1,767 | ) | – | | – | | – | | – | | (1,767 | ) | – | | (1,767 | ) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | (87 | ) | (87 | ) | ||||||||||
Acquisitions and disposal of noncontrolling interest | | – | | – | | – | | – | | 343 | | – | | – | | 343 | | (1,350 | ) | (1,007 | ) | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | 28 | | 28 | | ||||||||||
Allocation of loss | | – | | – | | (1,683 | ) | – | | – | | – | | 1,683 | | – | | – | | – | | ||||||||||
Assignment and transfer of shares (note 30) | | – | | – | | – | | 22 | | – | | – | | – | | 22 | | – | | 22 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2019 | | 61,614 | | 1,139 | | 7,090 | | (2,455 | ) | (2,110 | ) | (25,211 | ) | – | | 40,067 | | (1,074 | ) | 38,993 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Changes in Equity (Continued)In millions of United States dollars
| | | | |
| | F-14 | | |
| | Share capital | | Results on conversion of shares | | Results from operation with noncontrolling interest | | Profit reserves | | Treasury stocks | | Unrealized fair value gain (losses) | | Cumulative translation adjustments | | Retained earnings | | Equity attributable to Vale's stockholders | | Equity attributable to noncontrolling interests | | Total stockholder's equity | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Transactions with stockholders: | | | | | | | | | | | | |||||||||||||||||||||
Dividends and interest on capital of Vale's stockholders | | – | | – | | – | | – | | – | | – | | – | | (4,200 | ) | (4,200 | ) | – | | (4,200) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | – | | (8 | ) | (8) | ||||||||||
Acquisitions and disposal of participation of noncontrolling interest | | – | | – | | (49 | ) | – | | – | | – | | – | | – | | (49 | ) | (201 | ) | (250) | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | – | | 127 | | 127 | ||||||||||
Capitalization of reserves | | 1,036 | | – | | – | | (1,036 | ) | – | | – | | – | | – | | – | | – | | – | ||||||||||
Cancellation of treasury stock | | – | | – | | – | | (3,000 | ) | 3,000 | | – | | – | | – | | – | | – | | – | ||||||||||
Realization of reserves | | – | | – | | – | | (3,387 | ) | – | | – | | – | | 3,387 | | – | | – | | – | ||||||||||
Appropriation to undistributed retained earnings | | – | | – | | – | | 79 | | – | | – | | – | | (79 | ) | – | | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2014 | | 61,614 | | (152 | ) | (449 | ) | 19,985 | | (1,477 | ) | (1,713 | ) | (22,686 | ) | – | | 55,122 | | 1,199 | | 56,321 | ||||||||||
�� | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Loss | | – | | – | | – | | – | | – | | – | | – | | (12,129 | ) | (12,129 | ) | (491 | ) | (12,620) | ||||||||||
Other comprehensive income: | | | | | | | | | | | | |||||||||||||||||||||
Retirement benefit obligations | | – | | – | | – | | – | | – | | 70 | | – | | – | | 70 | | (1 | ) | 69 | ||||||||||
Cash flow hedge | | – | | – | | – | | – | | – | | 447 | | – | | – | | 447 | | – | | 447 | ||||||||||
Available-for-sale financial instruments | | – | | – | | – | | – | | – | | 1 | | – | | – | | 1 | | – | | 1 | ||||||||||
Translation adjustments | | – | | – | | – | | (5,371 | ) | – | | 203 | | (2,665 | ) | – | | (7,833 | ) | (51 | ) | (7,884) | ||||||||||
Transactions with stockholders: | | | | | | | | | | | | |||||||||||||||||||||
Dividends and interest on capital of Vale's stockholders | | – | | – | | – | | (1,500 | ) | – | | – | | – | | – | | (1,500 | ) | – | | (1,500) | ||||||||||
Dividends of noncontrolling interest | | – | | – | | – | | – | | – | | – | | – | | – | | – | | (32 | ) | (32) | ||||||||||
Acquisitions and disposal of participation of noncontrolling interest | | – | | – | | (253 | ) | – | | – | | – | | (336 | ) | – | | (589 | ) | 1,455 | | 866 | ||||||||||
Capitalization of noncontrolling interest advances | | – | | – | | – | | – | | – | | – | | – | | – | | – | | 36 | | 36 | ||||||||||
Appropriation to undistributed retained earnings | | – | | – | | – | | (12,129 | ) | – | | – | | – | | 12,129 | | – | | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at December 31, 2015 | | 61,614 | | (152 | ) | (702 | ) | 985 | | (1,477 | ) | (992 | ) | (25,687 | ) | – | | 33,589 | | 2,115 | | 35,704 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
Vale S.A. (the "Parent Company") is a public company headquartered at 700, Avenida das Américas, Rio de Janeiro, Brazil with securities traded on the stock exchanges of São Paulo—BM&F BOVESPA (Vale3 and Vale5), New York—NYSE (VALE and VALE.P), Paris—NYSE Euronext (Vale3 and Vale5) and Hong Kong—HKEx (codes 6210 and 6230).
Vale and its direct and indirect subsidiaries ("Vale", "Group" or the "Company") are global producers of iron ore and iron ore pellets, key raw materials for steelmaking, and producers of nickel, which is used to produce stainless steel and metal alloys employed in the production of several products. The GroupCompany also produces copper, metallurgical and thermal coal, potash, phosphates and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The information by segment is presented in notes 3note 4.
Vale S.A. (the "Parent Company") is a public company headquartered in the city of Rio de Janeiro, Brazil with securities traded on the stock exchanges of São Paulo—B3 S.A. (VALE3), New York—NYSE (VALE) and 31(d)Madrid—LATIBEX (XVALO).
2. Basis forof preparation of the financial statements
The consolidated financial statements of the Company ("financial statements") present the accounts of the Group as described in note 31(b), and have been prepared and are being presented in accordance with the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
The financial statements have been prepared under theon a historical cost conventionbasis as adjusted to reflect: (i) the fair value of financial instruments measured at fair value through income statement or available-for-sale financial instruments measured at fair value through the statement of comprehensive income; and (ii) impairment of assets.
Subsequent events were evaluated through February 24, 2016, which isCertain reclassifications have been made to amounts presented in the dateexplanatory notes to conform to the current year presentation.
These financial statements were approved by the Board of Directors.
c) Accounting standards issued but not yet effective
IFRS 9 Financial instruments—In July 2014 the IASB issued IFRS 9, which sets out the requirementsauthorized for recognizingissue on February 20, 2020, except for notes 3 (f.iii) and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This Standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption will be required from January 1, 2018 and the Company does not expect significant impact from the adoption of this standard.
IFRS 15 Revenue from contracts with customers—In May 2014 the IASB issued IFRS 15, which sets out the requirements for revenue recognition that apply to all contracts with customer to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration34, as to which the company expects to be entitled in exchange for those goods or services,date of approval is April 3, 2020.
The adoption will be required from January 1, 2018 andfinancial statements of the Company and its associates and joint ventures are measured using the currency of the primary economic environment in which the entity operates ("functional currency"), which in the case of the Parent Company is currently analyzing the potential impact regardingBrazilian real ("R$"). For presentation purposes, these financial statements are presented in United States dollar ("US$") as the Company believes that this pronouncement onis how international investors analyze the financial statements.
| | | | |
| | F-15 | | |
IFRS 16 Leases—In January 2016 the IASB issued IFRS 16, which sets out the principles for the recognition, measurement, presentation and disclosure
d) Summary of main accounting practices and critical accounting estimates and judgments
The summary of main accounting practices and the critical accounting estimates and judgments are disclosed in note 31 and 32, respectively.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
2. Basis of preparation of the financial statements (Continued)
The exchange rates used by the Company to translate its foreign operations are as follows:
| | Closing rate | | Average rate for the year ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | |||||
US Dollar ("US$") | | 4.0307 | | 3.8748 | | 3.3080 | | 3.9461 | | 3.6558 | | 3.1925 | |||||
Canadian dollar ("CAD") | | 3.1034 | | 2.8451 | | 2.6344 | | 2.9746 | | 2.8190 | | 2.4618 | |||||
Euro ("EUR" or "€") | | 4.5305 | | 4.4390 | | 3.9693 | | 4.4159 | | 4.3094 | | 3.6088 |
Significant accounting policies used in the preparation of these financial statements are disclosed in the respective notes. The accounting policies have been consistently applied to all years presented, except for the adoption of the new accounting standards described as follows:
IFRIC 23 Uncertainty over income tax treatments—IFRIC 23 became effective for annual periods beginning on or after January 1, 2019 and clarifies the measurement and recognition requirements of IAS 12 Income taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: (i) whether an entity considers uncertain tax treatments separately, (ii) the assumptions an entity makes about the examination of tax treatments by tax authorities, and (iii) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, and tax rates.
3. Information by business segment and by geographic area
The information presentedUpon adoption of the Interpretation, the Company considered whether it has any uncertain tax positions, particularly those relating to the Executive Boarddeduction of social security contributions on the performancenet income ("CSLL") in Brazil, and determined that, although there is an uncertainty that could affect the 2018 year end, it is deemed probable that the Company's treatments will be accepted by the Brazilian tax authority. Further details in relation to this uncertain tax position is disclosed in note 8.
IFRS 16 Leases—The Company applied IFRS 16 from January 1, 2019 using the retrospective approach with the cumulative effect recognized as at the date of each segment is derived frominitial application. Accordingly, the accounting records, adjustedcomparative information has not been restated and continues to be presented under IAS 17 and related interpretations. On transitioning to IFRS 16, the lease agreements were recognized in the statement of financial position and measured discounting the remaining minimum contractual payments at the present value, using the Company's incremental borrowing rate, depending on the remaining lease term.
The Company used the following practical expedients in applying IFRS 16: (i) applied a single discount rate to a portfolio of leases with similar characteristics; (ii) applied the exemption not to recognize right-of-use assets and liabilities for reallocations between segments.leases with less than 12 months of lease term and/or leases of low-value assets. The payments associated to these leases will be recognized as an expense on a straight-line basis over the lease term; and (iii) used hindsight when determining the lease term, to determine if the contract contains options to extend or terminate the lease.
| | | | |
| | F-16 | | |
a) Operating income (loss) and adjusted EBITDATable of Contents
Adjusted EBITDA is used by management to support the decision making process for segments. The definition of adjusted EBITDA for the Company is the operating income or loss adding dividends received from associates and joint ventures, and excluding the depreciation, depletion and amortization, impairment, onerous contracts and results on measurement or sales of non-current assets.
| | Year ended December 31, 2015 | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Income statement | | Adjusted by | | | |||||||||||||||||||||||||||||||
| | Net operating revenue | | Costs | | Expenses, net | | Research and evaluation expenses | | Pre operating and operational stoppage | | Depreciation and other results | | Operating income (loss) | | Impairment of non-current assets and onerous contracts | | Results on measurement or sale of non-current assets | | Dividends received from associates and joint ventures | | Depreciation, depletion and amortization | | Adjusted EBITDA | |||||||||||||
Ferrous minerals | | | | | | | | | | | | | | | |||||||||||||||||||||||
Iron ore | | | 12,330 | | | (7,604 | ) | (398 | ) | (121 | ) | (124 | ) | (2,289 | ) | 1,794 | | 914 | | 132 | | 22 | | 1,243 | | 4,105 | |||||||||||
Pellets | | | 3,600 | | | (2,121 | ) | 9 | | (4 | ) | (24 | ) | (385 | ) | 1,075 | | 58 | | – | | 225 | | 327 | | 1,685 | |||||||||||
Ferroalloys and manganese | | | 162 | | | (175 | ) | 1 | | – | | (19 | ) | (23 | ) | (54 | ) | – | | – | | – | | 23 | | (31) | |||||||||||
Other ferrous products and services | | | 470 | | | (341 | ) | 8 | | (3 | ) | (2 | ) | (97 | ) | 35 | | 21 | | – | | 8 | | 76 | | 140 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
| | 16,562 | | | (10,241 | ) | (380 | ) | (128 | ) | (169 | ) | (2,794 | ) | 2,850 | | 993 | | 132 | | 255 | | 1,669 | | 5,899 | ||||||||||||
Coal | | | 526 | | | (839 | ) | (140 | ) | (22 | ) | (61 | ) | (3,230 | ) | (3,766 | ) | 3,038 | | – | | 28 | | 192 | | (508) | |||||||||||
Base metals | | | | | | | | | | | | | | | |||||||||||||||||||||||
Nickel and other products | | | 4,693 | | | (3,393 | ) | (154 | ) | (103 | ) | (411 | ) | (6,344 | ) | (5,712 | ) | 4,696 | | – | | – | | 1,648 | | 632 | |||||||||||
Copper | | | 1,470 | | | (903 | ) | (32 | ) | (8 | ) | (1 | ) | (229 | ) | 297 | | 36 | | – | | – | | 193 | | 526 | |||||||||||
Other base metals products | | | – | | | – | | 230 | | – | | – | | – | | 230 | | – | | – | | – | | – | | 230 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
| | 6,163 | | | (4,296 | ) | 44 | | (111 | ) | (412 | ) | (6,573 | ) | (5,185 | ) | 4,732 | | – | | – | | 1,841 | | 1,388 | ||||||||||||
Fertilizers | | | | | | | | | | | | | | | |||||||||||||||||||||||
Potash | | | 132 | | | (89 | ) | 3 | | (50 | ) | (24 | ) | (579 | ) | (607 | ) | 548 | | – | | – | | 31 | | (28) | |||||||||||
Phosphates | | | 1,733 | | | (1,173 | ) | (34 | ) | (29 | ) | (43 | ) | 133 | | 587 | | (391 | ) | – | | – | | 258 | | 454 | |||||||||||
Nitrogen | | | 303 | | | (207 | ) | (6 | ) | (3 | ) | (3 | ) | (21 | ) | 63 | | – | | – | | – | | 21 | | 84 | |||||||||||
Other fertilizers products | | | 57 | | | – | | – | | – | | – | | – | | 57 | | – | | – | | – | | – | | 57 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
| | 2,225 | | | (1,469 | ) | (37 | ) | (82 | ) | (70 | ) | (467 | ) | 100 | | 157 | | – | | – | | 310 | | 567 | ||||||||||||
Others | | | 133 | | | (139 | ) | (160 | ) | (134 | ) | – | | 170 | | (130 | ) | 6 | | (193 | ) | 35 | | 17 | | (265) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Total | | | 25,609 | | | (16,984 | ) | (673 | ) | (477 | ) | (712 | ) | (12,894 | ) | (6,131 | ) | 8,926 | | (61 | ) | 318 | | 4,029 | | 7,081 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business2. Basis of preparation of the financial statements (Continued)
As a result of IFRS 16 adoption, the Company has changed its accounting policy for lease contracts, except for its mineral leases, as the standard excludes from its scope leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources. Details of these changes are summarized below.
The ferrous minerals produced in Brazil are mainly shipped to Asia. The Company has leased the Ponta da Madeira and Itaguaí maritime terminals in Brazil, that are primarily for the delivery of iron ore and iron ore pellets to bulk carrier vessels. The remaining lease terms are, respectively, 4 and 7 years for the ports in Brazil. Vale also has a lease agreement for a maritime terminal in Oman, which is used to deliver iron ore pellets produced in that location. The remaining lease term is 24 years for the port in Oman.
Some of the delivery of iron ore from Brazil to the Asian clients are made through five time-charter agreements, which have 11 years remaining lease term on average.
As part of the ferrous minerals segment, the Company also has long-term agreements for the exploration and by geographic area (Continued)processing of iron ore with its joint ventures, such as the agreements to lease the pelletizing plants in Brazil. These lease agreements contain variable payment terms based on the pellet production.
In addition, the Company leases an oxygen plant dedicated to the base metals operation, as part of its nickel operation run in Canada. The remaining period of this lease agreement is 11 years.
The Company also has a long-term contract related to the right of use of certain locomotives dedicated to the transportation of coal in Mozambique, which has a remaining lease term of 7 years.
Vale has leased properties for its operational facilities and commercial and administrative offices in the various locations where the Company conducts its business.
Following are the discount rates applied in discounting the lease liabilities at present value:
| | Year ended December 31, 2014 | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Statement of income | | Adjusted by | | | |||||||||||||||||||||||||||||
| | Net operating revenue | | Costs | | Expenses, net | | Research and evaluation expenses | | Pre operating and operational stoppage | | Depreciation and other results | | Operating income (loss) | | Impairment of non-current assets and onerous contracts | | Results on measurement or sale of non-current assets | | Dividends received from associates and joint ventures | | Depreciation, depletion and amortization | | Adjusted EBITDA | |||||||||||
Ferrous minerals | | | | | | | | | | | | | |||||||||||||||||||||||
Iron ore | | 19,301 | | (9,532 | ) | (1,258 | ) | (319 | ) | (160 | ) | (2,649 | ) | 5,383 | | 1,135 | | – | | 44 | | 1,514 | | 8,076 | |||||||||||
Pellets | | 5,263 | | (2,705 | ) | (21 | ) | – | | (38 | ) | (274 | ) | 2,225 | | – | | – | | 482 | | 274 | | 2,981 | |||||||||||
Ferroalloys and manganese | | 392 | | (261 | ) | (13 | ) | – | | (23 | ) | (32 | ) | 63 | | – | | – | | – | | 32 | | 95 | |||||||||||
Other ferrous products and services | | 741 | | (565 | ) | 3 | | (10 | ) | – | | (110 | ) | 59 | | – | | – | | – | | 110 | | 169 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 25,697 | | (13,063 | ) | (1,289 | ) | (329 | ) | (221 | ) | (3,065 | ) | 7,730 | | 1,135 | | – | | 526 | | 1,930 | | 11,321 | ||||||||||||
Coal | | 739 | | (1,071 | ) | (309 | ) | (18 | ) | (38 | ) | (463 | ) | (1,160 | ) | 343 | | – | | 28 | | 120 | | (669) | |||||||||||
Base metals | | | | | | | | | | | | | |||||||||||||||||||||||
Nickel and other products | | 6,241 | | (3,710 | ) | 101 | | (138 | ) | (514 | ) | (405 | ) | 1,575 | | (1,379 | ) | 167 | | – | | 1,617 | | 1,980 | |||||||||||
Copper | | 1,451 | | (877 | ) | (12 | ) | (5 | ) | (16 | ) | (174 | ) | 367 | | – | | – | | – | | 174 | | 541 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 7,692 | | (4,587 | ) | 89 | | (143 | ) | (530 | ) | (579 | ) | 1,942 | | (1,379 | ) | 167 | | – | | 1,791 | | 2,521 | ||||||||||||
Fertilizers | | | | | | | | | | | | | |||||||||||||||||||||||
Potash | | 154 | | (133 | ) | (15 | ) | (19 | ) | (22 | ) | (26 | ) | (61 | ) | – | | – | | – | | 26 | | (35) | |||||||||||
Phosphates | | 1,820 | | (1,514 | ) | (70 | ) | (46 | ) | (56 | ) | (1,398 | ) | (1,264 | ) | 1,053 | | – | | – | | 345 | | 134 | |||||||||||
Nitrogen | | 349 | | (238 | ) | (10 | ) | (7 | ) | (7 | ) | (48 | ) | 39 | | – | | – | | – | | 48 | | 87 | |||||||||||
Other fertilizers products | | 92 | | – | | – | | – | | – | | – | | 92 | | – | | – | | – | | – | | 92 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 2,415 | | (1,885 | ) | (95 | ) | (72 | ) | (85 | ) | (1,472 | ) | (1,194 | ) | 1,053 | | – | | – | | 419 | | 278 | ||||||||||||
Others | | 996 | | (601 | ) | (329 | ) | (172 | ) | (6 | ) | (28 | ) | (140 | ) | – | | – | | 14 | | 28 | | (98) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
Total | | 37,539 | | (21,207 | ) | (1,933 | ) | (734 | ) | (880 | ) | (5,607 | ) | 7,178 | | 1,152 | | 167 | | 568 | | 4,288 | | 13,353 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | |
---|---|---|
Ports | | 3% to 6% |
Vessels | | 3% to 6% |
Pellets plants | | 3% to 6% |
Properties | | 3% to 7% |
Energy plants | | 4% to 5% |
Locomotives | | 7% |
Mining equipment | | 4% to 6% |
Until December 31, 2018, the lease arrangements were classified as operating leases and were not recognized in the Company's statement of financial position. The contractual payments were recognized in the income statement on a straight-line basis over the term of the lease.
| | | | |
| | F-17 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
2. Basis of preparation of the financial statements (Continued)
Following are the lease liabilities recognized under IFRS 16 reconciled to the disclosed operating lease commitments under IAS 17, as at December 31, 2018:
| | Lease commitments disclosed on December 31, 2018 | | Contracts scoped out | | Present value adjustment | | Lease liability recognized on January 1, 2019 |
---|---|---|---|---|---|---|---|---|
Ports | | 1,131 | | – | | (364) | | 767 |
Vessels | | 769 | | (1) | | (164) | | 604 |
Pellets plants | | 218 | | (15) | | (52) | | 151 |
Properties | | 162 | | (1) | | (24) | | 137 |
Energy plants | | 94 | | – | | (29) | | 65 |
Locomotives | | 68 | | (7) | | (16) | | 45 |
Mining equipment | | 55 | | (18) | | (5) | | 32 |
| | | | | | | | |
Total | | 2,497 | | (42) | | (654) | | 1,801 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The lease liability is presented on the statement of financial position as "Leases" and the accounting policy related to leases is disclosed in note 19. The total amount of the variable lease payments not included in the measurement of lease liabilities, which have been recognized straight to the income statement, for the year ended December 31, 2019 was US$560. The interest accretion recognized in the income statement is disclosed in note 6.
Changes in the recognized right-of-use assets and leases liabilities are as follows:
| | Assets | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | January 1, 2019 | | Additions and contract modifications(i) | | Impairment(ii) | | Depreciation | | Translation adjustment | | December 31, 2019 |
Ports | | 767 | | 13 | | – | | (41) | | (5) | | 734 |
Vessels | | 604 | | 28 | | – | | (50) | | – | | 582 |
Pellets plants | | 151 | | 60 | | – | | (35) | | (15) | | 161 |
Properties | | 137 | | 42 | | (16) | | (30) | | – | | 133 |
Energy plants | | 65 | | 4 | | – | | (7) | | 2 | | 64 |
Locomotives | | 45 | | – | | (39) | | (6) | | – | | – |
Mining equipment | | 32 | | – | | – | | (14) | | – | | 18 |
| | | | | | | | | | | | |
Total | | 1,801 | | 147 | | (55) | | (183) | | (18) | | 1,692 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | |
| | F-18 | | |
3. Information byNotes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
2. Basis of preparation of the financial statements (Continued)
| | Liabilities | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | January 1, 2019 | | Additions and contract modifications(i) | | Payments | | Interest | | Translation adjustment | | December 31, 2019 |
Ports | | 767 | | 13 | | (55) | | 31 | | (6) | | 750 |
Vessels | | 604 | | 28 | | (74) | | 22 | | – | | 580 |
Pellets plants | | 151 | | 60 | | (36) | | 8 | | (8) | | 175 |
Properties | | 137 | | 42 | | (34) | | 7 | | – | | 152 |
Energy plants | | 65 | | 4 | | (7) | | 4 | | 5 | | 71 |
Locomotives | | 45 | | – | | (8) | | 3 | | – | | 40 |
Mining equipment | | 32 | | – | | (10) | | 1 | | – | | 23 |
| | | | | | | | | | | | |
Total | | 1,801 | | 147 | | (224) | | 76 | | (9) | | 1,791 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The annual minimum payments are presented as follows:
| | Year ended December 31, 2013 | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Statement of income | | Adjusted by | | | |||||||||||||||||||||||||||||
| | Net operating revenue | | Costs | | Expenses, net | | Research and evaluation expenses | | Pre operating and operational stoppage | | Depreciation and other results | | Operating income (loss) | | Impairment of non-current assets and onerous contracts | | Results on measurement or sale of non-current assets | | Dividends received from associates and joint ventures | | Depreciation, depletion and amortization | | Adjusted EBITDA | |||||||||||
Ferrous minerals | | | | | | | | | | | | | |||||||||||||||||||||||
Iron ore | | 27,844 | | (9,067 | ) | (1,261 | ) | (314 | ) | (244 | ) | (1,393 | ) | 15,565 | | – | | – | | 63 | | 1,393 | | 17,021 | |||||||||||
Pellets | | 6,000 | | (2,299 | ) | (110 | ) | (12 | ) | (130 | ) | (366 | ) | 3,083 | | 182 | | | 652 | | 184 | | 4,101 | ||||||||||||
Ferroalloys and manganese | | 523 | | (317 | ) | (34 | ) | – | | (13 | ) | (29 | ) | 130 | | – | | – | | – | | 29 | | 159 | |||||||||||
Other ferrous products and services | | 425 | | (166 | ) | 3 | | – | | – | | (140 | ) | 122 | | – | | – | | – | | 140 | | 262 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 34,792 | | (11,849 | ) | (1,402 | ) | (326 | ) | (387 | ) | (1,928 | ) | 18,900 | | 182 | | – | | 715 | | 1,746 | | 21,543 | ||||||||||||
Coal | | 1,010 | | (1,147 | ) | (262 | ) | (49 | ) | (47 | ) | (173 | ) | (668 | ) | – | | – | | 40 | | 173 | | (455) | |||||||||||
Base metals | | | | | | | | | | | | | |||||||||||||||||||||||
Nickel and other products | | 5,839 | | (3,657 | ) | (123 | ) | (173 | ) | (753 | ) | (1,592 | ) | (459 | ) | – | | – | | – | | 1,592 | | 1,133 | |||||||||||
Copper | | 1,447 | | (1,008 | ) | (122 | ) | (45 | ) | (10 | ) | (389 | ) | (127 | ) | – | | 215 | | – | | 174 | | 262 | |||||||||||
Other base metals products | | – | | – | | 244 | | – | | – | | – | | 244 | | – | | – | | – | | – | | 244 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 7,286 | | (4,665 | ) | (1 | ) | (218 | ) | (763 | ) | (1,981 | ) | (342 | ) | – | | 215 | | – | | 1,766 | | 1,639 | ||||||||||||
Fertilizers | | | | | | | | | | | | | |||||||||||||||||||||||
Potash | | 201 | | (127 | ) | (29 | ) | (16 | ) | (394 | ) | (2,160 | ) | (2,525 | ) | 2,116 | | | – | | 44 | | (365) | ||||||||||||
Phosphates | | 2,065 | | (1,681 | ) | (146 | ) | (30 | ) | (29 | ) | (312 | ) | (133 | ) | – | | – | | – | | 312 | | 179 | |||||||||||
Nitrogen | | 469 | | (382 | ) | (22 | ) | (5 | ) | (5 | ) | (75 | ) | (20 | ) | – | | – | | – | | 75 | | 55 | |||||||||||
Other fertilizers products | | 79 | | – | | – | | (2 | ) | – | | – | | 77 | | – | | – | | – | | – | | 77 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| 2,814 | | (2,190 | ) | (197 | ) | (53 | ) | (428 | ) | (2,547 | ) | (2,601 | ) | 2,116 | | – | | – | | 431 | | (54) | ||||||||||||
Others | | 865 | | (669 | ) | (233 | ) | (155 | ) | – | | (34 | ) | (226 | ) | – | | | 79 | | 34 | | (113) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
Total of continued operations | | 46,767 | | (20,520 | ) | (2,095 | ) | (801 | ) | (1,625 | ) | (6,663 | ) | 15,063 | | 2,298 | | 215 | | 834 | | 4,150 | | 22,560 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
Discontinued operations | | 1,283 | | (1,078 | ) | (72 | ) | (14 | ) | – | | (367 | ) | (248 | ) | – | | 209 | | – | | 158 | | 119 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
Total | | 48,050 | | (21,598 | ) | (2,167 | ) | (815 | ) | (1,625 | ) | (7,030 | ) | 14,815 | | 2,298 | | 424 | | 834 | | 4,308 | | 22,679 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 onwards | | Total |
---|---|---|---|---|---|---|---|---|---|---|---|---|
Ports | | 59 | | 59 | | 59 | | 58 | | 851 | | 1,086 |
Vessels | | 67 | | 65 | | 63 | | 62 | | 465 | | 722 |
Pellets plants | | 35 | | 31 | | 31 | | 11 | | 110 | | 218 |
Properties | | 42 | | 37 | | 22 | | 18 | | 64 | | 183 |
Energy plants | | 7 | | 7 | | 7 | | 7 | | 64 | | 92 |
Locomotives | | 8 | | 8 | | 8 | | 8 | | 23 | | 55 |
Mining equipment | | 7 | | 6 | | 6 | | 4 | | 4 | | 27 |
| | | | | | | | | | | | |
Total | | 225 | | 213 | | 196 | | 168 | | 1,581 | | 2,383 |
| | | | | | | | | | | | |
The amounts in the table above presents the undiscounted lease obligation by maturity date. The lease liability disclosed as "leases" in the balance sheet is measured at the present value of such obligations.
The preparation of financial statements requires the use of critical accounting estimates and the application of judgment by management in applying the Company's accounting policies. These estimates are based on the experience, best knowledge, information available at the statement of financial position date and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in facts and circumstances may lead to the revision of these estimates. Actual future results may differ from estimates.
| | | | |
| | F-19 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic area2. Basis of preparation of the financial statements (Continued)
b) AssetsThe significant estimates and judgments applied by segmentthe Company in the preparation of these financial statements are as follows:
| | Year ended December 31, 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Trade receivables | | Product inventory | | Investments in associates and joint ventures | | Property, plant and equipment and intangible assets | | Additions to property, plant and equipment and intangible | ||||
Ferrous minerals | | | | | | |||||||||
Iron ore | | 76 | | 812 | | 405 | | 26,772 | | 4,874 | ||||
Pellets | | 715 | | 159 | | 296 | | 1,079 | | 39 | ||||
Ferroalloys and manganese | | 52 | | 63 | | – | | 140 | | 13 | ||||
Other ferrous products and services | | 77 | | 2 | | 778 | | 211 | | 15 | ||||
| | | | | | | | | | | ||||
| 920 | | 1,036 | | 1,479 | | 28,202 | | 4,941 | |||||
Coal | | 44 | | 53 | | 306 | | 1,812 | | 1,539 | ||||
Base metals | | | | | | |||||||||
Nickel and other products | | 411 | | 1,142 | | 17 | | 21,286 | | 1,315 | ||||
Copper | | 17 | | 24 | | – | | 2,236 | | 240 | ||||
| | | | | | | | | | | ||||
| 428 | | 1,166 | | 17 | | 23,522 | | 1,555 | |||||
Fertilizers | | | | | | |||||||||
Potash | | – | | 13 | | – | | 146 | | �� | ||||
Phosphates | | 101 | | 272 | | – | | 3,720 | | 257 | ||||
Nitrogen | | – | | 10 | | – | | – | | – | ||||
| | | | | | | | | | | ||||
| 101 | | 295 | | – | | 3,866 | | 257 | |||||
Others | | 41 | | 3 | | 1,138 | | 2,024 | | 79 | ||||
| | | | | | | | | | | ||||
Total | | 1,534 | | 2,553 | | 2,940 | | 59,426 | | 8,371 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
Note | | Significant estimates and judgments |
---|---|---|
3 | | Brumadinho dam failure |
7 | | Deferred revenue |
8 | | Deferred income taxes |
15 | | Consolidation |
19 | | Mineral reserves and mine useful life |
20 | | Impairment of non-current assets |
22 | | Liabilities related to associates and joint ventures |
24 | | Fair values estimate |
27 | | Asset retirement obligation |
28 | | Litigation |
29 | | Employee post-retirement obligations |
On January 25, 2019, a tailings dam ("Dam I") failed at the Córrego do Feijão mine, in the city of Brumadinho, state of Minas Gerais. The failure released a flow of tailings debris, destroying some of Vale's facilities, affecting local communities and disturbing the environment. The tailings released have caused an impact of around 315 km in extension, reaching the nearby Paraopeba River. The dam failure in Brumadinho ("event") resulted in 270 fatalities or presumed fatalities.
The Córrego do Feijão mine is part of the Paraopeba complex, in the Southern System. Dam I contained approximately 11.7 million cubic meters of iron ore tailings and was inactive since 2016 (that is, without additional tailings disposal). Dam I was raised by building successive layers ("lifts") above the tailings accumulated in the reservoir, a technique known as the "upstream" method. There are two other raising methods, the "downstream" and "centerline" methods. Each of these methods presents a different risk profile.
The Company has been taking the necessary actions to support the victims and to mitigate and recover the social and environmental damages resulting from the event. Vale has provided support in multiple ways, aiming to ensure the humanitarian assistance to those affected by the dam failure. The Company has been focused on preventing further similar events through the accelerated decommissioning of upstream and some centerline dams.
In addition, Vale has determined the suspension of the Shareholder's Remuneration Policy and any other resolution related to shares buyback.
As a result of the dam failure, the Company recognized in the income statement a total impact of US$7,402 (R$28,818 million) for the year ended December 31, 2019 to meet its assumed obligations,
| | | | |
| | F-20 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic areaBrumadinho dam failure (Continued)
including de-characterization of the dams, indemnification and donations to those affected by the event, remediation of the affected areas and compensation to the society.
(a.i) Company's dams
On January 29, 2019, the Company informed the market and Brazilian authorities the decision to speed up the plan to "de-characterize" all of its tailings dams built under the upstream method (same method as Brumadinho's dam), located in Brazil. The "de-characterization" means that the structure will be dismantled so the structure is effectively no longer a dam. After the event, the Brazilian National Mining Agency ("Agência Nacional de Mineração—ANM") set new safety criteria for dams, determining the de-characterization of structures built under the upstream and centerline methods.
Before the event, the decommissioning plans of these dams were based on a method which aimed to ensure the physical and chemical stability of the structures, not necessarily, in all cases, removing in full and potentially processing the tailings contained in the dams. Since the event, the Company has been working to develop detailed de-characterization engineering plan for each of these dams.
The updated plans indicate that for certain of these upstream dams, firstly, the Company will have to reinforce the downstream massive structures, and conclude the de-characterization subsequently, according to the geotechnical and geographic conditions of each of them. It was also considered whether additional containment structures should be built, depending on the safety level of the structure.
Following the Company's decision and new standards set by ANM, the Company has undertaken an assessment of its dam structures since the event and recorded a provision for the de-characterization of upstream, certain "centerline structures" and dikes that have been identified to date.
Vale has developed engineering projects for these structures and the total expected costs to carry out all de-characterization projects resulted in a provision of US$2,625 (R$10,274 million) recognized in the income statement.
| | | | |
| | F-21 | | |
| | Year ended December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Trade receivables | | Product inventory | | Investments in associates and joint ventures | | Property, plant and equipment and intangible assets | | Additions to property, plant and equipment and intangible | ||||
Ferrous minerals | | | | | | |||||||||
Iron ore | | 1,520 | | 1,110 | | 546 | | 35,294 | | 6,946 | ||||
Pellets | | 434 | | 187 | | 593 | | 1,617 | | 214 | ||||
Ferroalloys and manganese | | 151 | | 69 | | – | | 262 | | 56 | ||||
Other ferrous products and services | | 68 | | – | | 1,109 | | 305 | | 39 | ||||
| | | | | | | | | | | ||||
| 2,173 | | 1,366 | | 2,248 | | 37,478 | | 7,255 | |||||
Coal | | 122 | | 155 | | 355 | | 4,429 | | 2,099 | ||||
Base metals | | | | | | |||||||||
Nickel and other products | | 658 | | 1,435 | | 21 | | 29,615 | | 1,522 | ||||
Copper | | 119 | | 26 | | 194 | | 3,664 | | 563 | ||||
| | | | | | | | | | | ||||
| 777 | | 1,461 | | 215 | | 33,279 | | 2,085 | |||||
Fertilizers | | | | | | |||||||||
Potash | | – | | 12 | | – | | 156 | | – | ||||
Phosphates | | 136 | | 309 | | – | | 5,509 | | 36 | ||||
Nitrogen | | – | | 23 | | – | | – | | – | ||||
| | | | | | | | | | | ||||
| 136 | | 344 | | – | | 5,665 | | 36 | |||||
Others | | 154 | | 4 | | 1,315 | | 4,091 | | 338 | ||||
| | | | | | | | | | | ||||
Total | | 3,362 | | 3,330 | | 4,133 | | 84,942 | | 11,813 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic areaBrumadinho dam failure (Continued)
c) Results by segment and revenues by geographic areaThe changes in the provision for the year ended December 31, 2019 are as follows:
| | Year ended December 31, 2015 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Coal | | Base metals | | Fertilizers | | Others | | Total | |||||
Results | | | | | | | |||||||||||
Net operating revenue | | 16,562 | | 526 | | 6,163 | | 2,225 | | 133 | | 25,609 | |||||
Cost and expenses | | (10,918 | ) | (1,062 | ) | (4,775 | ) | (1,658 | ) | (433 | ) | (18,846) | |||||
Impairment of non-current assets and onerous contracts | | (993 | ) | (3,038 | ) | (4,732 | ) | (157 | ) | (6 | ) | (8,926) | |||||
Results on measurement or sale of non-current assets | | (132 | ) | – | | – | | – | | 193 | | 61 | |||||
Depreciation, depletion and amortization | | (1,669 | ) | (192 | ) | (1,841 | ) | (310 | ) | (17 | ) | (4,029) | |||||
| | | | | | | | | | | | | |||||
Operating income (loss) | | 2,850 | | (3,766 | ) | (5,185 | ) | 100 | | (130 | ) | (6,131) | |||||
Financial result | | (10,482 | ) | 151 | | (333 | ) | (147 | ) | 10 | | (10,801) | |||||
Results on sale or disposal of investments in associates and joint ventures | | – | | – | | – | | – | | 97 | | 97 | |||||
Impairment of investment in associates and joint ventures | | (132 | ) | – | | (314 | ) | – | | – | | (446) | |||||
Equity results in associates and joint ventures | | 26 | | (3 | ) | (132 | ) | – | | (330 | ) | (439) | |||||
Income taxes | | 5,007 | | (835 | ) | 1,087 | | (149 | ) | (10 | ) | 5,100 | |||||
| | | | | | | | | | | | | |||||
Loss | | (2,731 | ) | (4,453 | ) | (4,877 | ) | (196 | ) | (363 | ) | (12,620) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Income (loss) attributable to noncontrolling interests | | 69 | | (254 | ) | (295 | ) | 10 | | (21 | ) | (491) | |||||
Loss attributable to Vale's stockholders | | (2,800 | ) | (4,199 | ) | (4,582 | ) | (206 | ) | (342 | ) | (12,129) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Sales classified by geographic area: | | | | | | | |||||||||||
America, except United States and Brazil | | 359 | | 18 | | 1,122 | | 65 | | – | | 1,564 | |||||
United States of America | | 30 | | – | | 804 | | – | | 21 | | 855 | |||||
Europe | | 2,506 | | 102 | | 1,921 | | 127 | | – | | 4,656 | |||||
Middle East/Africa/Oceania | | 1,009 | | 97 | | 84 | | 9 | | – | | 1,199 | |||||
Japan | | 1,512 | | 74 | | 373 | | – | | – | | 1,959 | |||||
China | | 8,400 | | 44 | | 651 | | – | | – | | 9,095 | |||||
Asia, except Japan and China | | 1,081 | | 169 | | 990 | | 74 | | – | | 2,314 | |||||
Brazil | | 1,665 | | 22 | | 218 | | 1,950 | | 112 | | 3,967 | |||||
| | | | | | | | | | | | | |||||
Net operating revenue | | 16,562 | | 526 | | 6,163 | | 2,225 | | 133 | | 25,609 | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
| 2019 | |
---|---|---|
Provision recognized | | 2,625 |
Payments | | (159) |
Interest accretion | | 101 |
Translation adjustment | | (78) |
| | |
Balance at December 31 | | 2,489 |
Current liabilities | | 309 |
Non-current liabilities | | 2,180 |
| | |
Liabilities | | 2,489 |
| | |
| | |
| | |
The measurement of the costs and recognition of the provision takes into consideration several assumptions and estimates, which rely on factors, for which some are not under the Company's control. The main critical assumptions and estimates applied considers, among others: (i) volume of the waste to be removed based on historical data available and interpretation of the enacted laws and regulations; (ii) location availability for the tailings disposal; (iii) acceptance by the authorities of the proposed engineering methods and solution; and (iv) updates in the discount rate. Therefore, changes in the critical assumptions and estimates may result in a material change to the amount provided as at December 31, 2019.
(a.ii) Associates and joint ventures upstream dams
Some of our investees also operate similar dam structures and as detailed in the note 22 to these financial statements, the Company recognized a provision of US$257 (R$993 million) during 2019 as "Equity results and other results in associates and joint ventures" in relation to the de-characterization of the Germano tailings dam, owned by Samarco Mineração S.A.
The Company has been working together with the authorities and society to remediate the environmental and social impacts of the event. Therefore, the Company has started negotiations and entered into agreements with the relevant authorities and affected people. Vale has also signed an instrument committing to donate to Brumadinho city, other institutions, to the families with missing members or affected by fatalities, to business owners of the region and families that resided in the Self-Saving Zone near to the Brumadinho dam.
Vale has also developed studies and projects to ensure geotechnical safety of the remaining structures at the Córrego do Feijão mine, in Brumadinho, and the removal and proper disposal of the tailings, especially alongside the Paraopeba river. In addition, Vale has set up an exclusive structure for treatment of the rescued animals, enabling emergency care and recovery.
| | | | |
| | F-22 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic areaBrumadinho dam failure (Continued)
The changes in the provision in the year ended December 31, 2019 are as follows:
| | Year ended December 31, 2014 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Coal | | Base metals | | Fertilizers | | Others | | Total | |||||
Results | | | | | | | |||||||||||
Net operating revenue | | 25,697 | | 739 | | 7,692 | | 2,415 | | 996 | | 37,539 | |||||
Cost and expenses | | (14,902 | ) | (1,436 | ) | (5,171 | ) | (2,137 | ) | (1,108 | ) | (24,754) | |||||
Impairment of non-current assets and onerous contracts | | (1,135 | ) | (343 | ) | 1,379 | | (1,053 | ) | – | | (1,152) | |||||
Results on measurement or sales of non-current assets | | – | | – | | (167 | ) | – | | – | | (167) | |||||
Depreciation, depletion and amortization | | (1,930 | ) | (120 | ) | (1,791 | ) | (419 | ) | (28 | ) | (4,288) | |||||
| | | | | | | | | | | | | |||||
Operating income (loss) | | 7,730 | | (1,160 | ) | 1,942 | | (1,194 | ) | (140 | ) | 7,178 | |||||
Financial result | | (6,003 | ) | 194 | | (198 | ) | (51 | ) | (11 | ) | (6,069) | |||||
Results on sale or disposal of investments in associates and joint ventures | | – | | – | | – | | – | | (30 | ) | (30) | |||||
Impairment of investment in associates and joint ventures | | – | | – | | – | | – | | (31 | ) | (31) | |||||
Equity results in associates and joint ventures | | 665 | | 32 | | (35 | ) | – | | (157 | ) | 505 | |||||
Income taxes | | (1,451 | ) | 81 | | (145 | ) | 403 | | (88 | ) | (1,200) | |||||
| | | | | | | | | | | | | |||||
Net income (loss) | | 941 | | (853 | ) | 1,564 | | (842 | ) | (457 | ) | 353 | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Income (loss) attributable to noncontrolling interests | | 59 | | (49 | ) | (284 | ) | 4 | | (34 | ) | (304) | |||||
Income (loss) attributable to Vale's stockholders | | 882 | | (804 | ) | 1,848 | | (846 | ) | (423 | ) | 657 | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Sales classified by geographic area: | | | | | | | |||||||||||
America, except United States and Brazil | | 652 | | 3 | | 1,373 | | 39 | | 21 | | 2,088 | |||||
United States of America | | 24 | | – | | 1,099 | | – | | 245 | | 1,368 | |||||
Europe | | 3,894 | | 115 | | 2,586 | | 89 | | 13 | | 6,697 | |||||
Middle East/Africa/Oceania | | 1,608 | | 110 | | 149 | | 3 | | – | | 1,870 | |||||
Japan | | 2,566 | | 192 | | 863 | | – | | 6 | | 3,627 | |||||
China | | 11,939 | | 76 | | 642 | | – | | – | | 12,657 | |||||
Asia, except Japan and China | | 2,189 | | 235 | | 828 | | 53 | | – | | 3,305 | |||||
Brazil | | 2,825 | | 8 | | 152 | | 2,231 | | 711 | | 5,927 | |||||
| | | | | | | | | | | | | |||||
Net operating revenue | | 25,697 | | 739 | | 7,692 | | 2,415 | | 996 | | 37,539 | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
| 2019 | |
---|---|---|
Provision for social and economic compensation | | 2,735 |
Provision for environmental remediation and compensation | | 1,190 |
Payments | | (831) |
Interest accretion | | 47 |
Translation adjustment | | (158) |
| | |
Balance at December 31 | | 2,983 |
Current liabilities | | 1,568 |
Non-current liabilities | | 1,415 |
| | |
Liabilities | | 2,983 |
| | |
| | |
| | |
The total amount of this provision may vary due to the early stage of the ongoing negotiations, timing and scope of the measures currently being discussed, which are subject to the approval and consent by the relevant authorities.
In addition, the Company is under negotiations with the Government of the State of Minas Gerais ("GEMG") and other relevant authorities for an additional agreement for collective damages indemnification and further compensation for the society and environment. The goal of Vale with a potential agreement would be to provide a stable legal framework for the execution of reparation and compensation, with the suspension of the existing civil lawsuits.
The potential agreement is still very uncertain as it is subject to conclusion of the ongoing negotiations and approval by the Company, the Government of the State of Minas Gerais, Public Prosecutors and other Authorities and Intervenient parties.
Therefore, the provisions recorded in these financial statements do not include the potential outcome of the current negotiation as it is not yet possible to reliably estimate an amount or whether the current negotiations will be successful.
The estimate of the economic impact of a potential agreement will depend on (i) final agreement on the list of reparation and compensation projects, (ii) a detailed assessment of the estimates of the amounts to be spent on the reparation and compensation projects being discussed, (iii) an analysis of the detailed scope of such projects to determine their overlap with the initiatives and amounts already provisioned; and (iv) the timing of the execution of projects and disbursements, which will impact the present value of the obligations.
Based on the current terms under discussion, and preliminary estimates subject to the uncertainties listed above, such possible agreement might result in an additional provision ranging from US$1 billion
| | | | |
| | F-23 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic areaBrumadinho dam failure (Continued)
(R$4 billion) to US$2 billion (R$8 billion). All accounting impacts, if any, will be recorded in the period an agreement is reached.
(b.i) Public Defendants
On April 5, 2019, Vale and the Public Defendants of the State of Minas Gerais formalized an agreement under which those affected by the Brumadinho's Dam failure may join an individual or family group out-of-Court settlement agreements for the indemnification of material, economic and moral damages. This agreement establishes the basis for a wide range of indemnification payments, which were defined according to the best practices and case law of Brazilian Courts.
(b.ii) Public Ministry of Labor
On July 15, 2019, Vale signed a final agreement with the Public Ministry of Labor to indemnify the direct and third-party employees of the Córrego do Feijão mine who were affected by the termination of this operation.
Under the terms of the final agreement, Vale will either maintain the jobs of its direct employees and third-party employees until January 25, 2023 or convert this benefit into a cash compensation. The agreement also includes indemnification payments to the relatives of the fatal victims of the event, which may vary depending on their relationship with the victims, and a lifelong medical insurance benefit to the widows and widowers and a similar benefit to the dependents of the victims until they are 25 years old.
In addition, the agreement set a collective moral damage indemnification payment in the amount of US$104 (R$400 million), which has been fully paid in 2019.
(b.iii) Brazilian Federal Government, State of Minas Gerais, Public Prosecutors
On February 20, 2019, Vale entered into a judicial preliminary agreement with the State of Minas Gerais, Federal Government, the Public Prosecutors of the State of Minas Gerais, the Federal Public Prosecutors and the Public Defenders of the State of Minas Gerais and representatives of Public Authorities in which the Company commits to make, subject to registration, emergency indemnification payments to the residents of Brumadinho and the communities that are located downstream up to one kilometer from the Paraopeba river bed, from Brumadinho to the city of Pompéu. Due to this agreement, the Company anticipated the indemnities through monthly payments, according to the age of the beneficiary and other factors, during a 12-month period.
On November 28, 2019, the extension of emergency indemnification payments was ratified to those affected by the dam rupture for 10 months, starting from January 25, 2020.
| | | | |
| | F-24 | | |
| | Year ended December 31, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Coal | | Base metals | | Fertilizers | | Others | | Total | | Discontinued operations | | Total | |||||||
Results | | | | | | | | | |||||||||||||||
Net operating revenue | | 34,792 | | 1,010 | | 7,286 | | 2,814 | | 865 | | 46,767 | | 1,283 | | 48,050 | |||||||
Cost and expenses | | (13,964 | ) | (1,505 | ) | (5,647 | ) | (2,868 | ) | (1,057 | ) | (25,041 | ) | (1,164 | ) | (26,205) | |||||||
Impairment of non-current assets and onerous contracts | | (182 | ) | – | | – | | (2,116 | ) | – | | (2,298 | ) | – | | (2,298) | |||||||
Results on measurement or sale of non-current assets | | – | | – | | (215 | ) | – | | – | | (215 | ) | (209 | ) | (424) | |||||||
Depreciation, depletion and amortization | | (1,746 | ) | (173 | ) | (1,766 | ) | (431 | ) | (34 | ) | (4,150 | ) | (158 | ) | (4,308) | |||||||
| | | | | | | | | | | | | | | | | |||||||
Operating income (loss) | | 18,900 | | (668 | ) | (342 | ) | (2,601 | ) | (226 | ) | 15,063 | | (248 | ) | 14,815 | |||||||
Financial result | | (8,559 | ) | 44 | | (50 | ) | (18 | ) | 251 | | (8,332 | ) | (2 | ) | (8,334) | |||||||
Results on sale or disposal of investments in associates and joint ventures | | – | | – | | – | | 27 | | 14 | | 41 | | – | | 41 | |||||||
Equity results in associates and joint ventures | | 627 | | 28 | | (26 | ) | – | | (160 | ) | 469 | | – | | 469 | |||||||
Income taxes | | (7,200 | ) | 294 | | 62 | | 56 | | (45 | ) | (6,833 | ) | 248 | | (6,585) | |||||||
| | | | | | | | | | | | | | | | | |||||||
Net income (loss) | | 3,768 | | (302 | ) | (356 | ) | (2,536 | ) | (166 | ) | 408 | | (2 | ) | 406 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Income (loss) attributable to noncontrolling interests | | (42 | ) | (35 | ) | (58 | ) | 13 | | (56 | ) | (178 | ) | – | | (178) | |||||||
Income (loss) attributable to Vale's stockholders | | 3,810 | | (267 | ) | (298 | ) | (2,549 | ) | (110 | ) | 586 | | (2 | ) | 584 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Sales classified by geographic area: | | | | | | | | | |||||||||||||||
America, except United States and Brazil | | 733 | | – | | 1,045 | | 60 | | 10 | | 1,848 | | – | | 1,848 | |||||||
United States of America | | 30 | | – | | 1,070 | | – | | 212 | | 1,312 | | – | | 1,312 | |||||||
Europe | | 5,917 | | 79 | | 2,647 | | 120 | | – | | 8,763 | | – | | 8,763 | |||||||
Middle East/Africa/Oceania | | 1,844 | | 137 | | 93 | | 17 | | 7 | | 2,098 | | – | | 2,098 | |||||||
Japan | | 3,113 | | 304 | | 618 | | – | | – | | 4,035 | | – | | 4,035 | |||||||
China | | 17,913 | | 157 | | 851 | | – | | – | | 18,921 | | – | | 18,921 | |||||||
Asia, except Japan and China | | 2,340 | | 316 | | 883 | | 61 | | – | | 3,600 | | – | | 3,600 | |||||||
Brazil | | 2,902 | | 17 | | 79 | | 2,556 | | 636 | | 6,190 | | 1,283 | ��� | 7,473 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Net operating revenue | | 34,792 | | 1,010 | | 7,286 | | 2,814 | | 865 | | 46,767 | | 1,283 | | 48,050 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
3. Information by business segment and by geographic areaBrumadinho dam failure (Continued)
d) Investment(b.iv) Environmental remediation and compensation
On July 8, 2019, Vale has entered into an agreement withCompanhia de Saneamento de Minas Gerais ("COPASA") to implement several actions to clean up the affected areas and to upgrade the retention water system alongside the Paraopeba River and some other water collection points nearby the affected area. In addition, the Company mobilized the dredging of part of the material released, including cleaning and de-sanding of the Paraopeba river channel.
The Company has incurred in associatesexpenses, which do not qualify for provision and joint ventures, intangible and property, plant and equipment by geographic area
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Investments in associates and joint ventures | | Intangible | | Property, plant and equipment | | Total | | Investments in associates and joint ventures | | Intangible | | Property, plant and equipment | | Total | |||||||
Brazil | | 2,408 | | 3,285 | | 32,190 | | 37,883 | | 3,411 | | 4,380 | | 40,971 | | 48,762 | |||||||
Canada | | 2 | | 2,039 | | 10,589 | | 12,630 | | 4 | | 2,352 | | 17,478 | | 19,834 | |||||||
America, except Brazil and Canada | | 157 | | – | | 456 | | 613 | | 184 | | – | | 651 | | 835 | |||||||
Europe | | – | | – | | 608 | | 608 | | – | | – | | 630 | | 630 | |||||||
Asia | | 367 | | – | | 5,219 | | 5,586 | | 340 | | – | | 7,043 | | 7,383 | |||||||
Australia | | – | | – | | 74 | | 74 | | – | | 88 | | 776 | | 864 | |||||||
New Caledonia | | – | | – | | 3,521 | | 3,521 | | – | | – | | 4,140 | | 4,140 | |||||||
Mozambique | | – | | – | | 442 | | 442 | | – | | – | | 5,376 | | 5,376 | |||||||
Oman | | – | | – | | 1,003 | | 1,003 | | – | | – | | 1,057 | | 1,057 | |||||||
Other regions | | 6 | | – | | – | | 6 | | 194 | | – | | – | | 194 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 2,940 | | 5,324 | | 54,102 | | 62,366 | | 4,133 | | 6,820 | | 78,122 | | 89,075 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
4. Relevant event—Dam failure at Samarco Mineração S.A. ("Samarco")
On November 5, 2015, Samarco experiencedhave been recognized straight to the failure of an iron ore tailings dam (Fundão)income statement, in the stateamount of Minas Gerais—Brazil, which affected communities and ecosystems, including the Rio Doce river.
Following the dam failure, the state government of Minas Gerais ordered the suspension of Samarco's operations. Samarco has been working together with the authorities in order to meet the legal and social requirements to mitigate the environmental and social impacts of the event.
a) Accounting effects at the investment due to the dam failure
Samarco is a Brazilian entity jointly controlled by Vale and BHP Billiton Brasil Ltda. ("BHP"), in which each shareholder has a 50% ownership interest.
As a consequence of the dam failure, Samarco incurred expenses, wrote off assets and recognized provisions for remediation, which affected its balance sheet and income statement. Because Samarco is a joint venture, the effects of the dam failure are accounted for under equity method by Vale, in which the balance sheet and income statement impact is limited to Vale's interest in Samarco's capital as per the Brazilian Corporation Law. The dam failure had no effect on Vale's cash flowUS$730 (R$2,903 million) for the year ended December 31, 2015.2019. These expenses include communication services, accommodation and humanitarian assistance, equipment, legal services, water, food aid, taxes, among others.
The Company has suspended some operations due to judicial decisions or technical analysis performed by the Company on its upstream dam structures. The Company recorded a loss of US$759 (R$2,997 million) related to the operational stoppage and idle capacity of the ferrous mineral segment as "Pre-operating and operational stoppage" for the year ended December 31, 2019. During 2019, certain operations have partially returned and the Company is working on legal and technical measures to resume all operations at full capacity.
Following the event and the decision to speed up the de-characterization of the upstream dams, the Company recognized a loss of US$235 (R$904 million) as "Impairment and disposal of non-current assets" for the year ended December 31, 2019 in relation to the assets write-off of the Córrego do Feijão mine and those related to the other upstream dams in Brazil.
Vale is subject to significant contingencies due to the Brumadinho dam failure. Vale has already been named on several judicial and administrative proceedings brought by authorities and affected people and is currently under investigations. Vale is evaluating these contingencies and would recognize a provision based on the updates on the stage of these claims.
Following these contingencies, approximately US$1,608 (R$6,480 million) of the Company's assets are restricted as at December 31, 2019, of which approximately US$125 (R$504 million) of the Company's bank accounts are restricted and US$1,483 (R$5,976 million) were converted into judicial deposits.
| | | | |
| | F-25 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Relevant event—Dam3. Brumadinho dam failure at Samarco Mineração S.A. ("Samarco") (Continued)
For the Brumadinho event, the Company has additional guarantees in the amount of US1,396 (R$5,626 million), which were presented in court and used to release the respective judicial deposit during the year ended December 31, 2019. The accounting impactexpenses related to these additional guarantees in the amount of US$9 (R$36 million) was recorded as financial expense in the Company's income statement for the year ended December 31, 2019.
(f.i) Administrative sanctions
The Company was notified of the investment in Samarco in Vale's financial statements, includingimposition of administrative fines by the effectsBrazilian Institute of the dam failure,Environment and Renewable Natural Resources ("IBAMA"), in the amount of US$62 (R$250 million), which the Company expects to settle through environmental projects. Furthermore, the Secretary for Environment—SEMA Brumadinho imposed administrative fines, in the total amount of US$45 (R$181 million). Both amounts are also recorded as follows:at December 31, 2019.
(f.ii) U.S. Securities class action suits
| | Investments in associates and joint ventures | | Accounts receivable | | Related parties | | Total | |||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance on December 31, 2014 | | 200 | | 24 | | 310 | | 534 | |||
| | | | | | | | | |||
Equity results on income statement | | (167 | ) | – | | – | | (167) | |||
Dividends received | | – | | – | | (146 | ) | (146) | |||
Royalties declared | | – | | 31 | | – | | 31 | |||
Royalties received | | – | | (12 | ) | – | | (12) | |||
Transfers | | 125 | | (38 | ) | (87 | ) | – | |||
Impairment (note 15) | | (132 | ) | – | | – | | (132) | |||
Translation adjustment | | (26 | ) | (5 | ) | (77 | ) | (108) | |||
| | | | | | | | | |||
Balance on December 31, 2015 | | – | | – | | – | | – | |||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
Under Brazilian legislationVale and certain of its officers and former officers have been named defendants in civil putative class action suits, under U.S. federal securities laws, brought before federal courts in New York by holders of our securities. These complaints were consolidated through an amended complaint brought by the Lead Plaintiff on October 25, 2019 before the United States District Court for the Eastern District of New York.
The Lead Plaintiff alleges that we made false and misleading statements or omitted to make disclosures concerning the risks of the operations of Dam I in the Córrego de Feijão mine and the termsadequacy of the joint venture agreement, Vale does not have an obligation to provide funding to Samarco. Additionally, Valerelated programs and procedures. The Lead Plaintiff has not received any requests for financial assistance from Samarco. As a result, Vale's investment in Samarco was reduced to zero and no liability was recognized in Vale's financial statements. The accounting impactspecified an amount of any future request for funding will be determined when it occurs.
b) Social and environmental remediation—In 2015, Samarco recognized provisions for social and environmental remediation based on current available information. There is a high degree of uncertaintyalleged damages in these provisions sinceactions. On December 13, 2019, the impact of environmentalCompany made a motion to dismiss the amended complaint.
Vale intends to defend against this action and social economic assessment is at an early stage. Eventual unrecognized obligations, considered as contingent liabilities, and future possible exposures, including timing of payments cannot be reliably measured. The key assumptions used in the provision will be reviewed periodically consideringmount a full defense against these claims. Based on the assessment of damage progress, which could results in a material change to the amountCompany´s legal consultants and given its preliminary status, the expectation of Samarco's provision in future reporting periods. In addition, the remediation activities have been submitted to the regulators and other government authorities and are still subject to their approval.
c) Contingencies—In December 2015, the Federal Government, the Statesloss of Minas Gerais and Espirito Santo and other entities jointly brought a public civil action against Samarco and its shareholders, Vale and BHP. The plaintiffs seek approximately R$20.2 billion in damages and a number of measures to remediate alleged damages caused by the Fundão dam failure. Due tothis proceeding is classified as possible. However, given the preliminary stagestatus of the proceedings,action, it is not possible at this time to provide a range of possible outcomes ordetermine a reliable estimate of potential future exposure for Vale in relation to this claim. In addition, Samarco and its shareholders are named as a defendant in several other lawsuits brought by individuals, corporations and governmental entities seeking damages for personal injury, wrongful death, commercial or economic injury, breach of contract and violations of statutes. Because these pending lawsuits are at the very early stages, it is not possible to determine a range of outcomes or reliable estimates of the potential exposureexposure.
Subsequent events are disclosed on note 34.
(f.iii) Cooperation with the SEC
The Company is cooperating with the SEC by providing documents and other information concerning the failure of Dam I as requested by the agency.
The Company is negotiating with insurers under its operational risk and civil liability, but these negotiations are still at this time. Therefore, no provision has been recognized and no contingent liability has been quantified.a preliminary stage. Any payment of insurance proceeds will depend on the
| | | | |
| | F-26 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Relevant event—Dam3. Brumadinho dam failure at Samarco Mineração S.A. ("Samarco") (Continued)
Vale S.A. and certain of its officers have been named as defendants in civil class action suits in federal court in New York brought by holders of Vale's securities under U.S. federal securities laws. The lawsuits allege that Vale made false and misleading statements or omitted to make disclosures concerning the risks and dangers of the operations of Samarco's Fundão dam and assert other causes of action against the defendants for the ownership in and supervision of the Fundão dam. The plaintiffs have not specified an amount of alleged damages in these actions. Vale has notified its insurers of the dam failure event and related civil complaints. Vale intends to defend these actions and mount a full defense against the allegations. The litigation is at a very early stage. Service has not been completed on all defendants, no lead plaintiff or lead plaintiffs' attorney has been named, and no schedule has been established for the filing of any responses, motions or answers. As a consequence of the preliminary nature of these suits, it is not possible to determine a range of outcomes or reliable estimates of the potential exposure at this time, and no provision has been recognized.
d) Insurance—Samarco is negotiating with insurers under its operational risk, general liability and engineering risk policies, but these negotiations are still at a preliminary stage. Any payment of insurance proceeds will depend on the coverage definitions under these policies and assessment of the amount of loss. In light of theDue to uncertainties, no indemnification to the Company was recognized in Samarco'sVale's financial statements.
Accounting policy
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.
Critical accounting estimates and judgments
The measurement of the provision requires the use of significant judgements, estimates and assumptions. The provision reflects the estimated costs to comply with Vale's obligation in relation to the event. The provision may be affected by factors including, but not limited to: (i) changes in laws and regulations; (ii) changes in the current estimated market price of the direct and indirect cost related to products and services, (iii) changes in timing for cash outflows, (iv) changes in the technology considered in measuring the provision, (v) number of individuals entitled to the indemnification payments, (vi) resolution of existing and potential legal claims, (vii) demographic assumptions, (viii) actuarial assumptions, and (ix) updates in the discount rate.
Therefore, future expenditures may differ from the amounts currently provided because the realized assumptions and various other factors are not always under the Company's control. These changes to key assumptions could result in a material impact to the amount of the provision in future reporting periods. At each reporting period, the Company will reassess the key assumptions used in the preparation of the projected cash flows and will adjust the provision, if required.
| | December 31, 2015 | | December 31, 2014 | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Nacala | | Energy | | Nacala | | Total | |||
Assets held for sale | | | | | |||||||
Accounts receivable | | 3 | | – | | 8 | | 8 | |||
Other current assets | | 134 | | – | | 157 | | 157 | |||
Investments in associates and joint ventures | | – | | 88 | | – | | 88 | |||
Intangible assets, net | | 21 | | – | | – | | – | |||
Property, plant and equipment, net | | 3,886 | | 477 | | 2,910 | | 3,387 | |||
| | | | | | | | | |||
Total assets | | 4,044 | | 565 | | 3,075 | | 3,640 | |||
| | | | | | | | | |||
Liabilities associated with assets held for sale | | | | | |||||||
Suppliers and contractors | | 93 | | – | | 54 | | 54 | |||
Other current liabilities | | 14 | | – | | 57 | | 57 | |||
| | | | | | | | | |||
Total liabilities | | 107 | | – | | 111 | | 111 | |||
| | | | | | | | | |||
Net assets held for sale | | 3,937 | | 565 | | 2,964 | | 3,529 | |||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
5. Assets held for sale (Continued)
a) Coal—Nacala logistic corridor ("Nacala")—In December 2014, the Company signed an agreement with Mitsui & Co., Ltd. ("Mitsui") to sell 50% of its stake of 70% in the Nacala corridor. Nacala is a combination of railroad4. Information by business segment and port concessions under construction located in Mozambique and Malawi. After completion of the transaction, Vale will share control of Nacala with Mitsui and therefore will not consolidate the assets, liabilities and results of those entities. The assets and liabilities were classified as assets held for sale with no impact in the income statement. As at December 2015, completion of the transaction remains dependent upon certain conditions. The Company remains committed to its plan to sell its 50% interest.
b) Other—Energy generation assets—In December 2013, the Company signed agreements with CEMIG Geração e Transmissão S.A. ("CEMIG GT"), as follows:
(i) A new entity Aliança Norte Participações S.A., was incorporated and Vale contributed its 9% investment in Norte Energia S.A. ("Norte Energia"), which is the company in charge of construction and operation of the Belo Monte Hydroelectric facility. Vale committed to sell 49% and share control of the new entity to CEMIG GT. In the first quarter of 2015, after receiving all regulatory approvals and other customary precedent conditions the Company concluded the transaction and received cash proceeds of US$97, recognizing a gain of US$18 as result on sale or disposal of investment in associates and joint ventures (note 6).
(ii) A new entity Aliança Geração de Energia S.A. ("Aliança Geração") was incorporated and Vale committed to contribute its shares over several power generation assets which use to supply energy for the Company's operations. In exchange, CEMIG GT committed to contribute its stakes in some of its power generation assets. In the first quarter of 2015, after receiving all regulatory approvals and other customary precedent conditions, the exchange of assets was completed and Vale holds 55% and shares control of the new entity with CEMIG GT. A long term contract was signed between Vale and Aliança Geração for the energy supply. Due to the completion of this transaction, the Company (i) derecognized the assets held for sale related to this transaction; (ii) recognized as investment its share in the joint venture Aliança Geração; and (iii) recognized a gain of US$193 as results on measurement or sales of non-current assets (note 6) based on the fair value of the assets transferred by CEMIG GT. This transaction has no cash proceeds or disbursements.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
6. Acquisitions and divestituresgeographic area
The effects of divestitures in the income statement are presented as follow:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Results on measurement or sale of non-current assets | | | | |||||
Shipping assets | | (132 | ) | – | | – | ||
Energy generation assets (note 5) | | 193 | | – | | – | ||
Mineral rights—CoW Indonesia (note 29(a)) | | – | | (167 | ) | – | ||
Sociedad Contractual Minera Tres Valles | | – | | – | | (215) | ||
| | | | | | | ||
| 61 | | (167 | ) | (215) | |||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Results on sale or disposal of investments in associates and joint ventures | | | | |||||
Shandong Yankuang International Coking Co., Ltd. | | 79 | | – | | – | ||
Energy generation assets (note 5) | | 18 | | – | | – | ||
Vale Florestar Fundo de Investimento em Participações | | – | | (30 | ) | – | ||
Log-in Logística Intermodal S.A. | | – | | – | | 14 | ||
Fosbrasil S.A. | | – | | – | | 27 | ||
| | | | | | | ||
| 97 | | (30 | ) | 41 | |||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Financial income | | | | |||||
Norsk Hydro ASA | | – | | – | | 214 | ||
| | | | | | | ||
| – | | – | | 214 | |||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
2015
a) Divestiture of participation in Minerações Brasileiras Reunidas S.A. ("MBR")—The Company operated the following reportable segments during this year: Ferrous Minerals, Base Metals and Fundo de Investimento em Participações Multisetorial Plus II, whose sharesCoal. The segments are heldaligned with products and reflect the structure used by Banco Bradesco BBI S.A. (related party), completedManagement to evaluate Company's performance. The responsible bodies for making operational decisions, allocating resources and evaluating performance are the saleExecutive Boards and the Board of class A preferred shares of MBR, representing 36.4% of its share capital.Directors. The Company received cash proceeds of R$4 billion (US$1,089) and will keep a stake of 62.5%performance of the total capitaloperating segments is assessed based on a measure of MBR, maintaining its stake in ordinary capital at 98.3%. adjusted EBITDA.
The participation and rightsinformation presented to the Executive Board on the performance of each segment is derived from the accounting records, adjusted for reallocations between segments.
The main activities of the new shareholder were recognizedoperating segments are as noncontrolling interest in stockholders' equity.follows:
b) Divestiture of shipping assetsFerrous minerals—The Company completed the sale of 12 very large ore carriers with capacity of 400,000 tons each. The Company received cash proceeds of US$1,316 and recognized a loss of US$132 as results on measurement or sale of non-current assets.
c) Integra and Isaac Plains mining complexes—The Company signed agreements to sell its participation in the Integra and Isaac Plains mining complexes which were put into care and maintenance in 2014 (note 15). The transaction had no impact in cash flow.
d) Divestiture of Shandong Yankuang International Coking Co., Ltd. ("Yankuang")—The Company completed the sale of its participation in Yankuang, a producer of coking coal, methanol and other products. In this transaction, Vale recognized a gain of US$79 as results on sale or disposal of investments in associates and joint ventures.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
6. Acquisitions and divestitures (Continued)
e) Divestiture of VBG-Vale BSGR Limited ("VBG")—VBG is the holding company which held the Simandou mining rights located in Guinea. In April 2014, the Government of Guinea revoked VBG mining rights, without any finding of wrongdoing by Vale. During 2014, as a resultcomprise of the lossproduction and extraction of the mining rights, Vale recognized full impairment of the assets related to VBG (note 15). During the first quarter of 2015, the Company soldiron ore, iron ore pellets, manganese, ferroalloys, other ferrous products and its stake in VBG to its partner in the project and kept the right to any recoverable amount it may derive from the Simandou project. The transaction had no impact on cash or in the income statement.logistic services.
f) Acquisition of Facon Construção e Mineração S.A. ("Facon")—The Company acquired all shares of Facon, a wholly owned subsidiary of Fagundes Construção e Mineração S.A. ("FCM"). FCM is a logistic service provider for Vale Fertilizantes S.A. The Facon business was carved out from FCM with assets and liabilities directly related to the fertilizer business being transferred to Vale Fertilizantes S.A. The purchase price allocation based on the fair value of acquired assets and liabilities was calculated based on studies performed by the Company. Subsequently, Facon was merged into Vale Fertilizantes S.A.
| | | | |
| | F-27 | ||
| | |||
| ||||
| ||||
2014
g) Divestiture of Vale Florestar Fundo de Investimento em Participações ("Vale Florestar")—The Company signed an agreement with a subsidiary of Suzano Papel e Celulose S.A. for the sale of its entire stake in Vale Florestar. A loss on this transaction of US$30 was recorded as a result on sale or disposal of investments in associates and joint ventures in 2014.
2013
h) Divestitures of Sociedad Contractual Minera Tres Valles ("Tres Valles")—The Company sold its total participation in Tres Valles for US$25. On this transaction, Vale recognized a loss of US$215 presented in the income statement as results on measurement or sale of non-current assets of the year ended as at December 31, 2013. The total loss includes an amount of US$7 transferred from cumulative translation adjustments.
i) Divestitures of Log-In Logística Intermodal S.A. ("Log-in")—Vale conducted an auction to sell its common shares of Log-in. All the shares were sold for US$94 and a gain of US$14 on this transaction was recorded in the income statement as result on sale or disposal of investments in associates and joint ventures for the year ended as at December 31, 2013.
j) Divestitures of Fosbrasil S.A. ("Fosbrasil")—The Company entered into an agreement to sale its minority participation in the associate Fosbrasil, producer of purified phosphoric acid, for US$45. On this transaction, Vale recognized a gain of US$27 presented in the income statement as result on sale or disposal of investments in associates and joint ventures for the year ended as at December 31, 2013.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
Base metals—include the production and extraction of nickel and its by-products (copper, gold, silver, cobalt, precious metals and others) and copper, as well as its by-products (gold and silver).
Coal—comprise of the production and extraction of metallurgical and thermal coal and its logistic services.
Fertilizers (Discontinued operations)—include the production of potash, phosphate, nitrogen and other fertilizer products (note 14).
In 2019, due to the Brumadinho dam failure, the Company has created the Special Recovery and Development Board, which is in-charge of social, humanitarian, environmental and structural recovery measures that are implemented in Brumadinho and other affected areas. This Board reports to the CEO and assess the costs related to the Brumadinho event. These costs are not directly related to the Company's operating activities and, therefore, were not allocated to any operating segment.
The Company allocate to "Others" the revenues and cost of other products, services, research and development, investments in joint ventures and associates of other business and unallocated corporate expenses.
a) Adjusted EBITDA
The definition of Adjusted EBITDA for the Company is the operating income or loss plus dividends received and interest from associates and joint ventures, and excluding the amounts charged as (i) depreciation, depletion and amortization and (ii) impairment and disposal of non-current assets.
| | Year ended December 31, 2019 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Net operating revenue | | Cost of goods sold and services rendered | | Sales, administrative and other operating expenses | | Research and evaluation | | Pre operating and operational stoppage | | Dividends received and interest from associates and joint ventures | | Adjusted EBITDA | ||||||
Ferrous minerals | | | | | | | | |||||||||||||
Iron ore | | 23,343 | | (8,778 | ) | (323 | ) | (123 | ) | (750 | ) | 29 | | 13,398 | ||||||
Iron ore pellets | | 5,948 | | (2,666 | ) | (20 | ) | (16 | ) | (72 | ) | 258 | | 3,432 | ||||||
Ferroalloys and manganese | | 282 | | (220 | ) | (8 | ) | (2 | ) | (1 | ) | – | | 51 | ||||||
Other ferrous products and services | | 432 | | (324 | ) | – | | (1 | ) | – | | 9 | | 116 | ||||||
| | | | | | | | | | | | | | | ||||||
| 30,005 | | (11,988 | ) | (351 | ) | (142 | ) | (823 | ) | 296 | | 16,997 | |||||||
Base metals | | | | | | | | |||||||||||||
Nickel and other products | | 4,257 | | (2,867 | ) | (75 | ) | (44 | ) | (28 | ) | – | | 1,243 | ||||||
Copper | | 1,904 | | (905 | ) | (5 | ) | (43 | ) | (20 | ) | – | | 931 | ||||||
| | | | | | | | | | | | | | | ||||||
| 6,161 | | (3,772 | ) | (80 | ) | (87 | ) | (48 | ) | – | | 2,174 | |||||||
Coal | | 1,021 | | (1,638 | ) | 1 | | (30 | ) | – | | 113 | | (533) | ||||||
Brumadinho event | | – | | – | | (7,402 | ) | – | | – | | – | | (7,402) | ||||||
Others | | 383 | | (390 | ) | (506 | ) | (184 | ) | (11 | ) | 57 | | (651) | ||||||
| | | | | | | | | | | | | | | ||||||
Total | | 37,570 | | (17,788 | ) | (8,338 | ) | (443 | ) | (882 | ) | 466 | | 10,585 | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | |
| | | | |
| | F-28 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
| | Year ended December 31, 2018 | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Net operating revenue | | Cost of goods sold and services rendered | | Sales, administrative and other operating expenses | | Research and evaluation | | Pre operating and operational stoppage | | Dividends received and interest from associates and joint ventures | | Adjusted EBITDA | | |||||||
Ferrous minerals | | | | | | | | | ||||||||||||||
Iron ore | | 20,354 | | (9,048 | ) | (76 | ) | (110 | ) | (115 | ) | 28 | | 11,033 | | |||||||
Iron ore pellets | | 6,651 | | (3,393 | ) | (11 | ) | (26 | ) | (19 | ) | 154 | | 3,356 | | |||||||
Ferroalloys and manganese | | 454 | | (290 | ) | (3 | ) | (1 | ) | – | | – | | 160 | | |||||||
Other ferrous products and services | | 474 | | (313 | ) | (4 | ) | (1 | ) | (1 | ) | 7 | | 162 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| 27,933 | | (13,044 | ) | (94 | ) | (138 | ) | (135 | ) | 189 | | 14,711 | | ||||||||
Base metals | | | | | | | | | ||||||||||||||
Nickel and other products | | 4,610 | | (3,060 | ) | (47 | ) | (39 | ) | (33 | ) | – | | 1,431 | | |||||||
Copper | | 2,093 | | (960 | ) | (4 | ) | (18 | ) | – | | – | | 1,111 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| 6,703 | | (4,020 | ) | (51 | ) | (57 | ) | (33 | ) | – | | 2,542 | | ||||||||
Coal | | 1,643 | | (1,575 | ) | (9 | ) | (21 | ) | – | | 143 | | 181 | | |||||||
Others | | 296 | | (263 | ) | (752 | ) | (157 | ) | (21 | ) | 56 | | (841 | ) | |||||||
| | | | | | | | | | | | | | | | |||||||
Total from continuing operations | | 36,575 | | (18,902 | ) | (906 | ) | (373 | ) | (189 | ) | 388 | | 16,593 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
Discontinued operations (Fertilizers) | | 121 | | (120 | ) | (4 | ) | – | | – | | – | | (3 | ) | |||||||
| | | | | | | | | | | | | | | | |||||||
Total | | 36,696 | | (19,022 | ) | (910 | ) | (373 | ) | (189 | ) | 388 | | 16,590 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | |
| | | | |
| | F-29 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
| | Year ended December 31, 2017 | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Net operating revenue | | Cost of goods sold and services rendered | | Sales, administrative and other operating expenses | | Research and evaluation | | Pre operating and operational stoppage | | Dividends received and interest from associates and joint ventures | | Adjusted EBITDA | | |||||||
Ferrous minerals | | | | | | | | | ||||||||||||||
Iron ore | | 18,524 | | (7,950 | ) | 11 | | (88 | ) | (181 | ) | 30 | | 10,346 | | |||||||
Iron ore pellets | | 5,653 | | (2,876 | ) | (9 | ) | (19 | ) | (7 | ) | 81 | | 2,823 | | |||||||
Ferroalloys and manganese | | 469 | | (278 | ) | (8 | ) | – | | (4 | ) | – | | 179 | | |||||||
Other ferrous products and services | | 483 | | (306 | ) | 11 | | (2 | ) | – | | 19 | | 205 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| 25,129 | | (11,410 | ) | 5 | | (109 | ) | (192 | ) | 130 | | 13,553 | | ||||||||
Base metals | | | | | | | | | ||||||||||||||
Nickel and other products | | 4,667 | | (3,437 | ) | (47 | ) | (49 | ) | (75 | ) | – | | 1,059 | | |||||||
Copper | | 2,204 | | (979 | ) | (15 | ) | (13 | ) | – | | – | | 1,197 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| 6,871 | | (4,416 | ) | (62 | ) | (62 | ) | (75 | ) | – | | 2,256 | | ||||||||
Coal | | 1,567 | | (1,354 | ) | (12 | ) | (14 | ) | (4 | ) | 179 | | 362 | | |||||||
Others | | 400 | | (375 | ) | (791 | ) | (155 | ) | (9 | ) | 97 | | (833 | ) | |||||||
| | | | | | | | | | | | | | | | |||||||
Total of continuing operations | | 33,967 | | (17,555 | ) | (860 | ) | (340 | ) | (280 | ) | 406 | | 15,338 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
Discontinued operations (Fertilizers) | | 1,746 | | (1,606 | ) | (102 | ) | (12 | ) | (25 | ) | 3 | | 4 | | |||||||
| | | | | | | | | | | | | | | | |||||||
Total | | 35,713 | | (19,161 | ) | (962 | ) | (352 | ) | (305 | ) | 409 | | 15,342 | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | |
Adjusted EBITDA is reconciled to net income (loss) as follows:
From continuing operations
| | Year ended December 31 | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | |||
Net income (loss) from continuing operations attributable to Vale's stockholders | | (1,683 | ) | 6,952 | | 6,313 | | |||
| | | | | | | | |||
Net income (loss) attributable to noncontrolling interests | | (497 | ) | 36 | | 21 | | |||
| | | | | | | | |||
Net income (loss) from continuing operations | | (2,180 | ) | 6,988 | | 6,334 | | |||
| | | | | | | | |||
Depreciation, depletion and amortization | | 3,726 | | 3,351 | | 3,708 | | |||
Income taxes | | (595 | ) | (172 | ) | 1,495 | | |||
Financial results | | 3,413 | | 4,957 | | 3,019 | | |||
Equity results and other results in associates and joint ventures | | 681 | | 182 | | 82 | | |||
Dividends received and interest from associates and joint ventures(i) | | 466 | | 388 | | 406 | | |||
Impairment and disposal of non-current assets | | 5,074 | | 899 | | 294 | | |||
| | | | | | | | |||
Adjusted EBITDA from continuing operations | | 10,585 | | 16,593 | | 15,338 | | |||
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | |
| | | | |
| | F-30 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
From discontinued operations
| | Year ended December 31 | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2018 | | 2017 | | ||||||
Loss from discontinued operations attributable to Vale's stockholders | | | (92 | ) | | | (806 | ) | | ||
| | | | | | ||||||
Loss attributable to noncontrolling interests | | | – | | | | (7 | ) | | ||
| | | | | | ||||||
Loss from discontinued operations | | | (92 | ) | | | (813 | ) | | ||
| | | | | | ||||||
Depreciation, depletion and amortization | | | – | | | | 1 | | | ||
Income taxes | | | (40 | ) | | | (102 | ) | | ||
Financial results | | | 5 | | | | 28 | | | ||
Equity results in associates and joint ventures | | | – | | | | 2 | | | ||
Dividends received from associates and joint ventures | | | – | | | | 3 | | | ||
Impairment of non-current assets | | | 124 | | | | 885 | | | ||
| | | | | | ||||||
Adjusted EBITDA from discontinued operations | | | (3 | ) | | | 4 | | | ||
| | | | | | ||||||
| | | | | | | | | | ||
| | | | | |
b) Assets by segment
| | December 31, 2019 | | December 31, 2018 | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Product inventory | | Investments in associates and joint ventures | | Property, plant and equipment and intangibles(i) | | Product inventory | | Investments in associates and joint ventures | | Property, plant and equipment and intangibles(i) | | ||||||
Ferrous minerals | | 1,955 | | 1,729 | | 33,528 | | 2,210 | | 1,814 | | 31,377 | | ||||||
Base metals | | 1,354 | | 14 | | 19,893 | | 1,147 | | 14 | | 21,295 | | ||||||
Coal | | 60 | | – | | – | | 119 | | 317 | | 1,589 | | ||||||
Others | | 2 | | 1,055 | | 1,654 | | 11 | | 1,080 | | 2,086 | | ||||||
| | | | | | | | | | | | | | ||||||
Total | | 3,371 | | 2,798 | | 55,075 | | 3,487 | | 3,225 | | 56,347 | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | |
In December 2019, the Company recognize impairment losses for the coal assets from operations in Mozambique and for the base metals assets from operations in New Caledonia. Further details are disclosed in note 20. In September 2019, upon a favorable decision from the Brazilian Supreme Court ("STF"), the Company resumed Onça Puma operation (base metals), which is comprised of mineral extraction and nickel processing activities. The mineral extraction operations had been suspended since September 2017 and nickel processing activities since June 2019.
| | | | |
| | F-31 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
| | Year ended December 31 | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | | ||||||||||||
| | Capital expenditures(ii) | | | | Capital expenditures(ii) | | | | Capital expenditures(ii) | | | | ||||||
| | Depreciation, depletion and amortization | | Depreciation, depletion and amortization | | Depreciation, depletion and amortization | | ||||||||||||
| | Sustaining capital | | Project execution | | Sustaining capital | | Project execution | | Sustaining capital | | Project execution | | ||||||
Ferrous minerals | | 1,685 | | 385 | | 2,063 | | 1,569 | | 823 | | 1,672 | | 1,194 | | 1,485 | | 1,709 | |
Base metals | | 1,225 | | 151 | | 1,351 | | 1,189 | | 34 | | 1,351 | | 960 | | 50 | | 1,590 | |
Coal | | 240 | | – | | 237 | | 132 | | 24 | | 252 | | 73 | | 45 | | 296 | |
Others | | 10 | | 8 | | 75 | | 6 | | 7 | | 76 | | 4 | | 20 | | 113 | |
| | | | | | | | | | | | | | | | | | | |
Total | | 3,160 | | 544 | | 3,726 | | 2,896 | | 888 | | 3,351 | | 2,231 | | 1,600 | | 3,708 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
c) Assets by geographic area
| | December 31, 2019 | | December 31, 2018 | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Investments in associates and joint ventures | | Intangible | | Property, plant and equipment | | Total | | Investments in associates and joint ventures | | Intangible | | Property, plant and equipment | | Total | |
Brazil | | 2,498 | | 6,496 | | 29,134 | | 38,128 | | 2,604 | | 5,875 | | 29,226 | | 37,705 | |
Canada | | – | | 2,000 | | 10,733 | | 12,733 | | – | | 1,956 | | 9,905 | | 11,861 | |
Americas, except Brazil and Canada | | 242 | | – | | – | | 242 | | 247 | | – | | – | | 247 | |
Europe | | – | | 2 | | 900 | | 902 | | – | | – | | 366 | | 366 | |
Indonesia | | – | | 1 | | 2,761 | | 2,762 | | – | | 1 | | 2,776 | | 2,777 | |
Asia, except Indonesia | | 58 | | – | | 995 | | 1,053 | | 374 | | – | | 1,025 | | 1,399 | |
New Caledonia | | – | | – | | 604 | | 604 | | – | | – | | 2,796 | | 2,796 | |
Mozambique | | – | | – | | – | | – | | – | | 130 | | 1,459 | | 1,589 | |
Oman | | – | | – | | 1,449 | | 1,449 | | – | | – | | 829 | | 829 | |
Other regions | | – | | – | | – | | – | | – | | – | | 3 | | 3 | |
| | | | | | | | | | | | | | | | | |
Total | | 2,798 | | 8,499 | | 46,576 | | 57,873 | | 3,225 | | 7,962 | | 48,385 | | 59,572 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | |
| | F-32 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
d) Net operating revenue by geographic area
| | Year ended December 31, 2019 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Base metals | | Coal | | Others | | Total | ||||
Americas, except United States and Brazil | | 523 | | 835 | | – | | – | | 1,358 | ||||
United States of America | | 404 | | 931 | | – | | – | | 1,335 | ||||
Germany | | 1,161 | | 522 | | – | | – | | 1,683 | ||||
Europe, except Germany | | 1,514 | | 1,715 | | 282 | | – | | 3,511 | ||||
Middle East, Africa and Oceania | | 2,083 | | 20 | | 75 | | – | | 2,178 | ||||
Japan | | 2,057 | | 426 | | 120 | | – | | 2,603 | ||||
China | | 17,572 | | 670 | | – | | – | | 18,242 | ||||
Asia, except Japan and China | | 2,032 | | 816 | | 464 | | – | | 3,312 | ||||
Brazil | | 2,659 | | 226 | | 80 | | 383 | | 3,348 | ||||
| | | | | | | | | | | ||||
Net operating revenue | | 30,005 | | 6,161 | | 1,021 | | 383 | | 37,570 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
| | Year ended December 31, 2018 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Base metals | | Coal | | Others | | Total | ||||
Americas, except United States and Brazil | | 820 | | 658 | | – | | – | | 1,478 | ||||
United States of America | | 388 | | 952 | | – | | 13 | | 1,353 | ||||
Germany | | 1,130 | | 523 | | – | | – | | 1,653 | ||||
Europe, except Germany | | 2,218 | | 1,800 | | 436 | | – | | 4,454 | ||||
Middle East, Africa and Oceania | | 2,562 | | 25 | | 151 | | – | | 2,738 | ||||
Japan | | 2,072 | | 508 | | 163 | | – | | 2,743 | ||||
China | | 14,381 | | 861 | | – | | – | | 15,242 | ||||
Asia, except Japan and China | | 1,798 | | 1,101 | | 767 | | – | | 3,666 | ||||
Brazil | | 2,564 | | 275 | | 126 | | 283 | | 3,248 | ||||
| | | | | | | | | | | ||||
Net operating revenue | | 27,933 | | 6,703 | | 1,643 | | 296 | | 36,575 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
| | Year ended December 31, 2017 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Ferrous minerals | | Base metals | | Coal | | Others | | Total | ||||
Americas, except United States and Brazil | | 593 | | 1,009 | | – | | 70 | | 1,672 | ||||
United States of America | | 355 | | 872 | | – | | 83 | | 1,310 | ||||
Germany | | 1,097 | | 292 | | – | | – | | 1,389 | ||||
Europe, except Germany | | 1,721 | | 1,985 | | 396 | | 11 | | 4,113 | ||||
Middle East, Africa and Oceania | | 1,768 | | 13 | | 171 | | – | | 1,952 | ||||
Japan | | 1,927 | | 399 | | 130 | | – | | 2,456 | ||||
China | | 13,442 | | 576 | | – | | – | | 14,018 | ||||
Asia, except Japan and China | | 1,332 | | 1,539 | | 711 | | – | | 3,582 | ||||
Brazil | | 2,894 | | 186 | | 159 | | 236 | | 3,475 | ||||
| | | | | | | | | | | ||||
Net operating revenue | | 25,129 | | 6,871 | | 1,567 | | 400 | | 33,967 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
Provisionally priced commodities sales—The commodity price risk arises from volatility of iron ore, nickel, copper and coal prices. The Company is mostly exposed to the fluctuations in the iron ore and copper
| | | | |
| | F-33 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
4. Information by business segment and by geographic area (Continued)
price. The selling price of these products can be measured reliably at each period, since the price is quoted in an active market. The final price of these sales will be determined during the first quarter of 2020.
The sensitivity of the Company's risk on final settlement of its provisionally priced accounts receivables are presented below:
| | December 31, 2019 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| | Thousand metric tons | | Provisional price (US$/tonne) | | Change | | Effect on Revenue | ||
Iron ore | | 14,756 | | 90.3 | | +/-10% | | 133 | ||
Iron ore pellets | | 537 | | 91.2 | | +/-10% | | 5 | ||
Copper | | 99 | | 7,827.0 | | +/-10% | | 78 |
Accounting policy
Revenue is recognized when the control of a good or service transferred to a customer. Since Vale's sales are under different shipping terms, revenue could be recognized when the product is available at the loading port, loaded on the ship, at the port of discharge or at the customer's warehouse.
A relevant proportion of Vale's sales are under Cost and Freight ("CFR") and Cost, Insurance and Freight ("CIF") Incoterms, in which the Company is responsible for providing shipping services after the date that Vale transfers control of the goods to the customers. Shipping services for CFR and CIF contracts are considered as a separate performance obligation in which a proportion of the transaction price is allocated and recognized over time as the shipping services are provided.
Generally, the contract payment terms consider the upfront payments or the use of credit letters. The payment terms do not have a significant financing component. In some cases, the sale price is determined on a provisional basis at the date of sale and adjustments to the sale price subsequently occur based on movements in the quoted market or contractual prices up to the date of final pricing.
Revenue is recognized based on the estimated fair value of the total consideration receivable, and the provisionally priced sale mechanism embedded within these sale arrangements has the character of a derivative. Accordingly, the fair value of the final sale price adjustment is re-estimated continuously and changes in fair value are recognized as operational revenue in the income statement.
| | | | |
| | F-34 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
5. Costs and expenses by nature
a) Cost of goods sold and services rendered
| | Year ended December 31 | ||||
---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 |
Personnel | | 2,009 | | 2,278 | | 2,295 |
Materials and services | | 3,873 | | 3,957 | | 3,814 |
Fuel oil and gas | | 1,392 | | 1,538 | | 1,313 |
Maintenance | | 2,797 | | 2,807 | | 3,096 |
Energy | | 858 | | 906 | | 963 |
Acquisition of products | | 608 | | 513 | | 543 |
Depreciation and depletion | | 3,399 | | 3,207 | | 3,484 |
Freight | | 4,023 | | 4,306 | | 3,346 |
Others | | 2,228 | | 2,597 | | 2,185 |
| | | | | | |
Total | | 21,187 | | 22,109 | | 21,039 |
| | | | | | |
| | | | | | |
| | | | | | |
Cost of goods sold | | 20,498 | | 21,526 | | 20,426 |
Cost of services rendered | | 689 | | 583 | | 613 |
| | | | | | |
Total | | 21,187 | | 22,109 | | 21,039 |
| | | | | | |
| | | | | | |
| | | | | | |
b) Selling and administrative expenses
| | Year ended December 31 | ||||
---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 |
Selling | | 92 | | 95 | | 68 |
Personnel | | 181 | | 212 | | 234 |
Services | | 85 | | 92 | | 77 |
Depreciation and amortization | | 56 | | 62 | | 91 |
Others | | 73 | | 62 | | 61 |
| | | | | | |
Total | | 487 | | 523 | | 531 |
| | | | | | |
| | | | | | |
| | | | | | |
c) Other operating expenses, net
| | Year ended December 31 | ||||
---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 |
Provision for litigations(i) | | 291 | | 185 | | 169 |
Profit sharing program(ii) | | 89 | | 187 | | 149 |
Disposals of materials and inventories | | 47 | | 32 | | 17 |
Others | | 78 | | 41 | | 85 |
| | | | | | |
Total | | 505 | | 445 | | 420 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | |
| | F-35 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Financial income | | | | |||||
Short-term investments | | 247 | | 177 | | 176 | ||
Others | | 280 | | 246 | | 302 | ||
| | | | | | | ||
| 527 | | 423 | | 478 | |||
Financial expenses | | | | |||||
Loans and borrowings gross interest | | (989 | ) | (1,185 | ) | (1,697) | ||
Capitalized loans and borrowing costs | | 140 | | 194 | | 370 | ||
Participative stockholders' debentures | | (1,475 | ) | (550 | ) | (625) | ||
Interest on REFIS | | (154 | ) | (197 | ) | (397) | ||
Interest on lease liabilities | | (76 | ) | – | | – | ||
Financial guarantees(i) | | (353 | ) | 23 | | (222) | ||
Expenses with cash tender offer repurchased | | (265 | ) | (273 | ) | (186) | ||
Others | | (634 | ) | (357 | ) | (516) | ||
| | | | | | | ||
| (3,806 | ) | (2,345 | ) | (3,273) | |||
Other financial items, net | | | | |||||
Net foreign exchange gains (losses)—Loans and borrowings | | (111 | ) | (2,666 | ) | (249) | ||
Derivative financial instruments | | 244 | | (266 | ) | 454 | ||
Other foreign exchange gains (losses), net | | 150 | | 419 | | (218) | ||
Indexation losses, net | | (417 | ) | (522 | ) | (211) | ||
| | | | | | | ||
| (134 | ) | (3,035 | ) | (224) | |||
| | | | | | | ||
Total | | (3,413 | ) | (4,957 | ) | (3,019) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
Net investment of foreign operation
Since January 1, 2019, the Company has considered certain long-term loans payable to Vale International S.A., for which settlement is neither planned nor likely to occur in the foreseeable future, as part of its net investment in that foreign operation. The foreign exchange differences arising on the monetary item are recognized in other comprehensive income, in the "Cumulative translation adjustments", and reclassified from stockholders' equity to income statement at the moment of the disposal or partial disposal of the net investment. The Company recognized a loss of US$483 (US$319 net of taxes) for the year ended December 31, 2019, in the "Cumulative translation adjustments" in stockholders' equity.
Accounting policy
Transactions in foreign currencies are translated into the functional currency using the exchange rate prevailing at the transaction date. The foreign exchange gains and losses resulting from the translation at the exchange rates prevailing at the end of the year are recognized in the income statement as "financial income or expense". The exceptions are transactions related to qualifying net investment hedges or items that are attributable to part of the net investment in a foreign operation, for which gains and losses are recognized in the statement of comprehensive income.
| | | | |
| | F-36 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
Cobalt streaming
In June 2018, the Company entered into two different agreements, one with Wheaton Precious Metals Corp ("Wheaton") and the other with Cobalt 27 Capital Corp. ("Cobalt 27"), to sell a stream equivalent to 75% of the cobalt extracted as a by-product from the Voisey's Bay mine, in Canada, starting on January 1, 2021. Upon completion of the transaction, the Company received an upfront payment of US$690 in cash (US$390 from Wheaton and US$300 from Cobalt 27), which has been recorded as "streaming transactions" in the non-current liabilities. Vale will receive additional payments of 20%, on average, of the market reference price for cobalt, for each pound of finished cobalt delivered.
Gold streaming
In August 2016, the Company amendment the gold transaction entered into to 2013 with Wheaton Precious Metals Corp ("Wheaton") to include in each contract an additional 25% of the gold extracted as by-product over a lifetime of the Salobo copper mine. Hence, Wheaton holds the rights to 75% of the contained gold in the copper concentrated from the Salobo mine and 70% of the gold extracted as a by-product of the Sudbury nickel mines.
The transactions were bifurcated into two identifiable components (i) the sale of the mineral rights recognized in the income statement under "Other operating income (expenses), net" and, (ii) the contract liability related to the services for gold extraction on the portion in which Vale operates as an agent for Wheaton gold extraction.
Accounting policy
The Company recognizes contract liabilities in the event it receives payments from customers before a sale meets criteria for revenue recognition. Proceeds received under the terms of the streaming transaction are accounted for as "streaming transactions" and included within liabilities.
Contract liability is initially recognized at fair value, net of transaction costs incurred, and is subsequently carried at amortized cost and updated using the effective interest rate method. Contract liability is released in the income statement as the control of the product or service is transferred to the customer.
Critical accounting estimates and judgments
Defining the gain on sale of mineral interest and the contract liabilities portion of the gold transaction requires the use of critical accounting estimates including, but not limited to: (i) allocation of costs between nickel or copper and gold based on relative prices; (ii) expected margin for the independent components (sale of mineral rights and service for gold extraction); and (iii) discount rates used to measure the present value of future inflows and outflows.
| | | | |
| | F-37 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
a) Deferred income tax assets and liabilities
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Taxes losses carryforward | | 4,659 | | 4,882 | | ||
Temporary differences: | | | | ||||
Employee post retirement obligations | | 840 | | 674 | | ||
Provision for litigation | | 443 | | 409 | | ||
Timing differences arising on assets and liabilities(i) | | 3,246 | | 1,253 | | ||
Fair value of financial instruments | | 864 | | 538 | | ||
Allocated goodwill | | (2,640 | ) | (2,328 | ) | ||
Others | | (77 | ) | (52 | ) | ||
| | | | | | ||
| 2,676 | | 494 | | |||
| | | | | | ||
Total | | 7,335 | | 5,376 | | ||
| | | | | | ||
| | | | | | ||
| | | | | | ||
Assets | | 9,217 | | 6,908 | | ||
Liabilities | | (1,882 | ) | (1,532 | ) | ||
| | | | | | ||
| 7,335 | | 5,376 | | |||
| | | | | | ||
| | | | | | ||
| | | | | |
Changes in deferred tax are as follows:
| | Assets | | Liabilities | | Deferred taxes, net |
---|---|---|---|---|---|---|
Balance at December 31, 2017 | | 6,638 | | 1,719 | | 4,919 |
| | | | | | |
Taxes losses carryforward | | 665 | | – | | 665 |
Timing differences arising on assets and liabilities | | 152 | | – | | 152 |
Fair value of financial instruments | | 147 | | – | | 147 |
Allocated goodwill | | – | | (37) | | 37 |
Others | | (77) | | – | | (77) |
Effect in income statement | | 887 | | (37) | | 924 |
Transfers between asset and liabilities | | (70) | | (70) | | – |
Translation adjustment | | (673) | | (102) | | (571) |
Other comprehensive income | | 123 | | 22 | | 101 |
Effect of discontinued operations | | | | |||
Effect in income statement | | 14 | | – | | 14 |
Transfer to net assets held for sale | | (11) | | – | | (11) |
| | | | | | |
Balance at December 31, 2018 | | 6,908 | | 1,532 | | 5,376 |
| | | | | | |
| | | | | | |
| | | | | | |
Utilization of taxes losses carryforward | | (443) | | – | | (443) |
Timing differences arising on assets and liabilities | | 2,113 | | – | | 2,113 |
Fair value of financial instruments | | 328 | | – | | 328 |
Allocated goodwill | | – | | (210) | | 210 |
Others | | (91) | | – | | (91) |
Effect in income statement | | 1,907 | | (210) | | 2,117 |
Transfers between asset and liabilities | | 252 | | 252 | | – |
Acquisition of subsidiaries(i) | | 104 | | 250 | | (146) |
Translation adjustment | | (187) | | 47 | | (234) |
Other comprehensive income | | 233 | | 11 | | 222 |
| | | | | | |
Balance at December 31, 2019 | | 9,217 | | 1,882 | | 7,335 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | |
| | F-38 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
8. Income taxes (Continued)
The tax loss carryforward does not expire in the Brazilian jurisdiction and their compensation is limited to 30% of the taxable income for the year. The local profits of subsidiaries abroad are also taxed in Brazil and there is no restriction on their offset against tax losses generated previously by the foreign entity or by the Parent Company.
b) Income tax reconciliation—Income statement
The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as follows:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Income (loss) before income taxes | | (2,775 | ) | 6,816 | | 7,829 | ||
Income taxes at statutory rate—34% | | 944 | | (2,317 | ) | (2,662) | ||
Adjustments that affect the basis of taxes: | | | | |||||
Income tax benefit from interest on stockholders' equity | | 601 | | 873 | | 728 | ||
Tax incentives | | 189 | | 576 | | 372 | ||
Equity results | | 77 | | 104 | | 35 | ||
Additions of tax loss carryforward | | 25 | | 1,510 | | 99 | ||
Unrecognized tax losses of the year | | (1,059 | ) | (458 | ) | (432) | ||
Nondeductible effect of impairment | | – | | (24 | ) | (43) | ||
Others | | (182 | ) | (92 | ) | 408 | ||
| | | | | | | ||
Income taxes | | 595 | | 172 | | (1,495) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
c) Tax incentives
In Brazil, Vale has tax incentives to partially reduce the income tax generated by the operations conducted in the North and Northeast regions that includes iron ore, pellets, manganese, copper and nickel. The incentive is calculated based on the taxable income of the incentive activity (tax operating income) and takes into account the allocation of tax operating income into different incentives applicable to different tranches of production during the periods specified for each product, usually 10 years. Most of the Company's incentives are expected to expire up to 2024 and the last recognized tax incentive will expire in 2027. An amount equal to that obtained with the tax saving must be appropriated in retained earnings reserve account in stockholders' equity, and cannot be distributed as dividends to stockholders.
In addition to those incentives, the amount equivalent to 30% of the income tax due, can be reinvested in the acquisition of new machinery and equipment, subject to subsequent approval by the regulatory agency responsible, Superintendência de Desenvolvimento da Amazônia ("SUDAM") and/or the Superintendência de Desenvolvimento do Nordeste ("SUDENE"). The reinvestment subsidy is accounted in retained earnings reserve account, which restricts the distribution as dividends to stockholders. This tax incentive will expire in 2023.
Vale is subject to the revision of income tax by local tax authorities in a range up to 10 years depending on jurisdiction where the Company operates.
| | | | |
| | F-39 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
8. Income taxes (Continued)
d) Income taxes—Settlement program ("REFIS")
The balance mainly relates to REFIS to settle most of the claims related to the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. At December 31, 2019, the balance of US$3,907 (US$431 classified as current liabilities and US$3,476 classified as non-current liabilities) is due in 106 remaining monthly installments, bearing the SELIC interest rate (Special System for Settlement and Custody), which is the Brazilian federal funds rate, while at December 31, 2018, the balance was US$4,349 (US$432 classified as current liabilities and US$3,917 classified as non-current liabilities).
As at December 31, 2019, the SELIC rate was 4.50% per annum (6.50% per annum at December 31, 2018).
e) Uncertain tax positions
In 2004, a decision of the Federal Court of Appeals of the 2nd Region ("TRF") granted to the Company the right to deduct the social security contributions on the net income ("CSLL") from the taxable corporate income. In 2006, the Brazilian federal tax authorities commenced a rescission action (ação rescisória), seeking the reversal of the 2004 decision. In 2019, "TRF" decided in favour for the rescission action. Following this decision, the Company has filed a motion for clarification and a decision is pending.
Due to the recent developments on this proceeding, the Company has decided to not deduct the "CSLL" from the taxable income prospectively from the 2019 year end. Until December 31, 2018 the uncertainties associated to the deduction of the "CSLL" from the taxable corporate income totaled US$194 (R$783 million) and are not provisioned. The Company determined that, based on its internal and external experts, it is probable that the Company's treatments will be accepted by the Brazilian tax authority.
The Company did not identify any other uncertain tax treatments that could result in a liability material to the Company, however, Vale remains subject to income tax examinations for its income taxes generally for fiscal the years from 2014 through 2019.
Accounting policy
The Brazilian corporate tax law requires the taxation on the income generated from foreign subsidiaries and, therefore, income tax charge is calculated using the tax rate enacted at the end of the reporting period in Brazil. The effects of the income tax calculation in the consolidated financial statements are calculated by applying the differential between the Brazilian income tax rate and the local income tax rate of each jurisdiction where the Company's subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and it establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. The benefits of uncertain tax positions are recorded only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities.
| | | | |
| | F-40 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
8. Income taxes (Continued)
Deferred income taxes are recognized based on temporary differences between carrying amount and the tax basis of assets and liabilities as well as tax losses carryforwards. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority.
The deferred tax assets arising from tax losses and temporary differences are not recognized when it is not probable that future taxable profit will be available against which temporary differences and/or tax losses can be utilized.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in stockholder's equity. In this case, the tax is also recognized in other comprehensive income or directly in stockholder's equity, respectively.
Critical accounting estimates and judgments
Significant judgements, estimates and assumptions are required to determine the amount of deferred tax assets that are recognized based on the likely timing and future taxable profits. Deferred tax assets arising from tax losses carryforwards and temporary differences are recognized considering assumptions and projected cash flows. Deferred tax assets may be affected by factors including, but not limited to: (i) internal assumptions on the projected taxable income, which are based on production and sales planning, commodity prices, operational costs and planned capital costs; (ii) macroeconomic environment; and (iii) trade and tax scenarios.
In addition, the Company applies significant judgement in identifying uncertainties over income tax treatments, which could impact the consolidated financial statements. The Company operates in multiple jurisdictions where uncertainties arise in the application of complex tax regulations. Vale and its subsidiaries are subject to reviews of income tax filings and other tax payments, and disputes can arise with the taxing authorities over the interpretation of the applicable laws and regulations.
| | | | |
| | F-41 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
9. Basic and diluted earnings (loss) per share
The basic and diluted earnings (loss) per share are presented below:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Net income (loss) attributable to Vale's stockholders: | | | | |||||
Net income (loss) from continuing operations | | (1,683 | ) | 6,952 | | 6,313 | ||
Loss from discontinued operations | | – | | (92 | ) | (806) | ||
| | | | | | | ||
Net income (loss) | | (1,683 | ) | 6,860 | | 5,507 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Thousands of shares | | | | |||||
Weighted average number of shares outstanding—common shares | | 5,127,950 | | 5,178,024 | | 5,197,432 | ||
Basic and diluted earnings (loss) per share from continuing operations: | | | | |||||
Common share (US$) | | (0.33 | ) | 1.34 | | 1.21 | ||
Basic and diluted loss per share from discontinued operations: | | | | |||||
Common share (US$) | | – | | (0.02 | ) | (0.16) | ||
Basic and diluted earnings (loss) per share: | | | | |||||
Common share (US$) | | (0.33 | ) | 1.32 | | 1.05 |
The Company does not have potential outstanding shares or other instruments with dilutive effect on the earnings per share computation.
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Accounts receivable | | 2,592 | | 2,710 | | ||
Expected credit loss | | (63 | ) | (62 | ) | ||
| | | | | | ||
| 2,529 | | 2,648 | | |||
| | | | | | ||
| | | | | | ||
| | | | | | ||
Revenue related to the steel sector—% | | 87.33 | % | 85.50 | % |
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Impairment of accounts receivable recorded in the income statement | | (1 | ) | (7 | ) | (4) |
There is no customer that individually represents more than 10% of the Company's accounts receivable or revenues.
Accounting policy
Accounts receivable is the total amount due from sale of products and services rendered by the Company. Accounts receivable is recognized at fair value and subsequently measured at amortized cost using the effective interest method, except for component of provisionally priced commodities sales that are subsequently measured at fair value through profit or loss.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all accounts receivable. The Company has established a provision matrix that is based on historical credit loss experience, adjusted for forward-looking factors specific to the economic environment and by any financial guarantees related to these accounts receivables.
| | | | |
| | F-42 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Finished products | | 2,604 | | 2,797 | | ||
Work in progress | | 767 | | 690 | | ||
Consumable inventory | | 903 | | 956 | | ||
| | | | | | ||
Total | | 4,274 | | 4,443 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Provision (reversal) for net realizable value | | 24 | | (4 | ) | 86 |
Finished and work in progress products inventories by segments are presented in note 4(b).
Accounting policy
Inventories are stated at the lower of cost and the net realizable value. The inventory production cost comprises variable and fixed costs, direct and indirect costs of production and are assigned to individual items of inventory on the basis of weighted average costs method. At the end of the reporting period, net realizable value of inventories are assessed and a provision for losses on obsolete or slow-moving inventory may be recognized. The write-downs and reversals are recognized as "Cost of goods sold and services rendered".
Recoverable taxes are presented net of provisions for losses on tax credits.
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Value-added tax | | 484 | | 813 | | ||
Brazilian federal contributions | | 659 | | 808 | | ||
Others | | 16 | | 13 | | ||
| | | | | | ||
Total | | 1,159 | | 1,634 | | ||
| | | | | | ||
| | | | | | ||
| | | | | | ||
Current | | 552 | | 883 | | ||
Non-current | | 607 | | 751 | | ||
| | | | | | ||
Total | | 1,159 | | 1,634 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
The balance of the provision for loss of value-added tax are presented below:
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Provision for loss | | 1,124 | | 700 | |
| | | | |
| | F-43 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
13. Other financial assets and liabilities
| | Current | | Non-Current | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | ||||
Other financial assets | | | | | | ||||||||
Assets held for sale (note 14b) | | 152 | | – | | – | | – | | ||||
Bank accounts restricted | | – | | – | | 125 | | – | | ||||
Loans | | – | | – | | 87 | | 153 | | ||||
Derivative financial instruments (note 25) | | 288 | | 39 | | 184 | | 392 | | ||||
Investments in equity securities (note 14) | | – | | – | | 726 | | 987 | | ||||
Related parties—Loans (note 31) | | 319 | | 364 | | 1,600 | | 1,612 | | ||||
| | | | | | | | | | ||||
| 759 | | 403 | | 2,722 | | 3,144 | | |||||
| | | | | | | | | | ||||
| | | | | | | | | | ||||
| | | | | | | | | | ||||
Other financial liabilities | | | | | | ||||||||
Derivative financial instruments (note 25) | | 94 | | 470 | | 307 | | 344 | | ||||
Related parties—Loans (note 31) | | 980 | | 1,134 | | 956 | | 960 | | ||||
Financial guarantees (note 32) | | – | | – | | 525 | | 166 | | ||||
Participative stockholders' debentures | | – | | – | | 2,584 | | 1,407 | | ||||
| | | | | | | | | | ||||
| 1,074 | | 1,604 | | 4,372 | | 2,877 | | |||||
| | | | | | | | | | ||||
| | | | | | | | | | ||||
| | | | | | | | | |
Participative stockholders' debentures
At the time of its privatization in 1997, the Company issued debentures to then-existing stockholders, including the Brazilian Government. The debentures' terms were set to ensure that pre-privatization stockholders would participate in potential future benefits that might be obtained from exploration of mineral resources. A total of 388,559,056 debentures were issued with a par value of R$0.01 (one cent of Brazilian Real) and are inflation-indexed to the General Market Price Index ("IGP-M"), as set forth in the Issue Deed.
Holders of participative stockholders' debentures have the right to receive semi-annual payments equal to an agreed percentage of revenues less value-added tax, transport fee and insurance expenses related to the trading of the products, from certain identified mineral resources that the Company owned at the time of the privatization. This obligation will cease when all the relevant mineral resources are exhausted, sold or otherwise disposed of by the Company. The Company made available for withdrawal as remuneration the amount of US$195 and US$148, respectively, for the year ended December 31, 2019 and 2018.
14. Acquisitions and divestitures
a) Business combinations
Ferrous Resources Limited—On August 1, 2019 the Company acquired 100% of the share capital of Ferrous Resources Limited ("Ferrous"), a company that currently owns and operates iron ore mines nearby some Company's operations in Minas Gerais, Brazil for cash consideration of US$525. Ferrous has been acquired to gain access to additional reserves for the Company.
| | | | |
| | F-44 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
14. Acquisitions and divestitures (Continued)
k) DivestituresThe fair values of Norsk Hydro ASA ("Hydro")—The Company sold its Hydro common shares for US$1,811. Asidentifiable assets acquired and liabilities assumed as a result of this operation, the Company recognized a gain of US$214 in the income statementacquisition are as financial income for the year ended as at December 31, 2013, as below:follows:
| August 1, 2019 | | ||
---|---|---|---|---|
| | | ||
| | | ||
| | | ||
Inventories | | 10 | | |
Intangibles | | 5 | | |
Property, plant and equipment | | 427 | | |
Others | | 140 | | |
Assumed liabilities | | ) | ||
| | | | |
Net identifiable assets acquired | | 490 | | |
| | | | |
| | | ||
Deferred tax liability | | (17 | ) | |
| | | | |
Total identifiable net assets at fair value | | 525 | | |
| | | ||
| | |||
| ||||
| | | ||
| | | |
| August 1, 2019 | | ||
---|---|---|---|---|
Cash consideration transferred | | 525 | | |
(–) Balances acquired | | | ||
Cash and cash equivalents | | 95 | | |
| | | | |
Net cash outflow | | 430 | | |
| | | | |
| | | | |
| | | |
New Steel—On January 24, 2019 the Company acquired 100% of the share capital of New Steel Global N.V. ("New Steel") and gained its control for the total cash consideration of US$496. New Steel is a company that develops processing and beneficiating technologies for iron ore through a completely dry process.
The consideration paid is mainly attributable to the research and development project for processing and beneficiating iron ore, which is expected to be used on the Company's pelletizing operation. The intangible assets are not subject to amortization until the operational phase is reached. Instead, they are tested for impairment annually, or more frequently when a trigger for impairment has been identified.
The fair values of identifiable assets acquired and liabilities assumed as a result of the acquisition are as follows:
| January 24, 2019 | | ||
---|---|---|---|---|
Acquired assets | | 18 | | |
Intangibles (note 18) | | 1 | | |
Other assets | | 17 | | |
| | | | |
Net identifiable assets acquired | | 18 | | |
| | | | |
Fair value adjustment of intangible research and development asset (note 18) | | 723 | | |
Deferred tax liability | | (245 | ) | |
| | | | |
Total identifiable net assets at fair value | | 496 | | |
| | | | |
| | | | |
| | | |
| | | | |
| | F-45 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
14. Acquisitions and divestitures (Continued)
b) Other acquisitions and divestitures
Henan Longyu—On December 27, 2019 the Company entered into an agreement to sell its 25% interest in Henan Longyu Energy Resources Co., Ltd, a company that operates two coal mines in the province of Henan, China, for the total consideration of US$152. The closing is expected for the first quarter of 2020 upon completion of conditions precedent. The investment is classified as held for sale as "other financial assets" on current assets. The Company has identified a subsequent event in relation to the divestment of Henan Longyu, which is disclosed on note 34.
MBR—On December 20, 2019, the Company purchased an additional 36.4% interest in Minerações Brasileiras Reunidas S.A. ("MBR") held by its related party, for the total consideration of US$812 (R$3,309 million). Following the completion of the transaction, the Company holds 98.3% of MBR's share capital. Since this transaction did not result in a change of control for the Company, the impact of US$343 arising from the purchase of additional shares was recognized in the Company's stockholders' equity, as "Acquisitions and disposal of noncontrolling interet'.
Divestment agreement in compliance with PTVI's Contract of Work—The Company´s subsidiary, PT Vale Indonesia Tbk ("PTVI"), a public company in Indonesia, has an agreement in place dated October 17, 2014 with the government of the Republic of Indonesia to operate its mining licenses which includes a commitment to divest an additional 20% of PTVI's shares to Indonesian participants (approximately 20% of PTVI's shares are already registered on the Indonesian Stock Exchange—IDX).
The existing major shareholders, Vale and Sumitomo Metal Mining, Co., Ltd. ("SMM") hold 58.7% and 20.1%, respectively, of PTVI's issued shares. Vale and SMM have signed a Heads of Agreement with PT Indonesia Asahan Aluminium ("Inalum"), an Indonesian state-owned company, to satisfy the 20% interest divestment obligation in relation to PTVI, proportionally to their interest. Following the transaction, Vale and SMM will hold together approximately 59% of PTVI's shares.
The Company expects to set and sign the final terms and conditions in the first quarter of 2020 and complete its divestment within six months from the execution of the divestment agreement. The Company has identified a subsequent event in relation to the divestment obligation, which is disclosed on note 34.
Fertilizers (discontinued operations)—In January 2018, the Company and The Mosaic Company ("Mosaic") concluded the transaction entered in December 2016, to sell (i) the phosphate assets located in Brazil, except for those located in Cubatão, Brazil; (ii) the control of Compañia Minera Miski Mayo S.A.C., in Peru; (iii) the potassium assets located in Brazil; and (iv) the potash projects in Canada.
The Company received US$1,080 in cash and 34.2 million common shares, corresponding to 8.9% of Mosaic's outstanding common shares after the issuance of these shares totaling US$899, based on the Mosaic's quotation at closing date of the transaction and a loss of US$55 was recognized in the income statement from discontinued operations. Mosaic's shares received have been accounted for as a financial investment measured at fair value through other comprehensive income.
| | | | |
| | F-46 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
14. Acquisitions and divestitures (Continued)
In May 2018, the Company concluded the transaction entered with Yara International ASA to sell its assets located in Cubatão, Brazil and received US$255 in cash and a loss of US$69 was recognized in the income statement from discontinued operations.
The results for the years and the cash flows of discontinued operations are presented as follows:
Income statement
| | Year ended December 31 | | ||||
---|---|---|---|---|---|---|---|
| | 2018 | | 2017 | | ||
Discontinued operations | | | | ||||
Net operating revenue | | 121 | | 1,746 | | ||
Cost of goods sold and services rendered | | (120 | ) | (1,605 | ) | ||
Operating expenses | | (4 | ) | (141 | ) | ||
Impairment of non-current assets | | (124 | ) | (885 | ) | ||
| | | | | | ||
Operating loss | | (127 | ) | (885 | ) | ||
Financial Results, net | | (5 | ) | (28 | ) | ||
Equity results in associates and joint ventures | | – | | (2 | ) | ||
| | | | | | ||
Loss before income taxes | | (132 | ) | (915 | ) | ||
Income taxes | | 40 | | 102 | | ||
| | | | | | ||
Loss from discontinued operations | | (92 | ) | (813 | ) | ||
Loss attributable to noncontrolling interests | | – | | (7 | ) | ||
| | | | | | ||
Loss attributable to Vale's stockholders | | (92 | ) | (806 | ) | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Statement of cash flow
| | Year ended December 31 | | ||||
---|---|---|---|---|---|---|---|
| | 2018 | | 2017 | | ||
Discontinued operations | | | | ||||
Net cash provided by (used in) operating activities | | (37 | ) | 87 | | ||
Net cash used in investing activities | | (9 | ) | (305 | ) | ||
Net cash used in financing activities | | – | | (34 | ) | ||
| | | | | | ||
Net cash used in discontinued operations | | (46 | ) | (252 | ) | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Nacala Logistic Corridor—In March 2017, the Company concluded the transaction with Mitsui & Co., Ltd. ("Mitsui") to transfer 50% of its stake of 66.7% in Nacala Logistic Corridor, which comprises entities that holds railroads and port concessions located in Mozambique and Malawi, and sell 15% participation in the holding entity of Vale Moçambique, which holds the Moatize Coal Project, for the amount of US$690.
As a consequence of sharing control of Nacala BV, the Company recognized a gain of US$447 in the income statement related to the sale and the re-measurement at fair value, of its remaining interest at Nacala BV based on the consideration received. The consideration received was recognized in the
| | | | |
| | F-47 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
14. Acquisitions and divestitures (Continued)
statement of cash flows in "Proceeds from disposal of assets and investments" in the amount of US$435 and "Transactions with noncontrolling stockholders" in the amount of US$255.
After the conclusion of the transaction, Vale has outstanding loan balances with the related parties Nacala BV and Pangea Emirates Ltd due to the deconsolidation of Nacala Logistic Corridor as disclosed in note 31.
Accounting policy
Business combination—The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises (i) fair values of the assets transferred; (ii) liabilities assumed of the acquired business; (iii) equity interests issued to the Company; (iv) fair value of any asset or liability resulting from a contingent consideration arrangement, and (v) fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.
Discontinued operation—The classification as a discontinued operation occurs through disposal, or when the operation meets the criteria to be classified as held for sale if this occurs earlier. A discontinued operation is a component of a Company business comprising cash flows and operations that may be clearly distinct from the rest of the Company and that represents an important separate line of business or geographical area of operations.
The result of discontinued operations is presented in a single amount in the income statement, including the results after income tax of these operations less any impairment loss. Cash flows attributable to operating, investing and financing activities of discontinued operations are disclosed in a separate note.
When an operation is classified as a discontinued operation, the income statements of the prior periods are restated as if the operation had been discontinued since the beginning of the comparative period.
Any noncontrolling interest relating to a group disposal held for sale is presented in the stockholders' equity and is not reclassified in the statement of financial position.
| | | | |
| | F-48 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
The significant consolidated entities in each business segment are as follows:
| | Location | | Main activity/Business | | % Ownership | | % Voting capital | | % Noncontrolling interest | | |||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct and indirect subsidiaries | | | | | | | ||||||||
Companhia Portuária da Baía de Sepetiba | | Brazil | | Iron ore | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Ferrous Resource Limited | | Isle of Man | | Iron Ore | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Mineração Corumbaense Reunida S.A. | | Brazil | | Iron ore and manganese | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Minerações Brasileiras Reunidas S.A. ("MBR") | | Brazil | | Iron ore | | 98.3 | % | 98.3 | % | 1.7 | % | |||
New Steel Global | | Netherlands | | Iron ore | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Salobo Metais S.A. | | Brazil | | Copper | | 100.0 | % | 100.0 | % | 0.0 | % | |||
PT Vale Indonesia | | Indonesia | | Nickel | | 59.2 | % | 59.2 | % | 40.8 | % | |||
Vale Holdings B.V(i) | | Netherlands | | Holding and research | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Canada Limited | | Canada | | Nickel | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale International S.A. | | Switzerland | | Trading and holding | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Malaysia Minerals Sdn. Bhd. | | Malaysia | | Iron ore | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Manganês S.A. | | Brazil | | Manganese and ferroalloys | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Moçambique S.A. | | Mozambique | | Coal | | 80.7 | % | 80.7 | % | 19.3 | % | |||
Vale Nouvelle Caledonie S.A.S. | | New Caledonia | | Nickel | | 95.0 | % | 95.0 | % | 5.0 | % | |||
Vale Newfoundland & Labrador Ltd | | Canada | | Nickel | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Oman Distribution Center LLC | | Oman | | Iron ore and pelletizing | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Oman Pelletizing Company LLC | | Oman | | Pelletizing | | 70.0 | % | 70.0 | % | 30.0 | % | |||
Vale Shipping Holding Pte. Ltd. | | Singapore | | Iron ore | | 100.0 | % | 100.0 | % | 0.0 | % |
As explained in note 14, the Fertilizer Segment is presented as discontinued operations, which includes the following subsidiaries:
| | Location | | Main activity/Business | | % Ownership | | % Voting capital | | % Noncontrolling interest | | |||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct and indirect subsidiaries | | | | | | | ||||||||
Compañia Minera Miski Mayo S.A.C. | | Peru | | Fertilizers | | 40.0 | % | 51.0 | % | 60.0 | % | |||
Vale Fertilizantes S.A. | | Brazil | | Fertilizers | | 100.0 | % | 100.0 | % | 0.0 | % | |||
Vale Cubatão Fertilizantes Ltda. | | Brazil | | Fertilizers | | 100.0 | % | 100.0 | % | 0.0 | % |
Accounting policy
Consolidation and investments in associates and joint ventures—The financial statements reflect the assets, liabilities and transactions of the Parent Company and its direct and indirect controlled entities ("subsidiaries"). The subsidiaries are consolidated when the Company is exposed or has rights to variable returns from its involvement with the investee and has the ability to direct the significant activities of the investee. Intercompany balances and transactions, which include unrealized profits, are eliminated.
| | | | |
| | F-49 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
15. Subsidiaries (Continued)
The entities over which the Company has joint control ("joint ventures") or significant influence, but not control ("associates") are presented in note 16. Those investments are accounted for using the equity method. For interests in joint arrangements not classified as joint ventures ("joint operations"), the Company recognizes its share of assets, liabilities and net income.
Unrealized gains on downstream or upstream transactions between the Company and its associates and joint ventures are eliminated proportionately to the Company's interest.
Investments held by other investors in Vale's subsidiaries are classified as noncontrolling interests ("NCI"). The Company treats transactions with noncontrolling interests as transactions with equity owners of the Company as described in note 17.
For purchases or disposals from noncontrolling interests, the difference between the consideration paid and the proportion acquired of the carrying value of net assets of the subsidiary is directly recorded in stockholders' equity in "Results from operation with noncontrolling interest".
Translation from the functional currency to the presentation currency—The income statement and statement of financial position of the subsidiaries for which the functional currency is different from the presentation currency are translated into the presentation currency as follows: (i) assets, liabilities and stockholders' equity, except for the components described in item (iii) are translated at the closing rate at the statement of financial position date; (ii) income and expenses are translated at the average exchange rates, except for specific significant transactions that, are translated at the rate at the transaction date and; (iii) capital, capital reserves and treasury stock are translated at the rate at each transaction date. All resulting exchange differences are recognized directly in the comprehensive income as "translation adjustments". When a foreign operation is disposed of or sold, foreign exchanges differences that were recognized in equity are recognized in the income of statement.
16. Investments in associates and joint ventures
a) Changes during the year
Changes in investments in associates and joint ventures as follows:
| | 2019 | | 2018 |
---|---|---|---|---|
Balance at January 1st, | | 3,225 | | 3,568 |
| | | | |
Additions | | 76 | | 23 |
Translation adjustment | | (111) | | (456) |
Equity results in income statement | | 228 | | 305 |
Equity results in statement of comprehensive income | | (4) | | – |
Fair value adjustment(i) | | (163) | | – |
Dividends declared | | (326) | | (291) |
Transfer to assets held for sale(i) | | (152) | | – |
Others | | 25 | | 76 |
| | | | |
Balance at December 31, | | 2,798 | | 3,225 |
| | | | |
| | | | |
| | | | |
The amount of investments by segments are presented in note 4(b).
| | | | |
| | F-50 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
16. Investments in associates and joint ventures (Continued)
| | | | | | Investments in associates and joint ventures | | Equity results in the income statement | | Dividends received | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | Year ended December 31 | | Year ended December 31 | |||||||||||||||||
Associates and joint ventures | | % ownership | | % voting capital | | December 31, 2019 | | December 31, 2018 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | |||||||||
Ferrous minerals | | | | | | | | | | | |||||||||||||||||||
Baovale Mineração S.A. | | 50.00 | | 50.00 | | 25 | | 23 | | 4 | | 5 | | 7 | | – | | 1 | | 1 | |||||||||
Companhia Coreano-Brasileira de Pelotização | | 50.00 | | 50.00 | | 88 | | 104 | | 48 | | 69 | | 50 | | 62 | | 32 | | 19 | |||||||||
Companhia Hispano-Brasileira de Pelotização(i) | | 50.89 | | 50.89 | | 70 | | 83 | | 37 | | 55 | | 41 | | 50 | | 23 | | 16 | |||||||||
Companhia Ítalo-Brasileira de Pelotização(i) | | 50.90 | | 51.00 | | 65 | | 81 | | 30 | | 60 | | 40 | | 54 | | 32 | | 17 | |||||||||
Companhia Nipo-Brasileira de Pelotização(i) | | 51.00 | | 51.11 | | 150 | | 148 | | 84 | | 126 | | 93 | | 92 | | 67 | | 29 | |||||||||
MRS Logística S.A. | | 48.16 | | 46.75 | | 496 | | 496 | | 50 | | 72 | | 69 | | 29 | | 27 | | 29 | |||||||||
VLI S.A. | | 37.60 | | 37.60 | | 812 | | 857 | | 1 | | 30 | | 29 | | 9 | | 7 | | 19 | |||||||||
Zhuhai YPM Pellet Co. | | 25.00 | | 25.00 | | 23 | | 22 | | – | | – | | – | | – | | – | | – | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 1,729 | | 1,814 | | 254 | | 417 | | 329 | | 296 | | 189 | | 130 | ||||||||||||
Coal | | | | | | | | | | | |||||||||||||||||||
Henan Longyu Energy Resources Co., Ltd. (note 14) | | 25.00 | | 25.00 | | – | | 317 | | (2 | ) | 16 | | 20 | | – | | – | | – | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | – | | 317 | | (2 | ) | 16 | | 20 | | – | | – | | – | ||||||||||||
Base metals | | | | | | | | | | | |||||||||||||||||||
Korea Nickel Corp. | | 25.00 | | 25.00 | | 14 | | 14 | | – | | 1 | | 1 | | – | | – | | – | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 14 | | 14 | | – | | 1 | | 1 | | – | | – | | – | ||||||||||||
Others | | | | | | | | | | | |||||||||||||||||||
Aliança Geração de Energia S.A.(i) | | 55.00 | | 55.00 | | 470 | | 486 | | 31 | | 25 | | 27 | | 28 | | 25 | | 29 | |||||||||
Aliança Norte Energia Participações S.A(i) | | 51.00 | | 51.00 | | 160 | | 162 | | 4 | | 15 | | (2 | ) | – | | – | | – | |||||||||
California Steel Industries, Inc. | | 50.00 | | 50.00 | | 242 | | 247 | | 23 | | 77 | | 42 | | 29 | | 31 | | 27 | |||||||||
Companhia Siderúrgica do Pecém | | 50.00 | | 50.00 | | – | | – | | (69 | ) | (243 | ) | (264 | ) | – | | – | | – | |||||||||
Mineração Rio do Norte S.A. | | 40.00 | | 40.00 | | 97 | | 93 | | 15 | | 2 | | 13 | | – | | – | | 41 | |||||||||
Others | | | | 86 | | 92 | | (28 | ) | (5 | ) | (68 | ) | – | | – | | – | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 1,055 | | 1,080 | | (24 | ) | (129 | ) | (252 | ) | 57 | | 56 | | 97 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
Total | | | | 2,798 | | 3,225 | | 228 | | 305 | | 98 | | 353 | | 245 | | 227 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | |
The significant associates and joint ventures of the Company are located in Brazil.
| | | | |
| | F-51 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
16. Investments in associates and joint ventures (Continued)
b) Summarized financial information
The summarized financial information about relevant associates and joint-ventures for the Company are as follow. The stand-alone financial statements of those entities may differ from the financial information reported herein, which is prepared considering Vale's accounting policies.
| | December 31, 2019 | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Aliança Geração de Energia | | Aliança Norte Energia | | CSI | | CSP(i) | | Pelletizing(ii) | | MRS Logística | | Nacala Corridor Holding Netherlands B.V. | | VLI S.A. | | ||||||||||
Current assets | | 215 | | – | | 481 | | | 438 | | | 720 | | 490 | | 384 | | 805 | | ||||||||
Non-current assets | | 880 | | 314 | | 344 | | | 2,960 | | | 315 | | 2,196 | | 4,505 | | 4,507 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Total assets | | 1,095 | | 314 | | 825 | | | 3,398 | | | 1,035 | | 2,686 | | 4,889 | | 5,312 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Current liabilities | | 99 | | – | | 186 | | | 985 | | | 297 | | 415 | | 516 | | 773 | | ||||||||
Non-current liabilities | | 142 | | – | | 155 | | | 2,675 | | | 2 | | 1,242 | | 4,671 | | 2,380 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Total liabilities | | 241 | | – | | 341 | | | 3,660 | | | 299 | | 1,657 | | 5,187 | | 3,153 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Stockholders'equity | | 854 | | 314 | | 484 | | | (262 | ) | | 736 | | 1,029 | | (298 | ) | 2,159 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Net revenue | | 257 | | – | | 997 | | | 1,393 | | | 583 | | 759 | | 782 | | 1,238 | | ||||||||
Net income (loss) | | 57 | | 8 | | 46 | | | (412 | ) | | 392 | | 103 | | (49 | ) | 2 | |
| | December 31, 2018 | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Aliança Geração de Energia | | Aliança Norte Energia | | CSI | | CSP(i) | | Pelletizing(ii) | | MRS Logística | | Nacala Corridor Holding Netherlands B.V. | | VLI S.A. | | ||||||||||
Current assets | | 186 | | – | | 489 | | | 693 | | | 964 | | 263 | | 380 | | 679 | | ||||||||
Non-current assets | | 938 | | 318 | | 360 | | | 3,062 | | | 296 | | 1,826 | | 4,619 | | 3,938 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Total assets | | 1,124 | | 318 | | 849 | | | 3,755 | | | 1,260 | | 2,089 | | 4,999 | | 4,617 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Current liabilities | | 83 | | – | | 186 | | | 970 | | | 437 | | 360 | | 277 | | 544 | | ||||||||
Non-current liabilities | | 158 | | – | | 169 | | | 2,785 | | | 2 | | 699 | | 4,971 | | 1,795 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Total liabilities | | 241 | | – | | 355 | | | 3,755 | | | 439 | | 1,059 | | 5,248 | | 2,339 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Stockholders'equity | | 883 | | 318 | | 494 | | | – | | | 821 | | 1,030 | | (249 | ) | 2,278 | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | ||||||||||
Net revenue | | 248 | | – | | 1,389 | | | 1,682 | | | 911 | | 927 | | 825 | | 1,253 | | ||||||||
Net income (loss) | | 45 | | 30 | | 154 | | | (486 | ) | | 609 | | 150 | | 7 | | 79 | |
| | | | |
| | F-52 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
16. Investments in associates and joint ventures (Continued)
Accounting policy
Joint arrangements investments—Joint arrangements are all entities over which the Company has shared control with one or more parties. Joint arrangement investments are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor.
The joint operations are recorded in the financial statements to represent the Company's contractual rights and obligations.
Interests in joint ventures are accounted for using the equity method, after initially being recognized at cost. The Company's investment in joint ventures includes the goodwill identified in the acquisition, net of any impairment loss.
The Company's interest in the profits or losses of its joint ventures is recognized in the income statement and participation in the changes in reserves is recognized in the Company's reserves. When the Company's interest in the losses of an associate or joint venture is equal to or greater than the carrying amount of the investment, including any other receivables, the Company does not recognize additional losses, unless it has incurred obligations or made payments on behalf of the joint venture.
Critical accounting estimates and judgments
Judgment is required in some circumstances to determine whether after considering all relevant factors, the Company has either control, joint control or significant influence over an entity. Significant influence includes situations of collective control.
The Company holds the majority of the voting capital in five joint arrangements (Aliança Geração de Energia S.A., Aliança Norte Energia Participações S.A., Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização), but management have concluded that the Company does not have a sufficiently dominant voting interest to have the power to direct the activities of the entity. As a result, these entities are accounted under equity method due to shareholder's agreements where relevant decisions are shared with other parties.
a) Summarized financial information
The summarized financial information, prior to the eliminations of the intercompany balances and transactions, about subsidiaries with material noncontrolling interest are as follow. The stand-alone
| | | | |
| | F-53 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
17. Noncontrolling interest (Continued)
financial statements of those entities may differ from the financial information reported herein, which is prepared considering Vale's accounting policies.
| | December 31, 2019 | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | PTVI | | VNC | | Vale Moçambique S.A. | | Others | | Total | | |||||
Current assets | | 462 | | 169 | | 188 | | | | |||||||
Non-current assets | | 1,630 | | 604 | | 199 | | | | |||||||
Related parties—Stockholders | | 84 | | 34 | | 29 | | | | |||||||
| | | | | | | | | | | | |||||
Total assets | | 2,176 | | 807 | | 416 | | | | |||||||
Current liabilities | | 140 | | 199 | | 320 | | | | |||||||
Non-current liabilities | | 61 | | 236 | | 147 | | | | |||||||
Related parties—Stockholders | | – | | 344 | | 10,221 | | | | |||||||
| | | | | | | | | | | | |||||
Total liabilities | | 201 | | 779 | | 10,688 | | | | |||||||
Stockholders' equity | | 1,975 | | 28 | | (10,272 | ) | | | |||||||
| | | | | | | | | | | | |||||
Equity attributable to noncontrolling interests | | 806 | | 1 | | (1,982 | ) | 101 | | (1,074 | ) | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Net income (loss) | | 67 | | (2,055 | ) | (3,183 | ) | | | |||||||
| | | | | | | | | | | | |||||
Net income (loss) attributable to noncontrolling interests | | 27 | | (103 | ) | (613 | ) | 192 | | (497 | ) | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Dividends paid to noncontrolling interests(i) | | – | | – | | – | | 184 | | 184 | |
| | December 31, 2018 | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | MBR | | PTVI | | VNC | | Vale Moçambique S.A. | | Others | | Total | | ||||||
Current assets | | 581 | | 465 | | 202 | | 303 | | | | ||||||||
Non-current assets | | 2,499 | | 1,567 | | 1,922 | | 1,709 | | | | ||||||||
Related parties—Stockholders | | 721 | | 111 | | 56 | | 22 | | | | ||||||||
| | | | | | | | | | | | | | ||||||
Total assets | | 3,801 | | 2,143 | | 2,180 | | 2,034 | | | | ||||||||
Current liabilities | | 187 | | 165 | | 141 | | 313 | | | | ||||||||
Non-current liabilities | | 282 | | 153 | | 256 | | 79 | | | | ||||||||
Related parties—Stockholders | | 197 | | – | | 766 | | 8,731 | | | | ||||||||
| | | | | | | | | | | | | | ||||||
Total liabilities | | 666 | | 318 | | 1,163 | | 9,123 | | | | ||||||||
Stockholders' equity | | 3,135 | | 1,825 | | 1,017 | | (7,089 | ) | | | ||||||||
| | | | | | | | | | | | | | ||||||
Equity attributable to noncontrolling interests | | 1,254 | | 745 | | 51 | | (1,290 | ) | 87 | | 847 | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
Net income (loss) | | 434 | | 58 | | 351 | | (985 | ) | | | ||||||||
| | | | | | | | | | | | | | ||||||
Net income (loss) attributable to noncontrolling interests | | 174 | | 24 | | 18 | | (190 | ) | 10 | | 36 | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
Dividends paid to noncontrolling interests(i) | | 168 | | – | | – | | – | | 14 | | 182 | |
| | | | |
| | F-54 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
17. Noncontrolling interest (Continued)
| | December 31, 2017 | | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | MBR | | PTVI | | VNC | | Vale Moçambique S.A. | | Compañia Mineradora Miski Mayo S.A.C.(i) | | Others | | Total | | |||||||||||
Net income (loss) | | | 434 | | | | (15 | ) | | (572 | ) | (659 | ) | (11 | ) | | | |||||||||
| | | | | | | | | | | | | | | | |||||||||||
Net income (loss) attributable to noncontrolling interests | | | 174 | | | | (6 | ) | | (28 | ) | (104 | ) | (6 | ) | (16 | ) | 14 | | |||||||
| | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |||||||||||
Dividends paid to noncontrolling interests(ii) | | | 113 | | | | – | | | – | | – | | – | | 13 | | 126 | |
Changes in intangibles are as follows:
| | Goodwill | | Concessions(i) | | Contract right | | Software | | Research and development project and patents | | Total | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2017 | | 4,110 | | 4,002 | | 152 | | 229 | | – | | 8,493 | | ||||||
| | | | | | | | | | | | | | ||||||
Additions | | – | | 855 | | – | | 7 | | – | | 862 | | ||||||
Disposals | | – | | (27 | ) | – | | (2 | ) | – | | (29 | ) | ||||||
Amortization | | – | | (135 | ) | (2 | ) | (99 | ) | – | | (236 | ) | ||||||
Translation adjustment | | (457 | ) | (634 | ) | (13 | ) | (24 | ) | – | | (1,128 | ) | ||||||
| | | | | | | | | | | | | | ||||||
Balance at December 31, 2018 | | 3,653 | | 4,061 | | 137 | | 111 | | – | | 7,962 | | ||||||
| | | | | | | | | | | | | | ||||||
Cost | | 3,653 | | 5,043 | | 201 | | 923 | | – | | 9,820 | | ||||||
Accumulated amortization | | – | | (982 | ) | (64 | ) | (812 | ) | – | | (1,858 | ) | ||||||
| | | | | | | | | | | | | | ||||||
Balance at December 31, 2018 | | 3,653 | | 4,061 | | 137 | | 111 | | – | | 7,962 | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
Additions | | – | | 439 | | – | | 39 | | – | | 478 | | ||||||
Disposals | | – | | (17 | ) | – | | – | | – | | (17 | ) | ||||||
Amortization | | – | | (239 | ) | (2 | ) | (66 | ) | – | | (307 | ) | ||||||
Impairment (note 20) | | – | | (112 | ) | – | | (11 | ) | – | | (123 | ) | ||||||
Acquisition of subsidiary | | – | | 3 | | – | | 1 | | 724 | | 728 | | ||||||
Translation adjustment | | (24 | ) | (165 | ) | 5 | | 2 | | (40 | ) | (222 | ) | ||||||
| | | | | | | | | | | | | | ||||||
Balance at December 31, 2019 | | 3,629 | | 3,970 | | 140 | | 76 | | 684 | | 8,499 | | ||||||
| | | | | | | | | | | | | | ||||||
Cost | | 3,629 | | 5,090 | | 248 | | 888 | | 684 | | 10,539 | | ||||||
Accumulated amortization | | – | | (1,120 | ) | (108 | ) | (812 | ) | – | | (2,040 | ) | ||||||
| | | | | | | | | | | | | | ||||||
Balance at December 31, 2019 | | 3,629 | | 3,970 | | 140 | | 76 | | 684 | | 8,499 | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | |
a) Goodwill—The goodwill arose from the acquisition of iron ore and nickel businesses. In 2017, the goodwill was recognized on the acquisition of Vale controlling interest by Valepar, based on the expected future returns on the ferrous segment. As the fundamentals are still valid on the date of the merger of Valepar by Vale, the goodwill was fully recognized. The Company has not recognized the deferred taxes
| | | | |
| | F-55 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
18. Intangibles (Continued)
over the goodwill, since there are no differences between the tax basis and accounting basis. The Company assesses annually the recoverable amount of the goodwill.
b) Concessions—The concessions refer to the agreements with governments for the exploration and the development of ports and railways. The Company holds railway concessions which are valid over a certain period of time. Those assets are classified as intangible assets and amortized over the shorter of their useful lives and the concession term at the end of which they will be returned to the government.
The technical studies and legal documents on early extension of the Vitória Minas Railroad (EFVM) and Carajás Railroad (EFC) concessions are currently under review by the Federal Court of Audit. Vale awaits the end of the process in the public sphere to submit the proposal, with the required counterparts, to its Board of Directors.
c) Contract right—Refers to intangible identified in the business combination of Vale Canada Limited ("Vale Canada") and to the usufruct contract between the Company and noncontrolling stockholders to use the shares of Empreendimentos Brasileiros de Mineração S.A. (owner of Minerações Brasileiras Reunidas S.A. shares). The amortization of the right of use will expire in 2037 and Vale Canada's intangible will end in September of 2046.
d) Research and development project and patents—Refers to in-process research and development projects and patents identified in the business combination of New Steel Global N.V. (note 14). The intangible assets of research and development are not subject to amortization until the operational phase is reached.
Accounting policy
Intangibles are carried at the acquisition cost, net of accumulated amortization and impairment charges.
The estimated useful lives are as follows:
| Useful life | |
---|---|---|
Railways concessions | | 3 to 50 years |
Usufruct | | 22 to 31 years |
Software | | 5 years |
| | | | |
| | F-56 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
19. Property, plant and equipment
Changes in property, plant and equipment are as follows:
| | Land | | Building | | Facilities | | Equipment | | Mineral properties | | Right of use assets | | Others | | Constructions in progress | | Total | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2017 | | 718 | | 12,100 | | 11,786 | | 6,893 | | 9,069 | | – | | 8,193 | | 6,119 | | 54,878 | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Additions(i) | | – | | – | | – | | – | | – | | – | | – | | 2,823 | | 2,823 | | |||||||||
Disposals | | (11 | ) | (53 | ) | (93 | ) | (234 | ) | (8 | ) | – | | (79 | ) | (92 | ) | (570 | ) | |||||||||
Assets retirement obligation | | – | | – | | – | | – | | 446 | | – | | – | | – | | 446 | | |||||||||
Depreciation, amortization and depletion | | – | | (531 | ) | (655 | ) | (847 | ) | (525 | ) | – | | (653 | ) | – | | (3,211 | ) | |||||||||
Impairment (note 20) | | – | | (10 | ) | (18 | ) | (21 | ) | – | | – | | (31 | ) | (104 | ) | (184 | ) | |||||||||
Translation adjustment | | (84 | ) | (1,360 | ) | (1,471 | ) | (560 | ) | (864 | ) | – | | (990 | ) | (468 | ) | (5,797 | ) | |||||||||
Transfers | | 12 | | 806 | | 1,687 | | 1,176 | | 381 | | – | | 829 | | (4,891 | ) | – | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Balance at December 31, 2018 | | 635 | | 10,952 | | 11,236 | | 6,407 | | 8,499 | | – | | 7,269 | | 3,387 | | 48,385 | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Cost | | 635 | | 18,267 | | 17,611 | | 12,424 | | 16,717 | | – | | 11,697 | | 3,387 | | 80,738 | | |||||||||
Accumulated depreciation | | – | | (7,315 | ) | (6,375 | ) | (6,017 | ) | (8,218 | ) | – | | (4,428 | ) | – | | (32,353 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Balance at December 31, 2018 | | 635 | | 10,952 | | 11,236 | | 6,407 | | 8,499 | | – | | 7,269 | | 3,387 | | 48,385 | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Effects of IFRS 16 adoption(ii) | | – | | – | | – | | – | | – | | 1,801 | | – | | – | | 1,801 | | |||||||||
Additions(i) | | – | | – | | – | | – | | – | | 152 | | – | | 4,297 | | 4,449 | | |||||||||
Disposals | | (25 | ) | (84 | ) | (75 | ) | (70 | ) | (164 | ) | (7 | ) | (181 | ) | (25 | ) | (631 | ) | |||||||||
Assets retirement obligation | | – | | – | | – | | – | | 429 | | – | | – | | – | | 429 | | |||||||||
Depreciation, amortization and depletion | | – | | (514 | ) | (666 | ) | (866 | ) | (603 | ) | (183 | ) | (671 | ) | – | | (3,503 | ) | |||||||||
Impairment (note 20) | | – | | (577 | ) | (1,113 | ) | (708 | ) | (600 | ) | (55 | ) | (792 | ) | (353 | ) | (4,198 | ) | |||||||||
Acquisition of subsidiary(iii) | | 62 | | 15 | | 41 | | 46 | | 276 | | 2 | | – | | 46 | | 488 | | |||||||||
Translation adjustment | | 24 | | (221 | ) | (275 | ) | (102 | ) | 88 | | (18 | ) | (156 | ) | 16 | | (644 | ) | |||||||||
Transfers | | 19 | | 416 | | 456 | | 979 | | 336 | | – | | 784 | | (2,990 | ) | – | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Balance at December 31, 2019 | | 715 | | 9,987 | | 9,604 | | 5,686 | | 8,261 | | 1,692 | | 6,253 | | 4,378 | | 46,576 | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Cost | | 715 | | 18,255 | | 17,170 | | 11,756 | | 17,826 | | 1,875 | | 11,521 | | 4,378 | | 83,496 | | |||||||||
Accumulated depreciation | | – | | (8,268 | ) | (7,566 | ) | (6,070 | ) | (9,565 | ) | (183 | ) | (5,268 | ) | – | | (36,920 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
Balance at December 31, 2019 | | 715 | | 9,987 | | 9,604 | | 5,686 | | 8,261 | | 1,692 | | 6,253 | | 4,378 | | 46,576 | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | |
Accounting policy
Property, plant and equipment are recorded at the cost of acquisition or construction, net of accumulated depreciation and impairment charges.
Mineral properties developed internally are determined by (i) direct and indirect costs attributed to build the mining facilities, (ii) financial charges incurred during the construction period, (iii) depreciation of other fixed assets used during construction, (iv) estimated decommissioning and site restoration expenses, and (v) other capitalized expenditures during the development phase (phase when the project
| | | | |
| | F-57 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
19. Property, plant and equipment (Continued)
demonstrates its economic benefit to the Company, and the Company has ability and intention to complete the project).
The depletion of mineral properties is determined based on the ratio between production and total proven and probable mineral reserves.
Property, plant and equipment, other than mineral properties are depreciated using the straight-line method based on the estimated useful lives, from the date on which the assets become available for their intended use and are capitalized, except for land which is not depreciated.
The estimated useful lives are as follows:
| Useful life | |
---|---|---|
Buildings | | 3 to 50 years |
Facilities | | 3 to 50 years |
Equipment | | 3 to 40 years |
Others: | | |
Locomotives | | 12 to 25 years |
Wagon | | 30 to 44 years |
Railway equipment | | 5 to 33 years |
Ships | | 20 years |
Others | | 2 to 50 years |
The residual values and useful lives of assets are reviewed at the end of each reporting period and adjusted if necessary.
Expenditures and stripping costs
(i) Exploration and evaluation expenditures—Expenditures on mining research are accounted for as operating expenses until the effective proof of economic feasibility and commercial viability of a given field can be demonstrated. From then on, the expenditures incurred are capitalized as mineral properties.
(ii) Expenditures on feasibility studies, new technologies and others research—The Company also conducts feasibility studies for many businesses which it operates including researching new technologies to optimize the mining process. After these costs are proven to generate future benefits to the Company, the expenditures incurred are capitalized.
(iii) Maintenance costs—Significant industrial maintenance costs, including spare parts, assembly services, and others, are recorded in property, plant and equipment and depreciated through the next programmed maintenance overhaul.
(iv) Stripping Costs—The cost associated with the removal of overburden and other waste materials ("stripping costs") incurred during the development of mines, before production takes place, are capitalized as part of the depreciable cost of the mineral properties. These costs are subsequently amortized over the useful life of the mine.
| | | | |
| | F-58 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
19. Property, plant and equipment (Continued)
Post-production stripping costs are included in the cost of inventory, except when a new project is developed to permit access to a significant ore deposits. In such cases, the cost is capitalized as a non-current asset and is amortized during the extraction of the ore deposits, over the useful life of the ore deposits.
Leases—At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains a lease, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the lease term or the end of the useful life of the right-of-use asset.
The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: (i) fixed payments, including in-substance fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) the exercise price under a purchase option or renewal option that are under the Company's control and is reasonably certain to be exercised.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Critical accounting estimates and judgments
Mineral reserves—The estimates of proven and probable reserves are regularly evaluated and updated. These reserves are determined using generally accepted geological estimates. The calculation of reserves requires the Company to make assumptions about expected future conditions that are uncertain, including future ore prices, exchange rates, inflation rates, mining technology, availability of permits and production costs. Changes in assumptions could have a significant impact on the proven and probable reserves of the Company.
The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mineral properties, and also for the estimated useful life which is a major factor to quantify the provision for asset retirement obligation, environmental recovery of mines and impairment of long lived asset. Any changes to the estimates of the volume of mine reserves and the useful lives of assets may have a significant impact on the depreciation, depletion and amortization charges and assessments of impairment.
| | | | |
| | F-59 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Impairment and onerous contracts
The impairment losses recognized in the year are presented below:
| | Income statement | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Impairment | | |||||||||
Segments by class of assets | | 2019 | | 2018 | | 2017 | | |||||
Property, plant and equipment and intangibles | | | | | | | ||||||
Base metals—nickel | | | 2,511 | | | – | | 133 | | |||
Coal | | | 1,691 | | | – | | – | | |||
Other assets | | | 119 | | | 184 | | 138 | | |||
| | | | | | | | |||||
Impairment of non-current assets | | | 4,321 | | | 184 | | 271 | | |||
Onerous contracts | | | 240 | | | 393 | | – | | |||
Disposals of non-current assets | | | 513 | | | 322 | | 23 | | |||
| | | | | | | | |||||
Impairment and disposals of non-current assets | | | 5,074 | | | 899 | | 294 | | |||
| | | | | | | | |||||
| | | | | | | | | | |||
| | | | | | | |
a) Impairment of non-financial assets
The Company has carried out an impairment test for the assets that a triggering event was identified and for goodwill. The recoverable amount of each Cash Generating Unit ("CGU") under the impairment testing was assessed using fair value less costs of disposal model ("FVLCD"), through discounted cash flow techniques, which is classified as "level 3" in the fair value hierarchy.
The cash flows were discounted using a post-tax discount rate, which represents an estimate of the rate that a market participant would apply having regard to the time value of money and the risks specific to the asset. The Company used its weighted average cost of capital ("WACC") as a starting point for determining the discount rates, with appropriate adjustments for the risk profile of the countries in which the individual CGU operate.
Iron ore and Pellets—During 2019, the Company did not identify any changes in the circumstances or indicators that would indicate an impairment trigger of the Iron ore and Pellets CGU. However, Management undertook an impairment testing for the goodwill and, based on the net present value of post-tax cash flows discounted at 6.3%, no impairment loss was identified as well. Of the total goodwill (note 18), US$1,770 is allocated to the group of ferrous minerals.
Coal—In 2019, the Company identified that the expected yield of metallurgical coal and thermal coal will not be achieved, mostly due to technical issues on the project and operation of the assets related to this CGU. Management also conducted a detailed review of the mining plan, leading to a significant reduction on the proven and probable reserves. In addition, Management has lowered its long-term price assumption for both metallurgical and thermal coal, based on the current market outlook for coal.
Therefore, the Company has carried out an impairment test for the coal CGU and the assets related to the coal business were impaired in full. As a result, the Company recognized an impairment charge of US$1,691 as at December 31, 2019, based on the net present value of post-tax cash flows discounted at 9.2%.
| | | | |
| | F-60 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Impairment and onerous contracts (Continued)
Base metals, Nickel—The New Caledonian operation has experienced challenging issues throughout 2019, mainly in relation to production and processing. Thus, the Company has revised the business plan of this CGU, reducing the expected production levels of its refined nickel product for remaining useful life of the mine. The new business strategy for this CGU led to an impairment charge of US$2,511 recorded as at December 31, 2019, based on the net present value of post-tax cash flows discounted at 5.2%. The CGU's carrying amount after the impairment charge is US$404 as at December 31, 2019.
The individual assumptions subject to the most estimation uncertainty for the FVLCD calculation are the nickel price and the discount rate. To illustrate these sensitivities, the carrying value would be fully impaired by an increase to the discount rate of 5.6%, or a reduction of US$1,150 per ton to the nickel long-term price, if all other inputs remained constant.
In 2017, an underground mine in Sudbury (Stobie) that was affected by seismic activities and the cost to repair the asset is deemed not recoverable in the current market conditions. Therefore, the Company has placed this asset on "care and maintenance" and an impairment of US$133 was recognized in the income statement.
Of the total goodwill (note 18), US$1,859 is allocated to the group of nickel CGUs. Although, an impairment loss was recognized in relation to the New Caledonia CGU, the impairment testing over the goodwill demonstrates that there would be no impairment loss in relation to that goodwill allocated to the nickel business, based on the net present value of post-tax cash flows discounted using rates ranging from 5% to 6%.
Other assets—The Company has undertaken a review on the business plan of its biological assets leading to a reduction in the expected operational capacity of these assets. Management has also reviewed its long-term price assumption based on the current market condition. Thus, the Company carried out an impairment test and an impairment loss of US$119 (2018: US$184) was recognized in the income statement.
b) Onerous contract
In 2019, the Company reviewed its expectation of iron ore production and sales volumes of the Midwest system. Following the revised plan for the upcoming years, the Company has recognized an additional provision of US$240 (2018: US$393) in relation to the costs of certain long-term contracts, with minimum guaranteed volume for fluvial transportation and port structure.
c) Disposals of assets
Refers to non-viable projects and operating assets written off through sale or obsolescence. Additionally, includes assets write-off of the Córrego do Feijão mine and those related to the other upstream dams in Brazil, as described in note 3e.
| | | | |
| | F-61 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Impairment and onerous contracts (Continued)
Accounting policy
Impairment of non-financial assets—Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is recognized for the amount by which the asset´s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal ("FVLCD") and value in use ("VIU").
FVLCD is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset from a market participant's perspective, including any expansion prospects. VIU model is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form. Value in use is determined by applying assumptions specific to the Company's continued use and cannot take into account future development. These assumptions are different to those used in calculating fair value and consequently the VIU calculation is likely to give a different result to a FVLCD calculation.
Assets that have an indefinite useful life and are not subject to amortization, such as goodwill, are tested annually for impairment.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGU). Goodwill is allocated to Cash Generating Units or Cash Generating Units groups that are expected to benefit from the business combinations in which the goodwill arose and are identified in accordance with the operating segment.
Non-current assets (excluding goodwill) in which the Company recognized impairment in the past are reviewed whenever events or changes in circumstances indicate that the impairment may no longer be applicable. In such cases, an impairment reversal will be recognized.
Onerous Contracts—For certain long-term contracts, a provision is recognized when the present value of the unavoidable cost to meet the Company's obligation exceeds the economic benefits that could be received from those contracts.
Critical accounting estimates and judgments
Significant judgements, estimates and assumptions are required to determine whether an impairment trigger has occurred and to prepare the Company's cash flows. Management uses the budgets approved as a starting point and key assumptions are, but not limited to: (i) mineral reserves and mineral resources measured by internal experts; (ii) costs and investments based on the best estimate of projects as supported by past performance; (iii) sale prices consistent with projections available in reports published by industry considering the market price when appropriate; (iv) the useful life of each cash-generating unit (ratio between production and mineral reserves); and (v) discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit.
| | | | |
| | F-62 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Impairment and onerous contracts (Continued)
These assumptions are susceptible to risks and uncertainties and may change the Company's projection and, therefore, may affect the recoverable value of assets.
21. Loans, borrowings, cash and cash equivalents and short-term investments
a) Net debt
The Company evaluates the net debt with the objective of ensuring the continuity of its business in the long term.
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Debt contracts in the international markets | | 10,494 | | 11,783 | | ||
Debt contracts in Brazil | | 2,562 | | 3,683 | | ||
| | | | | | ||
Total of loans and borrowings | | 13,056 | | 15,466 | | ||
(–) Cash and cash equivalents | | 7,350 | | 5,784 | | ||
(–) Short-term investments | | 826 | | 32 | | ||
| | | | | | ||
Net debt | | 4,880 | | 9,650 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
b) Cash and cash equivalents
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Cash and bank deposits | | 2,018 | | 2,109 | |
Short-term investments | | 1,573 | | 1,865 | |
| | | | | |
| 3,591 | | 3,974 | ||
| | | | | |
| | | | | |
| | | | |
Cash and cash equivalents includes cash, immediately redeemable deposits and short-term investments with an insignificant risk of change in value. They are readily convertible to cash, part in R$, indexed to the Brazilian Interbank Interest rate ("DI Rate"or"CDI" or "CDI") and part denominated in US$, mainly time deposits.
8. Accounts receivable
c) Short-term investments
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Trade receivables | | 1,534 | | 3,362 | |
Provision for doubtful debts | | (58 | ) | (87) | |
| | | | | |
| 1,476 | | 3,275 | ||
| | | | | |
| | | | | |
| | | | | |
Trade receivables related to the steel sector—% | | 75.32 | % | 77.79% | |
Reversal (provision) for doubtful debts recorded in the income statement | | 11 | | (36) | |
Trade receivables write-offs recorded in the income statement | | (6 | ) | (5) |
Trade receivablesAt December 31, 2019, the balance of US$826 is mainly comprised by segmentsinvestments in Financial Treasury Bills ("LFTs"), which are presentedBrazilian government bonds, issued by the National Treasury. LFTs are floating-rate securities, liquid in note 3(b). No individual customer represents over 10%the secondary markets and subject to a low risk of receivables or revenues.changes in value.
9. Inventories
d) Loans and borrowings
As at December 31, 2019 and 2018, loans and borrowings are secured by property, plant and equipment in the amount of US$220 and US$221, respectively.
The securities issued through Vale's wholly-owned finance subsidiary Vale Overseas Limited are fully and unconditionally guaranteed by Vale.
| | | | |
| | F-63 | | |
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Product inventory | | 2,553 | | 3,330 | |
Consumable inventory | | 975 | | 1,171 | |
| | | | | |
Total | | 3,528 | | 4,501 | |
| | | | | |
| | | | | |
| | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
9. Inventories21. Loans, borrowings, cash and cash equivalents and short-term investments (Continued)
Product inventories by segmentsi) Total debt
| | Current liabilities | | Non-current liabilities | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | ||||
Debt contracts in the international markets | | | | | | ||||||||
Floating rates in: | | | | | | ||||||||
US$ | | 113 | | 141 | | 2,802 | | 1,832 | | ||||
EUR | | – | | – | | 225 | | 229 | | ||||
Fixed rates in: | | | | | | ||||||||
US$ | | 147 | | 14 | | 6,080 | | 8,368 | | ||||
EUR | | – | | – | | 843 | | 859 | | ||||
Other currencies | | 14 | | 25 | | 106 | | 127 | | ||||
Accrued charges | | 160 | | 188 | | 4 | | – | | ||||
| | | | | | | | | | ||||
| 434 | | 368 | | 10,060 | | 11,415 | | |||||
| | | | | | | | | | ||||
Debt contracts in Brazil | | | | | | ||||||||
Floating rates in: | | | | | | ||||||||
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI | | 650 | | 435 | | 1,677 | | 2,849 | | ||||
Basket of currencies and US$ indexed to LIBOR | | 44 | | 101 | | 56 | | 100 | | ||||
Fixed rates in: | | | | | | ||||||||
R$ | | 43 | | 57 | | 45 | | 91 | | ||||
Accrued charges | | 43 | | 42 | | 4 | | 8 | | ||||
| | | | | | | | | | ||||
| 780 | | 635 | | 1,782 | | 3,048 | | |||||
| | | | | | | | | | ||||
Total | | 1,214 | | 1,003 | | 11,842 | | 14,463 | | ||||
| | | | | | | | | | ||||
| | | | | | | | | | ||||
| | | | | | | | | |
The future flows of debt payments, principal and interest, are presented in note 3(b).as follows:
As at December 31, 2015 product inventory is stated net of provisions for nickel, coal, phosphate, manganese
| | Principal | | Estimated future interest payments(i) | | ||
---|---|---|---|---|---|---|---|
2020 | | 1,012 | | 702 | | ||
2021 | | 788 | | 641 | | ||
2022 | | 1,026 | | 608 | | ||
2023 | | 1,192 | | 568 | | ||
Between 2024 and 2028 | | 4,483 | | 2,035 | | ||
2029 onwards | | 4,344 | | 2,706 | | ||
| | | | | | ||
Total | | 12,845 | | 7,260 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Recoverable taxes are presented netconsidering that the payments of provisions for lossesprincipal will be made on tax credits.
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Value-added tax | | 755 | | 1,057 | |
Brazilian federal contributions | | 1,125 | | 1,010 | |
Others | | 25 | | 34 | |
| | | | | |
Total | | 1,905 | | 2,101 | |
| | | | | |
| | | | | |
| | | | | |
Current | | 1,404 | | 1,700 | |
Non-current | | 501 | | 401 | |
| | | | | |
Total | | 1,905 | | 2,101 | |
| | | | | |
| | | | | |
| | | | |
11. Investments in associatestheir contracted payments dates. The amount includes the estimated interest not yet accrued and joint ventures
Changes in investments in associates and joint ventures are as follows:
| | 2015 | | 2014 | | 2013 | ||
---|---|---|---|---|---|---|---|---|
Balance at beginning of the year | | 4,133 | | 3,584 | | 6,384 | ||
| | | | | | | ||
Acquisitions(i) | | 584 | | – | | – | ||
Additions | | 30 | | 220 | | 378 | ||
Capitalizations | | 249 | | – | | – | ||
Disposals(ii) | | 79 | | – | | (98) | ||
Translation adjustment | | (1,211 | ) | (536 | ) | (582) | ||
Equity results on income statement | | (439 | ) | 505 | | 469 | ||
Equity results on statement of comprehensive income and others | | (6 | ) | (2 | ) | (204) | ||
Dividends declared | | (95 | ) | (831 | ) | (747) | ||
Impairment (note 15) | | (446 | ) | (31 | ) | – | ||
Transfer to held for sale—Others(iii) | | – | | 1,145 | | (2,016) | ||
Others | | 62 | | 79 | | – | ||
| | | | | | | ||
Balance at end of the year | | 2,940 | | 4,133 | | 3,584 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
11. Investments in associates and joint ventures (Continued)
| | | | | | Investments in associates and joint ventures | | Equity results in net income | | Dividends received | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | As at December 31 | | Year ended December 31 | | Year ended December 31 | |||||||||||||||||||
Associates and joint ventures | | % ownership | | % voting capital | | 2015 | | 2014 | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 | |||||||||
Ferrous minerals | | | | | | | | | | | |||||||||||||||||||
Baovale Mineração S.A. | | 50.00 | | 50.00 | | 24 | | 16 | | – | | 4 | | (7 | ) | – | | – | | 1 | |||||||||
Companhia Coreano-Brasileira de Pelotização | | 50.00 | | 50.00 | | 62 | | 86 | | 25 | | 30 | | 18 | | 19 | | 16 | | 22 | |||||||||
Companhia Hispano-Brasileira de Pelotização (i) | | 50.89 | | 51.00 | | 57 | | 80 | | 14 | | 24 | | 1 | | 16 | | 11 | | 10 | |||||||||
Companhia Ítalo-Brasileira de Pelotização (i) | | 50.90 | | 51.00 | | 50 | | 61 | | 21 | | 25 | | 7 | | 14 | | 5 | | – | |||||||||
Companhia Nipo-Brasileira de Pelotização (i) | | 51.00 | | 51.11 | | 104 | | 142 | | 46 | | 66 | | 19 | | 30 | | 48 | | 24 | |||||||||
Minas da Serra Geral S.A. (v) | | 50.00 | | 50.00 | | 13 | | 20 | | (2 | ) | 1 | | – | | – | | – | | – | |||||||||
MRS Logística S.A. | | 48.16 | | 46.75 | | 368 | | 510 | | 43 | | 76 | | 101 | | 22 | | 44 | | 63 | |||||||||
Samarco Mineração S.A. (iv) | | 50.00 | | 50.00 | | – | | 200 | | (167 | ) | 392 | | 499 | | 146 | | 401 | | 595 | |||||||||
VLI S.A. | | 37.60 | | 37.60 | | 778 | | 1,109 | | 46 | | 48 | | – | | 8 | | – | | – | |||||||||
Zhuhai YPM Pellet Co. | | 25.00 | | 25.00 | | 23 | | 24 | | – | | – | | – | | – | | – | | – | |||||||||
Others | | | | – | | – | | – | | (1 | ) | (11 | ) | – | | – | | – | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 1,479 | | 2,248 | | 26 | | 665 | | 627 | | 255 | | 525 | | 715 | ||||||||||||
Coal | | | | | | | | | | | |||||||||||||||||||
Henan Longyu Energy Resources Co., Ltd. | | 25.00 | | 25.00 | | 306 | | 355 | | (3 | ) | 32 | | 42 | | 28 | | 29 | | 40 | |||||||||
Base metals | | | | | | | | | | | |||||||||||||||||||
Korea Nickel Corp. | | 25.00 | | 25.00 | | 17 | | 21 | | (3 | ) | – | | (2 | ) | – | | – | | – | |||||||||
Teal Minerals Inc. | | 50.00 | | 50.00 | | – | | 194 | | (129 | ) | (35 | ) | (24 | ) | – | | – | | – | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 17 | | 215 | | (132 | ) | (35 | ) | (26 | ) | – | | – | | – | ||||||||||||
Others | | | | | | | | | | | |||||||||||||||||||
Aliança Geração de Energia S.A. (i) | | 55.00 | | 55.00 | | 481 | | – | | 50 | | – | | – | | 30 | | – | | – | |||||||||
Aliança Norte Energia Participações S.A. (i) | | 51.00 | | 51.00 | | 81 | | – | | 1 | | – | | – | | – | | – | | – | |||||||||
California Steel Industries, Inc. | | 50.00 | | 50.00 | | 157 | | 184 | | (27 | ) | 12 | | 20 | | – | | 6 | | 6 | |||||||||
Companhia Siderúrgica do Pecém (ii) | | 50.00 | | 50.00 | | 225 | | 725 | | (307 | ) | (44 | ) | (10 | ) | – | | – | | – | |||||||||
Mineração Rio Grande do Norte S.A. | | 40.00 | | 40.00 | | 93 | | 91 | | 40 | | 7 | | 10 | | 3 | | 8 | | 17 | |||||||||
Norte Energia S.A. (ii) (iii) | | – | | – | | – | | 91 | | – | | (11 | ) | (2 | ) | – | | – | | – | |||||||||
Thyssenkrupp Companhia Siderúrgica do Atlântico Ltd. | | 26.87 | | 26.87 | | – | | 205 | | (80 | ) | (60 | ) | (158 | ) | – | | – | | – | |||||||||
Others | | | | 101 | | 19 | | (7 | ) | (61 | ) | (34 | ) | 2 | | – | | 56 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | 1,138 | | 1,315 | | (330 | ) | (157 | ) | (174 | ) | 35 | | 14 | | 79 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
Total | | | | 2,940 | | 4,133 | | (439 | ) | 505 | | 469 | | 318 | | 568 | | 834 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
11. Investments in associates and joint ventures (Continued)
The information (100% basis) about relevant subsidiaries with noncontrolling interest (in which other investors have participationalready recognized in the Group's activities), associates and joint-ventures are as follows:financial statements.
| | | | |
| | F-64 | | |
| | December 31, 2015 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Assets | | Liabilities | | | | | | | ||||||||||
| | Current | | Non-current | | Current | | Non-current | | Stockholders' equity | | Dividends paid | | Net income (loss) | ||||||
Subsidiaries that have noncontrolling interest | | | | | | | | |||||||||||||
Minerações Brasileiras Reunidas S.A. | | 743 | | 2,912 | | 188 | | 155 | | 3,312 | | 116 | | 250 | ||||||
Associates and joint ventures | | | | | | | | |||||||||||||
Aliança Geração de Energia S.A. | | 65 | | 915 | | 35 | | 71 | | 874 | | 55 | | 91 | ||||||
Companhia Siderúrgica do Pecém | | 265 | | 3,057 | | 528 | | 2,344 | | 450 | | – | | (615) | ||||||
Henan Longyu Energy Resources Co., Ltd. | | 883 | | 529 | | 108 | | 80 | | 1,224 | | 112 | | (11) | ||||||
MRS Logística S.A. | | 323 | | 1,709 | | 392 | | 877 | | 764 | | 37 | | 90 | ||||||
VLI S.A. | | 502 | | 2,970 | | 511 | | 893 | | 2,069 | | 23 | | 121 |
| | December 31, 2014 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Assets | | Liabilities | | | | | | | ||||||||||
| | Current | | Non-current | | Current | | Non-current | | Stockholders' equity | | Dividends paid | | Net income (loss) | ||||||
Subsidiaries that have noncontrolling interest | | | | | | | | |||||||||||||
Minerações Brasileiras Reunidas S.A. | | 433 | | 2,544 | | 245 | | 404 | | 2,328 | | – | | 150 | ||||||
Associates and joint ventures | | | | | | | | |||||||||||||
Henan Longyu Energy Resources Co., Ltd. | | 1,149 | | 484 | | 65 | | 148 | | 1,420 | | 116 | | 128 | ||||||
MRS Logística S.A. | | 305 | | 2,397 | | 415 | | 1,215 | | 1,072 | | 61 | | 160 | ||||||
VLI S.A. | | 733 | | 3,383 | | 643 | | 523 | | 2,950 | | – | | 128 |
| | Stockholder's equity | | Gain (loss) attributable to noncontrolling interest | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Balance on | | Year ended December 31 | ||||||||||
| | December 31, 2015 | | December 31, 2014 | | 2015 | | 2014 | | 2013 | ||||
Biopalma da Amazônia S.A. | | 6 | | 34 | | (22 | ) | (35 | ) | (43) | ||||
Compañia Mineradora Miski Mayo S.A.C. | | 261 | | 283 | | 10 | | 4 | | 13 | ||||
Minerações Brasileiras Reunidas S.A. | | 1,360 | | 39 | | (66 | ) | (3 | ) | 1 | ||||
PT Vale Indonesia Tbk | | 741 | | 736 | | 6 | | 65 | | 18 | ||||
Vale Nouvelle Caledonie S.A.S. | | 55 | | 176 | | (301 | ) | (348 | ) | (68) | ||||
Vale Oman Pelletizing LLC | | 67 | | 67 | | 7 | | 7 | | 12 | ||||
Outros | | (375 | ) | (136 | ) | (125 | ) | 6 | | (111) | ||||
| | | | | | | | | | | ||||
| 2,115 | | 1,199 | | (491 | ) | (304 | ) | (178) | |||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
Changes in intangibles are as follows:
| | Indefinite useful life | | Finite useful life | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Goodwill(i) | | Concessions | | Right of use(ii) | | Software | | Total | ||||
Balance on December 31, 2013 | | 4,140 | | 1,907 | | 253 | | 571 | | 6,871 | ||||
| | | | | | | | | | | ||||
Additions | | – | | 835 | | 102 | | 252 | | 1,189 | ||||
Disposals | | – | | (6 | ) | – | | – | | (6) | ||||
Amortization | | – | | (202 | ) | (31 | ) | (174 | ) | (407) | ||||
Impairment (note 15) | | (460 | ) | – | | – | | – | | (460) | ||||
Translation adjustment | | (411 | ) | (321 | ) | (27 | ) | (99 | ) | (858) | ||||
Others | | 491 | | – | | – | | – | | 491 | ||||
| | | | | | | | | | | ||||
Total | | 3,760 | | 2,213 | | 297 | | 550 | | 6,820 | ||||
| | | | | | | | | | | ||||
Cost | | 3,760 | | 3,421 | | 518 | | 1,356 | | 9,055 | ||||
Accumulated amortization | | – | | (1,208 | ) | (221 | ) | (806 | ) | (2,235) | ||||
| | | | | | | | | | | ||||
Balance on December 31, 2014 | | 3,760 | | 2,213 | | 297 | | 550 | | 6,820 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
Additions | | – | | 549 | | – | | 128 | | 677 | ||||
Disposals | | – | | (20 | ) | – | | – | | (20) | ||||
Amortization | | – | | (150 | ) | (42 | ) | (155 | ) | (347) | ||||
Impairment (note 15) | | (81 | ) | – | | – | | – | | (81) | ||||
Translation adjustment | | (762 | ) | (778 | ) | (48 | ) | (176 | ) | (1,764) | ||||
Acquisition of subsidiary (note 6(f)) | | 39 | | – | | – | | – | | 39 | ||||
| | | | | | | | | | | ||||
Total | | 2,956 | | 1,814 | | 207 | | 347 | | 5,324 | ||||
| | | | | | | | | | | ||||
Cost | | 2,956 | | 2,588 | | 464 | | 1,025 | | 7,033 | ||||
Accumulated amortization | | – | | (774 | ) | (257 | ) | (678 | ) | (1,709) | ||||
| | | | | | | | | | | ||||
Balance on December 31, 2015 | | 2,956 | | 1,814 | | 207 | | 347 | | 5,324 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
14. Property, plant and equipment
The net book value of property, plant and equipment pledged to secure judicial claims on December 31, 2015 and 2014 were US$44 and US$68, respectively.
Notes to the Financial Statementsshort-term investments (Continued)
Expressed in millions of United States dollar, unless otherwise stated
14. Property, plant and equipment (Continued)
Changes in property, plant and equipment are as follows:
| | Land | | Building | | Facilities | | Equipment | | Mineral properties | | Others | | Constructions in progress | | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance on December 31, 2013 | | 945 | | 7,785 | | 10,937 | | 8,404 | | 16,276 | | 10,519 | | 26,799 | | 81,665 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Additions(i) | | – | | – | | – | | – | | – | | – | | 12,054 | | 12,054 | |||||||
Disposals(ii) | | (3 | ) | (50 | ) | (10 | ) | (9 | ) | (264 | ) | (28 | ) | (232 | ) | (596) | |||||||
Depreciation and amortization | | – | | (454 | ) | (818 | ) | (1,025 | ) | (1,083 | ) | (723 | ) | – | | (4,103) | |||||||
Transfer to non-current assets held for sale | | – | | – | | (10 | ) | (49 | ) | (85 | ) | (2 | ) | (2,764 | ) | (2,910) | |||||||
Impairment (note 15) | | – | | 533 | | (47 | ) | 112 | | (1,255 | ) | (18 | ) | (17 | ) | (692) | |||||||
Translation adjustment | | (75 | ) | (1,412 | ) | (2,407 | ) | (992 | ) | (132 | ) | (1,238 | ) | (1,040 | ) | (7,296) | |||||||
Transfers | | 202 | | 5,252 | | 3,168 | | 2,846 | | 1,472 | | 2,444 | | (15,384 | ) | – | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 1,069 | | 11,654 | | 10,813 | | 9,287 | | 14,929 | | 10,954 | | 19,416 | | 78,122 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Cost | | 1,069 | | 14,144 | | 15,749 | | 14,381 | | 20,965 | | 14,888 | | 19,416 | | 100,612 | |||||||
Accumulated depreciation | | – | | (2,490 | ) | (4,936 | ) | (5,094 | ) | (6,036 | ) | (3,934 | ) | – | | (22,490) | |||||||
| | | | | | | | | | | | | | | | | |||||||
Balance on December 31, 2014 | | 1,069 | | 11,654 | | 10,813 | | 9,287 | | 14,929 | | 10,954 | | 19,416 | | 78,122 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Additions(i) | | – | | – | | – | | – | | – | | – | | 9,499 | | 9,499 | |||||||
Disposals | | (3 | ) | (8 | ) | (41 | ) | (81 | ) | (152 | ) | (1,554 | ) | (22 | ) | (1,861) | |||||||
Disposal of asset retirement obligation | | – | | – | | – | | – | | (334 | ) | – | | – | | (334) | |||||||
Depreciation and amortization | | – | | (547 | ) | (713 | ) | (1,066 | ) | (864 | ) | (766 | ) | – | | (3,956) | |||||||
Transfer to non-current assets held for sale | | – | | – | | – | | – | | (127 | ) | – | | – | | (127) | |||||||
Impairment (note 15) | | (13 | ) | (1,828 | ) | (838 | ) | (1,100 | ) | (982 | ) | (1,979 | ) | (1,748 | ) | (8,488) | |||||||
Translation adjustment | | (292 | ) | (3,383 | ) | (3,182 | ) | (1,846 | ) | (2,404 | ) | (2,439 | ) | (5,327 | ) | (18,873) | |||||||
Transfers | | 5 | | 3,213 | | 2,253 | | 2,112 | | 238 | | 2,871 | | (10,692 | ) | – | |||||||
Acquisition of subsidiary (note 6(f)) | | – | | – | | – | | 1 | | – | | 119 | | – | | 120 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 766 | | 9,101 | | 8,292 | | 7,307 | | 10,304 | | 7,206 | | 11,126 | | 54,102 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Cost | | 766 | | 13,707 | | 13,152 | | 12,230 | | 17,054 | | 10,617 | | 11,126 | | 78,652 | |||||||
Accumulated depreciation | | – | | (4,606 | ) | (4,860 | ) | (4,923 | ) | (6,750 | ) | (3,411 | ) | – | | (24,550) | |||||||
| | | | | | | | | | | | | | | | | |||||||
Balance on December 31, 2015 | | 766 | | 9,101 | | 8,292 | | 7,307 | | 10,304 | | 7,206 | | 11,126 | | 54,102 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
15. Impairment and onerous contracts
According to the accounting policy described in note 31(l), the Company identified evidence of impairment in relation to certain investments in associates and joint ventures, intangible and property, plant and equipment. The following impairment charges and reversals were recorded:
| | | | | | Impairment (reversals) | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Segments by class of assets | | Assets or cash-generating unit | | Recoverable amount | | 2015 | | 2014 | | 2013 | |||
Property, plant and equipment | | | | | | ||||||||
Iron ore | | Midwest system | | – | | 522 | | – | | – | |||
Iron ore | | Simandou project | | – | | – | | 1,135 | | – | |||
Iron ore | | Others | | – | | 34 | | – | | – | |||
Pellets | | North system (stopped operations) | | – | | 55 | | – | | – | |||
Pellets | | Pelletizing asset | | – | | – | | – | | 182 | |||
Pellets | | Others | | – | | 3 | | – | | – | |||
Other ferrous products and services | | Others | | – | | 21 | | – | | – | |||
Coal | | Mozambique | | 1,729 | | 2,403 | | – | | – | |||
Coal | | Australia | | 74 | | 554 | | 343 | | – | |||
Nickel | | Newfoundland (VNL) | | 2,353 | | 3,460 | | – | | – | |||
Nickel | | New Caledonia (VNC) | | 3,725 | | 1,462 | | 238 | | – | |||
Nickel | | Onça Puma | | 2,331 | | (252 | ) | (1,617 | ) | – | |||
Nickel | | Others | | – | | 26 | | – | | – | |||
Copper | | Others | | – | | 36 | | – | | – | |||
Potash | | Potássio Rio Colorado | | 20 | | 548 | | – | | 2,116 | |||
Phosphates | | Phosphate | | 3,842 | | (391 | ) | 593 | | – | |||
Others | | Others | | – | | 7 | | – | | – | |||
| | | | | | | | | | | |||
| | | 8,488 | | 692 | | 2,298 | ||||||
Intangible | | | | | | ||||||||
Coal | | Australia | | – | | 81 | | – | | – | |||
Phosphates | | Phosphate | | – | | – | | 460 | | – | |||
| | | | | | | | | | | |||
Impairment of non-current assets | | | | 8,569 | | 1,152 | | 2,298 | |||||
| | | | | | | | | | | |||
Onerous contracts | | | | | | ||||||||
Iron ore | | Midwest system | | | 357 | | – | | – | ||||
| | | | | | | | | | | |||
Impairment of non-current assets and onerous contracts | | | | 8,926 | | 1,152 | | 2,298 | |||||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
Investments in associates and joint ventures | | | | | | ||||||||
Pellets | | Samarco Mineração S.A. | | – | | 132 | | – | | – | |||
Copper | | Teal Minerals Inc. | | – | | 314 | | – | | – | |||
Others | | Vale Soluções em Energia S.A. | | – | | – | | 31 | | – | |||
| | | | | | | | | | | |||
Impairment of investments in associates and joint ventures | | | | 446 | | 31 | | – | |||||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
a) Impairment of non-current assets
In accordance with the Company's accounting policy, each CGU is evaluated at each reporting period to determine whether there are any indicators of impairment. If any such indicators of impairment exist, an estimate of the recoverable amount is performed.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
15. Impairment and onerous contracts (Continued)
In assessing whether an impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount is the higher of the CGU's fair value less costs to sell ("FVLCS") and value in use ("ViU"). If an impairment was recognized in previous years and actual circumstances indicate that the impairment is no longer be applicable, an impairment reversal is recognized.
The FVLCS is calculated in each CGU and is estimated based on discounted future estimated cash flows, considering market based commodity price, the CGU five-year plans and life of mine plans, mineral reserves and mineral resources, costs and investments based on the best estimate of past performance and sale prices consistent with the projections used in reports published by industry considering the market price when available and appropriate.
The determination of FVLCS for each CGU are considered to be Level 3 fair value measurements, as they are derived from valuation techniques that include inputs that are not based on observable market data. The most sensitive assumptions were the discount rate and prices. All assets were tested using FVLCS model, except for North system.
These cash flows were discounted using a post-tax discount rate ranging from 6% to 10%. The discount rate was based on the weighted average cost of capital ("WACC") that reflected current market assessments of the time value of money and the risks specific to the CGU.
The price assumptions for calculating the FVLCS were a range of (in US$ per ton) 48 to 65 for iron ore, 85 to 140 for coal, 13,000 to 20,000 for nickel and 105 to 125 for phosphate.
Iron ore and pellets—The Midwest system is comprised of the Corumbá mines and Paraná and Paraguay Waterway Systems. In 2015, there was a significant restructuring of operations, which includes the reduction of production and the revision of the freight strategy. With this restructuring, the Midwest system is evaluated as an independent CGU from other iron ore operations. Until 2014, this CGU was part of the iron ore CGU. The reduction of iron ore prices and the logistics cost lead to an impairment of US$522. The impairment in the amount of US$55 relates to pelletizing plants that were stopped in North system.
For the Simandou project, Vale recognized an impairment of US$1,135 in 2014 related to the revocation of Vale's former 51%-owned subsidiary VBG-Vale BSGR Limited ("VBG") mining concessions in Guinea. During the first quarter of 2015, the investment was sold (note 6(e)).
For onerous contracts, provision is made for the present value of certain long term contracts where the unavoidable cost of meeting the Company's obligations is expected to exceed the benefits to be received. In 2015, the Company recognized provision for losses related to fluvial freight in the amount of US$357 in other liabilities in the balance sheet.
Coal—The reduction in estimated future coal prices combined with the increase of logistics costs decreased the estimated net recoverable amount of Mozambique assets, causing an impairment of US$2,403. The Coal assets in Australia were also impacted by the prices and the revision to the future mining plans in 2015, recording an impairment of US$635. The impairment of US$343 registered in 2014 relates to Integra and Isaac Plans which were sold during the fourth quarter of 2015.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
15. Impairment and onerous contracts (Continued)
Nickel—During the impairment test for 2015, the Company identified that the indicators which caused an impairment to be recognized in previous years for Onça Puma were no longer applicable. This was mainly due to the recovery of Onça Puma's production returning to normal operations for more than two years. Part of the impairment in the amount of US$1,617 registered in 2012 was reversed in 2014. The amount of US$252 was reversed in 2015.
In 2015, VNL was identified as a separate CGU (previously part of the Canada Nickel CGU) as there was a change in location of processed ore (feed of nickel concentrate) from the VNL mine that is now expected to be processed in Long harbor instead of Ontario's Sudbury operations.
A reduction of long term nickel price projections, that significantly reduced the recoverable values of the VNC and VNL CGUs, combined with carrying values that reflect significant capital investments in new processing facilities in recent years, resulted in an impairment loss in the amount of US$4,922 for these CGU.
Of the total goodwill (note 13), US$1,863 is allocated to the Nickel CGUs which was tested based on FVLCS determined using cash flows based on approved budgets and market assumptions, considering mineral reserves and resources and additional value calculated by experts, costs and investments based on the best estimate of past performance and sales nickel prices using a range from 13,000 to 20,000 (US$ per ton). Cash flows used are designed based on the life of each CGU and considering a discount rates range from 6% to 8%.
Fertilizers—The scenario of depreciation of the R$ against the US$ had a favorable impact on the phosphate business in Brazil in 2015, reverting the total amount of the impairment that was previously recognized during 2014 in the amount of US$391.
The majority of the remaining balance of the assets in PRC were impaired in 2015 as the management does not expect to be able to recover the amounts invested in the project. An impairment charge of US$548 and US$2,116 was recognized in 2015 and 2013, respectively.
b) Impairment of investments in associates and joint ventures
In 2015, the Company recognized an impairment of US$132 in its investment in Samarco (note 4) and US$314 in Teal Minerals Inc. ("Teal"). Teal recognized an impairment of property, plant and equipment due to the revision of future mining plans and the decrease of the price of copper.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
a) Total debt
| | Current liabilities | | Non-current liabilities | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | |||
Debt contracts in the international markets | | | | | |||||||
Floating rates in: | | | | | |||||||
US$ | | 241 | | 358 | | 5,174 | | 5,095 | |||
Other currencies | | – | | – | | – | | 2 | |||
Fixed rates in: | | | | | |||||||
US$ | | 1,191 | | 69 | | 12,923 | | 13,239 | |||
EUR | | – | | – | | 1,633 | | 1,822 | |||
Other currencies | | 14 | | – | | 169 | | – | |||
Accrued charges | | 326 | | 334 | | – | | – | |||
| | | | | | | | | |||
| 1,772 | | 761 | | 19,899 | | 20,158 | ||||
| | | | | | | | | |||
Debt contracts in Brazil | | | | | |||||||
Floating rates in: | | | | | |||||||
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI | | 212 | | 296 | | 4,709 | | 5,503 | |||
Basket of currencies and US$ indexed to LIBOR | | 290 | | 211 | | 1,342 | | 1,364 | |||
Fixed rates in: | | | | | |||||||
R$ | | 63 | | 48 | | 268 | | 363 | |||
Accrued charges | | 169 | | 103 | | 129 | | – | |||
| | | | | | | | | |||
| 734 | | 658 | | 6,448 | | 7,230 | ||||
| | | | | | | | | |||
| 2,506 | | 1,419 | | 26,347 | | 27,388 | ||||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
The future flows of debt payments (principal and interest) per nature of funding are as follows:
| | Bank loans(i) | | Capital market(i) | | Development agencies(i) | | Debt principal(i) | | Estimated future payments of interest(ii) | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2016 | | 262 | | 951 | | 799 | | 2,012 | | 1,476 | ||||
2017 | | 991 | | 1,212 | | 918 | | 3,121 | | 1,512 | ||||
2018 | | 1,719 | | 816 | | 1,058 | | 3,593 | | 1,553 | ||||
2019 | | 578 | | 1,000 | | 1,239 | | 2,817 | | 1,446 | ||||
2020 | | 1,553 | | 1,282 | | 808 | | 3,643 | | 1,222 | ||||
2021 | | 289 | | 77 | | 822 | | 1,188 | | 1,089 | ||||
Between 2022 and 2025 | | 973 | | 3,276 | | 912 | | 5,161 | | 2,801 | ||||
2026 onwards | | 88 | | 6,482 | | 124 | | 6,694 | | 6,294 | ||||
| | | | | | | | | | | ||||
| 6,453 | | 15,096 | | 6,680 | | 28,229 | | 17,393 | |||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
16. Loans and borrowings (Continued)
At December 31, 2015,2019, the average annual interest rates by currency are as follows:
| | Average interest rate(i) | | Total debt | | Average interest rate(i) | | Total debt | | |||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Loans and borrowings in | | | ||||||||||
Loans and borrowings | | | | |||||||||
US$ | | 4.63 | % | 21,431 | | 5.57 | % | 9,370 | | |||
R$(ii) | | 10.78 | % | 5,541 | | 9.38 | % | 2,461 | | |||
EUR(iii) | | 4.06 | % | 1,698 | | 3.77 | % | 1,103 | | |||
Other currencies | | 5.94 | % | 183 | | 3.58 | % | 122 | | | ||
| | 28,853 | | | 13,056 | | ||||||
| | | | | | | | | | | ||
| | | | | | | | | |
b)ii) Reconciliation of debt to cash flows arising from financing activities
| Loans and borrowings | | ||
---|---|---|---|---|
December 31, 2018 | | 15,466 | | |
Additions | | 3,142 | | |
Repayments(i) | | (5,417 | ) | |
Interest paid | | (921 | ) | |
| | | | |
Cash flow from financing activities | | (3,196 | ) | |
Effect of exchange rate | | (158 | ) | |
Interest accretion | | 944 | | |
| | | | |
Non-cash changes | | 786 | | |
| | | | |
December 31, 2019 | | 13,056 | | |
| | | | |
| | | | |
| | | |
iii) Credit and financing lines
| | | | | | | | | | Available amount | |
---|---|---|---|---|---|---|---|---|---|---|---|
Type | | Contractual currency | | Date of agreement | | Period of the agreement | | Total amount | | December 31, 2015 | |
Credit lines | | | | | | ||||||
Revolving credit facility | | US$ | | May 2015 | | 5 years | | 3,000 | | 3,000 | |
Revolving credit facility | | US$ | | July 2013 | | 5 years | | 2,000 | | 2,000 | |
Financing lines | | | | | | ||||||
BNDES(i) | | R$ | | April 2008 | | 10 years | | 1,869 | | 365 | |
BNDES—CLN 150 | | R$ | | September 2012 | | 10 years | | 994 | | 5 | |
BNDES—S11D e S11D Logística | | R$ | | May 2014 | | 10 years | | 1,578 | | 384 |
In January 2016On March 24, 2020 (subsequent event), the Company drew down on US$3,000 of its revolving credit facilities. The amount of US$1,800 was drew downfacilities in full. Please see further disclosures on by Vale International S.A. and US$1,200 (R$4,686) by the Parent Company.note 34.
| | | | |
| | F-65 | | |
c) Funding
In 2015, Vale issued infrastructure debentures in the amount of R$1,350 (US$346) and export credit notes in the amount of R$1,500 (US$384).
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
16. 21. Loans, borrowings, cash and cash equivalents and short-term investments (Continued)
Accounting policy
Loans and borrowings (Continued)are initially measured at fair value, net of transaction costs incurred and are subsequently carried at amortized cost and updated using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the Income statement over the period of the loan, using the effective interest rate method. The fees paid in obtaining the loan are recognized as transaction costs.
d) Guarantees
As at December 31, 2015Loans and 2014, loans and borrowingsborrowing costs are secured bycapitalized as part of property, plantplants and equipment and receivablesif those costs are directly related to a qualified asset. The capitalization occurs until the qualified asset is ready for its intended use. The average capitalization rate is 14%. Borrowing costs that are not capitalized are recognized in the amount of US$495 and US$1,312, respectively.income statement in the period in which they are incurred.
The securities issued through Vale's 100%-owned finance subsidiary Vale Overseas Limited are fully and unconditionally guaranteed by Vale.
e) Covenants
Some of the Company's debt agreements with lenders contain financial covenants. The mainprimary financial covenants in those agreements require maintaining certain ratios, such as debt to EBITDA (Earnings before Interest Taxes, Depreciation and Amortization) and interest coverage. The Company has not identified any instances of noncompliance as at December 31, 20152019 and 2014.2018.
17. Asset retirement obligations22. Liabilities related to associates and joint ventures
On November 5, 2015, a rupture has occurred in the Fundão tailings dam, in Mariana (State of Minas Gerais), operated by Samarco Mineração S.A. ("Samarco"), a joint venture controlled by Vale S.A. and BHP Billiton Brasil Ltda. ("BHP"). In March 2016, Samarco and its shareholders entered into a Framework Agreement with governmental authorities, in which Samarco, Vale S.A. and BHP agreed to stablish the Fundação Renova, an entity responsible to develop and implement 42 long-term mitigation and compensation programs.
In addition to the Fundão tailings dam, Samarco owns the Germano dam, which was also built under the upstream method and has been inactive since the Fundão dam rupture.
On October 25, 2019, Samarco obtained the Corrective Operation License for its operating activities in the Germano Complex. Following this authorization, Samarco has obtained all environmental licenses required to restart its operations. Samarco currently expects to restart its operations by the end of 2020.
Fundação Renova
During 2019, Fundação Renova reviewed the estimates of the costs required to mitigate and compensate the impacts from the rupture of Fundão dam. As a result, Vale recognized an additional provision of US$501 (R$1,963 million), which is the present value of the revised estimate in relation to Vale's responsibility to support Fundação Renova and is equivalent to 50% of Samarco's additional obligations over the next 11 years.
| | | | |
| | F-66 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
22. Liabilities related to associates and joint ventures (Continued)
Overall, the programs rely on future actions, which indicates a broad range of possible estimates. Estimates of mitigation and compensation actions may vary according to the progress of the ongoing programs developed by the Fundação Renova and changes in scope. The Company applies judgmentamounts disclosed in these interim financial statements have been determined based on Management's best estimates and assumptions when measuring its asset retirement obligation. consider the facts and circumstances known to date.
The accrued amountscontingencies related to the Fundão dam rupture are disclosed in note 28.
Germano dam
Due to the new safety requirements set by ANM, Samarco prepared a project for the de-characterization of this dam. During May 2019, the concept of a project for the de-characterization of the Germano dam was filed. The conceptual project was concluded in August 2019 and is subject to further review and eventual approval by the competent authorities. Accordingly, based on the information available on the preparation of these obligations are not deducted fromfinancial statements, the potential costs covered by insurance or indemnities.estimated amount based on the expected cash outflows resulted in an additional provision of US$257 (R$993 million) recognized during 2019.
The long term interest rates (per annum, used to discount these obligations to present value and to update the provisions) and the changes in the provision to meet the obligations under the agreement related to the Fundão dam rupture and to the de-characterization of asset retirement obligationsGermano dam in the year ended December 31, 2019 and 2018 are as follows:
| | 2019 | | 2018 | | ||
---|---|---|---|---|---|---|---|
Balance at January 1 | | 1,121 | | 996 | | ||
| | | | | | ||
Payments | | (315 | ) | (290 | ) | ||
Interest accretion | | 200 | | 165 | | ||
Provision increase | | 758 | | 403 | | ||
Translation adjustment | | (64 | ) | (153 | ) | ||
| | | | | | ||
Balance at December 31 | | 1,700 | | 1,121 | | ||
Current liabilities | | 516 | | 289 | | ||
Non-current liabilities | | 1,184 | | 832 | | ||
| | | | | | ||
Liabilities | | 1,700 | | 1,121 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Samarco's working capital
In addition to the provision, Vale S.A. made available in the year ended December 31, 2019 and 2018 the amount of US$102 and US$84, respectively, which was fully used to fund Samarco's working capital. This amount was recognized in Vale´s income statement as an expense in "Equity results and other results in associates and joint ventures".
During 2020, Vale S.A. may provide a short-term credit facility up to US$267 to support the Samarco's cash needs, without any binding obligation to Samarco. The availability of funds by the shareholders—Vale S.A. and BHP—is subject to the fulfillment of certain conditions, being deliberated by the shareholders, in the same bases and concomitantly, if required.
| | | | |
| | F-67 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
22. Liabilities related to associates and joint ventures (Continued)
Under Brazilian legislation and the terms of the joint venture agreement, Vale does not have an obligation to provide funding to Samarco. Accordingly, Vale's investment in Samarco was fully impaired and no provision was recognized in relation to the Samarco's negative equity.
The summarized financial information of Samarco are as follows. The stand-alone financial statements of these entity may differ from the financial information reported herein, which is prepared considering Vale's accounting policies.
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Balance at beginning of the year | | 3,369 | | 2,644 | |
| | | | | |
Interest expense | | 109 | | 193 | |
Settlements | | (88 | ) | (41) | |
Revisions on cash flows estimates(i) | | (135 | ) | 842 | |
Translation adjustment | | (781 | ) | (269) | |
| | | | | |
Balance at end of the year | | 2,474 | | 3,369 | |
| | | | | |
| | | | | |
| | | | | |
Current | | 89 | | 136 | |
Non-current | | 2,385 | | 3,233 | |
| | | | | |
| 2,474 | | 3,369 | ||
| | | | | |
| | | | | |
| | | | | |
Brazil | | 7.28 | % | 5.51% | |
Canada | | 0.59 | % | 2.05% | |
Other regions | | 1.12%–5.91 | % | 1.61%–8.81% |
| | December 31, 2019 | | December 31, 2018 | | ||
---|---|---|---|---|---|---|---|
Current assets | | 34 | | 54 | | ||
Non-current assets | | 3,940 | | 5,877 | | ||
| | | | | | ||
Total assets | | 3,974 | | 5,931 | | ||
Current liabilities | | 6,990 | | 6,066 | | ||
Non-current liabilities | | 5,527 | | 4,283 | | ||
| | | | | | ||
Total liabilities | | 12,517 | | 10,349 | | ||
Negative reserves | | (8,543 | ) | (4,418 | ) | ||
Loss for the year ended | | (4,125 | ) | (640 | ) |
Insurance
Since the impactsFundão dam rupture, the Company has been negotiating with insurers the indemnification payments based on its general liability policies. During the 2019, the Company received payments in operating expensesthe amount of US$109 and property, plantsrecognized a gain in the income statement as "Equity results and equipments.other results in associates and joint ventures".
Critical accounting estimates and judgments
The provision related to Fundação Renova requires the use of assumptions that may be mainly affected by: (i) changes in scope of work required under the Framework Agreement as a result of further technical analysis and the ongoing negotiations with the Federal Prosecution Office, (ii) resolution of uncertainty in respect of the resumption of Samarco´s operations; (iii) updates of the discount rate; and (iv) resolution of existing and potential legal claims.
Moreover, the main critical assumptions and estimates applied in the Germano dam provision considers, among others: (i) volume of the waste to be removed based on historical data available and interpretation of the enacted laws and regulations; (ii) location availability for the tailings disposal; and (iii) acceptance by the authorities of the proposed engineering methods and solution.
As a result, future expenditures may differ from the amounts currently provided and changes to key assumptions could result in a material impact to the amount of the provision in future reporting periods. At each reporting period, the Company reassess the key assumptions used by Samarco in the preparation of the projected cash flows and adjust the provision, if required.
| | | | |
| | F-68 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
18. Litigation23. Financial instruments classification
The Company classifies its financial instruments in accordance with the purpose for which they were acquired, and determines the classification and initial recognition according to the following categories:
| | December 31, 2019 | | December 31, 2018 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Amortized cost | | At fair value through OCI | | At fair value through profit or loss | | Total | | Amortized cost | | At fair value through OCI | | At fair value through profit or loss | | Total |
Financial assets | | | | | | | | | ||||||||
Current | | | | | | | | | ||||||||
Cash and cash equivalents | | 7,350 | | – | | – | | 7,350 | | 5,784 | | – | | – | | 5,784 |
Short-term investments | | – | | – | | 826 | | 826 | | – | | – | | 32 | | 32 |
Derivative financial instruments | | – | | – | | 288 | | 288 | | – | | – | | 39 | | 39 |
Accounts receivable | | 2,452 | | – | | 77 | | 2,529 | | 2,756 | | – | | (108) | | 2,648 |
Related parties | | 319 | | – | | – | | 319 | | 364 | | – | | – | | 364 |
| | | | | | | | | | | | | | | | |
| 10,121 | | – | | 1,191 | | 11,312 | | 8,904 | | – | | (37) | | 8,867 | |
Non-current | | | | | | | | | ||||||||
Judicial deposits | | 3,159 | | – | | – | | 3,159 | | 1,716 | | – | | – | | 1,716 |
Bank accounts restricted | | 125 | | – | | – | | 125 | | – | | – | | – | | – |
Derivative financial instruments | | – | | – | | 184 | | 184 | | – | | – | | 392 | | 392 |
Investments in equity securities | | – | | 726 | | – | | 726 | | – | | 987 | | – | | 987 |
Loans | | 87 | | – | | – | | 87 | | 153 | | – | | – | | 153 |
Related parties | | 1,600 | | – | | – | | 1,600 | | 1,612 | | – | | – | | 1,612 |
| | | | | | | | | | | | | | | | |
| 4,971 | | 726 | | 184 | | 5,881 | | 3,481 | | 987 | | 392 | | 4,860 | |
| | | | | | | | | | | | | | | | |
Total of financial assets | | 15,092 | | 726 | | 1,375 | | 17,193 | | 12,385 | | 987 | | 355 | | 13,727 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | |
| | F-69 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Financial instruments classification (Continued)
| | December 31, 2019 | | December 31, 2018 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Amortized cost | | At fair value through OCI | | At fair value through profit or loss | | Total | | Amortized cost | | At fair value through OCI | | At fair value through profit or loss | | Total |
Financial liabilities | | | | | | | | | ||||||||
Current | | | | | | | | | ||||||||
Suppliers and contractors | | 4,107 | | – | | – | | 4,107 | | 3,512 | | – | | – | | 3,512 |
Leases | | 225 | | – | | – | | 225 | | – | | – | | – | | – |
Derivative financial instruments | | – | | – | | 94 | | 94 | | – | | – | | 470 | | 470 |
Loans and borrowings | | 1,214 | | – | | – | | 1,214 | | 1,003 | | – | | – | | 1,003 |
Interest on capital | | 1,571 | | – | | – | | 1,571 | | – | | – | | – | | – |
Related parties | | 980 | | – | | – | | 980 | | 1,134 | | – | | – | | 1,134 |
| | ��� | | | | | | | | | | | | | | |
| 8,097 | | – | | 94 | | 8,191 | | 5,649 | | – | | 470 | | 6,119 | |
Non-current | | | | | | | | | ||||||||
Leases | | 1,566 | | – | | – | | 1,566 | | – | | – | | – | | – |
Derivative financial instruments | | – | | – | | 307 | | 307 | | – | | – | | 344 | | 344 |
Loans and borrowings | | 11,842 | | – | | – | | 11,842 | | 14,463 | | – | | – | | 14,463 |
Related parties | | 956 | | – | | – | | 956 | | 960 | | – | | – | | 960 |
Participative stockholders' debentures | | – | | – | | 2,584 | | 2,584 | | – | | – | | 1,407 | | 1,407 |
Financial guarantees | | – | | – | | 525 | | 525 | | – | | – | | 166 | | 166 |
| | | | | | | | | | | | | | | | |
| 14,364 | | – | | 3,416 | | 17,780 | | 15,423 | | – | | 1,917 | | 17,340 | |
| | | | | | | | | | | | | | | | |
Total of financial liabilities | | 22,461 | | – | | 3,510 | | 25,971 | | 21,072 | | – | | 2,387 | | 23,459 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | |
| | F-70 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Financial instruments classification (Continued)
The classification of financial assets and liabilities by currencies are as follows:
| | December 31, 2019 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets | | R$ | | US$ | | CAD | | EUR | | Other currencies | | Total |
Current | | | | | | | ||||||
Cash and cash equivalents | | 2,822 | | 4,361 | | 41 | | 11 | | 115 | | 7,350 |
Short-term investments | | 826 | | – | | – | | – | | – | | 826 |
Derivative financial instruments | | 111 | | 177 | | – | | – | | – | | 288 |
Accounts receivable | | 389 | | 2,121 | | 5 | | – | | 14 | | 2,529 |
Related parties | | – | | 319 | | – | | – | | – | | 319 |
| | | | | | | | | | | | |
| 4,148 | | 6,978 | | 46 | | 11 | | 129 | | 11,312 | |
Non-current | | | | | | | ||||||
Judicial deposits | | 3,159 | | – | | – | | – | | – | | 3,159 |
Bank accounts restricted | | 125 | | – | | – | | – | | – | | 125 |
Derivative financial instruments | | 147 | | 37 | | – | | – | | – | | 184 |
Investments in equity securities | | – | | 726 | | – | | – | | – | | 726 |
Loans | | 4 | | 83 | | – | | – | | – | | 87 |
Related parties | | – | | 1,600 | | – | | – | | – | | 1,600 |
| | | | | | | | | | | | |
| 3,435 | | 2,446 | | – | | – | | – | | 5,881 | |
| | | | | | | | | | | | |
Total of financial assets | | 7,583 | | 9,424 | | 46 | | 11 | | 129 | | 17,193 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Financial liabilities | | | | | | | ||||||
Current | | | | | | | ||||||
Suppliers and contractors | | 2,317 | | 989 | | 524 | | 177 | | 100 | | 4,107 |
Leases | | 86 | | 110 | | 16 | | – | | 13 | | 225 |
Derivative financial instruments | | 69 | | 25 | | – | | – | | – | | 94 |
Loans and borrowings | | 734 | | 429 | | 16 | | 35 | | – | | 1,214 |
Interest on capital | | 1,571 | | – | | – | | – | | – | | 1,571 |
Related parties | | 569 | | 411 | | – | | – | | – | | 980 |
| | | | | | | | | | | | |
| 5,346 | | 1,964 | | 556 | | 212 | | 113 | | 8,191 | |
Non-current | | | | | | | ||||||
Leases | | 329 | | 1,136 | | 89 | | – | | 12 | | 1,566 |
Derivative financial instruments | | 241 | | 66 | | – | | – | | – | | 307 |
Loans and borrowings | | 1,727 | | 8,941 | | 106 | | 1,068 | | – | | 11,842 |
Related parties | | – | | 956 | | – | | – | | – | | 956 |
Participative stockholders' debentures | | 2,584 | | – | | – | | – | | – | | 2,584 |
Financial guarantees | | 525 | | – | | – | | – | | – | | 525 |
| | | | | | | | | | | | |
| 5,406 | | 11,099 | | 195 | | 1,068 | | 12 | | 17,780 | |
| | | | | | | | | | | | |
Total of financial liabilities | | 10,752 | | 13,063 | | 751 | | 1,280 | | 125 | | 25,971 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | |
| | F-71 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Financial instruments classification (Continued)
| | December 31, 2018 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets | | R$ | | US$ | | CAD | | EUR | | Other currencies | | Total |
Current | | | | | | | ||||||
Cash and cash equivalents | | 2,765 | | 2,883 | | 23 | | 12 | | 101 | | 5,784 |
Short-term investments | | 1 | | 31 | | – | | – | | – | | 32 |
Derivative financial instruments | | 30 | | 9 | | – | | – | | – | | 39 |
Accounts receivable | | 447 | | 2,197 | | 4 | | – | | – | | 2,648 |
Related parties | | – | | 364 | | – | | – | | – | | 364 |
| | | | | | | | | | | | |
| 3,243 | | 5,484 | | 27 | | 12 | | 101 | | 8,867 | |
Non-current | | | | | | | ||||||
Judicial deposits | | 1,716 | | – | | – | | – | | – | | 1,716 |
Derivative financial instruments | | 380 | | 12 | | – | | – | | – | | 392 |
Investments in equity securities | | – | | 987 | | – | | – | | – | | 987 |
Loans | | 5 | | 148 | | – | | – | | – | | 153 |
Related parties | | – | | 1,612 | | – | | – | | – | | 1,612 |
| | | | | | | | | | | | |
| 2,101 | | 2,759 | | – | | – | | – | | 4,860 | |
| | | | | | | | | | | | |
Total of financial assets | | 5,344 | | 8,243 | | 27 | | 12 | | 101 | | 13,727 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Financial liabilities | | | | | | | ||||||
Current | | | | | | | ||||||
Suppliers and contractors | | 1,791 | | 1,182 | | 292 | | 141 | | 106 | | 3,512 |
Derivative financial instruments | | 389 | | 81 | | – | | – | | – | | 470 |
Loans and borrowings | | 532 | | 410 | | 25 | | 36 | | – | | 1,003 |
Related parties | | 769 | | 365 | | – | | – | | – | | 1,134 |
| | | | | | | | | | | | |
| 3,481 | | 2,038 | | 317 | | 177 | | 106 | | 6,119 | |
Non-current | | | | | | | ||||||
Derivative financial instruments | | 321 | | 23 | | – | | – | | – | | 344 |
Loans and borrowings | | 2,948 | | 10,300 | | 127 | | 1,088 | | – | | 14,463 |
Related parties | | 65 | | 895 | | – | | – | | – | | 960 |
Participative stockholders' debentures | | 1,407 | | – | | – | | – | | – | | 1,407 |
Financial guarantees | | 166 | | – | | – | | – | | – | | 166 |
| | | | | | | | | | | | |
| 4,907 | | 11,218 | | 127 | | 1,088 | | – | | 17,340 | |
| | | | | | | | | | | | |
Total of financial liabilities | | 8,388 | | 13,256 | | 444 | | 1,265 | | 106 | | 23,459 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Accounting policy
The Company classifies financial instruments based on its business model for managing the assets and the contractual cash flow characteristics of those assets. The business model test determines the classification based on the business purpose for holding the asset and whether the contractual cash flows represent only payments of principal and interest.
Financial instruments are measured at fair value through profit or loss ("FVTPL") unless certain conditions are met that permit measurement at fair value through other comprehensive income ("FVOCI") or amortized cost. Gains and losses recorded in other comprehensive income for debt instruments are recognized in profit or loss only on disposal.
| | | | |
| | F-72 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Financial instruments classification (Continued)
Investments in equity instruments are measured at FVTPL unless they are eligible to be measured at FVOCI, whose gains and losses are never recycled to profit or loss.
Information about the Company's exposure to credit risk is set out in note 33.
All financial liabilities are initially measured at fair value, net of transaction costs incurred and are subsequently carried at amortized cost and updated using the effective interest rate method. Excepts for Participative stockholders' debentures and Derivative financial instruments that are measured at fair value through profit or loss.
Due to the short-term cycle, it is assumed that the fair value of cash and cash equivalents balances, financial investments, accounts receivable and accounts payable approximate their book values. For the measurement and determination of fair value, the Company uses various methods including market, income or cost approaches, in order to estimate the value that market participants would use when pricing the asset or liability. The financial assets and liabilities recorded at fair value are classified and disclosed in accordance with the following levels:
Level 1—Unadjusted quoted prices on an active, liquid and visible market for identical assets or liabilities that are accessible at the measurement date;
Level 2—Quoted prices (adjusted or unadjusted) for identical or similar assets or liabilities on active markets; and
Level 3—Assets and liabilities, for which quoted prices, do not exist, or where prices or valuation techniques are supported by little or no market activity, unobservable or illiquid.
a) Assets and liabilities measured and recognized at fair value:
| | December 31, 2019 | | December 31, 2018 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Financial assets | | | | | | | | | ||||||||
Short-term investments | | 826 | | – | | – | | 826 | | 32 | | – | | – | | 32 |
Derivative financial instruments | | – | | 448 | | 24 | | 472 | | – | | 136 | | 295 | | 431 |
Accounts receivable | | – | | 77 | | – | | 77 | | – | | (108) | | – | | (108) |
Investments in equity securities | | 726 | | – | | – | | 726 | | 987 | | – | | – | | 987 |
| | | | | | | | | | | | | | | | |
Total | | 1,552 | | 525 | | 24 | | 2,101 | | 1,019 | | 28 | | 295 | | 1,342 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Financial liabilities | | | | | | | | | ||||||||
Derivative financial instruments | | – | | 281 | | 120 | | 401 | | – | | 636 | | 178 | | 814 |
Participative stockholders' debentures | | – | | 2,584 | | – | | 2,584 | | – | | 1,407 | | – | | 1,407 |
Financial guarantees | | – | | 525 | | – | | 525 | | – | | 166 | | – | | 166 |
| | | | | | | | | | | | | | | | |
Total | | – | | 3,390 | | 120 | | 3,510 | | – | | 2,209 | | 178 | | 2,387 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | |
| | F-73 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Fair value estimate (Continued)
There were no transfers between Level 1 and Level 2, or between Level 2 and Level 3 for the year ended in December 31, 2019.
The following table presents the changes in Level 3 assets and liabilities for the year ended in December 31, 2019:
| | Derivative financial instruments | | ||||
---|---|---|---|---|---|---|---|
| | Financial assets | | Financial liabilities | | ||
Balance at December 31, 2018 | | 295 | | 178 | | ||
| | | | | | ||
Gain and losses recognized in income statement | | 36 | | (33 | ) | ||
Translation adjustments | | (25 | ) | (7 | ) | ||
Settlements | | (282 | ) | (18 | ) | ||
| | | | | | ||
Balance at December 31, 2019 | | 24 | | 120 | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Methods and techniques of evaluation
i) Derivative financial instruments
Derivative financial instruments are evaluated through the use of market curves and prices impacting each instrument at the closing dates, detailed in the item "market curves" (note 35).
For the pricing of options, the Company often uses the Black & Scholes model. In this model, the fair value of the derivative is determined basically as a function of the volatility and the price of the underlying asset, the strike price of the option, the risk-free interest rate and the option maturity. In the case of options where payoff is a function of the average price of the underlying asset over a certain period during the life of the option, the Company uses Turnbull & Wakeman model. In this model, in addition to the factors that influence the option price in the Black-Scholes model, the formation period of the average price is also considered.
In the case of swaps, both the present value of the long and short positions are estimated by discounting their cash flows by the interest rate in the related currency. The fair value is determined by the difference between the present value of the long and short positions of the swap in the reference currency.
For the swaps indexed to TJLP, the calculation of the fair value assumes that TJLP is constant, that is, the projections of future cash flows in Brazilian Reais are made considering the last TJLP disclosed.
Forward and future contracts are priced using the future curves of their corresponding underlying assets. Typically, these curves are obtained on the stock exchanges where these assets are traded, such as the London Metals Exchange ("LME"), the Commodity Exchange ("COMEX") or other providers of market prices. When there is no price for the desired maturity, Vale uses an interpolation between the available maturities.
| | | | |
| | F-74 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Fair value estimate (Continued)
The fair value of derivatives within level 3 is estimated using discounted cash flows and option model valuation techniques with unobservable inputs of discount rates, stock prices and commodities prices.
ii) Participative stockholders' debentures—Consist of the debentures issued during the privatization process (note 13), for which fair values are measured based on the market approach. Reference prices are available on the secondary market.
Critical accounting estimates and judgments
The fair values of financial instruments that are not traded in active markets are determined using valuation techniques. Vale uses its own judgment to choose between the various methods. Assumptions are based on the market conditions, at the end of the year.
An analysis of the impact if actual results are different from management's estimates is present on note 35 (sensitivity analysis).
b) Fair value of financial instruments not measured at fair value
The fair value estimate for level 1 is based on market approach considering the secondary market contracts. For loans allocated to level 2, the income approach is adopted and the fair value for both fixed-indexed rate debt and floating rate debt is determined on a discounted cash flow basis using LIBOR future values and Vale's bonds curve.
The fair values and carrying amounts of loans and borrowings are as follows:
Financial liabilities | | Balance | | Fair value | | Level 1 | | Level 2 | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2019 | | | | | | ||||||||
Debt principal | | 12,845 | | 14,584 | | 8,983 | | 5,601 | | ||||
December 31, 2018 | | | | | | ||||||||
Debt principal | | 15,228 | | 16,262 | | 10,686 | | 5,576 | |
Libor discontinuation
In July 2017, the UK Financial Conduct Authority ("FCA"), which regulates the London Interbank Offered Rate ("LIBOR"), announced the effective discontinuation of that rate from the end of 2021, as banks will no longer be required to contribute rate quotations. The Company is currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
| | | | |
| | F-75 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Derivative financial instruments
a) Derivatives effects on statement of financial position
| | Assets | ||||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | ||||
| | Current | | Non-current | | Current | | Non-current |
Foreign exchange and interest rate risk | | | | | ||||
CDI & TJLP vs. US$ fixed and floating rate swap | | 13 | | – | | 9 | | – |
IPCA swap | | 83 | | 117 | | 7 | | 84 |
Eurobonds swap | | – | | – | | – | | 4 |
Pre-dollar swap | | 21 | | 8 | | 19 | | 1 |
| | | | | | | | |
| 117 | | 125 | | 35 | | 89 | |
Commodities price risk | | | | | ||||
Nickel | | 151 | | 9 | | 2 | | – |
Bunker oil, Gasoil and Brent | | 19 | | – | | 1 | | – |
| | | | | | | | |
| 170 | | 9 | | 3 | | – | |
Options—MBR | | – | | – | | – | | 295 |
Others | | 1 | | 50 | | 1 | | 8 |
| | | | | | | | |
| 1 | | 50 | | 1 | | 303 | |
| | | | | | | | |
Total | | 288 | | 184 | | 39 | | 392 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Liabilities | ||||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | ||||
| | Current | | Non-current | | Current | | Non-current |
Foreign exchange and interest rate risk | | | | | ||||
CDI & TJLP vs. US$ fixed and floating rate swap | | 48 | | 80 | | 383 | | 98 |
IPCA swap | | 13 | | 37 | | 35 | | 47 |
Eurobonds swap | | 6 | | 29 | | 5 | | – |
Pre-dollar swap | | 8 | | 37 | | 10 | | 18 |
| | | | | | | | |
| 75 | | 183 | | 433 | | 163 | |
Commodities price risk | | | | | ||||
Nickel | | 4 | | 4 | | 8 | | 2 |
Bunker oil, Gasoil and Brent | | 7 | | – | | 29 | | – |
| | | | | | | | |
| 11 | | 4 | | 37 | | 2 | |
Options—MBR | | – | | – | | – | | 16 |
Conversion options—VLI | | – | | 120 | | – | | 162 |
Others | | 8 | | – | | – | | 1 |
| | | | | | | | |
| 8 | | 120 | | – | | 179 | |
| | | | | | | | |
Total | | 94 | | 307 | | 470 | | 344 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | |
| | F-76 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Derivative financial instruments (Continued)
b) Effects of derivatives on the income statement, cash flow and other comprehensive income
| | Gain (loss) recognized in the income statement | | ||||
---|---|---|---|---|---|---|---|
| | Year ended December 31 | | ||||
| | 2019 | | 2018 | | 2017 | |
Foreign exchange and interest rate risk | | | | | |||
CDI & TJLP vs. US$ fixed and floating rate swap | | (39 | ) | (206 | ) | 152 | |
IPCA swap | | 118 | | (23 | ) | 43 | |
Eurobonds swap | | (39 | ) | (27 | ) | 36 | |
Euro forward | | – | | – | | 46 | |
Pre-dollar swap | | 2 | | (23 | ) | 36 | |
| | | | | | | |
| 42 | | (279 | ) | 313 | | |
Commodities price risk | | | | | |||
Nickel | | 58 | | (25 | ) | 30 | |
Bunker oil, Gasoil and Brent | | 42 | | 6 | | (80 | ) |
| | | | | | | |
| 100 | | (19 | ) | (50 | ) | |
Options—MBR | | 8 | | 62 | | 135 | |
Conversion options—VLI | | 35 | | – | | 61 | |
Others | | 59 | | (30 | ) | (5 | ) |
| | | | | | | |
| 102 | | 32 | | 191 | | |
| | | | | | | |
Total | | 244 | | (266 | ) | 454 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | Financial settlement inflows (outflows) | | ||||
---|---|---|---|---|---|---|---|
| | Year ended December 31 | | ||||
| | 2019 | | 2018 | | 2017 | |
Foreign exchange and interest rate risk | | | | | |||
CDI & TJLP vs. US$ fixed and floating rate swap | | (381 | ) | (135 | ) | (181 | ) |
IPCA swap | | (28 | ) | 7 | | (20 | ) |
Eurobonds swap | | (5 | ) | (3 | ) | (39 | ) |
Pre-dollar swap | | 8 | | 10 | | (1 | ) |
| | | | | | | |
| (406 | ) | (121 | ) | (241 | ) | |
Commodities price risk | | | | | |||
Nickel | | 48 | | 8 | | 4 | |
Bunker oil, Gasoil and Brent | | 2 | | 49 | | (3 | ) |
| | | | | | | |
| 50 | | 57 | | 1 | | |
Others | | 21 | | (3 | ) | – | |
Derivatives designated as cash flow hedge accounting | | | | | |||
Nickel(i) | | 11 | | – | | – | |
| | | | | | | |
Total | | (324 | ) | (67 | ) | (240 | ) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | |
| | F-77 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Derivative financial instruments (Continued)
| | Gain recognized in other comprehensive income | ||||
---|---|---|---|---|---|---|
| | Year ended December 31 | ||||
| | 2019 | | 2018 | | 2017 |
Derivatives designated as cash flow hedge accounting | | | | |||
Nickel | | 150 | | – | | – |
| | | | | | |
Total | | 150 | | – | | – |
| | | | | | |
| | | | | | |
| | | | | | |
The maturity dates of the derivative financial instruments are as follows:
| Last maturity dates | |
---|---|---|
Currencies and interest rates | | September 2029 |
Nickel | | December 2021 |
Brent | | December 2020 |
Gasoil | | December 2020 |
VLI | | December 2027 |
Others | | December 2023 |
c) Hedge in foreign operations
In January 2017, the Company implemented hedge accounting for the foreign currency risk arising from Vale S.A.'s net investments in Vale International S.A. and Vale Holding BV. Under the hedge accounting program, the Company's debt denominated in U.S. dollars and Euros serves as a hedge instrument for these investments. With the program, the impact of exchange rate variations on debt denominated in U.S. dollars and Euros has been partially recorded in other comprehensive income in the "Cumulative translation adjustments". As at December 31, 2019, the carrying value of the debts designated as instrument hedge of these investments are US$2,457 and EUR750.
| | Loss recognized in the other comprehensive income | ||||
---|---|---|---|---|---|---|
| | Year ended December 31 | ||||
| | 2019 | | 2018 | | 2017 |
Hedge in foreign operation, net of tax | | (74) | | (543) | | (95) |
Accounting policy
The Company uses financial instruments to hedge its exposure to certain market risks arising from operational, financing and investing activities. Derivatives are included within financial assets or liabilities at fair value through profit or loss unless they are designated as effective hedging instruments.
| | | | |
| | F-78 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Derivative financial instruments (Continued)
At the beginning of the hedge operations, the Company documents the type of hedge, the relation between the hedging instrument and hedged items, its risk management objective and strategy for undertaking hedge operations. The Company also documents, both at hedge inception and on an ongoing basis that the hedge is expected to continue to be highly effective. The Company has elected to adopt the new general hedge accounting model in IFRS 9 and designates certain derivatives as either:
Cash flow hedge—The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity within "Unrealized fair value gain (losses)". The gain or loss relating to the ineffective portion is recognized immediately in the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized in profit or loss when the transaction is recognized in the income statement.
Net investment hedge—Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in equity within "Cumulative translation adjustments". The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Gains and losses accumulated in equity are included in the statement of income when the foreign operation is partially or fully disposed of or sold.
Derivatives at fair value through profit or loss—Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any of these derivative instruments are recognized immediately in the income statement.
| | Current liabilities | | Non-current liabilities | ||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 |
Payroll, related charges and other remunerations | | 790 | | 1,046 | | – | | – |
Onerous contracts (note 20) | | 57 | | 60 | | 866 | | 642 |
Environmental obligations | | 146 | | 100 | | 243 | | 202 |
Asset retirement obligations (note 27) | | 158 | | 85 | | 3,802 | | 3,030 |
Provisions for litigation (note 28) | | – | | – | | 1,462 | | 1,357 |
Employee postretirement obligations (note 29) | | 79 | | 72 | | 2,120 | | 1,864 |
| | | | | | | | |
Provisions | | 1,230 | | 1,363 | | 8,493 | | 7,095 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | |
| | F-79 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
27. Asset retirement obligations
Provision is made for expected costs for the closure of the mines and deactivation of the related mining assets. Changes in the provision for asset retirement obligations and long-term interest rates (per annum, used to discount these obligations to present value and to update the provisions) are as follows:
| | December 31, 2019 | | December 31, 2018 | |
---|---|---|---|---|---|
Balance at beginning of the year | | 3,115 | | 3,168 | |
| | | | | |
Present value valuation | | 37 | | 15 | |
Settlements | | (47 | ) | (27 | ) |
Revisions on cash flows estimates(i) | | 812 | | 229 | |
Translation adjustment | | 43 | | (270 | ) |
| | | | | |
Balance at end of the year | | 3,960 | | 3,115 | |
| | | | | |
| | | | | |
| | | | | |
Current | | 158 | | 85 | |
Non-current | | 3,802 | | 3,030 | |
| | | | | |
| 3,960 | | 3,115 | | |
| | | | | |
| | | | | |
| | | | | |
Long-term interest rates (per annum) | | | | ||
Brazil | | 3.36 | % | 4.94 | % |
Canada | | 0.40 | % | 0.77 | % |
Mozambique | | 5.20 | % | 8.53 | % |
Other regions | | 0.60%–4.78 | % | 1.33%–5.73 | % |
Accounting policy
When the provision is recognized, the corresponding cost is capitalized as part of property, plant and equipment and it is depreciated over the useful life of the related mining asset, resulting in an expense recognized in the income statement.
The long-term liability is discounted at presented value using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability and the unwinds are recorded in the income statement and is reduced by payments for mine closure and decommissioning of mining assets. The accrued amounts of these obligations are not deducted from the potential costs covered by insurance or indemnities.
Critical accounting estimates and judgments
Judgment is required to determine key assumptions used on the asset retirement obligation measurement such as, interest rate, cost of closure, useful life of the mining asset considering the current conditions of closure and the projected date of depletion of each mine. Any changes in these assumptions may significant impact the recorded provision. Therefore, the estimated costs for closure of the mining assets is deemed to be a critical accounting estimate and annually reviewed.
| | | | |
| | F-80 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
a) Provision for litigationlitigations
Vale is party to labor, civil, tax and other ongoing lawsuits, at administrative and court levels. Provisions for losses resulting from lawsuits are estimated and updated by the Company, based on analysis from the Company's legal consultants.
Changes in provision for litigationlitigations are as follows:
| | Tax litigation | | Civil litigation | | Labor litigation | | Environmental litigation | | Total of litigation provision | | Tax litigation(i) | | Civil litigation | | Labor litigation | | Environmental litigation | | Total of litigation provision | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance on December 31, 2013 | | 330 | | 209 | | 709 | | 28 | | 1,276 | |||||||||||||||
Balance at December 31, 2017 | | 815 | | 131 | | 517 | | 10 | | 1,473 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||
Additions | | 103 | | 54 | | 237 | | 32 | | 426 | |||||||||||||||
Reversals | | (2 | ) | (104 | ) | (133 | ) | (13 | ) | (252) | |||||||||||||||
Additions and reversals, net | | 17 | | 65 | | 106 | | (3 | ) | 185 | | ||||||||||||||
Payments | | (7 | ) | (23 | ) | (114 | ) | (2 | ) | (146 | ) | ||||||||||||||
Additions—discontinued operations | | 26 | | 1 | | 11 | | – | | 38 | | ||||||||||||||
Indexation and interest | | – | | 17 | | 16 | | (1 | ) | 32 | | ||||||||||||||
Translation adjustment | | (122 | ) | (25 | ) | (77 | ) | (1 | ) | (225 | ) | ||||||||||||||
| | | | | | | | | | | | ||||||||||||||
Balance at December 31, 2018 | | 729 | | 166 | | 459 | | 3 | | 1,357 | | ||||||||||||||
| | | | | | | | | | | | ||||||||||||||
Additions and reversals, net | | 10 | | 168 | | 106 | | 7 | | 291 | | ||||||||||||||
Payments | | (37 | ) | (20 | ) | (48 | ) | – | | (105) | | (33 | ) | (58 | ) | (110 | ) | – | | (201 | ) | ||||
Indexation and interest | | 136 | | (6 | ) | 52 | | 52 | | 234 | | 9 | | 42 | | 18 | | 1 | | 70 | | ||||
Translation adjustment | | (164 | ) | (15 | ) | (111 | ) | (7 | ) | (297) | | (19 | ) | (18 | ) | (18 | ) | – | | (55 | ) | ||||
| | | | | | | | | | | | | | | | | | | | | | ||||
Balance on December 31, 2014 | | 366 | | 118 | | 706 | | 92 | | 1,282 | |||||||||||||||
| | | | | | | | | | | |||||||||||||||
Additions | | 182 | | 82 | | 168 | | – | | 432 | |||||||||||||||
Reversals | | (202 | ) | (56 | ) | (139 | ) | (4 | ) | (401) | |||||||||||||||
Payments | | (50 | ) | (40 | ) | (65 | ) | (59 | ) | (214) | |||||||||||||||
Indexation and interest | | 52 | | 13 | | 7 | | 3 | | 75 | |||||||||||||||
Translation adjustment | | (79 | ) | (38 | ) | (223 | ) | (12 | ) | (352) | |||||||||||||||
| | | | | | | | | | | |||||||||||||||
Balance on December 31, 2015 | | 269 | | 79 | | 454 | | 20 | | 822 | |||||||||||||||
Balance at December 31, 2019 | | 696 | | 300 | | 455 | | 11 | | 1,462 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||
| | | | | | | | | | | | | | | | | | | | | |
i. Provisions for labor litigation
Consist of lawsuits filed by employees and service suppliers, related
b) Contingent liabilities
ContingentThe Company has contingent liabilities consist ofwhere claims are debated in both administrative and judicial claims which expectation ofand whose expected loss is classified as possible, and for which the recognition of a provision is not considered necessary by the Company, based onCompany.
Based in the legal support.
opinions, the presentation of the litigations classified with expected loss as possible are presented as follow:
| | December 31, 2019 | | December 31, 2018 |
---|---|---|---|---|
Tax litigations(i) | | 8,395 | | 8,853 |
Civil litigations | | 1,518 | | 1,957 |
Labor litigations | | 773 | | 1,263 |
Environmental litigations | | 1,094 | | 1,051 |
Brumadinho event (note 3) | | 158 | | – |
| | | | |
Total | | 11,938 | | 13,124 |
| | | | |
| | | | |
| | | | |
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Tax litigation | | 5,326 | | 6,094 | |
Civil litigation | | 1,335 | | 1,406 | |
Labor litigation | | 1,866 | | 1,955 | |
Environmental litigation | | 1,381 | | 1,122 | |
| | | | | |
Total | | 9,908 | | 10,577 | |
| | | | | |
| | | | | |
| | | | |
| | | | |
| | F-81 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
18. Litigation28. Litigations (Continued)
i. i—Tax litigationlitigations—The most significant claims relaterelevant contingent tax liabilities are associated with proceedings related to pendingthe (i) collection of IRPJ and CSLL, (ii) challenges of PIS and COFINS tax credits, (iii) assessments related to mining royalties (CFEM), and (iv) collection of ICMS, in particular related to credits claimed in connection with the sale and transmission of electricity; collection of ICMS in connection with goods that enter into the State of Pará and collection of ICMS and penalties over the transportation of iron ore by Vale itself.
Of the total amount of tax litigations, US$1,106 relates to income taxes contingencies, which have been assessed by Management to determine whether the tax treatment related to the contingency is probable of being accepted by the Brazilian federal tax authority concerningauthority. Further details on the deductibility of Brazilian social contribution payments for income tax purposes and demandsassessment performed by Brazilian state tax authorities for additional payments of the value-added tax on services and circulation of goods ("ICMS") inCompany relation to the use of ICMS credits from sales and energy transmission.uncertain tax positions is disclosed in note 8.
ii. ii—Civil litigationlitigations—Most of these claimthose claims have been filed by suppliers for indemnification under construction contracts, primarily relating to certain alleged damages, payments and contractual penalties. A number of other claims involve disputedrelated to contractual terms fordisputes regarding inflation indexation.index.
iii. iii—Labor litigationlitigations—These claims represent a very large number ofRepresents individual claims by (i) employees and service providers, primarily involving demands for additional compensation for overtime work, time spent commuting or health and safety conditions; and (ii) the Brazilian federal social security administration ("INSS") regarding contributions on compensation programs based on profits.conditions.
iv. iv—Environmental litigationlitigations—The most significant claims concern alleged procedural deficiencies in licensing processes, non-compliance with existing environmental licenses or damage to the environment.
c) Judicial deposits
In addition to the provisions and contingent liabilities, the Company is required, by law, to make judicial deposits to secure a potential adverse outcome of certain lawsuits. These court-ordered deposits are monetarily adjusted and reported as non-current assets until a judicial decision to draw the deposit occurs.
| | December 31, 2015 | | December 31, 2014 | | December 31, 2019 | | December 31, 2018 | |
---|---|---|---|---|---|---|---|---|---|
Tax litigations | | 211 | | 354 | | 1,278 | | 1,314 | |
Civil litigations | | 102 | | 126 | | 112 | | 60 | |
Labor litigations | | 553 | | 789 | | 246 | | 310 | |
Environmental litigations | | 16 | | – | | 41 | | 32 | |
Brumadinho event (note 3) | | 1,482 | | – | |||||
| | | | | | | | | |
Total | | 882 | | 1,269 | | 3,159 | | 1,716 | |
| | | | | | | | | |
| | | | | | | | |
d) Others
In addition to the third quarter of 2015,above-mentioned tax, civil, labor and environmental judicial deposits, the Company filedcontracted US$2.6 billion (R$10.4 billion) in guarantees for its lawsuits, as an enforceable actionalternative to judicial deposits. For the Brumadinho event, the Company contracted guarantees in the amount of R$524 (US$132) referring to the final court decision in favor of the Company of the accrued interest of compulsory deposits from 1987 to 1993. Currently it is not possible to estimate the economic benefit inflow as the counterparty can appeal on the calculation. Consequently, the asset was not recognized in the financial statements.US$1.4 billion
| | | | |
| | F-82 | | |
On April 30, 2014, Rio Tinto plc ("Rio Tinto") filed a lawsuit against Vale, BSGR, and other defendants in the United States District Court for the Southern District of New York ("Court"), alleging violations of the U.S. Racketeer Influenced and Corrupt Organizations Act (RICO) in relation to Rio Tinto's loss of certain Simandou mining rights, the Government of Guinea's assignment of those rights to BSGR, and Vale's subsequent investment in VBG. In November, 2015 Vale received the decision of the Court, which was for the dismissal of the lawsuit.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
19. Income taxes—Settlement program ("REFIS")
28. Litigations (Continued)
(R$5.6 billion) which were presented in court according agreement with Treasury Court of Minas Gerais and Public Prosecutor's Office.
d) Contingencies related to Samarco accident
(i) Public civil claim filed by the Federal Government and others and Public civil claim filed by Federal Prosecution Office ("MPF")
In November 2013,2016, the Company electedfederal government, the Brazilian states of Espírito Santo and Minas Gerais and other governmental authorities have initiated a public civil lawsuit against Samarco and its shareholders, with an estimated value indicated by the plaintiffs of US$5.3 billion (R$20.2 billion). In the same year, MPF filed a public civil action against Samarco and its shareholders and presented several claims, including: (i) the adoption of measures for mitigating the social, economic and environmental impacts resulting from the dam failure and other emergency measures; (ii) the payment of compensation to participate in the REFIS, a federal tax settlement program, to settle mostcommunity; and (iii) payments for the collective moral damage. The action value indicated by MPF is US$40.5 billion (R$155 billion).
In June 2018, the parties entered into an agreement ("Term of Adjustment of Conduct"), which extinguishes (i) the public civil claim of US$5.3 billion (R$20.2 billion) filed by the Federal Government and others; and (ii) part of the claims relatedincluded in the public civil claim of US$40.5 billion (R$155 billion) filed by MPF. The agreement also establishes a possible renegotiation of Fundação Renova's repair programs after the conclusion of the specialist's studies hired to advise the Public Prosecutor's Office in this process. These negotiations are expected to occur during 2020.
In September 2019, the Court approved the list of entities selected by the community to provide it with technical assistance to assure its participation on the debates regarding the measures to be adopted for mitigate the impacts, accordingly to the collectionreferred agreement.
In January 2020, the Court issued an order for the Brazilian Mining Authority (ANM) ratifying the revocation of income taxthe decision issued on the public civil actions filed by the Brazilian Federal Government and social contributionothers, determine the immediate revocation of the restrictions on equity gainsVale's mining concessions.
(ii) United States class action lawsuits
In March 2017, holders of foreign subsidiariesbonds issued by Samarco Mineração S.A., filed a class action suit in the Federal Court in New York against Samarco Mineração S.A., Vale S.A., BHP Billiton Limited, BHP Billiton PLC and affiliates from 2003 to 2012.BHP Brasil Ltda. under U.S. federal securities laws. The plaintiffs allege that Vale S.A. made false and misleading statements or not made disclosures concerning the risks and dangers of the operations of Samarco's Fundão dam and the adequacy of related programs and procedures.
In June 2019, the Court issued a decision and order dismissing with prejudice the putative federal securities class action. In December 31, 2015,2019 the balanceplaintiffs filed a Notice of US$4,430 (US$345 as current and US$4,085 as non-current) is dueAppeal to the Court of Appeals, plaintiff's legal deadline to file the brief of the appeal should expire in 154 remaining monthly installments, bearing interest atMarch 2020. Based on the SELIC rate.
a) Deferred income tax
| | | | |
| | F-83 | | |
| | December 31, 2015 | | December 31, 2014 | |
---|---|---|---|---|---|
Taxes losses carryforwards | | 6,449 | | 1,637 | |
| | | | | |
Temporary differences: | | | |||
Pension plan | | 541 | | 671 | |
Provision for litigation | | 228 | | 365 | |
Provision for losses of assets | | 719 | | 937 | |
Fair value of financial instruments | | 823 | | 1,341 | |
Allocated goodwill | | (2,578 | ) | (4,831) | |
Others | | 52 | | 515 | |
| | | | | |
| (215 | ) | (1,002) | ||
| | | | | |
Total | | 6,234 | | 635 | |
| | | | | |
Assets | | 7,904 | | 3,976 | |
Liabilities | | (1,670 | ) | (3,341) | |
| | | | | |
| 6,234 | | 635 | ||
| | | | | |
| | | | | |
| | | | |
Changes in deferred tax are as follows:
| | Assets | | Liabilities | | Total | ||
---|---|---|---|---|---|---|---|---|
Balance on December 31, 2013 | | 4,523 | | 3,228 | | 1,295 | ||
| | | | | | | ||
Effect in income statement | | (31 | ) | 118 | | (149) | ||
Transfers (including between assets and liabilities) | | (102 | ) | 331 | | (433) | ||
Translation adjustment | | (452 | ) | (292 | ) | (160) | ||
Other comprehensive income | | 38 | | (44 | ) | 82 | ||
| | | | | | | ||
Balance on December 31, 2014 | | 3,976 | | 3,341 | | 635 | ||
| | | | | | | ||
Effect in income statement(i) | | 4,180 | | (1,309 | ) | 5,489 | ||
Transfers (including between assets and liabilities) | | 141 | | 141 | | – | ||
Translation adjustment | | (1,296 | ) | (517 | ) | (779) | ||
Other comprehensive income | | 914 | | 14 | | 900 | ||
Acquisition of subsidiary | | (11 | ) | – | | (11) | ||
| | | | | | | ||
Balance on December 31, 2015 | | 7,904 | | 1,670 | | 6,234 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Income taxes28. Litigations (Continued)
Brazilian corporate tax lawassessment of the Company´s legal consultants, the defendants would have better arguments to oppose the appeal to be filed by plaintiffs.
(iii) Class action lawsuits related to Vale's American Depositary Receipts
With respect to litigation in the United States concerning Samarco's Fundão dam, Vale and certain of our officers have been named as defendants in securities class action suits in the Federal Court in New York brought by holders of Vale's American Depositary Receipts under U.S. federal securities laws. The suit was amended atbrought as a putative class action on behalf of holders of Vale's American Depositary Receipts ("ADRs"), alleging violations of the endU.S. Federal Securities laws on the basis of alleged false and misleading statements or omissions concerning the risks of operations of Samarco's Fundão dam and the adequacy of the related programs and procedures.
On March 23, 2017 the judge issued a decision rejecting a significant portion of the claims against Vale S.A. and the individual defendants, determining the prosecution of the action with respect to more limited claims. The portion of plaintiffs' case that remains is related to certain statements about procedures, policies and risk mitigation plans contained in Vale S.A.'s sustainability reports in 2013 and 2014, byand certain statements regarding to the Law 12,973 and became effectiveresponsibility of Vale S.A. for the fiscal yearFundão dam failure made in a conference call in November 2015.
Fact and Expert discovery was totally concluded in October 2019. On September 27, 2019, the Court denied class certification. On December 26, 2019, the Court issued an Order stating that the parties had informed the Court that the parties had reached a settlement in principle. The change wasCourt directed the parties to provide that profits from foreign subsidiaries will be taxed in Brazil, onsubmit a motion to approve a proposed settlement no later than February 07, 2020. On February 07, 2020, the parties have filed to the Court an accrual basis, applying the differential between the nominal local tax rate"Stipulation and the Brazilian tax rates (34%). Accordingly, from January 1st, 2015 the results from foreign subsidiaries are recognized in this systematic.
In accordance with paragraph 77Agreement of Settlement" by means of the referred law, the accumulated losses of those subsidiaries, as at December 31, 2014, will be availabledefendants agreed to offset their future profits. On September 30, 2015, the Company filed the tax return and completed the review of the income tax loss carry-forwards available in each foreign subsidiary as at December 31, 2014. Accordingly, a deferred tax asset relatedpay US$25 to accumulated losses in certain of those foreign subsidiaries of US$2,952 was recognized as deferred income tax in the income statement.
b) Income tax reconciliation
The total amount presented as income taxes in the income statement is reconciled to the rate established by law, as follows:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Net income (loss) before income taxes | | (17,720 | ) | 1,553 | | 7,241 | ||
Income taxes at statutory rates—34% | | 6,024 | | (528 | ) | (2,462) | ||
Adjustments that affect the basis of taxes: | | | | |||||
Income tax benefit from interest on stockholders' equity | | 356 | | 1,123 | | 1,167 | ||
Tax incentives | | 61 | | 95 | | – | ||
Results of overseas companies taxed by different rates which differs from the parent company rate | | – | | (1,200 | ) | 146 | ||
Equity results in income statement | | (149 | ) | 172 | | 173 | ||
Income taxes statement program—REFIS | | – | | – | | (4,954) | ||
Additions (reversals) of tax loss carry forward | | 1,498 | | (178 | ) | 180 | ||
Unrecognized tax losses of the year | | (929 | ) | – | | – | ||
Nondeductible effect of impairment | | (1,857 | ) | (450 | ) | (719) | ||
Others | | 96 | | (234 | ) | (364) | ||
| | | | | | | ||
Income taxes | | 5,100 | | (1,200 | ) | (6,833) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
c) Tax incentives
In Brazil, Vale has a tax incentive for the partial reduction of income tax due, in the amount equivalent to the portion allocated by tax law to transactions in the North and Northeast regions with iron ore, manganese, copper, and nickel. The incentive is calculated based on the tax profit of the activity (called operating income) and takes into consideration the allocation of operating net income by incentive production levels during the periods specified for each product, generally 10 years, and insettle the case, ofwhich is yet subject to some Court approvals and other conditions to be fulfilled before the Company, theysettlement can be considered as final and binding. These approvals and conditions are expected to expireoccur in 2024. An amount equal2020.
(iv) Criminal lawsuit
In 2016, the MPF brought a criminal lawsuit against Samarco and its shareholders, VogBr Recursos Hídricos e Geotecnia Ltda. and 22 individuals for the consequences related to that obtainedFundão dam failure. Currently, the progress of the criminal action is paralyzed due to the judgment of Habeas Corpus, with no decision.
On April 23, 2019, the tax saving must be appropriated inFederal Court from the 1st Region ("TRF1") issued an Habeas Corpus writ and granted it to dismiss the criminal charges of homicide and physical injuries committed by oblique intent held against one of the defendants on the criminal action. At the same opportunity, the Court extended the writ's issuance to all other defendants on the case as the criminal information does not describe the crimes of homicide and physical injury, but the crime of flooding qualified by the result of death and physical injury as a retained earnings reserve account in Stockholders' equity,consequence of the Fundão dam's failure. Therefore, the Court dismissed the homicide and may not be distributed as dividends to stockholders.physical injuries charges held against all defendants.
| | | | |
| | F-84 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
20. Income taxes28. Litigations (Continued)
After acknowledging the Court's decisions, the Ponte Nova Court changed the process, withdrawing the case from the grand jury and putting it in the ordinary processing. In additionthe same opportunity, the judge ruled to those incentives, 30%determine the parties to manifest themselves about this process alteration and, after the Federal Prosecution and the defenses presented their petitions, the judge withdrew the charges against Vale and BHP executives and the accusation withheld for trial for the two companies together with Samarco and its representatives. The accusation of crimes committed against the Environmental Public Administration by Vale and one of its executives also remained unaltered. Additionally, the judge determined precatory letters to be sent to collect the defense witnesses testimonies and opened a 60 day term for the defenses to present a list of questions to be put together with the international cooperation for the testimony of the accusation witnesses residing in Canada.
(v) Tax proceedings
In 2018, the Office of the Attorney General for the National Treasury (PGFN) requested a judicial order to secure the payment of alleged federal tax and social security debts regarding Samarco. In May 2019, a favorable decision was issued dismissing the claim without prejudice, due to lack of procedural interest. The PGFN filed an appeal to the Local Court. The Company is waiting for the Court ruling.
e) Contingent Assets
(i) Compulsory loan
In 2015, the Company requested for the enforcement of the judicial decision in the amount of US$130 (R$524 million) related to a favorable unappealable decision which partially recognized its right to refund the differences of monetary adjustments and interests due over to the third convertible bonds issued by Eletrobrás shares in the period within 1987 to 1993. In November 2019, the Company requested for the payment of the amount of US$74 (R$297 million) recognized by Eletrobrás as due and awaits judicial analysis of the surplus amount. Therefore, it has not possible yet to determine the amount to be refunded and, consequently, the asset has not been registered in the Company's financial statements.
(ii) ICMS included in PIS and COFINS tax base
Vale had been discussing the issue regarding the exclusion of ICMS in PIS and COFINS tax basis in two judicial proceedings, related to taxable events after December 2001. In one of the proceedings, the company has obtained a definitive favorable decision (res judicata). In the second proceeding the current decision is also favorable to the Company, but this proceeding did not reach the res judicata. Vale is waiting for a final decision on the leading that will be issued by Supreme Court in order to calculate the amount to be refunded arising from both proceedings. The Company did not record this asset in its financial statement.
| | | | |
| | F-85 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
28. Litigations (Continued)
(iii) Arbitral award related to Simandou
In 2010, Vale acquired a 51% stake in VBG—Vale BSGR Limited ("VBG") (formerly BSG Resources (Guinea) Limited), which had iron ore concession rights in Simandou South ("Zogota") and iron ore exploration permits over the areas known as Simandou Blocks 1 & 2 in Guinea. In 2014, the Republic of Guinea revoked those rights after a finding that BSGR had obtained them through bribery of Guinean government officials. The Republic of Guinea did not make any finding of any involvement or responsibility on Vale's part.
Vale commenced arbitration proceedings against BSG Resources Limited ("BSGR") in April 2014, and in April 2019, the arbitral tribunal in London ruled in Vale's favor and ordered BSGR to pay to Vale the amount of US$1.2 billion plus costs and interest (with interest and costs, the award exceeds US$2.0 billion). The arbitral tribunal ruled that BSGR had defrauded Vale by inducing Vale to enter into the joint venture. On September 20, 2019, the English High Court ruled that Vale can proceed with enforcement of its US$2.0 billion arbitration award.
BSGR went into administration in March 2018, and Vale has commenced legal proceedings against BSGR before courts in London, England and in the United States District Court for the Southern District of New York to enforce the arbitral award against BSGR.
BSGR challenged the award before the English High Court, and its challenge was dismissed on November 29, 2019. BSGR has also applied to the United States Bankruptcy Court to have its administration recognized in the United States.
On December 3, 2019, Vale and two of its affiliates filed new litigation proceedings in the English High Court, claiming damages of approximately US$1.85 billion, against certain individuals and related parties to BSGR.
Vale intends to pursue the enforcement of the award and collection of the amounts due by all legally available means, but since there can be no assurance as to the timing and amount of any collections, the asset was not recognized in its financial statements.
(iv) Canadian Tax Litigation Matter
Vale Canada Limited ("VCL") and the Canadian Department of Justice—Canada Revenue Agency signed an agreement regarding a tax litigation matter related to the appropriate tax treatment of certain receipts received and expenditures incurred by VCL in respect of merger and acquisition transactions in 2006. In 2019, the Company recognized a contingent asset in amount of US$170 (CAD 221 million), related an income tax duerefund, included estimated interest. On January 28, 2020 (subsequent event), the Company received a portion of this asset in the amount of US$145 (CAD 189 million).
| | | | |
| | F-86 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
28. Litigations (Continued)
Accounting policy
A provision is recognized when it is considered probable that an outflow of resources will be required to settle the obligation and can be reliably estimated. The liability is accounted against an expense in the income statement. This obligation is updated based on the regional profit needs to be reinvested on the purchase of machinery and equipment, subject to subsequent approval by the regulatory agency responsible, Superintendência do Desenvolvimento da Amazonia (SUDAM) and the Superintendência do Desenvolvimento do Nordeste (SUDENE). When the reinvestment is approved, it is retained in an earnings reserve account, which restricts the distribution as dividends to stockholders.
Vale also has tax incentives related to the production of nickel and cobalt from Vale Nouvelle Caledonie SAS ("VNC"). These incentives include the exemption of income tax during the construction phasedevelopments of the project,judicial process or interest accretion and also for a periodcan be reversed if the expectation of 15 years beginningloss is not considered probable due to changes in circumstances or when the first year of commercial production, as defined by applicable law, followed by a 5-year 50% exemption of income tax. VNCobligation is subject to a branch profit tax on its profits (after deducting available tax losses) starting in the first year that commercial production is reached. To date, there has been no net taxable income realized in VNC.
In Mozambique, the tax incentives applicable to Vale Moçambique S.A. for the Moatize Coal Mine Project include a 25% reduction of rate for five years counting from the first year the company has taxable profits. Vale also received tax incentives for projects in Oman, Malaysia, Malawi and a logistic project in Mozambique.settled.
ValeCritical accounting estimates and judgments
Litigations are contingent by nature, that is, subjectit will be resolved when one or more future event occurs or fails to occur. Typically, the revisionoccurrence or not of income taxsuch events is outside of the Company's control. Legal uncertainties involve the application of significant estimates and judgments by local tax authorities for up to five years in companies operating in Brazil, ten years for operations in Indonesia and up to seven years for companies with operations in Canada.management regarding the potential outcomes of future events.
21.29. Employee benefits obligations
a) Employee postretirements obligations
In Brazil, the management of the pension plans of the Company is the responsibility of Fundação Vale do Rio Doce de Seguridade Social ("Valia") a nonprofit entity with administrative and financial autonomy. The Brazilian plans are as follows:
Benefit plan Vale Mais ("Vale Mais") and benefit plan Valiaprev ("Valiaprev")—Certain of the Company's employees are participants in a plan (Valeof Vale Mais e Valiaprev)and Valiaprev plans with components of defined benefitbenefits (specific coverage for death, pensions and disability allowances) and components of defined contributions (for programmable benefits). The defined benefits plan is subject to actuarial evaluations. The defined contribution plan represents a fixed amount held on behalf of the participants. Both Vale Mais and Valiaprev were overfunded as at December 31, 20152019 and 2014.2018.
Defined benefit plan ("Plano BD")—The Plano BD has been closed to new entrants since the year 2000, when the Vale Mais plan was implemented. It is a plan that has defined benefit characteristics, covering almost exclusively retirees and their beneficiaries. It was overfunded as atof December 31, 20152019 and 20142018 and the contributions made by the Company are not relevant.material.
"Abono complementação" benefit plan—The Company sponsors a specific group of former employees entitled to receive additional benefits from Valia regular payments plus post-retirement benefits that covers medical, dental and pharmaceutical assistance. The contributions made by the Company finished in 2014. The "abono complementação" benefit was overfunded as at December 31, 2019 and 2018.
Other benefits—The Company sponsors medical plans for employees that meet specific criteria and for employees who use the "abono complementação" benefit. Although those benefits are not specific retirement plans, actuarial calculations are used to calculate future commitments. As those benefits are
| | | | |
| | F-87 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21.29. Employee benefits obligations (Continued)
Abono complementação benefit plan—The Company sponsors a specific group of former employees entitled to receive additional benefits from Valia normal payments plus post-retirement benefit that covers medical, dental and pharmaceutical assistance. The contributions made by the Company finished in 2014. The abono complementação benefit was overfunded as at December 31, 2015 and 2014.
Other benefits—The Company sponsors medical plans for employees that meet specific criteria and for employees who use the abono complementação benefit. Although those benefits are not specific retirement plans, actuarial calculations are used to calculate future commitments. As those benefits are related to health care plans they have the nature of underfunded benefits, and are presented as underfunded plans as at December 31, 20152019 and 2014.2018.
The Foreign plans are managed in accordance with their region. They are divided between plans in Canada, United States of America, United Kingdom, Indonesia, New Caledonia, Japan and Taiwan. Pension plans in Canada are composed of a defined benefit and defined contribution component. Currently the defined benefit plans do not allow new entrants. The foreign defined benefit plans are underfunded as at December 31, 20152019 and 2014.2018.
Employers' disclosure about pensions and other post-retirement benefits on the status of the defined benefit elements of all plans is provided as follows.
i. Change in benefit obligation
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Benefit obligation as at December 31, 2013 | | 4,080 | | 4,406 | | 1,693 | ||||||||||
Benefit obligation as at December 31, 2017 | | 3,397 | | 4,470 | | 1,410 | ||||||||||
| | | | | | | | | | | | | ||||
Service costs | | 29 | | 96 | | 23 | | 5 | | 101 | | 36 | ||||
Interest costs | | 474 | | 233 | | 83 | | 282 | | 158 | | 59 | ||||
Benefits paid | | (327 | ) | (321 | ) | (74) | | (296 | ) | (272 | ) | (60) | ||||
Participant contributions | | 1 | | – | | – | | – | | (11 | ) | – | ||||
Effect of changes in the financial assumptions | | (32 | ) | 454 | | (81) | ||||||||||
Effect of changes in the actuarial assumptions | | 679 | | (164 | ) | (32) | ||||||||||
Translation adjustment | | (497 | ) | (347 | ) | (146) | | (490 | ) | (353 | ) | (133) | ||||
| | | | | | | | | | | | | ||||
Benefit obligation as at December 31, 2014 | | 3,728 | | 4,521 | | 1,498 | ||||||||||
Benefit obligation as at December 31, 2018 | | 3,577 | | 3,929 | | 1,280 | ||||||||||
| | | | | | | | | | | | | ||||
Service costs | | 20 | | 94 | | 28 | | 6 | | 55 | | 10 | ||||
Interest costs | | 359 | | 178 | | 66 | | 305 | | 153 | | 59 | ||||
Benefits paid | | (244 | ) | (258 | ) | (65) | | (433 | ) | (249 | ) | (62) | ||||
Participant contributions | | 1 | | | – | | – | | – | | – | |||||
Transfers | | 8 | | (8 | ) | – | ||||||||||
Effect of changes in the actuarial assumptions | | (184 | ) | (70 | ) | (31) | | 718 | | 373 | | 176 | ||||
Translation adjustment | | (1,214 | ) | (768 | ) | (273) | | (167 | ) | 160 | | 42 | ||||
| | | | | | | | | | | | | ||||
Benefit obligation as at December 31, 2015 | | 2,474 | | 3,689 | | 1,223 | ||||||||||
Benefit obligation as at December 31, 2019 | | 4,006 | | 4,421 | | 1,505 | ||||||||||
| | | | | | | | | | | | | ||||
| | | | | | | ||||||||||
| | | | | | |
| | | | |
| | F-88 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
ii. Evolution of assets fair value
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||
---|---|---|---|---|---|---|---|---|
Fair value of plan assets as at December 31, 2013 | | 5,271 | | 3,804 | | – | ||
| | | | | | | ||
Interest income | | 625 | | 201 | | – | ||
Employer contributions | | 132 | | 164 | | 74 | ||
Participant contributions | | 1 | | – | | – | ||
Benefits paid | | (327 | ) | (321 | ) | (74) | ||
Plan settlements | | – | | (3 | ) | – | ||
Return on plan assets (excluding interest income) | | (2 | ) | 169 | | – | ||
Translation adjustment | | (671 | ) | (298 | ) | – | ||
| | | | | | | ||
Fair value of plan assets as at December 31, 2014 | | 5,029 | | 3,716 | | – | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Interest income | | 491 | | 151 | | – | ||
Employer contributions | | 63 | | 132 | | 65 | ||
Participant contributions | | 1 | | – | | – | ||
Benefits paid | | (244 | ) | (258 | ) | (65) | ||
Return on plan assets (excluding interest income) | | (284 | ) | (8 | ) | – | ||
Transfers | | 5 | | (5 | ) | – | ||
Translation adjustment | | (1,626 | ) | (634 | ) | – | ||
| | | | | | | ||
Fair value of plan assets as at December 31, 2015 | | 3,435 | | 3,094 | | – | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
iii. Reconciliation of assets and liabilities recognized in the balance sheet
| | Plans in Brazil | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||
Balance at beginning of the year | | 1,301 | | – | | – | | 1,191 | | – | | – | |||||
| | | | | | | | | | | | | |||||
Interest income | | 130 | | – | | – | | 142 | | – | | – | |||||
Changes on asset ceiling and onerous liability | | (54 | ) | – | | – | | 140 | | – | | – | |||||
Translation adjustment | | (416 | ) | – | | – | | (172 | ) | – | | – | |||||
| | | | | | | | | | | | | |||||
Balance at end of the year | | 961 | | – | | – | | 1,301 | | – | | – | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Amount recognized in the balance sheet | | | | | | | |||||||||||
Present value of actuarial liabilities | | (2,474 | ) | (248 | ) | (160 | ) | (3,728 | ) | (387 | ) | (246) | |||||
Fair value of assets | | 3,435 | | 214 | | – | | 5,029 | | 349 | | – | |||||
Effect of the asset ceiling | | (961 | ) | – | | – | | (1,301 | ) | – | | – | |||||
| | | | | | | | | | | | | |||||
Liabilities provisioned | | – | | (34 | ) | (160 | ) | – | | (38 | ) | (246) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Current liabilities | | – | | – | | (19 | ) | – | | – | | (25) | |||||
Non-current liabilities | | – | | (34 | ) | (141 | ) | – | | (38 | ) | (221) | |||||
| | | | | | | | | | | | | |||||
Liabilities provisioned | | – | | (34 | ) | (160 | ) | – | | (38 | ) | (246) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21.29. Employee benefits obligations (Continued)
ii. Evolution of assets fair value
| | Foreign plan | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||||||||||
Amount recognized in the balance sheet | | | | | | | |||||||||||||||||||
Present value of actuarial liabilities | | – | | (3,441 | ) | (1,063 | ) | – | | (4,134 | ) | (1,252) | |||||||||||||
Fair value of assets | | – | | 2,880 | | – | | – | | 3,367 | | – | |||||||||||||
Fair value of plan assets as at December 31, 2017 | | 4,828 | | 3,776 | | – | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||
Liabilities provisioned | | – | | (561 | ) | (1,063 | ) | – | | (767 | ) | (1,252) | |||||||||||||
Interest income | | 406 | | 127 | | – | |||||||||||||||||||
Employer contributions | | 35 | | 49 | | 60 | |||||||||||||||||||
Participant contributions | | 2 | | – | | – | |||||||||||||||||||
Benefits paid | | (296 | ) | (247 | ) | (60) | |||||||||||||||||||
Return on plan assets (excluding interest income) | | 479 | | (145 | ) | – | |||||||||||||||||||
Translation adjustment | | (717 | ) | (287 | ) | – | |||||||||||||||||||
| | | | | | | |||||||||||||||||||
Fair value of plan assets as at December 31, 2018 | | 4,737 | | 3,273 | | – | |||||||||||||||||||
| | | | | | | |||||||||||||||||||
Interest income | | 416 | | 123 | | – | |||||||||||||||||||
Employer contributions | | 27 | �� | 56 | | 62 | |||||||||||||||||||
Participant contributions | | – | | – | | – | |||||||||||||||||||
Benefits paid | | (433 | ) | (247 | ) | (62) | |||||||||||||||||||
Return on plan assets (excluding interest income) | | 757 | | 382 | | – | |||||||||||||||||||
Translation adjustment | | (200 | ) | 139 | | – | |||||||||||||||||||
| | | | | | | |||||||||||||||||||
Fair value of plan assets as at December 31, 2019 | | 5,304 | | 3,726 | | – | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | | | |||||||
Current liabilities | | – | | (17 | ) | (32 | ) | – | | (16 | ) | (26) | |||||||||||||
Non-current liabilities | | – | | (544 | ) | (1,031 | ) | – | | (751 | ) | (1,226) | |||||||||||||
| | | | | | | | | | | | | |||||||||||||
Liabilities provisioned | | – | | (561 | ) | (1,063 | ) | – | | (767 | ) | (1,252) | |||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | | | |
iii. Reconciliation of assets and liabilities recognized in the statement of financial position
| | Total | | Plans in Brazil | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | | December 31, 2019 | | December 31, 2018 | ||||||||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||||||||||
Balance at beginning of the year | | 1,301 | | – | | – | | 1,191 | | – | | – | | 1,220 | | – | | – | | 1,431 | | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Interest income | | 130 | | – | | – | | 142 | | – | | – | | 110 | | – | | – | | 124 | | – | | – | ||||||||||
Changes in asset ceiling / onerous liability | | (54 | ) | – | | – | | 140 | | – | | – | ||||||||||||||||||||||
Changes on asset ceiling | | 59 | | – | | – | | (113 | ) | – | | – | ||||||||||||||||||||||
Translation adjustment | | (416 | ) | – | | – | | (172 | ) | – | | – | | (91 | ) | – | | – | | (222 | ) | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at end of the year | | 961 | | – | | – | | 1,301 | | – | | – | | 1,298 | | – | | – | | 1,220 | | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Amount recognized in the balance sheet | | | | | | | ||||||||||||||||||||||||||||
Amount recognized in the statement of financial position | | | | | | | ||||||||||||||||||||||||||||
Present value of actuarial liabilities | | (2,474 | ) | (3,689 | ) | (1,223 | ) | (3,728 | ) | (4,521 | ) | (1,498) | | (4,006 | ) | (412 | ) | (303 | ) | (3,517 | ) | (334 | ) | (249) | ||||||||||
Fair value of assets | | 3,435 | | 3,094 | | – | | 5,029 | | 3,716 | | – | | 5,304 | | 163 | | – | | 4,737 | | 162 | | – | ||||||||||
Effect of the asset ceiling | | (961 | ) | – | | – | | (1,301 | ) | – | | – | | (1,298 | ) | – | | – | | (1,220 | ) | – | | – | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Liabilities provisioned | | – | | (595 | ) | (1,223 | ) | – | | (805 | ) | (1,498) | ||||||||||||||||||||||
Liabilities | | – | | (249 | ) | (303 | ) | – | | (172 | ) | (249) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Current liabilities | | – | | (17 | ) | (51 | ) | – | | (16 | ) | (51) | | – | | (7 | ) | (20 | ) | – | | (4 | ) | (19) | ||||||||||
Non-current liabilities | | – | | (578 | ) | (1,172 | ) | – | | (789 | ) | (1,447) | | – | | (242 | ) | (283 | ) | – | | (168 | ) | (230) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Liabilities provisioned | | – | | (595 | ) | (1,223 | ) | – | | (805 | ) | (1,498) | ||||||||||||||||||||||
Liabilities | | – | | (249 | ) | (303 | ) | – | | (172 | ) | (249) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | F-89 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21.29. Employee benefits obligations (Continued)
iv. Costs recognized in the income statements
| | Year ended December 31 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other underfunded pension plans | | Overfunded pension plans | | Underfunded pension plans | | Other underfunded pension plans | | Overfunded pension plans | | Underfunded pension plans | | Other underfunded pension plans | ||||||||
Current service cost | | 20 | | 94 | | 28 | | 29 | | 96 | | 23 | | 49 | | 97 | | 42 | ||||||||
Interest on expense on liabilities | | 359 | | 178 | | 66 | | 474 | | 233 | | 83 | | 461 | | 220 | | 131 | ||||||||
Interest income on plan assets | | (491 | ) | (151 | ) | – | | (625 | ) | (201 | ) | – | | (523 | ) | (169 | ) | – | ||||||||
Interest expense on effect of (asset ceiling)/ onerous liability | | 132 | | – | | – | | 142 | | – | | – | | 13 | | – | | – | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Total of cost, net | | 20 | | 121 | | 94 | | 20 | | 128 | | 106 | | – | | 148 | | 173 | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | |
| | Foreign plan | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | |||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||
Amount recognized in the statement of financial position | | | | | | | |||||||||||
Present value of actuarial liabilities | | – | | (4,009 | ) | (1,202 | ) | – | | (3,595 | ) | (1,031) | |||||
Fair value of assets | | – | | 3,563 | | – | | – | | 3,111 | | – | |||||
| | | | | | | | | | | | | |||||
Liabilities | | – | | (446 | ) | (1,202 | ) | – | | (484 | ) | (1,031) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Current liabilities | | – | | (6 | ) | (46 | ) | – | | (16 | ) | (33) | |||||
Non-current liabilities | | – | | (440 | ) | (1,156 | ) | – | | (468 | ) | (998) | |||||
| | | | | | | | | | | | | |||||
Liabilities | | – | | (446 | ) | (1,202 | ) | – | | (484 | ) | (1,031) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
v. Costs recognized in the statement of comprehensive income
| | Year ended December 31 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||||||||
Balance at beginning of the year | | (143 | ) | (570 | ) | (132 | ) | (94 | ) | (395 | ) | (196 | ) | (3 | ) | (994 | ) | (381) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Effect of changes actuarial assumptions | | 184 | | 70 | | 31 | | 32 | | (454 | ) | 81 | | 1,059 | | 267 | | 249 | ||||||||
Return on plan assets (excluding interest income) | | (284 | ) | (8 | ) | – | | (2 | ) | 169 | | – | | (576 | ) | 315 | | – | ||||||||
Change of asset ceiling / costly liabilities (excluding interest income) | | 70 | | – | | – | | (133 | ) | – | | – | | (423 | ) | – | | – | ||||||||
Others | | – | | 2 | | 1 | | – | | 28 | | – | | – | | – | | – | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| (30 | ) | 64 | | 32 | | (103 | ) | (257 | ) | 81 | | 60 | | 582 | | 249 | |||||||||
Deferred income tax | | 10 | | 2 | | (9 | ) | 34 | | 68 | | (17 | ) | (19 | ) | (167 | ) | (75) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Other comprehensive income | | (20 | ) | 66 | | 23 | | (69 | ) | (189 | ) | 64 | | 41 | | 415 | | 174 | ||||||||
Translation adjustments | | 49 | | 10 | | 14 | | 20 | | 2 | | 6 | | 10 | | 11 | | 12 | ||||||||
Transfers/ disposal | | 1 | | (1 | ) | – | | – | | 12 | | (6 | ) | (142 | ) | 173 | | (1) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Accumulated other comprehensive income | | (113 | ) | (495 | ) | (95 | ) | (143 | ) | (570 | ) | (132 | ) | (94 | ) | (395 | ) | (196) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | |
| | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | |||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||
Balance at beginning of the year | | 1,220 | | – | | – | | 1,431 | | – | | – | |||||
| | | | | | | | | | | | | |||||
Interest income | | 110 | | – | | – | | 124 | | – | | – | |||||
Changes on asset ceiling | | 60 | | – | | – | | (113 | ) | – | | – | |||||
Translation adjustment | | (91 | ) | – | | – | | (222 | ) | – | | – | |||||
| | | | | | | | | | | | | |||||
Balance at end of the year | | 1,299 | | – | | – | | 1,220 | | – | | – | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Amount recognized in the statement of financial position | | | | | | | |||||||||||
Present value of actuarial liabilities | | (4,006 | ) | (4,421 | ) | (1,504 | ) | (3,517 | ) | (3,929 | ) | (1,280) | |||||
Fair value of assets | | 5,304 | | 3,726 | | – | | 4,737 | | 3,273 | | – | |||||
Effect of the asset ceiling | | (1,298 | ) | – | | – | | (1,220 | ) | – | | – | |||||
| | | | | | | | | | | | | |||||
Liabilities | | – | | (695 | ) | (1,504 | ) | – | | (656 | ) | (1,280) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
Current liabilities | | – | | (13 | ) | (76 | ) | – | | (20 | ) | (52) | |||||
Non-current liabilities | | – | | (682 | ) | (1,428 | ) | – | | (636 | ) | (1,228) | |||||
| | | | | | | | | | | | | |||||
Liabilities | | – | | (695 | ) | (1,504 | ) | – | | (656 | ) | (1,280) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
| | | | |
| | F-90 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21.29. Employee benefits obligations(Continued)
iv. Costs recognized in the income statement
| | Year ended December 31 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||||||||
Service cost | | 7 | | 55 | | 10 | | 5 | | 101 | | 36 | | 7 | | 86 | | 30 | ||||||||
Interest on expense on liabilities | | 317 | | 153 | | 57 | | 282 | | 158 | | 59 | | 360 | | 183 | | 67 | ||||||||
Interest income on plan assets | | (432 | ) | (123 | ) | – | | (406 | ) | (127 | ) | – | | (513 | ) | (151 | ) | – | ||||||||
Interest expense on effect of (asset ceiling)/ onerous liability | | 114 | | – | | – | | 124 | | – | | – | | 152 | | – | | – | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Total of cost, net | | 6 | | 85 | | 67 | | 5 | | 132 | | 95 | | 6 | | 118 | | 97 | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | |
v. Costs recognized in the statement of comprehensive income
| | Year ended December 31 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||||||||||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||||||||
Balance at beginning of the year | | (166 | ) | (468 | ) | (128 | ) | (163 | ) | (496 | ) | (189 | ) | (153 | ) | (496 | ) | (160) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Effect of changes actuarial assumptions | | (718 | ) | (373 | ) | (176 | ) | (679 | ) | 172 | | 32 | | (65 | ) | (167 | ) | (27) | ||||||||
Return on plan assets (excluding interest income) | | 757 | | 385 | | | 479 | | (144 | ) | – | | – | | 167 | | – | |||||||||
Change of asset ceiling | | (60 | ) | | | 172 | | – | | – | | 47 | | – | | – | ||||||||||
Others | | | | | (1 | ) | – | | (1 | ) | (3 | ) | – | | (14) | |||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| (21 | ) | 12 | | (176 | ) | (29 | ) | 28 | | 31 | | (21 | ) | – | | (41) | |||||||||
Deferred income tax | | 7 | | (5 | ) | 63 | | 10 | | (7 | ) | (8 | ) | 7 | | (3 | ) | 12 | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Others comprehensive income | | (14 | ) | 7 | | (113 | ) | (19 | ) | 21 | | 23 | | (14 | ) | (3 | ) | (29) | ||||||||
Translation adjustments | | 7 | | 2 | | 3 | | 23 | | 11 | | 10 | | 4 | | 4 | | 1 | ||||||||
Transfers/ disposal | | | | | (7 | ) | (4 | ) | 28 | | – | | (1 | ) | (1) | |||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Accumulated other comprehensive income | | (173 | ) | (459 | ) | (238 | ) | (166 | ) | (468 | ) | (128 | ) | (163 | ) | (496 | ) | (189) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | |
| | | | |
| | F-91 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
29. Employee benefits (Continued)
vi. Risks related to plans
The Administrators of the plans have committed to strategic planning to strengthen internal controls and risk management. This commitment is archiveachieved by conducting audits and assessments of internal controls, which aim to mitigate operational risks in routine management of market risk and credit activities.risks. Risks are presented as follow:
Legal—lawsuits: issuing periodic reports to internal audit and directors contemplating the analysis of lawyers about the possibility of loss (remote, probable or possible), aiming to support the administrative decision regarding provisioning. Contracts, tax and decision-making process: previous legal analysis through technical advice.provisions. Analysis and ongoing monitoring of developments in the legal scenario and its dissemination within the institution in order to subsidize the administrative plans, consideredconsidering the impact of regulatory changes.
Actuarial—the annual actuarial valuation of the benefit plans comprises the assessment of costs, revenues and adequacy of plan funding. It also consideredconsiders the monitoring of biometric, economic and financial assumptions (asset volatility, changes in interest rates, inflation, life expectancy, salaries and other).
Market—profitability projections are performed for the various plans and profiles of investments for 10 years in the management study of assets and liabilities. These projections include the risks of investments in various market segments. Furthermore, the risks for short-term market of the plans are monitored monthly through metrics of VaR (Value at Risk) and stress testing. For exclusive investment funds of Valia, the market risk is measured daily by the custodian asset bank.
Credit—assessment of the credit quality of issuers by hiring expert consultants to evaluate financial institutions and internal assessment of payment ability of non-financial companies. For assets of non-financial companies, the assessment is conducted a monitoring of the company until the maturity of the security.
vii. Actuarial and economic assumptions and sensitivity analysis
All calculations involve future actuarial projections about some parameters, such as: salaries, interest, and inflation, the behaviortrend of INSSsocial security in Brazil ("INSS") benefits, mortality and disability.
The economic and actuarial assumptions adopted have been formulated considering the long-term period for maturity and should therefore be examinedanalyzed accordingly. In the short term they may not necessarily be realized.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
In the evaluations were adopted the following assumptions:
| | Brazil | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |||||
Discount rate to determine benefit obligation | | 13.63 | % | 13.71 | % | 13.63 | % | 12.70 | % | 12.54 | % | 12.39% | |||||
Nominal average rate to determine expense/ (income) | | 12.36 | % | 13.71 | % | N/A | | 12.37 | % | 12.46 | % | N/A | |||||
Nominal average rate of salary increase | | 8.12 | % | 8.12 | % | N/A | | 6.94 | % | 8.12 | % | N/A | |||||
Nominal average rate of benefit increase | | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % | 6.00% | |||||
Immediate health care cost trend rate | | N/A | | N/A | | 9.18 | % | N/A | | N/A | | 9.18% | |||||
Ultimate health care cost trend rate | | N/A | | N/A | | 9.18 | % | N/A | | N/A | | 9.18% | |||||
Nominal average rate of price inflation | | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % | 6.00% |
| | Foreign | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||
| | Underfunded pension plans | | Other benefits | | Underfunded pension plans | | Other benefits | |||
Discount rate to determine benefit obligation | | 4.00 | % | 3.90 | % | 3.89 | % | 4.1% | |||
Nominal average rate to determine expense/ (income) | | 4.80 | % | N/A | | 4.80 | % | N/A | |||
Nominal average rate of salary increase | | 3.90 | % | N/A | | 3.90 | % | N/A | |||
Nominal average rate of benefit increase | | 3.90 | % | 3.00 | % | 3.90 | % | 3.00% | |||
Immediate health care cost trend rate | | N/A | | 6.30 | % | N/A | | 7.22% | |||
Ultimate health care cost trend rate | | N/A | | 4.50 | % | N/A | | 4.49% | |||
Nominal average rate of price inflation | | 2.00 | % | 2.00 | % | 2.00 | % | 2.00% |
For the sensitivity analysis, the Company considers the effect of 1% in nominal discount rate to determine the actuarial liability. The effects of this change in actuarial liabilities in premise and adopted the average duration of the plan are as follows:
| | December 31, 2015 | ||||||
---|---|---|---|---|---|---|---|---|
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||
Nominal discount rate—1% increase | | | | |||||
Actuarial liability balance | | 2,263 | | 3,024 | | 1,065 | ||
Assumptions made | | 8.33 | % | 5.01 | % | 5.35% | ||
Average duration of the obligation—(years) | | 8.70 | | 11.76 | | 15.29 | ||
Nominal discount rate—1% reduction | | | | |||||
Actuarial liability balance | | 2,715 | | 3,909 | | 1,043 | ||
Assumptions made | | 10.01 | % | 3.01 | % | 3.90% | ||
Average duration of the obligation—(years) | | 9.53 | | 11.76 | | 15.22 |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
viii. Assets of pension plans
Brazilian plan assets as at December 31, 2015 and 2014 includes respectively (i) investments in a portfolio of Vale's stock in the amount of US$4 and US$94; (ii) equity investments from related parties in the amount of US$0 and US$1; and (iii) Brazilian Federal Government securities in the amount of US$2,976 and US$3,581.
Foreign plan assets as at December 31, 2015 and 2014 include Canadian Government securities in the amount of US$675 and US$852, respectively.
ix. Overfunded pension plans
Assets by category are as follows:
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |||||||
Cash and cash equivalents | | 1 | | – | | – | | 1 | | – | | – | | – | | – | |||||||
Accounts Receivable | | – | | – | | – | | – | | 5 | | – | | – | | 5 | |||||||
Equity securities | | – | | – | | – | | – | | 475 | | – | | – | | 475 | |||||||
Debt securities—Corporate bonds | | – | | 94 | | – | | 94 | | – | | 157 | | – | | 157 | |||||||
Debt securities—Government bonds | | 1,659 | | – | | – | | 1,659 | | 2,106 | | – | | – | | 2,106 | |||||||
Investments funds—Fixed Income | | 1,799 | | – | | – | | 1,799 | | 2,272 | | – | | – | | 2,272 | |||||||
Investments funds—Equity | | 44 | | – | | – | | 44 | | 333 | | – | | – | | 333 | |||||||
International investments | | 29 | | – | | – | | 29 | | – | | – | | – | | – | |||||||
Structured investments—Private Equity funds | | 138 | | – | | 136 | | 274 | | – | | – | | 253 | | 253 | |||||||
Structured investments—Real estate funds | | – | | – | | 6 | | 6 | | – | | – | | 7 | | 7 | |||||||
Real estate | | – | | – | | 319 | | 319 | | – | | – | | 497 | | 497 | |||||||
Loans to participants | | – | | – | | 249 | | 249 | | – | | – | | 404 | | 404 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 3,670 | | 94 | | 710 | | 4,474 | | 5,191 | | 157 | | 1,161 | | 6,509 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Funds not related to risk plans | | | | | (1,039 | ) | | | | (1,480) | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
Fair value of plan assets at end of year | | | | | 3,435 | | | | | 5,029 | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
Measurement of overfunded plan assets at fair value with no observable market variables (level 3) are as follows:
| | Private equity funds | | Real estate funds | | Real estate | | Loans to participants | | Total | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2013 | | 227 | | 8 | | 547 | | 431 | | 1,213 | ||||
| | | | | | | | | | | ||||
Return on plan assets | | (12 | ) | – | | 56 | | 52 | | 96 | ||||
Assets purchases, sales and settlements | | 88 | | – | | 3 | | 186 | | 277 | ||||
Assets sold during the year | | (17 | ) | – | | (42 | ) | (211 | ) | (270) | ||||
Translation adjustment | | (33 | ) | (1 | ) | (67 | ) | (54 | ) | (155) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2014 | | 253 | | 7 | | 497 | | 404 | | 1,161 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
Return on plan assets | | (84 | ) | 1 | | 4 | | 47 | | (32) | ||||
Assets purchases, sales and settlements | | 49 | | 1 | | 1 | | 40 | | 91 | ||||
Assets sold during the year | | (7 | ) | – | | (28 | ) | (118 | ) | (153) | ||||
Translation adjustment | | (75 | ) | (3 | ) | (156 | ) | (124 | ) | (358) | ||||
Transfers in and/ out of Level 3 | | – | | – | | 1 | | – | | 1 | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2015 | | 136 | | 6 | | 319 | | 249 | | 710 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
x. Underfunded pension plans
Assets by category are as follows:
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |||||||
Cash and cash equivalents | | – | | 49 | | – | | 49 | | 1 | | 29 | | – | | 30 | |||||||
Equity securities | | 1,106 | | – | | – | | 1,106 | | 1,615 | | 9 | | – | | 1,624 | |||||||
Debt securities—Corporate bonds | | – | | 12 | | – | | 12 | | – | | 402 | | – | | 402 | |||||||
Debt securities—Government bonds | | 56 | | 684 | | – | | 740 | | 77 | | 853 | | – | | 930 | |||||||
Investments funds—Fixed Income | | 150 | | 281 | | – | | 431 | | 189 | | – | | – | | 189 | |||||||
Investments funds—Equity | | 86 | | 356 | | – | | 442 | | 95 | | 397 | | – | | 492 | |||||||
International investments | | 2 | | 30 | | – | | 32 | | – | | – | | – | | – | |||||||
Structured investments—Private Equity funds | | �� | | – | | 98 | | 98 | | – | | – | | 18 | | 18 | |||||||
Real estate | | – | | – | | 20 | | 20 | | – | | – | | 24 | | 24 | |||||||
Loans to participants | | – | | – | | 5 | | 5 | | – | | – | | 7 | | 7 | |||||||
Others | | – | | – | | 159 | | 159 | | – | | – | | – | | – | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 1,400 | | 1,412 | | 282 | | 3,094 | | 1,977 | | 1,690 | | 49 | | 3,716 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Funds not related to risk plans | | | | | – | | | | | – | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
Fair value of plan assets at end of year | | | | | 3,094 | | | | | 3,716 | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
Measurement of underfunded plan assets at fair value with no observable market variables (level 3) are as follows:
| | Private equity funds | | Real estate | | Loans to participants | | Others | | Total | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2013 | | – | | 24 | | – | | – | | 24 | ||||
Return on plan assets | | – | | 4 | | – | | – | | 4 | ||||
Assets purchases, sales and settlements | | 20 | | – | | 7 | | – | | 27 | ||||
Translation adjustment | | (2 | ) | (4 | ) | – | | – | | (6) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2014 | | 18 | | 24 | | 7 | | – | | 49 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
Return on plan assets | | – | | 5 | | 1 | | – | | 6 | ||||
Assets purchases, sales and settlements | | 102 | | – | | – | | 186 | | 288 | ||||
Assets sold during the year | | (1 | ) | – | | – | | – | | (1) | ||||
Translation adjustment | | (21 | ) | (8 | ) | (3 | ) | (27 | ) | (59) | ||||
Transfers in and/ out of Level 3 | | – | | (1 | ) | – | | – | | (1) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2015 | | 98 | | 20 | | 5 | | 159 | | 282 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
xi. Disbursement of future cash flow
Vale expects to disburse US$183 in 2016 in relation to pension plans and other benefits.
xii. Expected benefit payments
The expected benefit payments, which reflect future services, are as follows:
| | December 31, 2015 | ||||||
---|---|---|---|---|---|---|---|---|
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||
2016 | | 228 | | 205 | | 57 | ||
2017 | | 241 | | 202 | | 60 | ||
2018 | | 255 | | 200 | | 62 | ||
2019 | | 269 | | 198 | | 65 | ||
2020 | | 283 | | 196 | | 67 | ||
2021 and thereafter | | 1,624 | | 1,106 | | 325 |
b) Profit sharing program ("PLR")
The Company recorded as cost of goods sold and services rendered and other operating expenses related to the PLR US$68 and US$502 for the year ended on December 31, 2015 and 2014, respectively.
c) Long-term compensation plan
Vale has long-term incentive programs such as Matching and Virtual Shares Programs ("PAV") for some executives of the Company, covering 3 to 4 year cycles, respectively.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
21. Employee benefits obligations (Continued)
For the Matching program, the participants may acquire preferred share of Vale to participate on the plan, through a prescribed financial institution under market conditions and without any benefit being provided by Vale. Since 2014, the participation on the program has been mandatory for the executive officers.
Except for the executive officers, the shares purchased by executive have no restrictions and can be sold at any time. If the shares are held for a period of three years, and the participants maintains it employment relationship with Vale during this period, the participant is entitled to receive from Vale a payment in cash equivalent to the market value of their stock holdings under this program.
For PAV program, certain eligible executives have the right to receive, during a four year cycle, a monetary value equivalent to market value of a determined number of stocks based on an the Company's performance measured as an indicator of total return to the Stockholders.
Liabilities of the plans are measured at fair value on the date of each issuance of the report, based on market rates. Compensation costs incurred are recognized by the defined vesting period of three years. At December 31, 2015, 2014 and 2013 the Company recognized in the income statement the amounts of US$29, US$61 and US$84, respectively, related to long term compensation plan.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
22. Financial instruments classification
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets | | Loans and receivables or amortized cost | | At fair value through net income | | Derivatives designated as hedge accounting | | Total | | Loans and receivables or amortized cost | | At fair value through net income | | Derivatives designated as hedge accounting | | Total | |||||||
Current | | | | | | | | | |||||||||||||||
Cash and cash equivalents | | 3,591 | | – | | – | | 3,591 | | 3,974 | | – | | – | | 3,974 | |||||||
Financial investments | | 28 | | – | | – | | 28 | | 148 | | – | | – | | 148 | |||||||
Derivative financial instruments | | – | | 121 | | – | | 121 | | – | | 166 | | – | | 166 | |||||||
Accounts receivable | | 1,476 | | – | | – | | 1,476 | | 3,275 | | – | | – | | 3,275 | |||||||
Related parties | | 70 | | – | | – | | 70 | | 579 | | – | | – | | 579 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| 5,165 | | 121 | | – | | 5,286 | | 7,976 | | 166 | | – | | 8,142 | ||||||||
| | | | | | | | | | | | | | | | | |||||||
Non-current | | | | | | | | | |||||||||||||||
Derivative financial instruments | | – | | 93 | | – | | 93 | | – | | 87 | | – | | 87 | |||||||
Loans | | 188 | | – | | – | | 188 | | 229 | | – | | – | | 229 | |||||||
Related parties | | 1 | | – | | – | | 1 | | 35 | | – | | – | | 35 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| 189 | | 93 | | – | | 282 | | 264 | | 87 | | – | | 351 | ||||||||
| | | | | | | | | | | | | | | | | |||||||
Total of financial assets | | 5,354 | | 214 | | – | | 5,568 | | 8,240 | | 253 | | – | | 8,493 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Financial liabilities | | | | | | | | | |||||||||||||||
Current | | | | | | | | | |||||||||||||||
Suppliers and contractors | | 3,365 | | – | | – | | 3,365 | | 4,354 | | – | | – | | 4,354 | |||||||
Derivative financial instruments | | – | | 2,023 | | 53 | | 2,076 | | – | | 956 | | 460 | | 1,416 | |||||||
Loans and borrowings | | 2,506 | | – | | – | | 2,506 | | 1,419 | | – | | – | | 1,419 | |||||||
Related parties | | 475 | | – | | – | | 475 | | 306 | | – | | – | | 306 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| 6,346 | | 2,023 | | 53 | | 8,422 | | 6,079 | | 956 | | 460 | | 7,495 | ||||||||
| | | | | | | | | | | | | | | | | |||||||
Non-current | | | | | | | | | |||||||||||||||
Derivative financial instruments | | – | | 1,429 | | – | | 1,429 | | – | | 1,609 | | 1 | | 1,610 | |||||||
Loans and borrowings | | 26,347 | | – | | – | | 26,347 | | 27,388 | | – | | – | | 27,388 | |||||||
Related parties | | 213 | | – | | – | | 213 | | 109 | | – | | – | | 109 | |||||||
Participative stockholders' debentures | | – | | 342 | | – | | 342 | | – | | 1,726 | | – | | 1,726 | |||||||
Others(i) | | – | | 141 | | – | | 141 | | – | | 115 | | – | | 115 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| 26,560 | | 1,912 | | – | | 28,472 | | 27,497 | | 3,450 | | 1 | | 30,948 | ||||||||
| | | | | | | | | | | | | | | | | |||||||
Total of financial liabilities | | 32,906 | | 3,935 | | 53 | | 36,894 | | 33,576 | | 4,406 | | 461 | | 38,443 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
22. Financial instruments classification (Continued)
The classification of financial assets and liabilities by currencies are as follows:
| | December 31, 2015 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets | | R$ | | US$ | | CAD | | AUD | | EUR | | Other currencies | | Total | ||||||
Current | | | | | | | | |||||||||||||
Cash and cash equivalents | | 816 | | 2,528 | | 12 | | 54 | | 11 | | 170 | | 3,591 | ||||||
Financial investments | | – | | 28 | | – | | – | | – | | – | | 28 | ||||||
Derivative financial instruments | | 50 | | 71 | | – | | – | | – | | – | | 121 | ||||||
Accounts receivable | | 251 | | 1,084 | | 125 | | 10 | | 4 | | 2 | | 1,476 | ||||||
Related parties | | 70 | | – | | – | | – | | – | | – | | 70 | ||||||
| | | | | | | | | | | | | | | ||||||
| 1,187 | | 3,711 | | 137 | | 64 | | 15 | | 172 | | 5,286 | |||||||
| | | | | | | | | | | | | | | ||||||
Non-current | | | | | | | | |||||||||||||
Derivative financial instruments | | 75 | | 18 | | – | | – | | – | | – | | 93 | ||||||
Loans | | 27 | | 103 | | 58 | | – | | – | | – | | 188 | ||||||
Related parties | | 1 | | – | | – | | – | | – | | – | | 1 | ||||||
| | | | | | | | | | | | | | | ||||||
| 103 | | 121 | | 58 | | – | | – | | – | | 282 | |||||||
| | | | | | | | | | | | | | | ||||||
Total of assets | | 1,290 | | 3,832 | | 195 | | 64 | | 15 | | 172 | | 5,568 | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
Financial liabilities | | | | | | | ��� | |||||||||||||
Current | | | | | | | | |||||||||||||
Suppliers and contractors | | 1,499 | | 1,389 | | 335 | | 9 | | 115 | | 18 | | 3,365 | ||||||
Derivative financial instruments | | 911 | | 1,165 | | – | | – | | – | | – | | 2,076 | ||||||
Loans and borrowings | | 434 | | 1,992 | | 15 | | – | | 65 | | – | | 2,506 | ||||||
Related parties | | 255 | | – | | 220 | | – | | – | | – | | 475 | ||||||
| | | | | | | | | | | | | | | ||||||
| 3,099 | | 4,546 | | 570 | | 9 | | 180 | | 18 | | 8,422 | |||||||
| | | | | | | | | | | | | | | ||||||
Non-current | | | | | | | | |||||||||||||
Derivative financial instruments | | 1,215 | | 214 | | – | | – | | – | | – | | 1,429 | ||||||
Loans and borrowings | | 5,107 | | 19,439 | | 165 | | 3 | | 1,633 | | – | | 26,347 | ||||||
Related parties | | 73 | | 140 | | – | | – | | – | | – | | 213 | ||||||
Participative stockholders' debentures | | 342 | | – | | – | | – | | – | | – | | 342 | ||||||
Others | | 141 | | – | | – | | – | | – | | – | | 141 | ||||||
| | | | | | | | | | | | | | | ||||||
| 6,878 | | 19,793 | | 165 | | 3 | | 1,633 | | – | | 28,472 | |||||||
| | | | | | | | | | | | | | | ||||||
Total of liabilities | | 9,977 | | 24,339 | | 735 | | 12 | | 1,813 | | 18 | | 36,894 | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
22. Financial instruments classification (Continued)
| | December 31, 2014 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets | | R$ | | US$ | | CAD | | AUD | | EUR | | Other currencies | | Total | ||||||
Current | | | | | | | | |||||||||||||
Cash and cash equivalents | | 977 | | 2,778 | | 22 | | 38 | | 61 | | 98 | | 3,974 | ||||||
Financial investments | | 148 | | – | | – | | – | | – | | – | | 148 | ||||||
Derivative financial instruments | | 139 | | 27 | | – | | – | | – | | – | | 166 | ||||||
Accounts receivable | | 740 | | 2,514 | | 12 | | – | | 8 | | 1 | | 3,275 | ||||||
Related parties | | 397 | | 182 | | – | | – | | – | | – | | 579 | ||||||
| | | | | | | | | | | | | | | ||||||
| 2,401 | | 5,501 | | 34 | | 38 | | 69 | | 99 | | 8,142 | |||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
Non-current | | | | | | | | |||||||||||||
Related parties | | 4 | | 31 | | – | | – | | – | | – | | 35 | ||||||
Loans | | 39 | | 190 | | – | | – | | – | | – | | 229 | ||||||
Derivative financial instruments | | 11 | | 76 | | – | | – | | – | | – | | 87 | ||||||
| | | | | | | | | | | | | | | ||||||
| 54 | | 297 | | – | | – | | – | | – | | 351 | |||||||
| | | | | | | | | | | | | | | ||||||
Total of assets | | 2,455 | | 5,798 | | 34 | | 38 | | 69 | | 99 | | 8,493 | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
Financial liabilities | | | | | | | | |||||||||||||
Current | | | | | | | | |||||||||||||
Suppliers and contractors | | 2,183 | | 2,142 | | 1 | | 1 | | 27 | | – | | 4,354 | ||||||
Derivative financial instruments | | 357 | | 1,059 | | – | | – | | – | | – | | 1,416 | ||||||
Loans and borrowings | | 440 | | 887 | | 19 | | – | | 73 | | – | | 1,419 | ||||||
Related parties | | 305 | | 1 | | – | | – | | – | | – | | 306 | ||||||
| | | | | | | | | | | | | | | ||||||
| 3,285 | | 4,089 | | 20 | | 1 | | 100 | | – | | 7,495 | |||||||
| | | | | | | | | | | | | | | ||||||
Non-current | | | | | | | | |||||||||||||
Derivative financial instruments | | 1,456 | | 154 | | – | | – | | – | | – | | 1,610 | ||||||
Loans and borrowings | | 5,866 | | 19,488 | | 210 | | 2 | | 1,822 | | – | | 27,388 | ||||||
Related parties | | 109 | | – | | – | | – | | – | | – | | 109 | ||||||
Participative stockholders' debentures | | 1,726 | | – | | – | | – | | – | | – | | 1,726 | ||||||
Others | | 115 | | – | | – | | – | | – | | – | | 115 | ||||||
| | | | | | | | | | | | | | | ||||||
| 9,272 | | 19,642 | | 210 | | 2 | | 1,822 | | – | | 30,948 | |||||||
| | | | | | | | | | | | | | | ||||||
Total of liabilities | | 12,557 | | 23,731 | | 230 | | 3 | | 1,922 | | – | | 38,443 | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | |
Due to the short-term cycle, it is assumed that the fair value of cash and cash equivalents balances, financial investments, accounts receivable and accounts payable approximate their book values. For the measurement and determination of fair value, the Company uses various methods including market, income or cost approaches, in order to estimate the value that market participants would use when pricing the asset or liability. The financial assets and liabilities recorded at fair value classified and disclosed in accordance with the following levels:
Level 1—unadjusted quoted prices on an active, liquid and visible market for identical assets or liabilities that are accessible at the measurement date;
Level 2—quoted prices (adjusted or unadjusted) for identical or similar assets or liabilities on active markets; and
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Fair value estimate (Continued)
Level 3—assets and liabilities, for which quoted prices, do not exist, or where prices or valuation techniques are supported by little or no market activity, unobservable or illiquid.
a) Assets and liabilities measured and recognized at fair value:
| | December 31, 2015 | | December 31, 2014 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total |
Financial assets | | | | | | | ||||||
Derivative financial instruments | | 214 | | – | | 214 | | 253 | | – | | 253 |
| | | | | | | | | | | | |
Total | | 214 | | – | | 214 | | 253 | | – | | 253 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Financial liabilities | | | | | | | ||||||
Derivative financial instruments | | 3,505 | | – | | 3,505 | | 3,026 | | – | | 3,026 |
Participative stockholders' debentures | | 342 | | – | | 342 | | 1,726 | | – | | 1,726 |
Others (minimum return instrument) | | – | | 141 | | 141 | | – | | 115 | | 115 |
| | | | | | | | | | | | |
Total | | 3,847 | | 141 | | 3,988 | | 4,752 | | 115 | | 4,867 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Methods and techniques of evaluation
i) Derivative financial instruments
Financial instruments are evaluated by calculating their present value through the use of instrument yield curves at the closing dates. The curves and prices used in the calculation for each group of instruments are detailed in the "market curves".
The pricing method used for European options is the Black & Scholes model. In this model, the fair value of the derivative is a function of the volatility in the price of the underlying asset, the exercise price of the option, the interest rate and period to maturity. In the case of options which income is a function of the average price of the underlying asset over the period of the option, the Company uses Turnbull & Wakeman model. In this model, in addition to the factors that influence the option price in the Black-Scholes model, the formation period of the average price is also considered.
In the case of swaps, both the present value of the assets and liability are estimated by discounting the cash flow by the interest rate of the currency in which the swap is denominated. The difference between the present value of assets and liability of the swap generates its fair value.
For to the TJLP swaps, the calculation of the fair value assumes that TJLP is constant, that is the projections of future cash flow in Brazilian Reais are made on the basis of the last TJLP disclosed.
Contracts for the purchase or sale of products, inputs and costs of selling with future settlement are priced using the forward yield curves for each product. Typically, these curves are obtained on the stock exchanges where the products are traded, such as the London Metals Exchange ("LME"), the Commodity Exchange ("COMEX") or other providers of market prices. When there is no price for the desired maturity, Vale uses an interpolation between the available maturities.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
23. Fair value estimate (Continued)
ii) Participative stockholders' debentures—Consist of the debentures issued during the privatization process (note 29(b)), whose fair values are measured based on the market approach. Reference prices are available on the secondary market.
iii) Minimum return instrument—Refers to a minimum return instrument held by Brookfield which under certain conditions can generate a disbursement obligation to Vale at the end of the sixth year of the completion of the acquisition of interest in VLI (note 6(b)). The Company used internal assumptions in a probability model to calculate the fair value of this instrument.
b) Fair value of financial instruments not measured at fair value
The fair value estimate for level 1 is based on market approach considering the secondary market contracts. For loans allocated to level 2, the income approach is adopted and the fair value for both fixed-indexed rate debt and floating rate debt is determined on a discounted cash flows basis using LIBOR future values and Vale's bonds curve.
The fair values and carrying amounts of non-current loans (net of interest) are as follows:
Financial liabilities | | Balance | | Fair value | | Level 1 | | Level 2 |
---|---|---|---|---|---|---|---|---|
December 31, 2015 | | | | | ||||
Debt principal | | 28,229 | | 26,233 | | 12,297 | | 13,936 |
December 31, 2014 | | | | | ||||
Debt principal | | 28,370 | | 29,479 | | 15,841 | | 13,638 |
24. Derivative financial instruments
a) Derivatives effects on balance sheet
| | Assets | ||||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | ||||
| | Current | | Non-current | | Current | | Non-current |
Derivatives designated as economic hedge | | | | | ||||
Foreign exchange and interest rate risk | | | | | ||||
CDI & TJLP vs. US$ fixed and floating rate swap | | 69 | | – | | 137 | | 11 |
IPCA swap | | 2 | | 16 | | 7 | | – |
Eurobonds swap | | – | | – | | – | | 41 |
Pre dollar swap | | – | | – | | 2 | | – |
| | | | | | | | |
| 71 | | 16 | | 146 | | 52 | |
Commodities price risk | | | | | ||||
Nickel | | 50 | | 11 | | 20 | | 3 |
| | | | | | | | |
| 50 | | 11 | | 20 | | 3 | |
Others | | – | | 66 | | – | | 32 |
| | | | | | | | |
| – | | 66 | | – | | 32 | |
| | | | | | | | |
Total | | 121 | | 93 | | 166 | | 87 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
| | Liabilities | ||||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | ||||
| | Current | | Non-current | | Current | | Non-current |
Derivatives designated as economic hedge | | | | | ||||
Foreign exchange and interest rate risk | | | | | ||||
CDI & TJLP vs. US$ fixed and floating rate swap | | 799 | | 1,131 | | 442 | | 1,355 |
IPCA swap | | 21 | | 101 | | – | | 63 |
Eurobonds swap | | 146 | | 29 | | 9 | | 90 |
Pre dollar swap | | 93 | | 72 | | 30 | | 98 |
| | | | | | | | |
| 1,059 | | 1,333 | | 481 | | 1,606 | |
Commodities price risk | | | | | ||||
Nickel | | 40 | | 10 | | 23 | | 3 |
Bunker oil(i) | | 924 | | – | | 452 | | – |
| | | | | | | | |
| 964 | | 10 | | 475 | | 3 | |
Others | | – | | 86 | | – | | – |
| | | | | | | | |
| – | | 86 | | – | | – | |
Derivatives designated as cash flow hedge accounting | | | | | ||||
Bunker oil(i) | | 50 | | – | | 434 | | – |
Foreign exchange | | 3 | | – | | 26 | | 1 |
| | | | | | | | |
| 53 | | – | | 460 | | 1 | |
| | | | | | | | |
Total | | 2,076 | | 1,429 | | 1,416 | | 1,610 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
b) Effects of derivatives on the income statement, cash flow and other comprehensive income
| | Year ended December 31 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Gain (loss) recognized in the income statement | | Financial settlement inflows (outflows) | | Gain (loss) recognized in other comprehensive income | ||||||||||||||||||||
| | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 | ||||||||
Derivatives designated as economic hedge | | | | | | | | | | |||||||||||||||||
Foreign exchange and interest rate risk | | | | | | | | | | |||||||||||||||||
CDI & TJLP vs. US$ fixed and floating rate swap | | (1,172 | ) | (437 | ) | (897 | ) | (330 | ) | 4 | | (146 | ) | – | | – | | – | ||||||||
IPCA swap | | (61 | ) | (58 | ) | – | | 7 | | – | | – | | – | | – | | – | ||||||||
Eurobonds swap | | (130 | ) | (160 | ) | 91 | | (13 | ) | 10 | | (5 | ) | – | | – | | – | ||||||||
Pre dollar swap | | (139 | ) | (28 | ) | (55 | ) | (42 | ) | 7 | | 16 | | – | | – | | – | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| (1,502 | ) | (683 | ) | (861 | ) | (378 | ) | 21 | | (135 | ) | – | | – | | – | |||||||||
Commodities price risk | | | | | | | | | | |||||||||||||||||
Nickel | | (49 | ) | 9 | | (2 | ) | (62 | ) | 12 | | (5 | ) | – | | – | | – | ||||||||
Bunker oil | | (742 | ) | (533 | ) | (72 | ) | (270 | ) | (90 | ) | (62 | ) | – | | – | | – | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| (791 | ) | (524 | ) | (74 | ) | (332 | ) | (78 | ) | (67 | ) | – | | – | | – | |||||||||
Others | | (142 | ) | (5 | ) | (58 | ) | – | | – | | – | | – | | – | | – | ||||||||
Derivatives designated as cash flow hedge accounting | | | | | | | | | | |||||||||||||||||
Bunker oil | | (439 | ) | (81 | ) | (42 | ) | (450 | ) | (81 | ) | (42 | ) | 435 | | (423 | ) | (10) | ||||||||
Nickel | | – | | – | | 13 | | – | | – | | 13 | | – | | – | | (13) | ||||||||
Foreign exchange | | (42 | ) | (41 | ) | (11 | ) | (42 | ) | (41 | ) | (11 | ) | 17 | | 8 | | (28) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| (481 | ) | (122 | ) | (40 | ) | (492 | ) | (122 | ) | (40 | ) | 452 | | (415 | ) | (51) | |||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
Total | | (2,916 | ) | (1,334 | ) | (1,033 | ) | (1,202 | ) | (179 | ) | (242 | ) | 452 | | (415 | ) | (51) | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | |
Related to the effects of derivatives in the income statement, the Company recognized as cost of goods sold and services rendered and financial expense the amounts of US$439 and US$2,477, respectively, for the year ended December 2015.
The maturities dates of the derivative financial instruments are as follows:
| | |
| ||
---|---|---|
| ||
| ||
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
Additional information about derivatives financial instruments
The risk of the derivatives portfolio is measured using the delta-Normal parametric approach, and considers that the future distribution of the risk factors and its correlations tends to present the same statistic properties verified in the historical data. The value at risk estimate considers a 95% confidence level for a one-business day time horizon.
There was no cash amount deposited as margin call regarding derivative positions on December 31, 2015. The derivative positions described in this document did not have initial costs associated.
The following tables detail the derivatives positions for Vale and its controlled companies as of December 31, 2015, with the following information: notional amount, fair value (including credit risk), gains or losses in the period, value at risk and the fair value breakdown by year of maturity.
a) Foreign exchange and interest rates derivative positions
(i) Protection programs for the R$ denominated debt instruments
In order to reduce cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments denominated in R$ with interest rates linked mainly to CDI, TJLP and IPCA. In those swaps, Vale pays fixed or floating rates in US$ and receives payments in R$ linked to the interest rates of the protected debt instruments.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to R$. These programs transform into US$ the obligations linked to R$ to achieve a currency offset in the Company's cash flows, by matching its receivables—mainly linked to US$—with its payables.
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2015 | | December 31, 2014 | | Index | | Average rate | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | | 2017 | | 2018 | | 2019+ | ||||||||||||||
CDI vs. US$ fixed rate swap | | (783 | ) | (547 | ) | (164 | ) | 40 | | (492 | ) | (51 | ) | (241 | ) | – | ||||||||||||||||||||||
Receivable | | | R$ | 5,239 | | | | R$ | 4,511 | | | CDI | | 108.33 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 2,288 | | | | US$ | 2,284 | | | Fix | | 3.39 | % | | | | | | | | ||||||||||||||||
CDI vs. US$ floating rate swap | | – | | (83 | ) | (77 | ) | – | | – | | – | | – | | – | ||||||||||||||||||||||
Receivable | | | – | | | | R$ | 428 | | | CDI | | 0.00 | % | | | | | | | | |||||||||||||||||
Payable | | | – | | | | US$ | 250 | | | Libor + | | 0.00 | % | | | | | | | | |||||||||||||||||
TJLP vs. US$ fixed rate swap | | (1,015 | ) | (953 | ) | (102 | ) | 67 | | (234 | ) | (285 | ) | (141 | ) | (355) | ||||||||||||||||||||||
Receivable | | | R$ | 5,484 | | | | R$ | 6,247 | | | TJLP + | | 1.32 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 2,611 | | | | US$ | 3,051 | | | Fix | | 1.69 | % | | | | | | | | ||||||||||||||||
TJLP vs. US$ floating rate swap | | (63 | ) | (66 | ) | (1 | ) | 4 | | (4 | ) | (6 | ) | (7 | ) | (46) | ||||||||||||||||||||||
Receivable | | | R$ | 267 | | | | R$ | 295 | | | TJLP + | | 0.93 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 156 | | | | US$ | 173 | | | Libor + | | –1.21 | % | | | | | | | | ||||||||||||||||
R$ fixed rate vs. US$ fixed rate swap | | (165 | ) | (127 | ) | (41 | ) | 19 | | (93 | ) | (9 | ) | 3 | | (65) | ||||||||||||||||||||||
Receivable | | | R$ | 1,356 | | | | R$ | 735 | | | Fix | | 6.82 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 528 | | | | US$ | 395 | | | Fix | | –0.74 | % | | | | | | | | ||||||||||||||||
IPCA vs. US$ fixed rate swap | | (105 | ) | (56 | ) | 7 | | 10 | | 2 | | 1 | | 0.2 | | (108) | ||||||||||||||||||||||
Receivable | | | R$ | 1,000 | | | | R$ | 1,000 | | | IPCA + | | 6.55 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 434 | | | | US$ | 434 | | | Fix | | 3.98 | % | | | | | | | | ||||||||||||||||
IPCA vs. CDI swap | | 2 | | – | | – | | 0.3 | | (21 | ) | (21 | ) | (15 | ) | 59 | ||||||||||||||||||||||
Receivable | | | R$ | 1,350 | | | | R$ | 0 | | | IPCA + | | 6.62 | % | | | | | | | | ||||||||||||||||
Payable | | | R$ | 1,350 | | | | US$ | 0 | | | CDI | | 98.58 | % | | | | | | | |
(ii) Protection program for EUR denominated debt instruments
In order to reduce the cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments issued in Euros by Vale. In those swaps, Vale receives fixed rates in EUR and pays fixed rates in US$.
The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to EUR. The financial settlement inflows/outflows are offset by the protected items' losses/gains due to EUR/US$ exchange rate.
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2015 | | December 31, 2014 | | Index | | Average rate | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | | 2017 | | 2018 | | 2019+ | ||||||||||||||
EUR fixed rate vs. US$ fixed rate swap | | (175 | ) | (58 | ) | (13 | ) | 14 | | (146 | ) | (5 | ) | (4 | ) | (19) | ||||||||||||||||||||||
Receivable | | | € | 1,000 | | | | € | 1,000 | | | Fix | | 4.06 | % | | | | | | | | ||||||||||||||||
Payable | | | US$ | 1,302 | | | | US$ | 1,302 | | | Fix | | 4.51 | % | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
(iii) Foreign exchange hedging program for disbursements in CAD
In order to reduce the cash flow volatility, forward transactions were implemented to mitigate the foreign exchange exposure that arises from the currency mismatch between revenues denominated in US$ and disbursements denominated in CAD.
The forward transactions were negotiated over-the-counter and the protected item is part of the CAD denominated disbursements. The financial settlement inflows/outflows are offset by the protected items' losses/gains due to CAD/US$ exchange rate. This program is classified under the hedge accounting requirements.
| | | | | | | | | | | | | | Financial Settlement Inflows (Outflows) | | | | | |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Notional | | | | | | Fair value | | Value at Risk | | Fair value by year | |||||||||||
| | Bought / Sold | | Average rate (CAD / USD) | |||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | |||||||||
Forwards | | CAD 10 | | CAD 230 | | B | | 1.028 | | (2 | ) | (27 | ) | – | | 0.1 | | (2) |
b) Commodities derivative positions
(i) Bunker Oil purchase cash flows protection program
In order to reduce the impact of bunker oil price fluctuation on maritime freight hiring/supply and, consequently, reducing the company's cash flow volatility, bunker oil derivatives were implemented. These transactions are usually executed through forward purchases and zero cost-collars.
The derivative transactions were negotiated over-the-counter and the protected item is part of the Vale's costs linked to bunker oil prices. The financial settlement inflows/outflows are offset by the protected items' losses/gains due to bunker oil prices changes. Part of this program is classified under the hedge accounting requirements.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | |||||||||||||
| | Notional (ton) | | | | | | Fair value | | Value at Risk | |||||||||||||||||||
| | Bought / Sold | | Average strike (US$/ton) | |||||||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | |||||||||||||||
Bunker Oil protection | | | | | | ||||||||||||||||||||||||
Forwards | | | 1,867,500 | | | | 2,205,000 | | | B | | 508 | | (577 | ) | (363 | ) | (172 | ) | 11 | | (577) | |||||||
Call options | | | 2,041,500 | | | | – | | | B | | 385 | | 0.02 | | – | | – | | 0.01 | | 0.02 | |||||||
Put options | | | 2,041,500 | | | | – | | | S | | 314 | | (297 | ) | – | | (60 | ) | 10 | | (297) | |||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||
Total | | | | | | | | | | (873 | ) | (363 | ) | | | (873) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||
Bunker Oil hedge | | | | | | | |||||||||||||||||||||||
Forward | | | 0 | | | | 1,950,000 | | | B | | 0 | | – | | (371 | ) | (439 | ) | – | | – |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
(ii) Protection programs for base metals raw materials and products
In the operational protection program for nickel sales at fixed prices, derivatives transactions were implemented to convert into floating prices the contracts with clients that required a fixed price, in order to keep nickel revenues exposed to nickel price fluctuations. Those operations are usually implemented through the purchase of nickel forwards, which are unwind before the original maturity in order to match the settlement dates of the commercial contracts in which the prices were fixed.
In the operational protection program for the purchase of raw materials and products, derivatives transactions were implemented, usually through the sale of nickel and copper forward or futures, in order to reduce the mismatch between the pricing period of purchases (concentrate, cathode, sinter, scrap and others) and the pricing period of the final product sales to the clients.
The derivative transactions are negotiated at London Metal Exchange or over-the-counter and the protected item is part of Vale's revenues and costs linked to nickel and copper prices. The financial settlement inflows/outflows are offset by the protected items' losses/gains due to nickel and copper prices changes.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | | | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Notional (ton) | | | | | | Fair value | | Value at Risk | | Fair value by year | |||||||||||||||||||
| | Bought / Sold | | Average strike (US$/ton) | |||||||||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | | 2017 | | 2018 | |||||||||||||
Fixed price sales protection | | | | | | | | ||||||||||||||||||||||||
Nickel forwards | | 16,917 | | 11,264 | | B | | 11,821 | | (46 | ) | (24 | ) | (63 | ) | 5 | | (37 | ) | (9 | ) | 0 | |||||||||
Raw material purchase protection | | | | | | | | ||||||||||||||||||||||||
Nickel forwards | | 118 | | 140 | | S | | 9,603 | | 0.1 | | 0.2 | | 0.9 | | 0.0 | | 0.1 | | – | | – | |||||||||
Copper forwards | | 385 | | 360 | | S | | 4,938 | | 0.1 | | 0.1 | | 0.6 | | 0.0 | | 0.1 | | – | | – | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||
Total | | | | | | 0.2 | | 0.3 | | | | 0.2 | | – | | – | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
c) Silver Wheaton Corp. warrants
The company owns warrants of Silver Wheaton Corp. (SLW), a Canadian company with stocks negotiated in Toronto Stock Exchange and New York Stock Exchange. Such warrants configure American call options and were received as part of the payment regarding the sale of 25% of gold payable flows produced as a sub product from Salobo copper mine during its life and 70% of gold payable flows produced as a sub product from some nickel mines in Sudbury during 20 years.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | |||||||||
| | Notional (quantity) | | | | | | Fair value | | Value at Risk | |||||||||||||||
| | Bought / Sold | | Average strike (US$/share) | |||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2023 | |||||||||||
Call options | | 10,000,000 | | 10,000,000 | | B | | 65 | | 7 | | 33 | | – | | 1 | | 7 |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
d) Call options from debentures
The company has debentures in which lenders have call options of a specified quantity of Ferrovia Norte Sul ordinary shares, later changed to VLI SA shares. The call option's strike price is given by the debentures' remaining notional in each exercise date.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | |||||||||
| | Notional (quantity) | | | | | | Fair value | | Value at Risk | |||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | |||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2027 | |||||||||||
Call options | | 140,239 | | – | | S | | 8,570 | | (39 | ) | – | | – | | 2 | | (39) |
e) Options related to Minerações Brasileiras Reunidas S.A. ("MBR") shares
The Company entered into a contract that has options related to MBR shares. Under certain restrict and contingent conditions, which are beyond the buyer's control, such as illegality due to changes in the law, the contract has a clause that gives the buyer the right to sell back its stake to the Company. It this case, the Company could settle through cash or shares. On the other hand, the Company has the right to buy back this non-controlling interest in the subsidiary.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | |||||||||
| | Notional (quantity, in millions) | | | | | | Fair value | | Value at Risk | |||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | |||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016+ | |||||||||||
Options | | 2,139 | | – | | B/S | | 1.8 | | 15 | | – | | – | | 9 | | 15 |
f) Embedded derivatives in commercial contracts
The Company has some nickel concentrate and raw materials purchase agreements in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | |||||||||
| | Notional (ton) | | | | | | Fair value | | Value at Risk | |||||||||||||||
| | Bought / Sold | | Average strike (US$/ton) | |||||||||||||||||||||
Flow | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2014 | | December 31, 2015 | | December 31, 2015 | | 2016 | |||||||||||
Nickel forwards | | 3,877 | | 4,491 | | S | | 9,468 | | 3.0 | | (0.6 | ) | | | 2.3 | |||||||||
Copper forwards | | 5,939 | | 6,310 | | S | | 4,961 | | 2.0 | | 1.1 | | | | 0.3 | |||||||||
| | | | | | | | | | | | | | | | | | | |||||||
Total | | | | | | 5.0 | | 0.6 | | – | | 1.7 | | 2.6 | |||||||||||
| | | | | | | | | | | | | | | | | | |
The Company has also a natural gas purchase agreement in which there's a clause that defines that a premium can be charged if the Company's pellet sales prices trade above a pre-defined level. This clause is considered an embedded derivative and both his fair value and value at risk were not material as of December 31, 2015.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
g) Sensitivity analysis of derivative financial instruments
The following tables present the potential value of the instruments given hypothetical stress scenarios for the main market risk factors that impact the derivatives positions. The scenarios were defined as follows:
Instrument | | Instrument's main risk events | | Scenario I | | Scenario II | | Scenario III | ||
---|---|---|---|---|---|---|---|---|---|---|
CDI vs. US$ fixed rate swap | | R$ depreciation | | (783 | ) | (1,369 | ) | (1,954) | ||
| US$ interest rate inside Brazil decrease | | (783 | ) | (798 | ) | (813) | |||
| Brazilian interest rate increase | | (783 | ) | (787 | ) | (792) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
TJLP vs. US$ fixed rate swap | | R$ depreciation | | (1,015 | ) | (1,647 | ) | (2,279) | ||
| US$ interest rate inside Brazil decrease | | (1,015 | ) | (1,057 | ) | (1,100) | |||
| Brazilian interest rate increase | | (1,015 | ) | (1,094 | ) | (1,163) | |||
| TJLP interest rate decrease | | (1,015 | ) | (1,057 | ) | (1,101) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
TJLP vs. US$ floating rate swap | | R$ depreciation | | (63 | ) | (98 | ) | (134) | ||
| US$ interest rate inside Brazil decrease | | (63 | ) | (66 | ) | (70) | |||
| Brazilian interest rate increase | | (63 | ) | (68 | ) | (72) | |||
| TJLP interest rate decrease | | (63 | ) | (65 | ) | (68) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
R$ fixed rate vs. US$ fixed rate swap | | R$ depreciation | | (165 | ) | (298 | ) | (432) | ||
| US$ interest rate inside Brazil decrease | | (165 | ) | (180 | ) | (196) | |||
| Brazilian interest rate increase | | (165 | ) | (195 | ) | (219) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
IPCA vs. US$ fixed rate swap | | R$ depreciation | | (105 | ) | (223 | ) | (341) | ||
| US$ interest rate inside Brazil decrease | | (105 | ) | (115 | ) | (125) | |||
| Brazilian interest rate increase | | (105 | ) | (133 | ) | (157) | |||
| IPCA index decrease | | (105 | ) | (120 | ) | (134) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
IPCA vs. CDI swap | | Brazilian interest rate increase | | 2 | | (39 | ) | (73) | ||
| IPCA index decrease | | 2 | | (20 | ) | (40) | |||
Protected item: R$ denominated debt linked to IPCA | | IPCA index decrease | | n.a. | | 20 | | 40 | ||
EUR fixed rate vs. US$ fixed rate swap | | EUR depreciation | | (175 | ) | (489 | ) | (803) | ||
| Euribor increase | | (175 | ) | (215 | ) | (187) | |||
| US$ Libor decrease | | (175 | ) | (196 | ) | (218) | |||
Protected item: EUR denominated debt | | EUR depreciation | | n.a. | | 489 | | 803 | ||
CAD Forward | | CAD depreciation | | (2 | ) | (5 | ) | (8) | ||
Protected item: Disbursement in CAD | | CAD depreciation | | n.a. | | 5 | | 8 | ||
Bunker Oil protection | | | | | ||||||
Forwards and options | | Bunker Oil price decrease | | (873 | ) | (1,038 | ) | (1,202) | ||
Protected item: Part of costs linked to bunker oil prices | | Bunker Oil price decrease | | n.a. | | 1,038 | | 1,202 | ||
Bunker Oilhedge | | | | | ||||||
Forwards | | Bunker Oil price decrease | | – | | – | | – | ||
Protected item: Part of costs linked to bunker oil prices | | Bunker Oil price decrease | | n.a. | | – | | – |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
Instrument | | Instrument's main risk events | | Scenario I | | Scenario II | | Scenario III | ||
---|---|---|---|---|---|---|---|---|---|---|
Nickel sales fixed price protection | | | | | ||||||
Forwards | | Nickel price decrease | | (46 | ) | (83 | ) | (121) | ||
Protected item: Part of nickel revenues with fixed prices | | Nickel price fluctuation | | n.a. | | 83 | | 121 | ||
Purchase protection program | | | | | ||||||
Nickel forwards | | Nickel price increase | | 0.1 | | (0.2 | ) | (0.4) | ||
Protected item: Part of costs linked to nickel prices | | Nickel price increase | | n.a. | | 0.2 | | 0.4 | ||
Copper forwards | | Copper price increase | | 0.1 | | (0.4 | ) | (0.8) | ||
Protected item: Part of costs linked to copper prices | | Copper price increase | | n.a. | | 0.4 | | 0.8 | ||
SLW warrants | | SLW stock price decrease | | 7 | | 3 | | 0 | ||
VLI call options | | VLI stock value increase | | (39 | ) | (62 | ) | (86) | ||
Options regarding non-controlling interest in subsidiary | | Subsidiary stock value increase | | 15 | | (28 | ) | (59) |
Instrument | | Main risks | | Scenario I | | Scenario II | | Scenario III | ||
---|---|---|---|---|---|---|---|---|---|---|
Embedded derivatives—Raw material purchase (nickel) | | Nickel price increase | | 3 | | (5 | ) | (14) | ||
Embedded derivatives—Raw material purchase (copper) | | Copper price increase | | 2.0 | | (4.9 | ) | (11.8) |
h) Financial counterparties' ratings
The transactions of derivative instruments, cash and cash equivalents as well as investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies.
The table below presents the ratings in foreign currency published by agencies Moody's and S&P regarding the main financial institutions that we had outstanding positions as of December 31, 2015.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
i) Market curves
The curves used on the pricing of derivatives instruments were developed based on data from BM&F, Central Bank of Brazil, London Metals Exchange and Bloomberg.
(i) Products
Nickel | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Price (US$/ton) | | Maturity | | Price (US$/ton) | | Maturity | | Price (US$/ton) |
SPOT | | 8,665 | | JUN16 | | 8,857 | | DEC16 | | 8,907 |
JAN16 | | 8,793 | | JUL16 | | 8,868 | | DEC17 | | 9,007 |
FEB16 | | 8,807 | | AUG16 | | 8,878 | | DEC18 | | 9,106 |
MAR16 | | 8,820 | | SEP16 | | 8,885 | | DEC19 | | 9,166 |
APR16 | | 8,831 | | OCT16 | | 8,892 | | | ||
MAY16 | | 8,846 | | NOV16 | | 8,900 | | |
Copper | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Price (US$/lb) | | Maturity | | Price (US$/lb) | | Maturity | | Price (US$/lb) |
SPOT | | 2.14 | | JUN16 | | 2.13 | | DEC16 | | 2.13 |
JAN16 | | 2.14 | | JUL16 | | 2.13 | | DEC17 | | 2.14 |
FEB16 | | 2.14 | | AUG16 | | 2.13 | | DEC18 | | 2.15 |
MAR16 | | 2.14 | | SEP16 | | 2.13 | | DEC19 | | 2.16 |
APR16 | | 2.13 | | OCT16 | | 2.13 | | | ||
MAY16 | | 2.13 | | NOV16 | | 2.13 | | |
Bunker Oil | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Price (US$/ton) | | Maturity | | Price (US$/ton) | | Maturity | | Price (US$/ton) |
SPOT | | 160 | | JUN16 | | 181 | | DEC16 | | 209 |
JAN16 | | 162 | | JUL16 | | 186 | | DEC17 | | 249 |
FEB16 | | 164 | | AUG16 | | 191 | | DEC18 | | 301 |
MAR16 | | 167 | | SEP16 | | 196 | | DEC19 | | 374 |
APR16 | | 171 | | OCT16 | | 201 | | | ||
MAY16 | | 176 | | NOV16 | | 205 | | |
(ii) Foreign exchange and interest rates
US$—Brazil Interest Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
02/01/16 | | 2.03 | | 12/01/16 | | 4.07 | | 10/01/18 | | 4.27 |
03/01/16 | | 2.28 | | 01/02/17 | | 4.15 | | 01/02/19 | | 4.28 |
04/01/16 | | 2.63 | | 02/01/17 | | 4.13 | | 04/01/19 | | 4.19 |
05/02/16 | | 2.79 | | 03/01/17 | | 4.16 | | 07/01/19 | | 4.18 |
06/01/16 | | 3.00 | | 04/03/17 | | 4.26 | | 10/01/19 | | 4.23 |
07/01/16 | | 3.24 | | 07/03/17 | | 4.26 | | 01/02/20 | | 4.31 |
08/01/16 | | 3.55 | | 10/02/17 | | 4.22 | | 04/01/20 | | 4.26 |
09/01/16 | | 3.80 | | 01/02/18 | | 4.35 | | 07/01/20 | | 4.25 |
10/03/16 | | 3.96 | | 04/02/18 | | 4.18 | | 10/01/20 | | 4.17 |
11/01/16 | | 4.05 | | 07/02/18 | | 4.36 | | 01/04/21 | | 4.43 |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
US$ Interest Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
1M | | 0.43 | | 6M | | 0.78 | | 11M | | 0.86 |
2M | | 0.51 | | 7M | | 0.80 | | 12M | | 0.86 |
3M | | 0.61 | | 8M | | 0.82 | | 2Y | | 1.19 |
4M | | 0.69 | | 9M | | 0.84 | | 3Y | | 1.45 |
5M | | 0.75 | | 10M | | 0.85 | | 4Y | | 1.64 |
TJLP | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
02/01/16 | | 7.00 | | 12/01/16 | | 7.00 | | 10/01/18 | | 7.00 |
03/01/16 | | 7.00 | | 01/02/17 | | 7.00 | | 01/02/19 | | 7.00 |
04/01/16 | | 7.00 | | 02/01/17 | | 7.00 | | 04/01/19 | | 7.00 |
05/02/16 | | 7.00 | | 03/01/17 | | 7.00 | | 07/01/19 | | 7.00 |
06/01/16 | | 7.00 | | 04/03/17 | | 7.00 | | 10/01/19 | | 7.00 |
07/01/16 | | 7.00 | | 07/03/17 | | 7.00 | | 01/02/20 | | 7.00 |
08/01/16 | | 7.00 | | 10/02/17 | | 7.00 | | 04/01/20 | | 7.00 |
09/01/16 | | 7.00 | | 01/02/18 | | 7.00 | | 07/01/20 | | 7.00 |
10/03/16 | | 7.00 | | 04/02/18 | | 7.00 | | 10/01/20 | | 7.00 |
11/01/16 | | 7.00 | | 07/02/18 | | 7.00 | | 01/04/21 | | 7.00 |
BRL Interest Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
02/01/16 | | 14.34 | | 12/01/16 | | 15.82 | | 10/01/18 | | 16.70 |
03/01/16 | | 14.48 | | 01/02/17 | | 15.88 | | 01/02/19 | | 16.71 |
04/01/16 | | 14.75 | | 02/01/17 | | 15.98 | | 04/01/19 | | 16.71 |
05/02/16 | | 15.01 | | 03/01/17 | | 16.05 | | 07/01/19 | | 16.71 |
06/01/16 | | 15.14 | | 04/03/17 | | 16.14 | | 10/01/19 | | 16.70 |
07/01/16 | | 15.19 | | 07/03/17 | | 16.33 | | 01/02/20 | | 16.68 |
08/01/16 | | 15.39 | | 10/02/17 | | 16.48 | | 04/01/20 | | 16.67 |
09/01/16 | | 15.55 | | 01/02/18 | | 16.53 | | 07/01/20 | | 16.65 |
10/03/16 | | 15.67 | | 04/02/18 | | 16.63 | | 10/01/20 | | 16.64 |
11/01/16 | | 15.75 | | 07/02/18 | | 16.69 | | 01/04/21 | | 16.62 |
Implicit Inflation (IPCA) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
02/01/16 | | 7.70 | | 12/01/16 | | 9.08 | | 10/01/18 | | 9.06 |
03/01/16 | | 7.83 | | 01/02/17 | | 9.14 | | 01/02/19 | | 9.01 |
04/01/16 | | 8.08 | | 02/01/17 | | 9.15 | | 04/01/19 | | 8.96 |
05/02/16 | | 8.32 | | 03/01/17 | | 9.16 | | 07/01/19 | | 8.92 |
06/01/16 | | 8.45 | | 04/03/17 | | 9.17 | | 10/01/19 | | 8.87 |
07/01/16 | | 8.50 | | 07/03/17 | | 9.20 | | 01/02/20 | | 8.83 |
08/01/16 | | 8.69 | | 10/02/17 | | 9.19 | | 04/01/20 | | 8.78 |
09/01/16 | | 8.84 | | 01/02/18 | | 9.14 | | 07/01/20 | | 8.75 |
10/03/16 | | 8.95 | | 04/02/18 | | 9.14 | | 10/01/20 | | 8.71 |
11/01/16 | | 9.02 | | 07/02/18 | | 9.12 | | 01/04/21 | | 8.68 |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
24. Derivative financial instruments (Continued)
EUR Interest Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
1M | | –0.21 | | 6M | | –0.08 | | 11M | | –0.06 |
2M | | –0.16 | | 7M | | –0.07 | | 12M | | –0.06 |
3M | | –0.13 | | 8M | | –0.07 | | 2Y | | 0.03 |
4M | | –0.11 | | 9M | | –0.06 | | 3Y | | 0.06 |
5M | | –0.09 | | 10M | | –0.06 | | 4Y | | 0.19 |
CAD Interest Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) | | Maturity | | Rate (% p.a.) |
1M | | 0.88 | | 6M | | 0.96 | | 11M | | 0.81 |
2M | | 0.87 | | 7M | | 0.92 | | 12M | | 0.79 |
3M | | 0.87 | | 8M | | 0.88 | | 2Y | | 0.83 |
4M | | 0.92 | | 9M | | 0.85 | | 3Y | | 0.95 |
5M | | 0.95 | | 10M | | 0.83 | | 4Y | | 1.08 |
Currencies—Ending rates | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
CAD/US$ | | 0.7212 | | US$/BRL | | 3.9048 | | EUR/US$ | | 1.0934 |
a) Share capital
Stockholders' equity is represented by common shares ("ON") and preferred non-redeemable shares ("PNA") without par value. Preferred shares have the same rights as common shares, with the exception of voting rights to elect members of the Board of Directors. The Board of Directors may, regardless of changes to bylaws, issue new shares (authorized capital), including the capitalization of profits and reserves to the extent authorized.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Stockholders' equity (Continued)
At December 31, 2015 and 2014, share capital was US$61,614 corresponding to 5,244,316,120 shares issued and fully paid without par value.
| | December 31, 2015 | ||||||
---|---|---|---|---|---|---|---|---|
Stockholders | | ON | | PNA | | Total | ||
Valepar S.A. | | 1,716,435,045 | | 20,340,000 | | 1,736,775,045 | ||
Brazilian Government (Golden Share) | | – | | 12 | | 12 | ||
Foreign investors—ADRs | | 814,888,084 | | 664,356,644 | | 1,479,244,728 | ||
FMP—FGTS | | 80,275,389 | | – | | 80,275,389 | ||
PIBB—BNDES | | 1,391,867 | | 1,546,759 | | 2,938,626 | ||
BNDESPar | | 206,378,882 | | 66,185,272 | | 272,564,154 | ||
Foreign institutional investors in local market | | 250,366,203 | | 659,351,871 | | 909,718,074 | ||
Institutional investors | | 77,393,251 | | 146,982,509 | | 224,375,760 | ||
Retail investors in Brazil | | 38,524,279 | | 408,958,859 | | 447,483,138 | ||
| | | | | | | ||
Shares outstanding | | 3,185,653,000 | | 1,967,721,926 | | 5,153,374,926 | ||
Shares in treasury | | 31,535,402 | | 59,405,792 | | 90,941,194 | ||
| | | | | | | ||
Total issued shares | | 3,217,188,402 | | 2,027,127,718 | | 5,244,316,120 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Amounts per class of shares (in millions) | | 38,525 | | 23,089 | | 61,614 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Total authorized shares | | 7,200,000,000 | | 3,600,000,000 | | 10,800,000,000 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
b) Profit reserves
The amount of profit reserves are distributed as follow:
| | Investments reserve | | Legal reserve | | Tax incentive reserve | | Total of profit reserves | |||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance on December 31, 2013 | | 25,068 | | 3,451 | | 1,047 | | 29,566 | |||
| | | | | | | | | |||
Capitalization of reserves | | (13 | ) | – | | (1,023 | ) | (1,036) | |||
Cancellation of treasury stock | | (3,000 | ) | – | | – | | (3,000) | |||
Realization of reserves | | (3,387 | ) | – | | – | | (3,387) | |||
Allocation of income | | – | | 18 | | 61 | | 79 | |||
Translation adjustment | | (1,874 | ) | (408 | ) | 45 | | (2,237) | |||
| | | | | | | | | |||
Balance on December 31, 2014 | | 16,794 | | 3,061 | | 130 | | 19,985 | |||
| | | | | | | | | |||
Dividends and interest on capital of Vale's stockholders | | (1,500 | ) | – | | – | | (1,500) | |||
Allocation of loss | | (10,859 | ) | (1,176 | ) | (94 | ) | (12,129) | |||
Translation adjustment | | (4,435 | ) | (900 | ) | (36 | ) | (5,371) | |||
| | | | | | | | | |||
Balance on December 31, 2015 | | – | | 985 | | – | | 985 | |||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
Investment reserve—aims to ensure the maintenance and development of activities that comprise the Company's operations in an amount not exceeding 50% of distributable annual net income, limited to the total capital.
Legal reserve—is a requirement for all Brazilian public companies and represents the appropriation of 5% of annual net income based on Brazilian law, up to 20% of the capital.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Stockholders' equity (Continued)
Tax incentive reserve—results from the option to designate a portion of the income tax for investments in projects approved by the Brazilian Government as well as tax incentives (note 20).
c) Unrealized fair value gain (losses)
| | Retirement benefit obligations | | Cash flow hedge | | Available-for-sale financial instruments | | Conversion shares | | Total gain (losses) | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance December 31, 2013 | | (685 | ) | (46 | ) | (2 | ) | (469 | ) | (1,202) | ||||
| | | | | | | | | | | ||||
Other comprehensive income | | (192 | ) | (416 | ) | – | | – | | (608) | ||||
Translation adjustment | | 32 | | 9 | | – | | 56 | | 97 | ||||
| | | | | | | | | | | ||||
Balance December 31, 2014 | | (845 | ) | (453 | ) | (2 | ) | (413 | ) | (1,713) | ||||
| | | | | | | | | | | ||||
Other comprehensive income | | 70 | | 447 | | 1 | | – | | 518 | ||||
Translation adjustment | | 72 | | – | | – | | 131 | | 203 | ||||
| | | | | | | | | | | ||||
Balance December 31, 2015 | | (703 | ) | (6 | ) | (1 | ) | (282 | ) | (992) | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
d) Basic and diluted earnings per share
Basic and diluted earnings per share are as follows:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Net income (loss) attributable to the Company's stockholders | | (12,129 | ) | 657 | | 584 | ||
Basic and diluted earnings per share: | | | | |||||
Income (loss) available to preferred stockholders | | (4,631 | ) | 251 | | 223 | ||
Income (loss) available to common stockholders | | (7,498 | ) | 406 | | 361 | ||
| | | | | | | ||
Total | | (12,129 | ) | 657 | | 584 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Weighted average number of shares outstanding (thousands of shares)—preferred shares | | 1,967,722 | | 1,967,722 | | 1,967,722 | ||
Weighted average number of shares outstanding (thousands of shares)—common shares | | 3,185,653 | | 3,185,653 | | 3,185,653 | ||
| | | | | | | ||
Total | | 5,153,375 | | 5,153,375 | | 5,153,375 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Basic and diluted earnings per share | | | | |||||
Preferred share | | (2.35 | ) | 0.13 | | 0.11 | ||
Common share | | (2.35 | ) | 0.13 | | 0.11 |
e) Remuneration to the Company's stockholders
Vale's by-laws determine the minimum remuneration to stockholders of 25% of net income, after adjustments from Brazil's legal requirements. The minimum remuneration includes the rights of stockholders Class "A" of preferred shares which provides priority to receive of 3% of the equity or 6% on the portion of capital formed by these classes of shares, whichever higher.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
25. Stockholders' equity (Continued)
The proposal of stockholders' remuneration was calculated in R$. The equivalent amount in US$ are as follows:
| ||
| | F-92 |
| | |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
The amounts paid to stockholders, by nature of remuneration, are as follows:
| | Dividends | | Interest on capital | | Total | | Amount per share | |||
---|---|---|---|---|---|---|---|---|---|---|---|
Amounts paid in 2013 | | | | | |||||||
First installment—April | | 400 | | 1,850 | | 2,250 | | 0.436607084 | |||
Second installment—October | | 287 | | 1,963 | | 2,250 | | 0.436607084 | |||
| | | | | | | | | |||
Total | | 687 | | 3,813 | | 4,500 | | ||||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | | |||
Amounts paid in 2014 | | | | | |||||||
First installment—April | | – | | 2,100 | | 2,100 | | 0.407499945 | |||
Second installment—October | | 717 | | 1,383 | | 2,100 | | 0.407499945 | |||
| | | | | | | | | |||
Total | | 717 | | 3,483 | | 4,200 | | ||||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | | |||
Amounts paid in 2015 | | | | | |||||||
First installment—April | | – | | 1,000 | | 1,000 | | 0.194047593 | |||
Second installment—October | | 500 | | – | | 500 | | 0.097023796 | |||
| | | | | | | | | |||
Total | | 500 | | 1,000 | | 1,500 | | ||||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
In January, 2016 (subsequent event), Vale announced that, in compliance with its dividend policy and due to price volatility in mineral commodities, the Executive Board has approved and will submit to the Board of Directors a proposal for a minimum dividend equal to zero for 2016. As the scenario is clearly defined and there is sufficient cash flow, the Board of Directors may decide on the distribution of remuneration to shareholders.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
26. Costs and expenses by nature
a) Cost of goods sold and services rendered
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Personnel | | 2,313 | | 3,051 | | 3,265 | ||
Material and service | | 3,859 | | 5,389 | | 6,128 | ||
Fuel oil and gas | | 1,299 | | 1,639 | | 1,804 | ||
Maintenance | | 2,587 | | 2,434 | | 1,868 | ||
Energy | | 569 | | 602 | | 663 | ||
Acquisition of products | | 829 | | 1,615 | | 1,412 | ||
Depreciation and depletion | | 3,529 | | 3,856 | | 3,724 | ||
Freight | | 3,496 | | 3,592 | | 3,189 | ||
Others | | 2,032 | | 2,886 | | 2,192 | ||
| | | | | | | ||
Total | | 20,513 | | 25,064 | | 24,245 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Cost of goods sold | | 19,990 | | 24,100 | | 22,359 | ||
Cost of services rendered | | 523 | | 964 | | 1,886 | ||
| | | | | | | ||
Total | | 20,513 | | 25,064 | | 24,245 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
b) Selling and administrative expenses
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Personnel | | 267 | | 436 | | 495 | ||
Services (consulting, infrastructure and others) | | 113 | | 196 | | 331 | ||
Advertising and publicity | | 12 | | 40 | | 44 | ||
Depreciation and amortization | | 133 | | 223 | | 192 | ||
Travel expenses | | 12 | | 24 | | 19 | ||
Taxes and rents | | 16 | | 28 | | 26 | ||
Others | | 99 | | 152 | | 195 | ||
| | | | | | | ||
Total | | 652 | | 1,099 | | 1,302 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
26. Costs and expenses by nature (Continued)
c) Other operational expenses (incomes), net
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Provision for litigation | | 31 | | 174 | | (88) | ||
Provision for loss with VAT credits (ICMS) | | 194 | | 117 | | 120 | ||
Provision for profit sharing program | | 22 | | 130 | | 215 | ||
Provision for disposal of materials and inventories(i) | | 194 | | 187 | | 171 | ||
Gold stream transaction | | (230 | ) | – | | (244) | ||
VAT—settlement program | | – | | – | | 166 | ||
Results on sale or disposal of property, plant and equipment and intangible | | 78 | | 91 | | 98 | ||
Others(ii) | | (83 | ) | 358 | | 546 | ||
| | | | | | | ||
Total | | 206 | | 1,057 | | 984 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Financial expenses | | | | |||||
Loans and borrowings gross interest | | (1,652 | ) | (1,736 | ) | (1,570) | ||
Capitalized loans and borrowing costs | | 761 | | 588 | | 235 | ||
Labor, tax and civil lawsuits | | (59 | ) | (91 | ) | (109) | ||
Derivative financial instruments | | (3,553 | ) | (1,974 | ) | (1,443) | ||
Indexation and exchange rate variation (a) | | (13,986 | ) | (4,929 | ) | (4,586) | ||
Participative stockholders' debentures | | 965 | | (315 | ) | (381) | ||
Expenses of REFIS | | (547 | ) | (683 | ) | (2,637) | ||
Others | | (580 | ) | (699 | ) | (540) | ||
| | | | | | | ||
| (18,651 | ) | (9,839 | ) | (11,031) | |||
| | | | | | | ||
Financial income | | | | |||||
Short-term investments | | 157 | | 193 | | 101 | ||
Derivative financial instruments | | 1,076 | | 640 | | 410 | ||
Indexation and exchange rate variation (b) | | 6,506 | | 2,729 | | 1,646 | ||
Others | | 111 | | 208 | | 542 | ||
| | | | | | | ||
| 7,850 | | 3,770 | | 2,699 | |||
| | | | | | | ||
Financial results, net | | (10,801 | ) | (6,069 | ) | (8,332) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Summary of indexation and exchange rate variation | | | | |||||
Loans and borrowings | | (10,462 | ) | (3,251 | ) | (3,335) | ||
Others | | 2,982 | | 1,051 | | 395 | ||
| | | | | | | ||
Net (a) + (b) | | (7,480 | ) | (2,200 | ) | (2,940) | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
28. Deferred revenue—Gold stream
In 2013, the Company entered into a gold stream transaction ("original transaction") with Silver Wheaton Corp. ("SLW") to sell 25% of the gold extracted during the life of the mine as a by-product of Salobo copper mine ("Salobo transaction") and 70% of the gold extracted during the next 20 years as a by-product of the Sudbury nickel mines ("Sudbury transaction"). The Company received up-front cash proceeds of US$1,900.
The original transaction was amended in March, 2015 to include an additional 25% of gold extracted during the life of the mine as a by-product of Salobo copper mine ("amended transaction"). The Company received up-front cash proceeds of US$900. The Company may also receive an additional cash payment contingent on its decision to expand the capacity to process Salobo copper ores until 2036. The additional amount could range from US$88 to US$720 depending on timing and size of the expansion.
As the gold is delivered to SLW, Vale receives a payment equal to the lesser of: (i) US$400 per ounce of refined gold delivered (which payment will be subject to an annual increase of 1% per year commencing on January 1, 2017 for the original and amended transactions and each January 1 thereafter) and (ii) the reference market price on the date of delivery.
This transaction was bifurcated into two identifiable components: (i) the sale of the mineral rights and, (ii) the services for gold extraction on the portion in which Vale operates as an agent for SLW gold extraction.
The result of the sale of the mineral rights of US$230 was recognized in the income statement under other operating expenses, net. The portion related to the provision of future services for gold extraction was recorded as deferred revenue (liability) in the amount of US$532 and will be recognized in the income statement as the service is rendered and the gold extracted. During the year ended December 31, 2015 and 2014, the Company recognized in income statement US$106 and US$64, respectively, related to rendered services of the original and amended transactions.
The deferred revenue is recognized based on the units of gold extracted compared to the total of proven and probable gold reserves negotiated with SLW. Defining the gain on sale of mineral interest and the deferred revenue portion of the transaction requires the use of critical accounting estimates as follow:
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
a) Base metals operations
i) Nickel Operations—New Caledonia
In regards to the construction and installation of the nickel plant in New Caledonia, Vale Canada Limited ("Vale Canada") provided guarantees in respect of a special financing arrangement, structured under French tax law, to BNP Paribas (agent for the benefit of certain French institutional tax investors). The guarantees relate to lease finance payments due from Vale Nouvelle-Calédonie S.A.S. ("VNC") to a special purpose company held by the French tax investors in respect of certain assets of the plant. Consistent with VNC's commitments under the financing structure, these assets were substantially complete as at December 31, 2012. Vale Canada has committed that these assets will operate for a five year period following substantial completion. Vale Canada believes the likelihood of the guarantees being called upon is remote.
In October 2012, Vale Canada entered into an agreement with Sumic Nickel Netherland B.V. ("Sumic"), a shareholder in VNC, to amend the shareholders' agreement to reflect Sumic's agreement to the dilution of their interest in VNC from 21% to 14.5%. Sumic originally held a put option to sell to Vale Canada the shares they own in VNC if the defined cost of the initial project exceeded a certain limit and an agreement could not be reached on how to proceed with the project. In October 2012, the trigger for the put option changed from a cost threshold to a production test and later the put option date was extended to December 31, 2015. VNC did not achieve the production test by December 31, 2015 and Sumic's put option was automatically triggered. Consequently, Sumic will sell its shares in VNC to Vale Canada in 2016. As the put option was automatically triggered in December 2015, Vale recognized in its equity the amount related to 14.5% of VNC and the liabilities for Sumic as related parties (note 30).
ii) Nickel Operations—Indonesia
In October 2014, Vale subsidiary PT Vale Indonesia Tbk ("PTVI"), a public company in Indonesia, renegotiated its agreement with the Government to operate (known as the Contract of Work ("CoW")). The renegotiation included an undertaking by PTVI to further divest 20% of its shares to Indonesian participants (approximately 20% of PTVI's shares already being registered on the Indonesian stock exchange) within five years. This undertaking will be fulfilled by PTVI's existing major shareholders, being Vale Canada and Sumitomo Metal Mining, Co., Ltd., on a pro rata basis. The renegotiated CoW impacted 2014 income statement, recorded as a loss of US$167 as results on measurement or sales of non-current assets.
iii) Nickel Operations—Canada
The subsidiaries Vale Canada, Vale Newfoundland & Labrador Limited ("VNLL") and the Province of Newfoundland and Labrador (the "Province") signed a Development Agreement under rights and obligations with respect to the development and operation of the Voisey's Bay mine along with certain other obligations with respect to processing in the Province and the export of nickel and copper concentrate. On December 19, 2014, the Sixth Amendment to the Development Agreement was executed. The Sixth Amendment includes operational and other key commitments in the Development Agreement. As such, under the Development Agreement, as amended, VNLL has a potential obligation secured by letters of credit and other security, which may become due and payable in the event that certain commitments in relation to the construction of the underground mine are delayed or not met.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
29. CommitmentsEmployee benefits (Continued)
InThe following assumptions were adopted in the courseassessment:
| | Brazil | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | |||||||||
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | | Overfunded pension plans | | Underfunded pension plans | | Other benefits | |
Discount rate to determine benefit obligation | | 6,99% - 7,32% | | 7.10 | % | 6,99% - 7,39% | | 8.86% - 9.10% | | 9.10% | | 9.05% - 9.29% | |
Nominal average rate to determine expense/ income | | 6,99% - 7,32% | | 7.10 | % | N/A | | 8,86% - 9,10% | | 9.10% | | N/A | |
Nominal average rate of salary increase | | 5.88% | | 6.00 | % | N/A | | 4,00% - 6,08% | | 6.08% | | N/A | |
Nominal average rate of benefit increase | | 3.80% | | 6.00 | % | N/A | | 4.00% | | 6.08% | | N/A | |
Immediate health care cost trend rate | | N/A | | N/A | | 6.91% | | N/A | | N/A | | 7.12% | |
Ultimate health care cost trend rate | | N/A | | N/A | | 6.91% | | N/A | | N/A | | 7.12% | |
Nominal average rate of price inflation | | 3.80% | | 4.00 | % | 3.80% | | 4.00% | | 4.00% | | 4.00% |
| | Foreign | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 | |||||||
| | Underfunded pension plans | | Other benefits | | Underfunded pension plans | | Other benefits | |||
Discount rate to determine benefit obligation | | 2.96 | % | 3.04 | % | 3.56 | % | 3.66% | |||
Nominal average rate to determine expense/ income | | 3.57 | % | 3.66 | % | 3.26 | % | 3.44% | |||
Nominal average rate of salary increase | | 3.17 | % | N/A | | 3.20 | % | N/A | |||
Nominal average rate of benefit increase | | 3.00 | % | N/A | | 3.00 | % | N/A | |||
Immediate health care cost trend rate | | N/A | | 5.58 | % | N/A | | 5.90% | |||
Ultimate health care cost trend rate | | N/A | | 4.55 | % | N/A | | 4.56% | |||
Nominal average rate of price inflation | | 2.10 | % | N/A | | 2.10 | % | N/A |
For the sensitivity analysis, the Company applies the effect of 1.0% in nominal discount rate to the present value of the operationsCompany´s actuarial liability. The effects of this analysis on the Company has provided other letters of creditCompany´s actuarial liability and guarantees in the amount of US$1 billion that are associated with items such as environment reclamation, asset retirement obligation commitments, insurance, electricity commitments, post-retirement benefits, community service commitments and import and export duties.
b) Participative stockholders' debentures
At the time of its privatization in 1997, Vale issued debentures to then-existing stockholders, including the Brazilian Government. The debentures' terms were set to ensure that pre-privatization stockholders would participate in potential future benefits that might be obtained from exploiting mineral resources.
A total of 388,559,056 debentures were issued with a par value of R$0.01 (one cent of Brazilian Real), whose value will be inflation-indexed the General Market Price Index ("IGP-M"), as set out in the Issue Deed. The Company paid as semiannual remuneration the amount of R$207 (US$65) and R$285 (US$112), respectively, for the year ended December 31, 2015 and 2014.
c) Operating lease obligations
The future payment commitments for operating leaseassumptions adopted are as follows:
2016 | | 56 |
2017 | | 59 |
2018 | | 62 |
2019 | | 53 |
2020 and thereafter | | 56 |
| | |
Total minimum payments required | | 286 |
| | |
| | |
| | |
| | December 31, 2019 | ||||||
---|---|---|---|---|---|---|---|---|
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||
Nominal discount rate—1.0% increase | | | | |||||
Effect on actuarial liability balance | | 3,666 | | 3,901 | | 1,316 | ||
Assumptions made | | 8.18 | % | 4.35 | % | 4.87% | ||
Nominal discount rate—1.0% reduction | | | | |||||
Effect on actuarial liability balance | | 4,412 | | 5,026 | | 1,747 | ||
Assumptions made | | 6.18 | % | 2.35 | % | 2.87% |
| | | | |
| | F-93 | | |
At December 31, 2015, corporate guarantees provided by Vale (within the limit of its direct or indirect interest) for the companies Norte Energia S.A. and Companhia Siderúrgica do Pecém S.A. totaled US$274 and US$1,172, respectively. Due to the conclusion of the energy generation assets transaction (note 5), the guarantee of Norte Energia S.A. is shared with Cemig GT.
�� Transactions with related parties are made by the Company at arm's-length, observing the price and usual market conditions and therefore do not generate any undue benefit to their counterparties or loss to the Company.
In the normal course of operations, Vale enters into contracts with related parties (subsidiaries, associates, joint ventures and stockholders), related to the sale and purchase of products and services, loans, leasing of assets, sale of raw material and railway transportation services.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
30. Related parties29. Employee benefits (Continued)
The balancesviii. Assets of these related party transactionspension plans
Brazilian plan assets as at December 31, 2019 and their effects on2018 includes respectively (i) investments in a portfolio of Vale's stock and other instruments in the financial statementsamount of US$27 and US$13, which are presented as "Investments funds—Equity" and (ii) Brazilian Federal Government securities in the amount of US$4,523 and US$4,199, which are presented as "Debt securities governments" and "Investments funds—Fixed"
Foreign plan assets as at December 31, 2019 and 2018 includes Canadian Government securities in the amount of US$633 and US$674, respectively.
ix. Overfunded pension plans
Assets by category are as follows:
| | December 31, 2019 | | December 31, 2018 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |||||||
Debt securities—Corporate | | – | | 48 | | – | | 48 | | – | | 47 | | – | | 47 | |||||||
Debt securities—Government | | 2,716 | | – | | – | | 2,716 | | 2,447 | | – | | – | | 2,447 | |||||||
Investments funds—Fixed Income | | 2,668 | | – | | – | | 2,668 | | 2,441 | | – | | – | | 2,441 | |||||||
Investments funds—Equity | | 556 | | – | | – | | 556 | | 450 | | – | | – | | 450 | |||||||
International investments | | 28 | | – | | – | | 28 | | 25 | | – | | – | | 25 | |||||||
Structured investments—Private Equity funds | | – | | – | | 157 | | 157 | | – | | – | | 159 | | 159 | |||||||
Structured investments—Real estate funds | | 160 | | – | | 17 | | 177 | | – | | – | | 15 | | 15 | |||||||
Real estate | | – | | – | | 323 | | 323 | | – | | – | | 339 | | 339 | |||||||
Loans to participants | | – | | – | | 141 | | 141 | | – | | – | | 160 | | 160 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 6,128 | | 48 | | 638 | | 6,814 | | 5,363 | | 47 | | 673 | | 6,083 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
Funds not related to risk plans(i) | | | | | (1,510 | ) | | | | (1,346) | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
Fair value of plan assets at end of year | | | | | 5,304 | | | | | 4,737 | |||||||||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
| | | | |
| | F-94 | | |
| | Assets | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
| | Cash and cash equivalents | | Derivative financial instruments | | Accounts receivable | | Related parties | | Cash and cash equivalents | | Derivative financial instruments | | Accounts receivable | | Related parties | |||||||
Banco Bradesco S.A. | | 37 | | 66 | | – | | – | | 60 | | 24 | | – | | – | |||||||
Banco do Brasil S.A. | | 395 | | 16 | | – | | – | | 427 | | 35 | | – | | – | |||||||
Baovale Mineração S.A. | | – | | – | | – | | – | | – | | – | | 4 | | 9 | |||||||
Companhia Coreano-Brasileira de Pelotização | | – | | – | | – | | 6 | | – | | – | | – | | – | |||||||
Companhia Hispano-Brasileira de Pelotização | | – | | – | | 1 | | 4 | | – | | – | | – | | – | |||||||
Companhia Italo-Brasileira de Pelotização | | – | | – | | – | | 8 | | – | | – | | – | | – | |||||||
Companhia Nipo-Brasileira de Pelotização | | – | | – | | – | | 9 | | – | | – | | – | | – | |||||||
Consórcio de Rebocadores da Baía de São Marcos | | – | | – | | 15 | | – | | – | | – | | – | | – | |||||||
Ferrovia Norte Sul S.A. | | – | | – | | 3 | | – | | – | | – | | 9 | | – | |||||||
Mitsui & Co., Ltd. | | – | | – | | 1 | | – | | – | | – | | 9 | | – | |||||||
MRS Logística S.A. | | – | | – | | – | | 17 | | – | | – | | 3 | | 24 | |||||||
Samarco Mineração S.A. | | – | | – | | – | | – | | – | | – | | 24 | | 310 | |||||||
Teal Minerals Inc. | | – | | – | | – | | – | | – | | – | | – | | 216 | |||||||
VLI Multimodal S.A. | | – | | – | | 9 | | – | | – | | – | | 25 | | – | |||||||
VLI Operações Portuárias S.A. | | – | | – | | 25 | | – | | – | | – | | 26 | | – | |||||||
VLI S.A. | | – | | – | | – | | 10 | | – | | – | | 9 | | – | |||||||
Others | | – | | – | | 24 | | 17 | | – | | – | | 56 | | 55 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 432 | | 82 | | 78 | | 71 | | 487 | | 59 | | 165 | | 614 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
30. Related parties29. Employee benefits (Continued)
Measurement of overfunded plan assets at fair value with no observable market variables (level 3) are as follows:
| | Liabilities | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 31, 2015 | | December 31, 2014 | |||||||||||||||||||
| | Derivative financial instruments | | Suppliers and contractors | | Related parties | | Loans and borrowings | | Derivative financial instruments | | Suppliers and contractors | | Related parties | | Loans and borrowings | |||||||
Aliança Geração de Energia S.A. | | – | | 11 | | – | | – | | – | | – | | – | | – | |||||||
Baovale Mineração S.A. | | – | | 8 | | – | | – | | – | | 4 | | – | | – | |||||||
Banco do Brasil S.A. | | 250 | | – | | – | | 2,625 | | 134 | | – | | – | | 2,520 | |||||||
Banco Bradesco S.A. | | 205 | | – | | – | | 370 | | 154 | | – | | – | | 10 | |||||||
Banco Nacional de Desenvolvimento Econômico e Social ("BNDES") | | 39 | | – | | – | | 4,066 | | – | | – | | – | | 4,716 | |||||||
BNDES Participações S.A. | | – | | – | | – | | 371 | | – | | – | | – | | 589 | |||||||
Companhia Coreano-Brasileira de Pelotização | | – | | 4 | | 70 | | – | | – | | 1 | | 86 | | – | |||||||
Companhia Hispano-Brasileira de Pelotização | | – | | 37 | | 7 | | – | | – | | 32 | | – | | – | |||||||
Companhia Ítalo-Brasileira de Pelotização | | – | | 3 | | 64 | | – | | – | | 1 | | 47 | | – | |||||||
Companhia Nipo-Brasileira de Pelotização | | – | | 9 | | 112 | | – | | – | | 2 | | 147 | | – | |||||||
Consórcio de Rebocadores da Baía de São Marcos | | – | | 8 | | – | | – | | – | | – | | – | | – | |||||||
Ferrovia Centro-Atlântica S.A. | | – | | – | | 68 | | – | | – | | – | | 98 | | – | |||||||
Mitsui & Co., Ltd. | | – | | 11 | | – | | – | | – | | 11 | | – | | – | |||||||
MRS Logística S.A. | | – | | 23 | | – | | – | | – | | 25 | | – | | – | |||||||
Sumic Nickel Netherland B.V. | | – | | – | | 352 | | – | | – | | – | | – | | – | |||||||
Others | | – | | 22 | | 15 | | – | | – | | 32 | | 37 | | – | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 494 | | 136 | | 688 | | 7,432 | | 288 | | 108 | | 415 | | 7,835 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
| | Private equity funds | | Real estate funds | | Real estate | | Loans to participants | | Total | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2017 | | 196 | | 15 | | 365 | | 224 | | 800 | ||||
| | | | | | | | | | | ||||
Return on plan assets | | 15 | | – | | 39 | | 25 | | 79 | ||||
Assets purchases | | 2 | | 2 | | 7 | | 233 | | 244 | ||||
Assets sold during the year | | (26 | ) | – | | (16 | ) | (292 | ) | (334) | ||||
Translation adjustment | | (28 | ) | (2 | ) | (56 | ) | (30 | ) | (116) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2018 | | 159 | | 15 | | 339 | | 160 | | 673 | ||||
| | | | | | | | | | | ||||
Return on plan assets | | 8 | | | 8 | | 19 | | 35 | |||||
Assets purchases | | 1 | | 2 | | 4 | | 46 | | 53 | ||||
Assets sold during the year | | (4 | ) | – | | (13 | ) | (79 | ) | (96) | ||||
Translation adjustment | | (7 | ) | – | | (15 | ) | (5 | ) | (27) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2019 | | 157 | | 17 | | 323 | | 141 | | 638 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
x. Underfunded pension plans
Assets by category are as follows:
| | Year ended December 31 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | |||||||||||||
| | Net operating revenue | | Costs and expenses | | Financial result | | Net operating revenue | | Costs and expenses | | Financial result | |||||
Aliança Geração de Energia S.A. | | 12 | | – | | – | | – | | – | | – | |||||
Banco Bradesco S.A. | | – | | – | | (75 | ) | – | | – | | (24) | |||||
Banco do Brasil S.A. | | – | | – | | (374 | ) | – | | – | | (110) | |||||
Banco Nacional de Desenvolvimento Econômico e Social ("BNDES") | | – | | – | | (372 | ) | – | | – | | (199) | |||||
Baovale Mineração S.A. | | – | | (24 | ) | | – | | – | | – | ||||||
BNDES Participações S.A. | | – | | – | | (50 | ) | – | | – | | (41) | |||||
California Steel Industries, Inc. | | – | | – | | – | | 183 | | (215 | ) | – | |||||
Companhia Coreano-Brasileira de Pelotização | | – | | (80 | ) | – | | – | | (97 | ) | – | |||||
Companhia Hispano-Brasileira de Pelotização | | – | | (50 | ) | – | | – | | (47 | ) | – | |||||
Companhia Ítalo-Brasileira de Pelotização | | – | | (66 | ) | – | | – | | (49 | ) | – | |||||
Companhia Nipo-Brasileira de Pelotização | | – | | (106 | ) | – | | – | | (155 | ) | – | |||||
Ferrovia Centro Atlântica S.A. | | 47 | | (39 | ) | (1 | ) | 59 | | (61 | ) | – | |||||
Mitsui & Co., Ltd. | | 187 | | – | | – | | 111 | | (35 | ) | – | |||||
MRS Logística S.A. | | – | | (489 | ) | – | | – | | (593 | ) | – | |||||
Samarco Mineração S.A. | | 127 | | – | | – | | 210 | | – | | – | |||||
Teal Minerals Inc. | | – | | – | | 12 | | – | | – | | 10 | |||||
VLI Operações Portuárias S.A. | | 53 | | – | | – | | 202 | | – | | – | |||||
VLI S.A. | | 198 | | – | | – | | 148 | | – | | 8 | |||||
Others | | 55 | | (44 | ) | (4 | ) | 102 | | (42 | ) | 9 | |||||
| | | | | | | | | | | | | |||||
Total | | 679 | | (898 | ) | (864 | ) | 1,015 | | (1,294 | ) | (347) | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | | |||||
| | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |||||||
Cash and cash equivalents | | – | | 56 | | – | | 56 | | 3 | | 18 | | – | | 21 | |||||||
Equity securities | | 1,409 | | 2 | | – | | 1,411 | | 1,186 | | 2 | | – | | 1,188 | |||||||
Debt securities—Corporate | | – | | 507 | | – | | 507 | | – | | 374 | | – | | 374 | |||||||
Debt securities—Government | | 156 | | 634 | | – | | 790 | | 116 | | 680 | | – | | 796 | |||||||
Investments funds—Fixed Income | | 49 | | 339 | | – | | 388 | | 42 | | 296 | | – | | 338 | |||||||
Investments funds—Equity | | 2 | | 135 | | – | | 137 | | – | | 124 | | – | | 124 | |||||||
Structured investments—Private Equity funds | | – | | – | | 212 | | 212 | | – | | – | | 213 | | 213 | |||||||
Real estate | | – | | – | | 55 | | 55 | | – | | – | | 51 | | 51 | |||||||
Loans to participants | | – | | – | | 3 | | 3 | | – | | – | | 3 | | 3 | |||||||
Others | | 2 | | – | | 165 | | 167 | | – | | – | | 165 | | 165 | |||||||
| | | | | | | | | | | | | | | | | |||||||
Total | | 1,618 | | 1,673 | | 435 | | 3,726 | | 1,347 | | 1,494 | | 432 | | 3,273 | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | |
| | | | |
| | F-95 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
30. Related parties29. Employee benefits (Continued)
The key management personnel remuneration isMeasurement of underfunded plan assets at fair value with no observable market variables (level 3) are as follows:
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2015 | | 2014 | | 2013 | ||
Short-term benefits | | | | |||||
Wages or pro-labor | | 8 | | 11 | | 11 | ||
Direct and indirect benefits | | 6 | | 7 | | 7 | ||
Bonus | | 8 | | 12 | | 9 | ||
| | | | | | | ||
| 22 | | 30 | | 27 | |||
Long-term benefits | | | | |||||
Shares based | | 1 | | 1 | | 1 | ||
Termination of position | | 6 | | – | | 1 | ||
| | | | | | | ||
| 29 | | 31 | | 29 | |||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
| | Private equity funds | | Real estate | | Loans to participants | | Others | | Total | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2017 | | 197 | | 44 | | 5 | | 195 | | 441 | ||||
| | | | | | | | | | | ||||
Return on plan assets | | 32 | | 3 | | – | | (15 | ) | 20 | ||||
Assets purchases | | 22 | | 18 | | – | | – | | 40 | ||||
Assets sold during the year | | (22 | ) | (10 | ) | (1 | ) | – | | (33) | ||||
Translation adjustment | | (16 | ) | (4 | ) | (1 | ) | (15 | ) | (36) | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2018 | | 213 | | 51 | | 3 | | 165 | | 432 | ||||
| | | | | | | | | | | ||||
Return on plan assets | | 11 | | 4 | | – | | 5 | | 20 | ||||
Assets purchases | | 18 | | – | | – | | – | | 18 | ||||
Assets sold during the year | | (32 | ) | | (1 | ) | (4 | ) | (37) | |||||
Translation adjustment | | 2 | | – | | 1 | | (1 | ) | 2 | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2019 | | 212 | | 55 | | 3 | | 165 | | 435 | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
xi. Disbursement of future cash flow
Vale expects to disburse US$105 in 2020 in relation to pension plans and other benefits.
xii. Expected benefit payments
The expected benefit payments, which reflect future services, are as follows:
| | December 31, 2019 | ||||||
---|---|---|---|---|---|---|---|---|
| | Overfunded pension plans | | Underfunded pension plans | | Other benefits | ||
2020 | | 259 | | 235 | | 65 | ||
2021 | | 266 | | 236 | | 66 | ||
2022 | | 273 | | 238 | | 68 | ||
2023 | | 280 | | 240 | | 70 | ||
2024 | | 285 | | 242 | | 73 | ||
2025 and thereafter | | 1,494 | | 1,206 | | 381 |
31. Summaryb) Profit sharing program ("PLR")
The Company recorded as cost of the main accounting policies
a) Functional currencygoods sold and presentation currency
The financial statements of the Groupservices rendered and its associates and joint ventures are measured using the currency of the primary economic environment in which the entity operates ("functional currency"), which in the case of the Parent Company is the Brazilian real ("BRL" or "R$"). For presentation purposes, these financial statements are presented in United States dollar ("USD" or "US$") as the Company believes that this is how international investors analyze the financial statements.
Operations in other currencies are translated into the functional currency using the actual exchange rates in force on the respective transactions dates. The foreign exchange gains and losses resulting from the translation at the exchange rates in force at the end of the year are recognized in the income statement as financial expense or income.
The income statement and balance sheet of the Group's entities which functional currency is different from the presentation currency are translated into the presentation currency as follows: (i) assets, liabilities and stockholders' equity (except components described in item (iii)) are translated at the closing rate at the balance sheet date; (ii) income andoperating expenses are translated at the average exchange rates, except for specific transactions that, considering their significance, are translated at the rate at the transaction date and; (iii) capital, capital reserves and treasury stock are translated at the rate at the date of each transaction. All resulting exchange differences are recognized in the comprehensive income as cumulative translation adjustment, and transferredrelated to the income statement whenprofit sharing program US$289, US$503 and US$780 for the operations are realized.years ended on December 31, 2019, 2018 and 2017, respectively.
| | | | |
| | F-96 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary29. Employee benefits (Continued)
c) Long-term compensation plan
For the long-term awarding of eligible executives, the Company compensation plans includes Matching Program and Performance Share Unit Program—PSU, with three to four years-vesting cycles, respectively, with the aim of encouraging employee's retention and stimulating their performance.
For the Matching program, the participants can acquire Vale's common shares in the market without any benefits being provided by Vale. If the shares acquired are held for a period of three years and the participants keep it employment relationship with Vale, the participant is entitled to receive from Vale an award in shares, equivalent to the number of shares originally acquired by the executive. It should be noted that, although a specific custodian of the main accounting policies (Continued)
The exchange rates usedshares is defined by Vale, the share initially purchased by the Group for major currencies to translate its operations are as follows:
| | Exchange rates used for conversions into R$ | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Closing rate | | Average rate for the year ended | |||||||||||||
| | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 | |||||
US dollar ("US$") | | 3.9048 | | 2.6562 | | 2.3426 | | 3.3387 | | 2.3547 | | 2.1605 | |||||
Canadian dollar ("CAD") | | 2.8171 | | 2.2920 | | 2.2031 | | 2.6020 | | 2.1308 | | 2.0954 | |||||
Australian dollar ("AUD") | | 2.8532 | | 2.1765 | | 2.0941 | | 2.4979 | | 2.1205 | | 2.0821 | |||||
Euro ("EUR" or "€") | | 4.2504 | | 3.2270 | | 3.2265 | | 3.6999 | | 3.1205 | | 2.8716 |
b) Consolidationexecutives have no restriction and investments in associates and joint ventures
The financial statements reflect the assets, liabilities and transactions of the Parent Company and its direct and indirect controlled entities ("subsidiaries"). Intercompany balances and transactions, which include unrealized profits, are eliminated. Subsidiaries over which control is achieved through other means, such as stockholders agreement, are also consolidated evencan be sold at any time. However, if the Company does not own a majority of the voting capital.
For entities over which the Company has joint control ("joint ventures") or significant influence, but not control ("associates"), the investments are accounted for using the equity method. For interests in joint arrangements operations ("joint operations"), the Company recognizes its share of assets, liabilities and net income.
Unrealized gains on downstream or upstream transactions between the Company and its associates and joint ventures are eliminated fully or proportionately to the extent of the Company.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
The composition of the Group (relevant entities based on its operations for the Group) and its non-consolidated entities are as follows:
| | Location | | Principal activity | | % ownership | | % Voting capital | | % Noncontrolling interest or other investors | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct and indirect subsidiaries | | | | | | | | | | |||||||
Companhia Portuária da Baía de Sepetiba | | Brazil | | Iron ore | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Compañia Minera Miski Mayo S.A.C. | | Peru | | Fertilizers | | | 40.0 | % | | | 51.0 | % | | 60.0% | ||
Mineração Corumbaense Reunida S.A. | | Brazil | | Iron ore and manganese | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Minerações Brasileiras Reunidas S.A. | | Brazil | | Iron ore | | | 62.5 | % | | | 98.3 | % | | 37.5% | ||
Salobo Metais S.A. | | Brazil | | Copper | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale International Holdings GmbH | | Austria | | Holding and research | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Canada Holdings Inc. | | Canada | | Holding | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Canada Limited | | Canada | | Nickel | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Fertilizantes S.A. | | Brazil | | Fertilizers | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale International S.A. | | Switzerland | | Trading and holding | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Malaysia Minerals Sdn. Bhd. | | Malaysia | | Iron ore | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Manganês S.A. | | Brazil | | Manganese and ferroalloys | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Vale Moçambique S.A. | | Mozambique | | Coal | | | 95.0 | % | | | 95.0 | % | | 5.0% | ||
Vale Nouvelle Caledonie S.A.S. | | New Caledonia | | Nickel | | | 80.5 | % | | | 80.5 | % | | 19.5% | ||
Vale Shipping Holding Pte. Ltd. | | Singapore | | Iron ore | | | 100.0 | % | | | 100.0 | % | | 0.0% | ||
Direct and indirect associates and joint ventures | | | | | | | | | | |||||||
Aliança Geração de Energia S.A. | | Brazil | | Energy | | | 55.0 | % | | | 55.0 | % | | 45.0% | ||
Companhia Coreano-Brasileira de Pelotização | | Brazil | | Pellets | | | 50.0 | % | | | 50.0 | % | | 50.0% | ||
Companhia Hispano-Brasileira de Pelotização | | Brazil | | Pellets | | | 50.9 | % | | | 51.0 | % | | 49.1% | ||
Companhia Ítalo-Brasileira de Pelotização | | Brazil | | Pellets | | | 50.9 | % | | | 51.0 | % | | 49.1% | ||
Companhia Nipo-Brasileira de Pelotização | | Brazil | | Pellets | | | 51.0 | % | | | 51.1 | % | | 49.0% | ||
Companhia Siderúrgica do Pecém | | Brazil | | Steel | | | 50.0 | % | | | 50.0 | % | | 50.0% | ||
Henan Longyu Energy Resources Co., Ltd. | | China | | Coal | | | 25.0 | % | | | 25.0 | % | | 75.0% | ||
MRS Logística S.A. | | Brazil | | Iron ore | | | 40.0 | % | | | 40.0 | % | | 60.0% | ||
Samarco Mineração S.A. | | Brazil | | Pellets | | | 50.0 | % | | | 50.0 | % | | 50.0% | ||
VLI S.A. | | Brazil | | Logistics | | | 37.6 | % | | | 37.6 | % | | 62.4% |
The accounting practices of subsidiaries, associates and joint ventures are consistent with the policies adopted by the Parent Company.
c) Noncontrolling interests
Investments held by investors in Vale's subsidiaries are classified as noncontrolling interests. The Company treats transactions with noncontrolling interests as transactions with equity owners of the Group.
For purchases of noncontrolling interests, the difference between any amount paid and the portion acquired of the carrying value of net assets of the subsidiary is recorded in stockholders' equity. Gains or losses on disposals of noncontrolling interest are also recorded in stockholders' equity.
d) Segment information
The Company discloses in note 3, segment information in accordance with the principles and concepts used by the chief operating decision makers in evaluating performance and allocating resources. The information is analyzed by operating segment as follows:
i. Ferrous minerals
Ferrous minerals comprises the production and extraction of ferrous minerals, as iron ore, pellets and its logistic services (railroads, ports and terminals), manganese and ferroalloys, and other ferrous products and services.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
ii. Coal
Coal comprises the extraction of coal and its logistic services (railroads, ports and terminals).
iii. Base metals
Base metals include the production and extraction of non-ferrous minerals, and are presented as nickel and its by-products (ferro-nickel, copper, precious metals and others) and copper (copper concentrated).
iv. Fertilizers
Fertilizers include the production of the three major groups of nutrients (potash, phosphate and nitrogen) and other fertilizers products.
v. Others
The segments of others comprise sales and expenses of other products, services and investments in joint ventures and associate in other businesses.
e) Accounts receivables
Account receivables are financial instruments classified in the category loan and receivables and represent the total amount due from sale of products and services rendered by the Company. The receivables are initially recognized at fair value and subsequently measured at amortized cost, net of impairment losses, when applicable.
f) Inventories
Inventories are stated at the lower of cost or the net realizable value. The inventory production cost is determined on the basis of variable and fixed costs, direct and indirect costs of production, using the average cost method. An allowance for losses on obsolete or slow-moving inventory is recognized.
g) Assets and liabilities held for sale
When the Company is committed to sale assets which (i) are available for immediate disposal; (ii) the sale is highly probable; and (iii) the carrying amount of these assets will be recovered through the sale rather than the continuing use, these assets and related liabilities are classified as assets and liabilities held for sale. The assets and related liabilities which are classified as held for sale are described in note 5.
The non-current assets and related liabilities held for sale are recognized as current assets and are measured at the lower of carrying amount or fair value less costs to sell.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
h) Stripping Costs
The cost associated with the removal of overburden and other waste materials ("stripping costs") incurred during the development of mines,it's done before production takes place, are capitalized as part of the depreciable cost of developing the mining property. These costs are subsequently amortized over the useful life of the mine.
Post-production stripping costs are included in the cost of inventory, except when a new project is developed to permit access to a significant body of ore. In such cases, the cost is capitalized as a non-current asset and is amortized during the extraction of the body of ore, over the useful life of the body of ore.
Stripping costs are measured at fixed and variable costs directly and indirectly attributable to its removal and, when applicable, net of any impairment losses measured in same basis adopted for the cash generating unit of which it is part.
i) Intangibles
Intangibles are carried at the acquisition cost, net of amortization and impairment.
Intangibles with finite useful lives are amortized over their effective use and are tested for impairment whenever there is an indication that the asset may be impaired. Assets with indefinite useful lives are not amortized and are tested for impairment at least annually.
The Company holds railway concessions which are valid over a certain period of time. Those assets are classified as intangible assets and amortized over the shorter of their useful lives and the concession term at the end of whichthe three-year-vesting period, they will be returnedlose the entitlement of receiving the related award paid by Vale.
For PSU program, the eligible executives have the opportunity to receive during a four year-vesting cycle, an award equivalent to the government.
Intangibles acquired inmarket value of a business combination are recognized separately from goodwill.
The estimated useful lives aredetermined number of common shares and conditioned to Vale's performance factor measured as follows:
| ||
| ||
|
j) Property, plant and equipment
Property, plant and equipment are evaluated at the costan indicator of acquisition or construction, net of amortization and impairment.
Notestotal return to the Financial Statements (Continued)
Expressedshareholders (TSR). This award is paid in millionscash and can occur in cumulative installments of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
Mining assets developed internally are determined by (i) direct and indirect costs attributed to build the mine site and plant, (ii) financial charges incurred during the construction period, (iii) depreciation of other fixed assets used into building, (iv) estimated decommissioning and site restoration expenses, and (iv) other capitalized expenditures occurred during the development phase (phase when the project demonstrates its economic benefit to the Company, and the Company has ability and intention to complete the project).
The depletion of mining assets is determined based on the ratio between production and total proven and probable mineral reserves. Property, plant and equipment are depreciated using the straight-line method based on the estimated useful lives, from the date on which the assets become available for their intended use, except for land which is not depreciated.
The estimated useful lives are as follows:
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
The residual values and useful lives of assets are reviewed at20% (at the end of each fiscal year2nd year), 30% (at the end of 3rd year) and adjusted if necessary.
Significant industrial maintenance costs, including spare parts, assembly services, and others, are recorded in property, plant and equipment and depreciated through50% (at the next programmed maintenance overhaul.
k) Research and evaluation
i. Exploration and evaluation expenditures
Expenditures on mining research are accounted for as operating expenses until the effective proofend of economic feasibility and commercial viability of a given field can be demonstrated. From then on, the expenditures incurred are capitalized as mine development costs.
ii. Expenditures on feasibility studies, new technologies and other research
The Company also conducts feasibility studies for many businesses which it operates including researching new technologies to optimize the mining process. After these costs are proven to generate future benefits4th year), conditioned to the Company, the expenditures incurred are capitalized.
Tableperformance factor of Contents
each year.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. SummaryLiabilities of the main accounting policies (Continued)
l) Impairment of assets
The Company assesses, at each reporting date, whether there is evidence that the carrying amount of financial assets measured through amortized cost and long-live non-financial asset should be impaired.
For financial assets measured through amortized cost, Vale compares the carrying amount with the expected cash flows of the asset, and when appropriate, the carrying value is adjusted to reflect the present value of future cash flows.
For long-lived non-financial assets (such as intangible or property plant and equipment), when impairment indicationplans are identified, a test is conducted by comparing the recoverable value of these assets grouped at the lowest levels for which there are separately identifiable cash flows of the cash-generating unit ("CGU") to which the asset belongs to their carrying amount. If the Company identifies the need for impairment, it is applied to each asset's cash-generating unit. The recoverable amount is the higher of value in use and fair value less costs to sell.
The Company determines its cash flows based on approved budgets, considering mineral reserves and mineral resources calculated by internal experts, costs and investments based on the best estimate of past performance and approved budgets, sale prices consistent with the projections used in reports published by industry considering the market price when available and appropriate. Cash flows used are based on the life of each cash-generating unit (consumption of reserve units in the case of minerals) and considering discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit, depending on their composition and location.
Regardless the indication of impairment of its carrying value, goodwill balances arising from business combinations, intangible assets with indefinite useful lives and land are tested for impairment at least once a year.
Non-current assets (excluding goodwill) which the Company recognized impairment are reviewed whenever events or changes in circumstances indicate that the impairment may no longer be applicable. In such cases, an impairment reversal will be recognized.
m) Suppliers and contractors
Accounts payable to suppliers and contractors are obligations to pay for goods and services that were acquired in the ordinary course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
The Company has transactions with payment terms up to 360 days. Under these circumstances, some suppliers discounts their receivables with financial institutions to a range of Libor+0.4% p.a. to Libor+1.3% p.a. These operations amount to US$270 and US$282 at December 31, 2015 and 2014, respectively, and are adjusted to present value, which the accrued interest is recognized as interest expense in the income statement.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
n) Loans and borrowings
Loans and borrowings are initially measured at fair value net of transactionat every reporting period, based on market rates. Compensation costs incurred and are subsequently carried at amortized cost and updated usingrecognized by the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the Income statement over thedefined vesting period of three or four years. For the loan, usingyears ended December 31, 2019, 2018 and 2017 the effective interest rate method. The fees paid in obtaining the loan are recognized as transaction costs.
Loans and borrowing costs are capitalized as part of property, plants and equipment if those costs are directly related to a qualified asset. The capitalization occurs until the qualified asset is ready for its intended use. The average capitalization rate is 46%. Borrowing costs that are not capitalized areCompany recognized in the income statement in the period in which they are incurred.
o) Leases
The Company classifies its contracts as a finance leases or operating leases based on the substanceamounts of the contract as to whether it is linked to the transfer of substantially all risksUS$39, US$95 and benefits of the assets ownership to the Company during their useful life.
For finance leases, the lower of the fair value of the leased asset and the present value of minimum lease payments is recorded in tangible fixed assets and the corresponding obligation recorded in liabilities. For operating leases, payments are recognized on a straight line basis during the term of the contract as a cost or expense in the income statement.
p) Provisions
Provisions are recognized only when there is a present obligation (legal or constructive) resulting from a past event, and it is probable that the settlement of this obligation will result in an outflow of resources, and the amount of the obligation can be reasonably estimated. Provisions are reviewed and adjusted to reflect the current best estimate at the end of each reporting period. Provisions are measured at the present value of the expenditure expected to be required to settle an obligation using a pre-tax rate, which reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the obligation due to the passage of time is recognized as interest expense.
i. Provision for asset retirement obligations
The provision made by the Company refers to costsUS$65, respectively, related to mine closure and reclamation, with the completion of mining activities and decommissioning of assets related to mine. When the provision is recognized, the corresponding cost is capitalized as part of property plant and equipment and is depreciated on the same basis over the related asset and recorded in the income statement.long-term compensation plan.
The long-term liability is subsequently measured using a long-term risk free discount rate applicable to the liability and recorded in the income statement as financial expenses until the Company makes payments related to mine closure and decommissioning of assets mining.
Accounting policy
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
ii. Provision for litigation
The provision refers to litigation and fines incurred by the Company. A provision is recognized when the obligation is considered probable and can be measured. The accounting counterpart for the obligation is an expense in income statement. This obligation is updated according to the evolution of the judicial process or interest incurred and can be reversed if the estimate of loss is not considered probable or settled when the obligation is paid.
q) Employee benefits
i. Current benefits—wages, vacations and related taxes
Payments of benefits such as wages or accrued vacation, as well the related social security taxes over those benefits are recognized monthly in income, on an accruals basis.
ii. Current benefits—profit sharing program
The Company has a profit sharing programthe Annual Incentive Program (AIP) based on theTeam and business unit's contribution and Company-wide performance goals achievement of the Company and its employees.through operational cash generation. The Company recognizes the provisionmakes an accrual based on the recurring measurementevaluation periodic of the compliance with goals achieved and results,Company result, using the accrual basis and recognition of present obligation arising from past events in the estimated outflow of resources in the future. The provisionaccrual is recorded as cost of goods sold and services rendered or operating expenses in accordance with the activity of each employee.
| | | | |
| | F-97 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
29. Employee benefits (Continued)
iii. Non-current benefits—long-term incentive programs
The Company has established a procedure for awarding certain eligible executives (Matching and Virtual Shares Programs) with the goal of encouraging employee retention and optimum performance. Plan liabilities are measured at each reporting date, at their fair values, based on market prices. Obligations are measured at each reporting date, at fair values based on market prices. The compensation costs incurred are recognized in income during the vesting period as defined.
iv. Non-current benefits—pension costs and other post-retirement benefits
The Company has several retirement plans for its employees.
For defined contribution plans, the Company's obligations are limited to a monthly contribution linked to a pre-defined percentage of the remuneration of employees enrolled in to these plans.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies (Continued)
For defined benefit plans, actuarial calculations are periodically obtained for liabilities determined in accordance with the Projected Unit Credit Method in order to estimate the Company's obligation. The liability recognized in the balance sheetstatement of financial position represents the present value of the defined benefit obligation as at that date, less the fair value of plan assets. The Company recognized in the income statement the costs of services, the interest expense of the obligations and the interest income of the plan assets. The remeasurement of gains and losses, return on plan assets (excluding the amount of interest on return of assets, which is recognized in income for the year) and changes in the effect of the ceiling of the active and onerous liabilities are recognized in comprehensive income for the year.
For overfunded plans, the Company does not recognize any assets or benefits in the balance sheetstatement of financial position or income statement until such time as the use of the surplus is clearly defined. For underfunded plans, the Company recognizes actuarial liabilities and results arising from the actuarial valuation.
r) Derivative financial instrumentsCritical accounting estimates and hedge operationsjudgments
Derivatives transactionsPost-retirement benefits for employees—The amounts recognized depend on a number of factors that are determined based on actuarial calculations using various assumptions in which are not qualified as hedge accounting are classifiedorder to determine costs and presented as economic hedge, asliabilities. One of these assumptions is selection and use of the discount rate. Any changes to these assumptions will affect the amount recognized.
At the end of each year the Company uses derivative instruments to manage its financial risks as a way of hedging against these risks. Derivative financial instrumentsand external actuaries review the assumptions that will be used for the following year. These assumptions are recognized as assets or liabilitiesused in the balance sheet and are measured at their fair values. Changes indetermining the fair values of derivativesassets and liabilities, costs and expenses and the future values of estimated cash outflows, which are recorded in income statementthe plan obligations.
| | | | |
| | F-98 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
a) Share capital
As at December 31, 2019, the share capital was US$61,614 corresponding to 5,284,474,782 shares issued and fully paid without par value.
| | December 31, 2019 | ||||||
---|---|---|---|---|---|---|---|---|
Stockholders | | Common shares | | Golden shares | | Total | ||
Litel Participações S.A. and Litela Participações S.A. | | 980,605,889 | | – | | 980,605,889 | ||
BNDES Participações S.A. | | 323,496,276 | | – | | 323,496,276 | ||
Bradespar S.A. | | 293,907,266 | | – | | 293,907,266 | ||
Mitsui & Co., Ltd | | 286,347,055 | | – | | 286,347,055 | ||
Foreign investors—ADRs | | 1,150,143,671 | | – | | 1,150,143,671 | ||
Foreign institutional investors in local market | | 1,164,475,058 | | – | | 1,164,475,058 | ||
FMP—FGTS | | 46,807,292 | | – | | 46,807,292 | ||
PIBB—Fund | | 2,473,749 | | – | | 2,473,749 | ||
Institutional investors | | 567,027,304 | | – | | 567,027,304 | ||
Retail investors in Brazil | | 312,998,897 | | – | | 312,998,897 | ||
Brazilian Government (Golden Share) | | – | | 12 | | 12 | ||
| | | | | | | ||
Shares outstanding | | 5,128,282,457 | | 12 | | 5,128,282,469 | ||
Shares in treasury | | 156,192,313 | | – | | 156,192,313 | ||
| | | | | | | ||
Total issued shares | | 5,284,474,770 | | 12 | | 5,284,474,782 | ||
| | | | | | | ||
| | | | | | | ||
| | | | | | | ||
Share capital per class of shares (in millions) | | 61,614 | | – | | 61,614 | ||
Total authorized shares | | 7,000,000,000 | | – | | 7,000,000,000 |
The Company used 2,024,059 of its treasury shares to pay the Matching program of its eligible executives, except for those whose variable remuneration was suspended as described in note 5, in the amount of US$22. It was recognized as "assignment and transfer of shares".
The Board of Directors may, regardless of changes to by-laws, issue new common shares (up to the total authorized shares), including the capitalization of profits and reserves to the extent authorized.
The Company holds shares in treasury for future sale or cancellation. These shares are recorded in a specific account as a reduction of stockholders´ equity at their acquisition value and carried at cost. These programs are approved by the Board of Directors with a determined terms and numbers of shares.
Incremental costs directly attributable to the issue of new shares or options are recognized in stockholders' equity whenas a deduction from the transaction is eligible to be characterized as effective hedge accounting.
On the beginningamount raised, net of the hedge accounting operations, the Company documents the relationship between hedging instruments and hedged items with the objective of risk management and strategy for carrying out hedging operations. The Company also documents, both initially and on a continuously basis, that its assessment of whether the derivatives used in hedging transactions are highly effective.taxes.
| | | | |
| | F-99 | | |
The effective components of changes in the fair values of derivative financial instruments designated as cash flow hedges are recorded as unrealized fair value gain or losses and recognized in stockholders' equity; and their non-effective components recorded in income statement. The amounts recorded in the statement of comprehensive income, will only be transferred to income statement (costs, operating expenses or financial expenses) when the hedged item is actually realized.
s) Financial instruments classification
The Company classifies its financial instruments in accordance with the purpose for which they were acquired, and determines the classification and initial recognition according to the following categories:
i. Financial assets
Measured at fair value through net income—Financial assets held for trading acquired for the purpose of selling in the short-term. These instruments are measured at fair value, except for derivative financial instruments not classified as hedge accounting, considering the inclusion of the credit risk of counterparties on the calculation of the instruments.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies30. Stockholders' equity (Continued)
Loansb) Remuneration to the Company's stockholders
The Company's by-laws determine the minimum remuneration to stockholders of 25% of net income, after appropriations to legal reserve and receivables—Non-derivative financial instruments with fixed or defined payments, which are not quoted in an active market, are initially measured at fair value and subsequently at amortized cost using the effective interest method.
Held to maturity—Non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Company has the intent and ability to hold them to maturity, are initially measured at fair value and subsequently at amortized cost.
Available for sale—Non-derivative financial assets not classified in another category of financial instrument. Financial instruments in this category are measured at fair value, with changes in fair value until the moment of realization then recorded in the stockholders' equity. On realization of the financial asset, its fair value is reclassified to income statement.
ii. Financial liabilities
Measured at fair value through net income—Financial liabilities with the purpose of trading (repurchase) or which are initially measured at fair value by the Company, being irreversibly this method of classification.
Measured at amortized cost—Non-derivative financial liabilities with fixed and determinable payments and fixed maturities, which were not classifiedtax incentive reserve, as measured at fair value through the income statement.follows:
| 2019 | |
---|---|---|
Loss | | (1,683) |
Minimum mandatory remuneration | | – |
| | |
| (1,683) | |
Profit reserves as at December 31, 2018 | | 10,968 |
Allocation of loss | | (1,683) |
Remuneration—Interest on capital | | (1,767) |
Translation adjustment | | (428) |
| | |
Profit reserves as at December 31, 2019 | | 7,090 |
| | |
| | |
| | |
t) Share capital
The Company repurchases its shares to hold in treasury for future sale or cancellation. These shares are recorded in a specific account as a reduction of stockholders' equity at their acquisition value and carried at cost. These programs are approved byIn December 2019, the Board of Directors withapproved the declaration of interest on capital in the total gross amount of US$1,767 (R$7,253 million), equivalent to R$1,414364369 per share, based on profit reserves. The payment will be decided later, after the return of the Shareholder Remuneration Policy, which has been suspended since the Brumadinho dam failure (as described on note 3).
The remuneration paid to stockholders based on the on interest on capital and dividends during 2018 was amounted of US$3,313 (US$0.636637439 per share).
c) Profit reserves
The amount of profit reserves is distributed as follows:
| | Legal reserve | | Tax incentive reserve | | Investments reserve | | Total of profit reserves | |||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2017 | | 1,630 | | 580 | | 5,209 | | 7,419 | |||
| | | | | | | | | |||
Allocation of income | | 343 | | 401 | | 4,062 | | 4,806 | |||
Translation adjustment | | (251 | ) | (99 | ) | (907 | ) | (1,257) | |||
| | | | | | | | | |||
Balance as at December 31, 2018 | | 1,722 | | 882 | | 8,364 | | 10,968 | |||
| | | | | | | | | |||
Allocation of loss | | – | | – | | (1,683 | ) | (1,683) | |||
Dividends and interest on capital of Vale's stockholders | | – | | – | | (1,767 | ) | (1,767) | |||
Translation adjustment | | (66 | ) | (34 | ) | (328 | ) | (428) | |||
| | | | | | | | | |||
Balance as at December 31, 2019 | | 1,656 | | 848 | | 4,586 | | 7,090 | |||
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
Legal reserve—Is a determined terms and numberslegal requirement for Brazilian public companies to retain 5% of typethe annual net income up to 20% of shares.the capital. The reserve can only be used to compensate losses or to increase capital.
Incremental costs directly attributable to the issue of new shares or options are recognized in stockholders' equity as a deductionTax incentive reserve—Results from the amount raised, netoption to designate a portion of taxes.
u) Government grants and support
Government grants and support are accountedthe income tax for when Company has reasonably complied with conditions setinvestments in projects approved by the government in relation to the grants. The Company recognizes the grants in the income statementBrazilian Government as a reduction inwell as tax expense according to the nature of the item, and classified through retained earnings in stockholders' equity during allocation of net income.
v) Revenue recognitionincentives.
| | | | |
| | F-100 | | |
Revenue is recognized when Vale transfers to its customers all of the significant risks and rewards of ownership of the product sold or when services are rendered. Net revenue excludes any applicable sales taxes and is recognized at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Vale and the revenues and costs can be reliably measured.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary30. Stockholders' equity (Continued)
Investment reserve—Aims to ensure the maintenance and development of the main accounting policies (Continued)
Dependingactivities that comprise the Company's operations and to retain budgeted capital for investments. Based on the contract, sales can be recognized whenCompany's by-laws, this reserve is capped to 50% of the productannual distributable net income, up to the amount of the share capital. The remaining balance over than 50% of the annual distributable net income is available at the loading port, loadedretained based on the ship or delivered to the destination. Service revenues are recognizedcapital investments budget submitted for approval in the amount by whichStockholder's Meeting, pursuant to article 196 of the services are renderedLaw 6,404.
d) Others reserves
| | Retirement benefit obligations | | Fair value adjustment to investment in equity securities | | Results on conversion of shares | | Net ownership changes in subsidiaries | | Total of other reserves | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as at December 31, 2017 | | (845 | ) | – | | (490 | ) | (954 | ) | (2,289) | ||||
| | | | | | | | | | | ||||
Other comprehensive income | | 41 | | 60 | | – | | (16 | ) | 85 | ||||
Translation adjustment | | 49 | | – | | – | | – | | 49 | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2018 | | (755 | ) | 60 | | (490 | ) | (970 | ) | (2,155) | ||||
| | | | | | | | | | | ||||
Other comprehensive income | | (126 | ) | (184 | ) | – | | – | | (310) | ||||
Translation adjustment | | 12 | | – | | – | | – | | 12 | ||||
Acquisitions and disposal of noncontrolling interest | | – | | – | | – | | 343 | | 343 | ||||
| | | | | | | | | | | ||||
Balance as at December 31, 2019 | | (869 | ) | (124 | ) | (490 | ) | (627 | ) | (2,110) | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | | ||||
| | | | | | | | | | |
e) Share buyback program
The Company concluded in November 2018, share buyback program for Vale's common shares and acceptedtheir respective ADSs approved by the customer.Board of Directors on July 25, 2018, and repurchased a total of 71,173,683 common shares, at an average price of US$14.05 per share, for a total aggregate purchase price of US$1,000. The shares were acquired in the stock market based on regular trading conditions. The shares acquired are held in treasury for future sale or cancellation.
In some cases,f) Vale's corporate governance restructuring in 2017
At the sale price is determinedGeneral Extraordinary Stockholders' Meeting, held on a provisional basis atJune 27, 2017, stockholders approved the corporate restructuring of the Company proposed by Valepar S.A. (former controlling stockholder). The corporate restructuring was based on (i) conversion of Vale class "A" preferred shares into common shares; (ii) amendment of Vale's by-laws, so as to adjust to Novo Mercado rules; and (iii) the merger of Valepar S.A. into Vale.
g) Shareholders Agreement
On the date of sale and the final selling price is subject to escalation clauses through datemerger of final pricing. Revenue fromValepar into Vale, August 14, 2017, the saleformer Controlling Shareholders of provisionally priced products is recognized when the risks and rewards of ownership are transferred to the customer and the revenue can be measured reliably. At this date, the amount of revenue to be recognized is estimated based on the forward priceValepar executed a new shareholders' agreement ("Vale Agreement") that binds only 20% of the product sold and later adjusted to reflect the final price.totality
| | | | |
| | F-101 | | |
Amounts billed to customers for shipping related to products sold by the Company are recognized as revenue when the Company is responsible for shipping. Shipping costs are recognized as operating costs.
w) Current and deferred income taxes
Income taxes are recognized in the income statement, except for items recognized directly in stockholders' equity.
The provision for income tax is calculated individually for each entity in the Group based on Brazilian tax rates, on an accrual basis, by applying the differential between the nominal local tax rates (based on rules in force in the location of the entity) and the Brazilian rate. The recognition of deferred taxes are based on temporary differences between carrying value and the tax basis of assets and liabilities as well as taxes losses carry forwards. The deferred income taxes assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against fiscal current liabilities and when the deferred income taxes assets and liabilities are related to income taxes recorded by the same taxation authority on the same taxable entity.
Deferred tax assets arising from tax losses, negative social contribution basis and temporary differences are registered taking into consideration the analysis of future performance, based on economic and financial projections, prepared based on internal assumptions and macroeconomic, trade and tax scenarios that may be subject to changes in future.
x) Basic and diluted earnings per share
Basic earnings per share are calculated by dividing the income attributable to the stockholders of the Company, after accounting for the remuneration to the holders of equity securities, by the weighted average number of shares outstanding (total shares less treasury shares).
Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding for the conversion of all dilutive potential shares. The Company does not have mandatory convertible securities that could result in the dilution of the earning per share.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Summary of the main accounting policies30. Stockholders' equity (Continued)
of Vale's common shares issued by Vale, and will be in force until November 9, 2020, with no provision for renewal.
y) Accounting policy
Stockholder's remuneration
—The stockholder's remuneration is paid on dividends and interest on capital. This remuneration is recognized as a liability in the financial statements of the Company based on bylaws. Any amount above the minimum compulsorymandatory remuneration approved by the bylawsby-laws shall only be recognized in current liabilities on the date that is approved by stockholders.
The Company is permitted to distribute interest attributable to stockholders' equity. The calculation is based on the stockholders' equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the Brazilian Government Long-term Interest Rate ("TJLP") determined by the Central Bank of Brazil. Also, such interest may not exceed 50% of the net income for the year or 50% of retained earnings plus profit reserves as determined by Brazilian corporate law.
The benefit to the Company, as opposed to making a dividend payment, is a reduction in the income tax burden because this interest charge is tax deductible in Brazil. Income tax of 15% is withheld on behalf of the stockholders relative to the interest distribution. Under Brazilian law, interest attributed to stockholders' equity is considered as part of the annual minimum mandatory dividend (note 25 (e)).dividend. This notional interest distribution is treated for accounting purposes as a deduction from stockholders' equity in a manner similar to a dividend and the tax creditdeductibility recorded in income.the income statement.
The Company's related parties are subsidiaries, joint ventures, associates, stockholders and its related entities and key management personnel of the Company. Transactions between the parent company and its subsidiaries are eliminated on consolidation and are not disclosed in this note.
Related party transactions were made by the Company on terms equivalent to those that prevail in arm´s-length transactions, with respect to price and market conditions that are no less favorable to the Company than those arranged with third parties.
Purchases, accounts receivable and other assets, and accounts payable and other liabilities relate largely to amounts charged by joint ventures and associates related to the pelletizing plants operational lease and railway transportation services.
| | | | |
| | F-102 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Related parties (Continued)
Information about related party transactions and effects on the financial statements is set out below:
a) Transactions with related parties
| | Year ended December 31 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | |||||||||
| | Joint Ventures | | Associates | | Major stockholders | | Total | |||
Net operating revenue | | 374 | | 294 | | 204 | | 872 | |||
Cost and operating expenses | | (1,749 | ) | (32 | ) | – | | (1,781) | |||
Financial result | | 49 | | (1 | ) | (29 | ) | 19 |
| | Year ended December 31 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2018 | |||||||||
| | Joint Ventures | | Associates | | Major stockholders | | Total | |||
Net operating revenue | | 352 | | 309 | | 207 | | 868 | |||
Cost and operating expenses | | (2,269 | ) | (39 | ) | – | | (2,308) | |||
Financial result | | 115 | | – | | (115 | ) | – |
| | Year ended December 31 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2017 | |||||||||
| | Joint Ventures | | Associates | | Major stockholders | | Total | |||
Net operating revenue | | 399 | | 337 | | 146 | | 882 | |||
Cost and operating expenses | | (1,943 | ) | (29 | ) | (29 | ) | (2,001) | |||
Financial result | | 118 | | (14 | ) | (819 | ) | (715) |
Net operating revenue relates to sale of iron ore to the steelmakers and right to use capacity on railroads. Cost and operating expenses mostly relates to the leases of the pelletizing plants.
| | | | |
| | F-103 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Related parties (Continued)
b) Outstanding balances with related parties
| | December 31, 2019 | | December 31, 2018 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Joint Ventures | | Associates | | Major stockholders(i) | | Total | | Joint Ventures | | Associates | | Major stockholders(i) | | Total | |||||||
Assets | | | | | | | | | |||||||||||||||
Cash and cash equivalents | | – | | – | | 1,384 | | 1,384 | | – | | – | | 1,256 | | 1,256 | |||||||
Accounts receivable | | 91 | | 22 | | 5 | | 118 | | 110 | | 42 | | 3 | | 155 | |||||||
Dividends receivable | | 83 | | 6 | | – | | 89 | | 132 | | – | | – | | 132 | |||||||
Loans | | 1,919 | | – | | – | | 1,919 | | 1,976 | | – | | – | | 1,976 | |||||||
Derivatives financial instruments | | – | | – | | 42 | | 42 | | – | | – | | 297 | | 297 | |||||||
Other assets | | 65 | | – | | – | | 65 | | 25 | | – | | – | | 25 | |||||||
Liabilities | | | | | | | | | |||||||||||||||
Supplier and contractors | | 302 | | 28 | | 37 | | 367 | | 221 | | 21 | | 24 | | 266 | |||||||
Loans | | – | | 1,367 | | 1,688 | | 3,055 | | – | | 1,325 | | 2,650 | | 3,975 | |||||||
Derivatives financial instruments | | – | | – | | 64 | | 64 | | – | | – | | 112 | | 112 | |||||||
Other liabilities | | 569 | | – | | – | | 569 | | 769 | | – | | – | | 769 |
Loans
In March 2018, Nacala BV, a joint venture between Vale and Mitsui on the Nacala's logistic corridor, closed the project financing and repaid a portion of the shareholders loans from Vale, in the amount of US$2,572. The outstanding receivable of US1,919 carries interest at 7.44% p.a.
The loan from associates mainly relates to the loan from Pangea Emirates Ltd, part of the group of shareholders which owns 15% interest on Vale Moçambique which carries interest at 6.54% p.a.
Major stockholders
Refers to regular financial instruments with large financial institutions of which the stockholders are part of the controlling "shareholders' agreement".
| | | | |
| | F-104 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
31. Related parties (Continued)
c) The key management personnel remuneration
| | Year ended December 31 | ||||||
---|---|---|---|---|---|---|---|---|
| | 2019 | | 2018 | | 2017 | ||
Short-term benefits | | | | |||||
Wages | | 8 | | 8 | | 10 | ||
Direct and indirect benefits | | 11 | | 11 | | 10 | ||
Profit sharing program ("PLR") | | 1 | | 10 | | 8 | ||
| | | | | | | ||
| 20 | | 29 | | 28 | |||
Long-term benefits | | | | |||||
Shares based | | – | | 3 | | 5 | ||
Severance | | 4 | | 20 | | 19 | ||
| | | | | | | ||
| 24 | | 52 | | 52 | |||
| | | | | | | ||
| | | | | | | ||
| | | | | | |
The amounts described above include the Board of Directors and the Executive Officers and are presented on a cash basis.
32. Critical accounting estimates and judgmentsCommitments
a) Contractual obligations
The preparationrequired and non-cancelable minimum payments related to contractual obligations as at December 31, 2019 are as follows:
| | Purchase obligations(i) | ||
---|---|---|---|---|
| | December 31, 2019 | | December 31, 2018 |
2020 | | 3,956 | | 2,677 |
2021 | | 1,029 | | 1,445 |
2022 | | 710 | | 548 |
2023 | | 552 | | 463 |
2024 and thereafter | | 2,830 | | 2,194 |
| | | | |
Total minimum payments required | | 9,077 | | 7,327 |
| | | | |
| | | | |
| | | | |
b) Guarantees provided
As at December 31, 2019 and 2018, corporate financial statements requiresguarantees provided by Vale (within the uselimit of its direct or indirect interest) for certain critical accounting estimatesassociates and judgments by the managementjoint ventures were US$1,655 and US$1,735, respectively. The fair value of the Company. These estimates are based on the best knowledgethis financial guarantees in December 31, 2019 and information existing at2018 totaled US$525 and US$166, respectively, and is recorded in the balance sheet date. Changes in facts and circumstances may lead to the revision of these estimates. Actual future results may differ from the estimates.
The significant estimates and assumptions used by Company in these financial statements are as follow:"Others non-current liabilities".
| | | | |
| | F-105 | | |
The estimates of proven and probable reserves are regularly evaluated and updated. These reserves are determined using generally accepted geological estimates. The calculation of reserves requires the Company to take positions on expected future conditions that are uncertain, including future ore prices, exchange rates, inflation rates, mining technology, availability of permits and production costs. Changes in some of these assumptions could have a significant impact on the proven and probable reserves of the Company.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
32. Critical accounting estimates and judgments (Continued)
The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mines, and also for the estimated useful life which is a major factor to quantify the provision for asset retirement obligation and environmental recovery of mines. Any changes to the estimates of the volume of mine reserves and the useful lives of assets may have a significant impact on the depreciation, depletion and amortization charges included in cost of goods sold and calculation of impairment test. Changes in the estimated useful life of the mine have a significant impact on the estimates of environmental provision and impairment analysis.
b) Asset retirement obligation
The Company recognizes an obligation under the fair value for asset retirement obligations in the period in which they occur. The Company considers the accounting estimates related to closure costs of a mine as a critical accounting policy because they involve significant values for the provision and are estimated using several assumptions, such as interest rate, useful life of the asset considering the current state of closure and the projected date of depletion of each mine. The estimates are reviewed annually.
c) Impairment
The Company tests impairment of tangible (whether there is evidence of impairment) and intangible (annually) assets segregated by cash-generating units using discounted cash flow models that depends on several estimates, which are influenced by market conditions prevailing at the time the impairment test is performed.
d) Litigation losses
Provisions are recorded when the possibility of loss relating to legal proceedings or contingent liabilities is considered probable by the Company's legal department and its legal advisors.
The provisions are recorded when the amount of loss can be reasonably estimated. By their nature, litigations will be resolved when one or more future event occurs or fails to occur. Typically, the occurrence or not of such events is outside the Company's control. Legal uncertainties involve the exercise of significant estimates and judgments of management regarding the results of future events.
e) Post-retirement benefits for employees
The amount recognized and disclosed depend on a number of factors that are determined based on actuarial calculations using various assumptions in order to determine costs and liabilities. One of these assumptions is selection and use of the discount rate. Any changes to these assumptions will affect the amount recognized.
At the end of each year the Company and external actuaries review the assumptions that will be used for the following year. These assumptions are used in determining the fair values of assets and liabilities, costs and expenses and the future values of estimated cash outflows, which are recorded in the plan obligations.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
32. Critical accounting estimates and judgments (Continued)
f) Fair values of derivatives and other financial instruments
The fair values of financial instruments that are not traded in active markets are determined using valuation techniques. Vale uses its own judgment to choose between the various methods. Assumptions are based on the market conditions, at the end of the year.
An analysis of the impact if actual results are different from management's estimates is present on note 24 (sensibility analysis).
g) Deferred income taxes
The Company recognizes the effects of deferred taxes arising from tax losses and temporary differences and derecognizes when believes that tax credits recoverable are not probable. Deferred tax liabilities are fully recognized.
The determination of the recognition of income tax or deferred income tax, assets and liabilities, and any derecognition of tax credits requires the use of estimates. For each tax asset, the Company assesses the probability that some or all of the tax assets may not be recoverable. The impairment recorded in relation to the accumulated tax losses depends on the assessment of the probability of the generation of future taxable profits based on production and sales planning, commodity prices, operational costs, restructuring plans, reclamation costs and planned capital costs.
33. RiskFinancial and capital risk management
Vale considers that an effective risk management is a key objective to support its growth plan, strategic planningthe achievement of the company objectives and to ensure the financial flexibility. strength and flexibility of the company and the business continuity.
Therefore, Vale has developed its risk management strategy in order to provide an integrated approach of the risks that the company is exposed to. To do that, Vale evaluatesto, considering not only the impact in the results of the business causedrisks generated by variables traded in financial markets (market risk) and those arising from liquidity risk, but also the risk from counterparties obligations (credit risk), those relating to inadequate or failed internal processes, people, systems or external events (operational risk), among others.
a) Risk management policy
The Company's Board of Directors established a risk management policy in order to supportoversees the Company's growth plan, strategic planning and Company's business continuity, besides to improve its capital structure and management of financial risks and it is supported by a Finance Committee that advises on financial risks and the Group, ensure adequate degree of flexibility inappropriate financial management while maintainingrisk governance framework for the level of robustness required for investment grade andCompany. The Finance Committee provides assurance to strengthen its corporate governance practices.
The corporate risk management policy determines that Vale should measure and monitor regularly its corporate risk on a consolidated approach in order to guarantee that the overall risk level of the Company remains aligned with the guidelines defined by theCompany's Board of Directors that Vale's financial activities are governed by appropriate policies and the Executive Board.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
33. Risk management (Continued)
The Executive Risk Management Committee, created by the Board of Directors, is responsible for supporting the Executive Board in the risk assessmentsprocedures and for issuing opinion regarding the Company's risk management. It's also responsible for the supervisionthat financial risks are identified, measured and revision of the principles and instruments of corporate risks management.
The Executive Board is responsible for the approval of the policy deployment into norms, rules and responsibilities and for reporting to the Board of Directors about such procedures.
The risk management norms and instructions complement the corporate risk management policy and define practices, processes, controls, roles and responsibilities in the Company risk management function.
The Company may, when necessary, allocate specific risk limits to management activities, including but not limited to, market risk limit, corporate and sovereign credit limit,managed in accordance with the acceptable corporate risk limit.Company's policies and objectives.
b)a) Liquidity risk management
The liquidity risk arises from the possibility that Vale might not perform on its obligations at theon due dates, as well as face difficulties to meet its cash requirements due to market liquidity constraints.
The revolving credit facilities available today were provided by a syndicate of several global commercial banks. To mitigate suchliquidity risk, Vale has atwo revolving credit facilityfacilities, which will mature in 2022 and 2024, in the available amount of US$5,000 to assist the short term liquidity management and to enable more efficiency in cash management, being consistent with the strategic focus on cost of capital reduction. The revolving credit facilities available today were acquired from a syndicateAs of several global commercial banks.December 31, 2019 these lines are undrawn.
c)b) Credit risk management
Vale's exposure to credit risk arises from trade receivables, derivative transactions, guarantees, down payment tofor suppliers and cash investments. Vale'sOur credit risk management process provides a framework for assessing and managing counterparties' credit risk and for maintaining Vale'sour risk at an acceptable level.
(i) Commercial credit risk management
For the commercial credit exposure, which arises from sales to final customers, the risk management area, in accordance with the current delegation level, approves or requestrequests the approval of credit risk limits for each counterparty.
Vale attributes an internal credit risk rating for each counterparty using its own quantitative methodology for credit risk analysis, which is based on market prices, external credit ratings and financial information of the counterparty, as well as qualitative information regarding the counterparties'counterparty's strategic position and history of commercial relations.
| | | | |
| | F-106 | | |
As at 31 December 2015, 56% of accounts receivable due to Vale commercial sales had insignificant or low risk, 35% had moderate risk and 9% high risk.
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
33. RiskFinancial and capital risk management (Continued)
Based on the counterparty's credit risk, or based on Vale's consolidated credit risk profile, risk mitigation strategies may be used to manage the Company`s credit risk. The main credit risk mitigation strategies include non-recourse discountsale of receivables, insurance instruments, letters of credit, corporate and bank guarantees, mortgages, among others.
Vale has a diversified accounts receivable portfolio from a geographical standpoint, with China,Asia, Europe Brazil and JapanBrazil the regions with more significant exposures. According to each region, different guarantees can be used to enhance the credit quality of the receivables.
Vale controls its account receivables In 2019 and 2018, the expected credit loss on the Company's accounts receivable portfolio through Credit and Cash Collection committees, in which representatives from risk management, cash collection and commercial departments monitor periodically each counterparty`s exposure. Finally, Vale has an automatic control that blocks additional sales to customers in default with Vale.is insignificant (see note 10).
(ii) Treasury credit risk management
To manage the credit exposure arising from cash investments and derivative instruments, Vale's Board of Executive Officers approves, on an annual basis, credit limits by counterparty. are approved to each counterparty with whom the Company has credit exposure.
Furthermore, Valethe Company controls the portfolio diversification the overall credit riskand monitor different indicators of solvency and liquidity of the treasury portfolio and the each counterparty risk by monitoring market credit risk information.different counterparties that were approved for trading.
d)c) Market risk management
Vale is exposed to the behavior of several market risk factors that can impact its cash flow. The assessment of this potential impact arising from the volatility of market risk factors and their correlations is performed periodically to support the decision makingdecision-making process andregarding the growthrisk management strategy, of the Company, ensure its financial flexibility and monitor the volatility of future cash flows.
When necessary, market risk mitigation strategies are evaluated and implemented in line with these objectives. Some strategiesthat may incorporate financial instruments, including derivatives.
The portfoliosportfolio of thethese financial instruments areis monitored on a monthly basis, enabling financial results surveillance and its impact on cash flow.
Vale currently applies hedge accounting in the following programs: (i) net investment (see notes 6 and 25), and (ii) nickel revenue hedging program (see note 35).
Considering the nature of Vale's business and operations, the main market risk factors which the Company is exposed to are:
e) Foreign exchange and interest rate risk
Vale's cash flow is subjectedexposed to the volatility of several currencies once itsagainst the U.S. dollar. While most of our product prices are predominantly indexed to US dollar, whileU.S. dollars, most of theour costs, disbursements and investments are indexed to currencies other currencies, mainlythan the U.S. dollar, principally the Brazilian real and the Canadian dollar. We also may have debt instruments and other assets and liabilities denominated in currencies other than U.S. dollars, mainly in Brazilian real and euros.
| | | | |
| | F-107 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
33. RiskFinancial and capital risk management (Continued)
In order to reduce the potential impact that arises from this currency mismatch,currencies mismatches, derivatives instruments may be used as a risk mitigation strategy.
Vale implementedimplements hedge transactions to protect its cash flow against the market risks that arises from its debt obligations—mainly currency volatility. The hedges cover most of the debtsdebt denominated in Brazilian reaisreal and Euros. Valeeuros. The Company uses swap and forward transactions to convert debt linked to Brazilian real and Euros into US dollar, that have similar—or sometimes shorter—with volumes, flows and settlement dates than the final maturitysimilar to those of the debt instruments. Their notional amounts are similar to the principal and interest payments,instruments—or sometimes lower, subject to market liquidity market conditions.
SwapsHedging instruments with shorter settlement dates are renegotiated through time so that their final maturity matches—or becomes closer—to the debts` final maturity. At each settlement date, the results of the swap and forward transactions partially offset the impact of the foreign exchange rate in Vale's obligations, contributing to stabilize the cash disbursements in US dollar.
In the case of debt instruments denominated in Brazilian real, in the event of an appreciation (or depreciation) of the Brazilian Real against the US Dollar, the negative (or positive) impact on Vale`s debt service (interest and/or principal payment) measured in US dollars will be partially offset by the positive (or negative) effect from the swaps, regardless of the US$/R$ exchange rate on the payment date. The same rationale is applicable to debts denominated in other currencies and their respective swaps.
Vale has also exposure to interest rates risks over loans and borrowings.financings. The US Dollar floating rate debt in the portfolio consists mainly of loans including export pre-payments, commercial banks and multilateral organizations loans. In general, such debt instruments are indexed to the LIBOR (London Interbank Offer RateRate) in US dollar). Vale has part of its debt in Brazilian reais floating rates, but use swap transactions to convert most of it to US Dollar fixed rates. After considering the interest rate swaps, the great majority of its debt is fixed rate.dollar.
f) Risk of product and input prices
Vale is also exposed to market risks includingassociated with the price volatility of commodities price and input price volatilities. In accordance with risk management policy,inputs. We may enact risk mitigation strategies involving commodities can beprograms in situations such as the following: (i) where there is a risk of financial distress; (ii) to support commercial activities and specific needs of our business segments; (iii) to ensure a minimum cash and/or value generation for certain businesses; and (iv) to protect from the increase of certain cost items, such as fuel oil used to adjust the cash flow risk profileon ships and reduce Vale's cash flow volatility. For this kind of risk mitigation strategy, Vale usesfreight chartering. These programs may incorporate derivative instruments, predominantly forwards, futures or zero-cost collars.and options.
g) Operational riskd) Capital structure management
The operational risk management is the structured approach that Vale uses to manage uncertainty related to possible inadequate or failure in internal processes, people, systems and external events, in accordance with the principles and guidelines of ISO 31000.
The main operational risks are periodically monitored, ensuring the effectiveness of preventive and mitigating key controls in place and the execution of the risk treatment strategy (implementation of new or improved controls, changes in the risk environment, risk sharing by contracting insurance, provisioning of resources, etc.).
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
33. Risk management (Continued)
Therefore, the Company seeks to have a clear view of its major risks, the best cost-benefit mitigation plans and the effectiveness of the controls in place, monitoring the potential impact of operational risk and allocating capital efficiently.
h) Capital management
Vale'sCompany's policy aims at establishing a capital structure that will ensure the continuity of yourour business in the long term. Within this perspective, the Company has been able to deliver value to stockholders through dividend payments and capital gain, and at the same time maintain a debt profile suitable for its activities, with an amortization well distributed over the years, thus avoiding a concentration in one specific period.
a) Coronavirus outbreak
The Coronavirus outbreak ("COVID-19") was first reported on December 30, 2019. The responses by various governments and international organizations which highlighted the severity of the outbreak occurred after December 31, 2019. Since then, there have been worldwide reports of contagion and
| | | | |
| | F-108 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
34. Subsequent events (Continued)
fatalities. On March 3, 2020, the outbreak was characterized as a Pandemic by the World Health Organization.
The COVID-19 outbreak has developed rapidly in 2020 and measures taken to contain the virus have affected economic activity, which in turn has implications on the Company's results of operations and cash flows. Although the COVID-19 existed at December 31, 2019, it is the severity of the virus and the responses to the outbreak which may have an impact on the entity's operations. These events arose after the reporting period, as such the outbreak is a non-adjusting event for the reporting period ending December 31, 2019 and no adjustment needs to be made to amounts recognized in the December 31, 2019 financial statements.
As the outbreak develops over the regions where Vale's operations are concentrated, the Company may face workforce related operational difficulties and may need to adopt contingency measures or eventually suspend operations. Also, a significant portion of the Company's revenue is originated from sales made to customers in Asia and Europe, and Vale issuesas well rely on an extensive logistics and supply chain, including several typesports, distribution centers and suppliers that have operations in affected regions. Abnormally large changes have occurred in the valuation of insurance policies, suchfinancial assets across many markets since December 31, 2019 meaning that the fair values of our assets and liabilities may change.
On March 16, 2020, the Company announced that as operational risk policy, engineering risks insurance (projects), civil responsibility, life insurance policya precaution in the wake of COVID-19 to help protect the health and well-being of employees and the Nunatsiavut and Innu communities in Labrador, the decision was made to ramp down operations at Voisey's Bay and place it on care and maintenance for their employees, among others. a period of four weeks. On March 23, 2020, the Company decided to temporarily halt, its distribution center in Malaysia (the Teluk Rubiah Maritime Terminal) as the Company is temporarily unable to secure the minimum resources to safely operate the terminal.
On March 24, 2020, the Company drew down its revolving credit facilities in the amount of US$5 billion as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak.
The coverageCompany is closely evaluating the impact of the COVID-19 on its business. The situation is evolving and could become material if there is significant supply chain disruption or customer demand declines. At this time, we have not suffered any material impact to our operations, logistics, or sales. However, the outbreak continues to be fluid and uncertain, making it impossible to forecast the final impact it could have on the global financial markets and economy, and in turn, on the Company's business, liquidity, and financial position.
b) Other acquisitions and divestitures
As disclosed on note 14 of these policiesfinancial statements, the Company entered into agreements to sell its 25% interest in Henan Longyu and to divest 20% of its interest in PTVI. The closing of both transactions were expected in the first quarter of 2020. However, due to the recent developments of the COVID-19 outbreak, the closing of these transactions have been pushed back to later dates in 2020.
| | | | |
| | F-109 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
34. Subsequent events (Continued)
c) U.S. Securities class action suits—Brumadinho Dam failure (note 3)
On December 13, 2019, Vale made a motion to dismiss the amended complaint and, in January 2020, the lead plaintiff filed an opposition to our motion to dismiss. On February 21, 2020, the Company filed a reply to the opposition. In March, the lead plaintiff has requested to start the partial discovery, for which the Company filed an opposition on March 20, 2020. The judge has not issued a decision to date.
Vale intends to defend against this action and mount a full defense against these claims. Given the preliminary status of the actions, it is not possible at this time to determine a range of outcomes or to make reliable estimates of the potential exposure.
35. Additional information about derivatives financial instruments
The risk of the derivatives portfolio is measured using the delta-Normal parametric approach and considers that the future distribution of the risk factors and its correlations tends to present the same statistic properties verified in the historical data. The value at risk estimate considers a 95% confidence level for a one-business day time horizon.
The following tables detail the derivatives positions for Vale and its controlled companies as of December 31, 2019, with the following information: notional amount, fair value including credit risk, gains or losses in the period, value at risk and the fair value breakdown by year of maturity.
a) Foreign exchange and interest rates derivative positions
(i) Protection programs for the R$ denominated debt instruments
To reduce cash flow volatility, swap and forward transactions were implemented to convert into US$ the cash flows from certain debt instruments denominated in R$ with interest rates linked mainly to CDI, TJLP and IPCA. In those swaps, Vale pays fixed or floating rates in US$ and receives payments in R$ linked to the interest rates of the protected debt instruments.
The swap and forward transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to R$. These programs transform into US$ the obligations linked
| | | | |
| | F-110 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
to R$ to achieve a currency offset in the Company's cash flows, by matching its receivables—mainly linked to US$—with its payables.
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Index | | Average rate | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | 2021 | | 2022+ | | ||||||||||||||
CDI vs. US$ fixed rate swap | | (38 | ) | (46 | ) | (18 | ) | 8 | | (22 | ) | 2 | | (18 | ) | ||||||||||||||||||||||
Receivable | | | R$ | 2,115 | | | | R$ | 1,581 | | | CDI | | 100.54 | % | | | | | | | | |||||||||||||||
Payable | | | US$ | 558 | | | | US$ | 456 | | | Fix | | 3.31 | % | | | | | | | | |||||||||||||||
TJLP vs. US$ fixed rate swap | | (77 | ) | (370 | ) | (312 | ) | 9 | | (12 | ) | (18 | ) | (47 | ) | ||||||||||||||||||||||
Receivable | | | R$ | 2,111 | | | | R$ | 2,303 | | | TJLP + | | 1.15 | % | | | | | | | | |||||||||||||||
Payable | | | US$ | 601 | | | | US$ | 994 | | | Fix | | 2.97 | % | | | | | | | | |||||||||||||||
TJLP vs. US$ floating rate swap | | – | | (56 | ) | (59 | ) | – | | – | | – | | – | | ||||||||||||||||||||||
Receivable | | | – | | | | R$ | 181 | | | TJLP + | | – | | | | | | | | | ||||||||||||||||
Payable | | | US$ | 0 | | | | US$ | 107 | | | Libor + | | – | | | | | | | | | |||||||||||||||
R$ fixed rate vs. US$ fixed rate swap | | (18 | ) | (8 | ) | 8 | | 8 | | 13 | | (7 | ) | (24 | ) | ||||||||||||||||||||||
Receivable | | | R$ | 2,173 | | | | R$ | 1,078 | | | Fix | | 6.25 | % | | | | | | | | |||||||||||||||
Payable | | | US$ | 604 | | | | US$ | 351 | | | Fix | | 0.73 | % | | | | | | | | |||||||||||||||
IPCA vs. US$ fixed rate swap | | 46 | | (80 | ) | (26 | ) | 14 | | 12 | | (18 | ) | 52 | | ||||||||||||||||||||||
Receivable | | | R$ | 2,826 | | | | R$ | 1,315 | | | IPCA + | | 5.18 | % | | | | | | | | |||||||||||||||
Payable | | | US$ | 759 | | | | US$ | 434 | | | Fix | | 4.02 | % | | | | | | | | |||||||||||||||
IPCA vs. CDI swap | | 104 | | 89 | | 6 | | – | | 58 | | 4 | | 42 | | ||||||||||||||||||||||
Receivable | | | R$ | 1,634 | | | | R$ | 1,350 | | | IPCA + | | 6.62 | % | | | | | | | | |||||||||||||||
Payable | | | R$ | 1,350 | | | | R$ | 1,350 | | | CDI | | 98.58 | % | | | | | | | |
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average rate | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020+ | | ||||||||
Forward | | R$ | 121 | | – | | B | | 4.20 | | 1 | | – | | – | | 1 | | 1 | |
(ii) Protection program for EUR denominated debt instruments
To reduce the cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments issued in Euros by Vale. In those swaps, Vale receives fixed rates in EUR and pays fixed rates in US$.
| | | | |
| | F-111 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to EUR. The financial settlement inflows/outflows are offset by the protected items' losses/gains due to EUR/US$ exchange rate.
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Index | | Average rate | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | 2021 | | 2022+ | | ||||||||||||||
EUR fixed rate vs. US$ fixed rate swap | | | | | | | | | | (35 | ) | (1 | ) | (5 | ) | 4 | | (6 | ) | (5 | ) | (24 | ) | ||||||||||||||
Receivable | | | € | 500 | | | | € | 500 | | | Fix | | 3.75 | % | | | | | | | | |||||||||||||||
Payable | | | US$ | 613 | | | | US$ | 613 | | | Fix | | 4.29 | % | | | | | | | |
(iii) Protection for treasury volatility related to tender offer transaction
To reduce the volatility of the premium to be paid to investors for the tender offer transaction issued on December 2019, treasury lock transactions were implemented and already settled.
| | Notional | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average rate | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||||
Forwards | | | – | | | – | | B | | – | | – | | – | | 16 | | – | | – | |
b) Commodities derivative positions
(i) Protection program for the purchase of fuel oil used on ships
In order to reduce the impact of fluctuations in fuel oil prices on the hiring and availability of maritime freight and, consequently, to reduce the Company's cash flow volatility, hedging operations were carried out through options contracts on Bunker Oil, Gasoil (10ppm) and Brent oil for different portions of the exposure.
The derivative transactions were negotiated over-the-counter and the protected item is part of the Vale's costs linked to the price of fuel oil used on ships. The financial settlement inflows/outflows are offset by the protected items' losses/gains.
| | | | |
| | F-112 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
Bunker Oil Options
| | Notional (ton) | | | | | | Fair value | | Financial settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/ton) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||||
Call options | | | – | | | 2,100,000 | | B | | – | | – | | 1 | | 2 | | – | | – | | ||||||||
Put options | | | – | | | 2,100,000 | | S | | – | | – | | (29 | ) | – | | – | | – | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | | | | | | – | | (28 | ) | 2 | | – | | – | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | |
Brent Crude Oil Options
| | Notional (bbl.) | | | | | | Fair value | | Financial settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/bbl.) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||
Call options | | 1,110,000 | | – | | B | | 75 | | 11 | | – | | – | | 3 | | 11 | | ||||||||
Put options | | 1,110,000 | | – | | S | | 49 | | (3 | ) | – | | – | | 1 | | (3 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | | | | 8 | | – | | – | | 4 | | 8 | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | |
Gasoil Options
| | Notional (bbl.) | | | | | | Fair value | | Financial settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/bbl.) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||||
Call options | | | 1,035,000 | | | – | | B | | 96 | | 7 | | – | | – | | 1 | | 6 | | ||||||||
Put options | | | 1,035,000 | | | – | | S | | 61 | | (3 | ) | – | | – | | 1 | | (3 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | | | | | | 4 | | – | | – | | 2 | | 3 | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | |
(ii) Protection programs for base metals raw materials and products
Operational Hedging Programs
In the operational hedging program for nickel sales at fixed prices, derivatives transactions were implemented to convert into floating prices the contracts with clients that required a fixed price.
In the operational protection program for the purchase of raw materials and products, derivatives transactions were implemented in order to reduce the mismatch between the pricing period of purchases (concentrate, cathode, sinter, scrap and others) and the pricing period of the final product sales to the clients.
| | | | |
| | F-113 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
All these transactions have already been settled.
| | Notional (ton) | | | | | | Fair value | | Financial settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/ton) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||
Fixed price sales protection | | | | | | | |||||||||||||||||||||
Nickel forwards | | – | | 7,244 | | S | | – | | – | | (10 | ) | 49 | | – | | – | | ||||||||
Raw material purchase protection | | | | | | | |||||||||||||||||||||
Nickel forwards | | – | | 120 | | S | | – | | – | | – | | (1 | ) | – | | – | | ||||||||
Copper forwards | | – | | 81 | | S | | – | | – | | – | | – | | – | | – | | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | | | | – | | (10 | ) | 48 | | – | | – | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | |
Nickel Revenue Hedging Program
To reduce the volatility of its future cash flows arising from changes in nickel prices, the company implemented a Nickel Revenue Hedging Program. Under this program, hedge operations were executed using option contracts to protect a portion of the company highly probable forecast sales at floating prices, thus establishing a cushion to guarantee prices above our Nickel Average Unit Cash Cost and investments for the hedged volumes. A hedge accounting treatment is given to this program.
The derivative transactions under the program are negotiated over-the-counter and the financial settlement inflows/outflows are offset by the protected items' losses/gains due to nickel prices changes.
| | Notional (ton) | | | | | | Fair value | | Financial settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/ton) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | 2021+ | | |||||||||||
Call options | | | 75,984 | | | – | | S | | 18,739 | | (12 | ) | – | | (2 | ) | 3 | | (10 | ) | (3 | ) | |||||||||
Put options | | | 75,984 | | | – | | B | | 15,714 | | 162 | | – | | 13 | | 21 | | 152 | | 9 | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Total | | | | | | | | 150 | | – | | 11 | | 24 | | 142 | | 6 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
c) Freight derivative positions
To reduce the impact of maritime freight price volatility on the Company's cash flow, freight hedging transactions were implemented, through Forward Freight Agreements (FFAs). The protected item is part of Vale's costs linked to maritime freight spot prices. The financial settlement inflows/outflows of the FFAs are offset by the protected items' losses/gains due to freight prices changes.
| | | | |
| | F-114 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
The FFAs are contracts traded over the counter and can be cleared through a Clearing House, in this case subject to margin requirements.
| | Notional (days) | | | | | | Fair value | | Financial Settlement Inflows (Outflows) | | Value at Risk | | Fair value by year | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Flow | | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/day) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||
Freight forwards | | 1,050 | | 480 | | B | | 13,286 | | – | | 1 | | 3 | | 1 | | – | |
d) Wheaton Precious Metals Corp. warrants
The Company owns warrants issued by Wheaton Precious Metals Corp. (WPM), a Canadian company with stocks negotiated in Toronto Stock Exchange and New York Stock Exchange. Such warrants have payoff similar to that of an American call option and were received as part of the ones usedpayment regarding the sale of part of gold payable flows produced as a sub product from Salobo copper mine and some nickel mines in generalSudbury.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Notional (quantity of warranties) | | | | | | Fair value | | Value at Risk | | Fair value by year | | ||||||||||||||
| | December 31, 2019 | | December 31, 2018 | | Bought / Sold | | Average strike (US$/share) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | ||||||||||
Flow | | 2023 | | ||||||||||||||||||||||||
Call options | | 10,000,000 | | 10,000,000 | | B | | 44 | | 26 | | 8 | | – | | 3 | | 26 | |
e) Debentures convertible into shares of Valor da Logística Integrada ("VLI")
The Company has debentures which lenders have the option to convert the outstanding debt into a specified quantity of VLI's shares, owned by the mining industry and is issued in line with the objectives defined byCompany. This option may be fully, or part exercised, upon payment to the Company withof the corporate risk management policystrike price, considering the terms, conditions and the limitation imposed by the insurance and reinsurance global market. In general, the company's assets directly related with its operations are includedother limitations existing in the coverageagreement, at any time and at the discretion of insurance policies.the creditor, as of December 2017 until the maturity date of the debentures, December 2027.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | ||||||||||
| | Notional (quantity) | | | | | | Fair value | | Value at Risk | | ||||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | | ||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2027 | | ||||||||||||
Conversion options | | 140,239 | | 140,239 | | S | | 7,136 | | (51 | ) | (59 | ) | – | | 3 | | (51 | ) |
| | | | |
| | F-115 | | |
Insurance management is performedNotes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
f) Options related to Minerações Brasileiras Reunidas S.A. ("MBR") shares
In 2019, in connection to the acquisition of additional 36.4% MBR's shares disclosed in note 14, the options were elapsed.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | ||||||||||
| | Notional (quantity, in millions) | | | | | | Fair value | | Value at Risk | | ||||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | | ||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020+ | | ||||||||||||
Options | | – | | 2,139 | | B/S | | – | | – | | 279 | | – | | – | | – | |
g) Option related to SPCs Casa dos Ventos
The Company acquired in January 2019 a call option related to shares of the special purpose companies Ventos de São Bento Energias Renováveis, Ventos São Galvão Energias Renováveis and Ventos de Santo Eloy Energias Renováveis (SPCs Casa dos Ventos), which are part of the wind farm of Folha Larga Sul project, in Campo Formoso, Bahia, with commercial operation scheduled for the supportfirst half of existing insurance committees2020. This option was acquired in the various operational areascontext of the Company. AmongCompany's signing of electric power purchase and sale agreements with Casa dos Ventos, supplied by this wind farm.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | ||||||||||
| | Notional (quantity) | | | | | | Fair value | | Value at Risk | | ||||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | | ||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2022 | | ||||||||||||
Call option | | 137,751,623 | | – | | B | | 2.77 | | 24 | | – | | – | | 2 | | 24 | |
h) Embedded derivatives in contracts
In August 2014 the managementCompany sold part of its stake in Valor da Logística Integrada ("VLI") to an investment fund managed by Brookfield Asset Management ("Brookfield"). The sales contract includes a clause that establishes, under certain conditions, a minimum return guarantee on Brookfield's investment until August 2020. This clause is considered an embedded derivative, with payoff equivalent to that of a put option.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | ||||||||||
| | Notional (quantity) | | | | | | Fair value | | Value at Risk | | ||||||||||||||||
| | Bought / Sold | | Average strike (R$/share) | | ||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020+ | | ||||||||||||
Put option | | 1,105,070,863 | | 1,105,070,863 | | S | | 4 | | (69 | ) | (103 | ) | – | | 11 | | (69 | ) |
| | | | |
| | F-116 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments Vale uses captive reinsurance(Continued)
The Company has some nickel concentrate and raw materials purchase agreements in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | ||||||||||
| | Notional (ton) | | | | | | Fair value | | Value at Risk | | ||||||||||||||||
| | Bought / Sold | | Average strike (US$/ton) | | ||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | ||||||||||||
Nickel forwards | | 1,497 | | 3,763 | | S | | 15,363 | | 2 | | 2 | | – | | 1 | | 2 | | ||||||||
Copper forwards | | 1,009 | | 2,035 | | S | | 5,910 | | – | | – | | – | | – | | – | | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
Total | | | | | | 2 | | 2 | | – | | 1 | | 2 | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | |
The Company has also a natural gas purchase agreement in which there´s a clause that defines that a premium can be charged if the Company's pellet sales prices trade above a pre-defined level. This clause is considered an embedded derivative.
| | | | | | | | | | | | | | Financial settlement Inflows (Outflows) | | | | | | | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | Fair value by year | | |||||||||||||
| | Notional (volume/month) | | | | | | Fair value | | Value at Risk | | |||||||||||||||||||
| | Bought / Sold | | Average strike (US$/ton) | | |||||||||||||||||||||||||
Flow | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2019 | | 2020 | | 2021+ | | |||||||||||||
Call options | | 746,667 | | 746,667 | | S | | 233 | | (1 | ) | (1 | ) | – | | 1 | | (0.4 | ) | (0.3 | ) |
i) Sensitivity analysis of derivative financial instruments
The following tables present the potential value of the instruments given hypothetical stress scenarios for the main market risk factors that impact the derivatives positions. The scenarios were defined as follows:
| | | | |
| | F-117 | | |
Notes to balance the price on reinsurance contracts with market,Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
Instrument | | Instrument's main risk events | | Probable | | Scenario I | | Scenario II | ||
---|---|---|---|---|---|---|---|---|---|---|
CDI vs. US$ fixed rate swap | | R$ depreciation | | (38 | ) | (181 | ) | (324) | ||
| US$ interest rate inside Brazil decrease | | (38 | ) | (42 | ) | (46) | |||
| Brazilian interest rate increase | | (38 | ) | (39 | ) | (39) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
TJLP vs. US$ fixed rate swap | | R$ depreciation | | (77 | ) | (229 | ) | (382) | ||
| US$ interest rate inside Brazil decrease | | (77 | ) | (85 | ) | (95) | |||
| Brazilian interest rate increase | | (77 | ) | (95 | ) | (113) | |||
| TJLP interest rate decrease | | (77 | ) | (95 | ) | (114) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
R$ fixed rate vs. US$ fixed rate swap | | R$ depreciation | | (18 | ) | (164 | ) | (310) | ||
| US$ interest rate inside Brazil decrease | | (18 | ) | (23 | ) | (29) | |||
| Brazilian interest rate increase | | (18 | ) | (26 | ) | (33) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
IPCA vs. US$ fixed rate swap | | R$ depreciation | | 46 | | (153 | ) | (352) | ||
| US$ interest rate inside Brazil decrease | | 46 | | 31 | | 15 | |||
| Brazilian interest rate increase | | 46 | | 12 | | (20) | |||
| IPCA index decrease | | 46 | | 23 | | 1 | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
IPCA vs. CDI swap | | Brazilian interest rate increase | | 104 | | 97 | | 90 | ||
| IPCA index decrease | | 104 | | 99 | | 93 | |||
Protected item: R$ denominated debt linked to IPCA | | IPCA index decrease | | n.a. | | (99 | ) | (93) | ||
EUR fixed rate vs. US$ fixed rate swap | | EUR depreciation | | (35 | ) | (198 | ) | (360) | ||
| Euribor increase | | (35 | ) | (36 | ) | (37) | |||
| US$ Libor decrease | | (35 | ) | (43 | ) | (52) | |||
Protected item: EUR denominated debt | | EUR depreciation | | n.a. | | (198 | ) | 360 | ||
NDF BRL/USD | | R$ depreciation | | 1 | | (7 | ) | (15) | ||
| US$ interest rate inside Brazil decrease | | 1 | | 1 | | – | |||
| Brazilian interest rate increase | | 1 | | – | | (2) | |||
Protected item: R$ denominated debt | | R$ depreciation | | n.a. | | – | | – | ||
Fuel Oil protection | | | | | ||||||
Options | | Price input decrease | | 12 | | (69 | ) | (115) | ||
Protected item: Part of costs linked to fuel oil prices | | Price input decrease | | n.a. | | 69 | | 115 | ||
Maritime Freight protection | | | | | ||||||
Forwards | | Freight price decrease | | – | | (3 | ) | (7) | ||
Protected item: Part of costs linked to maritime freight prices | | Freight price decrease | | n.a. | | 3 | | 7 | ||
Nickel Revenue Hedging Program | | | | | ||||||
Options | | Nickel price increase | | 150 | | (31 | ) | (224) | ||
Protected item: Part of nickel future revenues | | Nickel price increase | | n.a. | | 31 | | 224 | ||
Wheaton Precious Metals Corp. warrants | | WPM stock price decrease | | 26 | | 8 | | 1 | ||
Conversion options—VLI | | VLI stock value increase | | (51 | ) | (84 | ) | (127) | ||
Option—SPCs Casa dos Ventos | | SPCs Casa dos Ventos stock value decrease | | 24 | | 8 | | 1 |
| | | | |
| | F-118 | | |
Notes to the Financial Statements (Continued)
Expressed in millions of United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
Instrument | | Main risks | | Probable | | Scenario I | | Scenario II | ||
---|---|---|---|---|---|---|---|---|---|---|
Embedded derivatives—Raw material purchase (nickel) | | Nickel price increase | | 2 | | (3 | ) | (8) | ||
Embedded derivatives—Raw material purchase (copper) | | Copper price increase | | – | | (2 | ) | (3) | ||
Embedded derivatives—Gas purchase | | Pellet price increase | | (1 | ) | (2 | ) | (5) | ||
Embedded derivatives—Guaranteed minimum return (VLI) | | VLI stock value decrease | | (69 | ) | (253 | ) | (520) |
j) Financial counterparties' ratings
The transactions of derivative instruments, cash and cash equivalents as well as enable accessshort-term investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies.
The table below presents the ratings published by agencies Moody's and S&P regarding the main financial institutions that we hire derivative instruments, cash and cash equivalents transactions.
Long term ratings by counterparty | | Moody's | | S&P |
---|---|---|---|---|
ABN Amro | | A1 | | A |
Agricultural Bank of China | | A1 | | A |
ANZ Australia and New Zealand Banking | | Aa3 | | AA– |
Banco ABC | | Ba3 | | BB– |
Banco Bradesco | | Ba3 | | BB– |
Banco do Brasil | | Ba3 | | BB– |
Banco Itaú Unibanco | | Ba3 | | BB– |
Banco Safra | | Ba3 | | BB– |
Banco Santander | | A2 | | A |
Banco Votorantim | | Ba3 | | BB– |
Bank Mandiri | | Baa2 | | BBB– |
Bank of America | | A2 | | A– |
Bank of China | | A1 | | A |
Bank of Montreal | | Aa2 | | A+ |
Bank of Nova Scotia | | A2 | | A+ |
Bank of Shanghai | | Baa2 | | – |
Bank of Tokyo Mitsubishi UFJ | | A1 | | A– |
Bank Rakyat Indonesia (BRI) | | Baa2 | | BBB– |
Barclays | | Baa3 | | BBB |
BBVA Banco Bilbao Vizcaya Argentaria | | A3 | | A– |
BNP Paribas | | Aa3 | | A+ |
BTG Pactual | | Ba3 | | BB– |
Caixa Econômica Federal | | Ba3 | | BB– |
Calyon | | Aa3 | | A+ |
China Construction Bank | | A1 | | A |
CIBC Canadian Imperial Bank | | Aa2 | | A+ |
CIMB Bank | | Baa1 | | A– |
Citigroup | | A3 | | BBB+ |
Credit Suisse | | Baa2 | | BBB+ |
Deutsche Bank | | A3 | | BBB+ |
Goldman Sachs | | A3 | | BBB+ |
| | | | |
| | F-119 | | |
Notes to key international marketsthe Financial Statements (Continued)
Expressed in millions of insurance and reinsurance.United States dollar, unless otherwise stated
35. Additional information about derivatives financial instruments (Continued)
Long term ratings by counterparty | | Moody's | | S&P |
---|---|---|---|---|
HSBC | | A2 | | A |
Industrial and Commercial Bank of China | | A1 | | A |
Intesa Sanpaolo Spa | | Baa1 | | BBB |
Banco Itaú Unibanco | | Ba3 | | BB– |
JP Morgan Chase & Co | | A2 | | A– |
Macquarie Group Ltd | | A3 | | BBB+ |
Mega International Commercial Bank | | A1 | | A |
Millenium BIM | | A1 | | A– |
Mitsui & Co | | A1 | | A– |
Mizuho Financial | | A1 | | A– |
Morgan Stanley | | A3 | | BBB+ |
Muscat Bank | | Ba2 | | BB |
National Australia Bank | | Aa3 | | AA– |
National Bank of Canada | | Aa3 | | A |
National Bank of Oman | | Ba2 | | – |
Natixis | | A1 | | A+ |
Royal Bank of Canada | | Aa2 | | AA– |
Rabobank | | Aa3 | | A+ |
Societe Generale | | A1 | | A |
Standard Bank Group | | Ba1 | | – |
Standard Chartered | | A2 | | BBB+ |
Sumitomo Mitsui Financial | | A1 | | A– |
Toronto Dominion Bank | | Aa3 | | AA– |
UBS | | Aa3 | | A– |
Unicredit | | Baa1 | | BBB |
| | | | |
| | F-120 | | |