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VALE Vale

Filed: 28 Jul 21, 8:00pm

 

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the

Securities Exchange Act of 1934

 

For the month of

 

July 2021

 

Vale S.A.

 

Praia de Botafogo nº 186, 18º andar, Botafogo
22250-145 Rio de Janeiro, RJ, Brazil

(Address of principal executive office)

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

 

(Check One) Form 20-F x Form 40-F o

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))

 

(Check One) Yes o No x

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))

 

(Check One) Yes o No x

 

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

 

(Check One) Yes o No x

 

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82- .)

 

 

 

 

 

 

Interim Financial Statements

June 30, 2021

 

 

BRGAAP in R$ (English)

 

 

 

 

  

 

Vale S.A. Interim Financial Statements

Contents

 

 Page
Report on review of quartely information2
Consolidated and Parent Company Income Statement4
Consolidated and Parent Company Statement of Comprehensive Income6
Consolidated and Parent Company Statement of Cash Flows  8
Consolidated and Parent Company Statement of Financial Position9
Consolidated Statement of Changes in Equity10
Consolidated and Parent Company Value Added Statement11
Notes to the Interim Financial Statements12
1.      Corporate information12
2.      Basis of preparation of the interim financial statements12
3.      Significant events in the current period12
4.      Information by business segment and by geographic area13
5.      Costs and expenses by nature18
6.      Financial results19
7.      Income taxes19
8.      Basic and diluted earnings per share20
9.      Accounts receivable21
10.    Inventories21
11.    Other financial assets and liabilities21
12.    Acquisitions and divestitures22
13.    Investments in subsidiaries, associates and joint ventures24
14.    Intangibles25
15.    Property, plant and equipment26
16.    Financial and capital risk management27
17.    Financial assets and liabilities34
18.    Participative stockholders’ debentures35
19.    Loans, borrowings, leases, cash and cash equivalents and short-term investments36
20.    Brumadinho’s dam failure38
21.    Liabilities related to associates and joint ventures42
22.    Provisions44
23.    Litigations44
24.    Employee benefits46
25.    Stockholders’ equity48
26.    Related parties49
27.    Parent Company information (individual interim information)50

 

1

 

 

 

Report on review of quarterly information

 

To the Board of Directors and Stockholders

 

Vale S.A.

 

Introduction

 

We have reviewed the accompanying consolidated and parent company interim accounting information of Vale S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended June 30, 2021, which comprises the parent company and consolidated statements of financial position as of June 30, 2021 and the respective parent company and consolidated income statements and the statements of comprehensive income for the three and six-month periods then ended, the statement of changes in equity for the six-month period then ended, the parent company statement of cash flows for the six-month period then ended and the consolidated statements of cash flows for the three and six-month periods then ended, and a summary of significant accounting policies and other explanatory information.

 

Management is responsible for the preparation of the consolidated and parent company interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34, Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the interim information

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated and parent company interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM.

 

PricewaterhouseCoopers Auditores Independentes, Rua do Russel 804, Edifício Manchete, 6º e 7º andares, Rio de Janeiro, RJ, Brasil
22210-907,
T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br

 

2

 

 

 

Other matters

 

Value added statements

 

The quarterly information referred to above includes the parent company and consolidated statements of value added for the six-month period ended June 30, 2021. These statements are the responsibility of the Company's management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the interim accounting information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - "Statement of Value Added". Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.

 

Rio de Janeiro, July 28, 2021

 

PricewaterhouseCoopers          Patricio Marques Roche
Auditores Independentes              Contador CRC 1RJ081115/O-4

CRC 2SP000160/O-5

 

3

 

 

  

 

Income Statement

In millions of Brazilian reais, except earnings per share data

 

        Consolidated 
     Three-month period ended June 30,  Six-month period ended June 30, 
  Notes  2021  2020  2021  2020 
Net operating revenue  4(c)   87,847   40,434   157,148   71,685 
Cost of goods sold and services rendered  5(a)   (30,575)  (22,667)  (55,972)  (41,882)
Gross profit      57,272   17,767   101,176   29,803 
                     
Operating expenses                    
Selling and administrative expenses  5(b)   (709)  (664)  (1,286)  (1,180)
Research and evaluation expenses      (743)  (484)  (1,295)  (913)
Pre-operating and operational stoppage  20   (998)  (1,277)  (1,790)  (2,469)
Brumadinho event  20   (953)  (693)  (1,590)  (1,401)
Other operating expenses, net  5(c)   (435)  (1,282)  (476)  (1,549)
       (3,838)  (4,400)  (6,437)  (7,512)
Impairment and disposals of non-current assets  12 and 15   (2,181)  (2,260)  (3,078)  (2,396)
Operating income      51,253   11,107   91,661   19,895 
                     
Financial income  6   454   714   856   1,206 
Financial expenses  6   (962)  (3,132)  (8,500)  (5,422)
Other financial items, net  6   2,370   (173)  9,330   (8,861)
Equity results and other results in associates and joint ventures  13 and 21   (2,265)  (2,785)  (2,358)  (3,552)
Income before income taxes      50,850   5,731   90,989   3,266 
                     
Income taxes  7(b)                 
Current tax      (6,272)  (1,741)  (14,542)  (3,334)
Deferred tax      (4,746)  887   (6,426)  5,582 
       (11,018)  (854)  (20,968)  2,248 
                     
Net income      39,832   4,877   70,021   5,514 
Loss attributable to non-controlling interests      (263)  (412)  (638)  (759)
Net income attributable to Vale's stockholders      40,095   5,289   70,659   6,273 
                     
Earnings per share attributable to Vale's stockholders:                    
Basic and diluted earnings per share:                    
Common share (R$)  8   7.86   1.03   13.82   1.22 

 

The accompanying notes are an integral part of these interim financial statements.

 

4

 

 

  

 

Income Statement

In millions of Brazilian reais, except earnings per share data

 

     Parent company 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net operating revenue  59,461   24,855   105,536   43,648 
Cost of goods sold and services rendered  (14,966)  (9,942)  (27,405)  (18,559)
Gross profit  44,495   14,913   78,131   25,089 
                 
Operating income (expenses)                
Selling and administrative expenses  (382)  (340)  (705)  (600)
Research and evaluation expenses  (315)  (202)  (567)  (380)
Pre-operating and operational stoppage  (579)  (1,001)  (1,327)  (2,161)
Equity results and others results from subsidiaries  9,298   1,682   23,199   (5)
Brumadinho event  (953)  (693)  (1,590)  (1,401)
Other operating expenses, net  (474)  (1,257)  (961)  (1,843)
   6,595   (1,811)  18,049   (6,390)
Impairment and disposals of non-current assets  (115)  (180)  (123)  (138)
Operating income  50,975   12,922   96,057   18,561 
                 
Financial income  223   379   316   552 
Financial expenses  (743)  (3,086)  (8,185)  (5,413)
Other financial items, net  2,016   (982)  2,668   (6,814)
Equity results and other results in associates and joint ventures  (2,265)  (2,785)  (2,358)  (3,552)
Income before income taxes  50,206   6,448   88,498   3,334 
                 
Income taxes                
Current tax  (5,777)  (1,350)  (13,266)  (2,415)
Deferred tax  (4,334)  191   (4,573)  5,354 
   (10,111)  (1,159)  (17,839)  2,939 
                 
Net income attributable to Vale's stockholders  40,095   5,289   70,659   6,273 
                 
Earnings per share attributable to Vale's stockholders:                
Basic and diluted earnings per share:                
Common share (R$)  7.86   1.03   13.82   1.22 

 

The accompanying notes are an integral part of these interim financial statements.

 

5

 

 

  

 

Statement of Comprehensive Income

In millions of Brazilian reais

 

     Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net income  39,832   4,877   70,021   5,514 
Other comprehensive income (loss):                
Items that will not be reclassified to the income statement                
Retirement benefit obligations (note 24)  130   (1,093)  1,772   (1,046)
Fair value adjustment to investment in equity securities  (486)  220   1,067   (989)
Total items that will not be subsequently reclassified to income statement, net of tax  (356)  (873)  2,839   (2,035)
                 
Items that may be reclassified to the income statement                
Translation adjustments  (14,324)  4,395   (4,301)  22,700 
Net investments hedge (note 16)  1,072   (632)  221   (3,026)
Net cash flow hedge (note 16)  (194)  (269)  (106)  8 
Reclassification of cumulative translation adjustment to net income (note 12)  (2,134)  -   (8,442)  - 
Total items that may be reclassified to the income statement, net of tax  (15,580)  3,494   (12,628)  19,682 
Total comprehensive income  23,896   7,498   60,232   23,161 
Comprehensive income (loss) attributable to non-controlling interests  57   (607)  (796)  (2,250)
Comprehensive income attributable to Vale's stockholders  23,839   8,105   61,028   25,411 

 

     Parent company 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net income  40,095   5,289   70,659   6,273 
Other comprehensive income (loss):                
Items that will not be reclassified to the income statement                
Retirement benefit obligations  (3)  (10)  (10)  (19)
Fair value adjustment to investment in equity securities  (405)  180   874   (822)
Equity results  52   (1,043)  1,975   (1,194)
Total items that will not be reclassified to the income statement, net of tax  (356)  (873)  2,839   (2,035)
                 
Items that may be reclassified to the income statement                
Translation adjustments  (14,644)  4,590   (4,143)  24,191 
Net investments hedge  1,072   (632)  221   (3,026)
Net cash flow hedge  25   1   25   (30)
Equity results  (219)  (270)  (131)  38 
Reclassification of cumulative translation adjustment to net income  (2,134)  -   (8,442)  - 
Total items that may be reclassified to the income statement, net of tax  (15,900)  3,689   (12,470)  21,173 
Total comprehensive income  23,839   8,105   61,028   25,411 

 

Items above are stated net of tax and the related taxes are disclosed in note 7.

 

The accompanying notes are an integral part of these interim financial statements.

 

6

 

 

  

 

Statement of Cash Flows

In millions of Brazilian reais

 

     Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Cash flow from operations (a)  48,851   11,219   96,273   20,225 
Interest on loans and borrowings paid (note 19)  (715)  (932)  (2,300)  (2,009)
Cash received (paid) on settlement of Derivatives, net (note 16)  306   (598)  (788)  734 
Interest on participative stockholders' debentures paid (note 18)  (1,073)  (506)  (1,073)  (506)
Income taxes (including the settlement program)  (6,696)  (2,153)  (13,129)  (3,680)
Net cash provided by operating activities  40,673   7,030   78,983   14,764 
                 
Cash flow from investing activities:                
Capital expenditures (notes 14 and 15)  (6,032)  (5,201)  (11,573)  (10,200)
Additions to investments (note 13)  -   (1)  (237)  (365)
Acquisition of NLC, net of cash (note 12)  (11,800)  -   (11,800)  - 
Cash paid on the disposal of VNC (note 12)  -   -   (3,134)  - 
Dividends received from associates and joint ventures (note 13)  230   409   230   409 
Short-term investment  2,710   2,434   (1,359)  3,318 
Investment fund applications  -   (500)  -   (500)
Other investments activities, net  (916)  (761)  (1,057)  (1,005)
Net cash used in investing activities  (15,808)  (3,620)  (28,930)  (8,343)
                 
Cash flow from financing activities:                
Loans and borrowings from third-parties (note 19)  -   -   1,633   24,419 
Payments of loans and borrowings from third-parties (note 19)  (1,020)  (628)  (7,933)  (2,306)
Lease payments (note 19)  (259)  (264)  (563)  (482)
Dividends and interest on capital paid to stockholders (note 25)  (11,046)  -   (32,912)  - 
Dividends and interest on capital paid to non-controlling interest  (16)  (29)  (31)  (41)
Share buyback program (note 25)  (10,407)  -   (10,407)  - 
Net cash provided by (used in) financing activities  (22,748)  (921)  (50,213)  21,590 
                 
Increase (decrease) in cash and cash equivalents  2,117   2,489   (160)  28,011 
Cash and cash equivalents at the beginning of the period  73,399   61,284   70,086   29,627 
Effects of exchange rate changes on cash and cash equivalents  (7,241)  2,560   (1,651)  8,695 
Cash and cash equivalents at end of the period  68,275   66,333   68,275   66,333 
                 
Non-cash transactions:                
Additions to property, plant and equipment - capitalized loans and borrowing costs  73   69   160   207 
                 
Cash flow from operating activities:                
Income before income taxes  50,850   5,731   90,989   3,266 
Adjusted for:                
Provisions related to Brumadinho event (note 20)  -   108   -   108 
Equity results and other results in associates and joint ventures (note 13)  2,265   2,785   2,358   3,552 
Impairment and disposal of non-current assets  2,181   2,260   3,078   2,396 
Depreciation, depletion and amortization  4,477   4,336   8,489   8,012 
Financial results, net (note 6)  (1,862)  2,591   (1,686)  13,077 
Changes in assets and liabilities:                
Accounts receivable  (5,766)  (5,071)  1,952   (2,518)
Inventories  (1,044)  (666)  (1,968)  (1,531)
Suppliers and contractors (i)  1,570   522   118   (2,324)
Provision - Payroll, related charges and other remunerations  443   631   (1,191)  (254)
Payments related to Brumadinho event (note 20) (ii)  (1,624)  (829)  (2,437)  (1,799)
Other assets and liabilities, net  (2,639)  (1,179)  (3,429)  (1,760)
Cash flow from operations (a)  48,851   11,219   96,273   20,225 

 

(i) Includes variable lease payments.

(ii) In addition, the Company has incurred in expenses in the amount of R$953 and R$1,590 for the three and six-month periods ended June 30, 2021, respectively (R$585 and R$1,293 for the three and six-month periods ended June 30, 2020).

 

The accompanying notes are an integral part of these interim financial statements.

 

7

 

 

 

  

 

Statement of Cash Flows

In millions of Brazilian reais

 

  Parent company 
  Six-month period ended June 30, 
  2021  2020 
Cash flow from operations (a)  84,013   16,043 
Interest on loans and borrowings paid  (2,747)  (2,733)
Cash paid on settlement of Derivatives, net  (878)  (287)
Interest on participative stockholders' debentures paid  (1,073)  (506)
Income taxes (including the settlement program)  (11,495)  (3,220)
Net cash provided by operating activities  67,820   9,297 
         
Cash flow from investing activities:        
Capital expenditures  (6,635)  (5,316)
Additions to investments  (521)  (865)
Proceeds from disposal of assets and investments  9   119 
Dividends received from associates and joint ventures  230   412 
Short-term investment  559   3,263 
Investment fund applications  -   (500)
Other investments activities, net (i)  (10,735)  (4,401)
Net cash used in investing activities  (17,093)  (7,288)
         
Cash flow from financing activities:        
Loans and borrowings from third-parties  1,633   - 
Payments of loans and borrowings from third-parties  (7,348)  (1,780)
Lease payments  (154)  (67)
Dividends and interest on capital paid to stockholders  (32,912)  - 
Share buyback program  (10,407)  - 
Net cash used in financing activities  (49,188)  (1,847)
         
Increase in cash and cash equivalents  1,539   162 
Cash and cash equivalents at the beginning of the period  14,609   9,597 
Effects of disposals of subsidiaries and merger, net of cash and cash equivalents  1,092   188 
Cash and cash equivalents at end of the period  17,240   9,947 
         
Non-cash transactions:        
Additions to property, plant and equipment - capitalized loans and borrowing costs  160   207 
         
Cash flow from operating activities:        
Income before income taxes  88,498   3,334 
Adjustments for:        
Provisions related to Brumadinho event  -   108 
Equity results and others results from subsidiaries  (23,199)  5 
Equity results and other results in associates and joint ventures  2,358   3,552 
Impairment and disposal of non-current assets  123   138 
Depreciation, depletion and amortization  4,122   3,988 
Financial results, net  5,201   11,675 
Changes in assets and liabilities:        
Accounts receivable  11,895   (4,319)
Inventories  (356)  (676)
Suppliers and contractors (ii)  (100)  (1,616)
Provision - Payroll, related charges and other remunerations  (420)  (101)
Payments related to Brumadinho event (note 20) (iii)  (2,437)  (1,799)
Other assets and liabilities, net  (1,672)  1,754 
Cash flow from operations (a)  84,013   16,043 

 

(i) Includes loans and advances with related parties.

(ii) Includes variable lease payments.

(iii) In addition, the Company has incurred in expenses in the amount of R$953 and R$1,590 for the three and six-month periods ended June 30, 2021, respectively (R$585 and R$1,293 for the three and six-month periods ended June 30, 2020).

 

The accompanying notes are an integral part of these interim financial statements.

 

8

 

 

  

 

Statement of Financial Position

In millions of Brazilian reais

 

    Consolidated  Parent company 
  Notes June 30, 2021  December 31, 2020  June 30, 2021  December 31, 2020 
Assets                   
Current assets                   
Cash and cash equivalents  19  68,275   70,086   17,240   14,609 
Short-term investments  19  4,759   4,006   880   1,811 
Accounts receivable  9  24,782   25,944   33,684   46,559 
Other financial assets  11  1,069   1,707   535   37 
Inventories  10  23,513   21,103   7,456   6,142 
Recoverable taxes     3,342   2,646   1,383   1,036 
Others     1,328   1,313   3,514   2,199 
      127,068   126,805   64,692   72,393 
                    
Non-current assets                   
Judicial deposits  23(c)  6,633   6,591   6,483   6,265 
Other financial assets  11  7,159   9,271   6,209   3,838 
Recoverable taxes     7,204   5,670   3,795   2,244 
Deferred income taxes  7(a)  46,711   53,711   38,106   42,760 
Others     3,495   3,380   885   725 
      71,202   78,623   55,478   55,832 
                    
Investments  13  10,991   10,557   185,384   181,319 
Intangibles  14  55,010   48,309   27,963   28,243 
Property, plant and equipment  15  219,518   213,836   116,114   111,338 
      356,721   351,325   384,939   376,732 
Total assets     483,789   478,130   449,631   449,125 
Liabilities                   
Current liabilities                   
Suppliers and contractors     18,893   17,496   10,726   11,601 
Loans, borrowings and leases  19  4,963   5,901   2,731   3,804 
Other financial liabilities  11  7,735   9,906   5,836   4,747 
Taxes payable     8,392   4,950   7,760   3,509 
Settlement program ("REFIS")  7(c)  1,781   1,769   1,781   1,733 
Liabilities related to associates and joint ventures  21  7,339   4,554   7,339   4,554 
Provisions  22  5,780   9,498   4,048   4,606 
Liabilities related to Brumadinho  20  11,122   9,925   11,122   9,925 
De-characterization of dams  20  2,271   1,981   2,271   1,981 
Dividends payable     133   6,342   119   6,342 
Others     3,289   3,516   3,550   4,173 
      71,698   75,838   57,283   56,975 
Non-current liabilities                   
Loans, borrowings and leases  19  64,380   72,187   15,575   21,646 
Participative stockholders' debentures  18  23,447   17,737   23,447   17,737 
Other financial liabilities  11  15,141   23,719   89,762   107,470 
Settlement program ("REFIS")  7(c)  11,686   12,493   11,686   12,245 
Deferred income taxes  7(a)  9,928   9,198   -   - 
Provisions  22  40,033   43,829   14,392   13,016 
Liabilities related to Brumadinho  20  11,344   13,849   11,344   13,849 
De-characterization of dams  20  8,507   9,916   8,507   9,916 
Liabilities related to associates and joint ventures  21  5,124   6,228   5,124   6,228 
Streaming transactions     9,812   10,419   -   - 
Others     762   1,731   4,074   4,258 
      200,164   221,306   183,911   206,365 
Total liabilities     271,862   297,144   241,194   263,340 
                    
Stockholders' equity  25                
Equity attributable to Vale's stockholders     208,437   185,785   208,437   185,785 
Equity attributable to non-controlling interests     3,490   (4,799)  -   - 
Total stockholders' equity     211,927   180,986   208,437   185,785 
Total liabilities and stockholders' equity     483,789   478,130   449,631   449,125 

 

The accompanying notes are an integral part of these interim financial statements.

 

9

 

 

  

 

Statement of Changes in Equity

In millions of Brazilian reais

 

  Share capital  Capital reserve  Profit reserves  Treasury shares  Other reserves  Cumulative
translation
adjustments
  Retained earnings  Equity
attributable to
Vale’s
stockholders
  Equity attributable
to non-controlling
interests
  Total
stockholders'
equity
 
Balance at December 31, 2020  77,300   3,634   36,598   (6,452)  (7,307)  82,012   -   185,785   (4,799)  180,986 
Net income (loss)  -   -   -   -   -   -   70,659   70,659   (638)  70,021 
Other comprehensive income  -   -   -   -   2,718   (12,349)  -   (9,631)  (158)  (9,789)
Dividends and interest on capital of Vale's stockholders (note 25)  -   -   (22,935)  -   -   -   (3,634)  (26,569)  -   (26,569)
Dividends of non-controlling interest  -   -   -   -   -   -   -   -   (134)  (134)
Acquisition and disposal of non-controlling interest (note 12)  -   -   -   -   (1,666)  -   -   (1,666)  9,219   7,553 
Share buyback program (note 25)  -   -   -   (10,407)  -   -   -   (10,407)  -   (10,407)
Share-based payment (note 24)  -   -   -   -   229   -   -   229   -   229 
Treasury shares utilized in the period (note 25)  -   -   -   37   -   -   -   37   -   37 
Balance at June 30, 2021  77,300   3,634   13,663   (16,822)  (6,026)  69,663   67,025   208,437   3,490   211,927 

 

   Share capital   Capital reserve   Profit reserves   Treasury shares   Other reserves   Cumulative
translation
adjustments
   Retained earnings   Equity
attributable to
Vale’s
stockholders
   Equity attributable
to non-controlling
interests
   Total
stockholders'
equity
 
Balance at December 31, 2019  77,300   3,634   28,577   (6,520)  (5,673)  64,162   -   161,480   (4,331)  157,149 
Net income (loss)  -   -   -   -   -   -   6,273   6,273   (759)  5,514 
Other comprehensive income  -   -   -   -   (2,035)  21,173   -   19,138   (1,491)  17,647 
Dividends of non-controlling interest  -   -   -   -   -   -   -   -   (28)  (28)
Capitalization of non-controlling interest advances  -   -   -   -   -   -   -   -   25   25 
Treasury shares utilized in the period (note 25)  -   -   -   68   -   -   -   68   -   68 
Balance at June 30, 2020  77,300   3,634   28,577   (6,452)  (7,708)  85,335   6,273   186,959   (6,584)  180,375 

 

The accompanying notes are an integral part of these interim financial statements.

 

10

 

 

  

 

Value Added Statement

In millions of Brazilian Reais

 

  Consolidated  Parent company 
  Six-month period ended June 30, 
  2021  2020  2021  2020 
Generation of value added                
Gross revenue                
Revenue from products and services  158,950   72,329   107,257   44,217 
Revenue from the construction of own assets  3,969   2,594   1,464   1,096 
Other revenues  1,387   574   1,115   309 
Less:                
Cost of products, goods and services sold  (18,474)  (11,702)  (10,010)  (5,727)
Material, energy, third-party services and other  (20,319)  (16,728)  (6,546)  (5,156)
Impairment of non-current assets and others results  (3,078)  (2,396)  (123)  (138)
Brumadinho event  (1,590)  (1,401)  (1,590)  (1,401)
Other costs and expenses  (8,501)  (7,683)  (4,443)  (4,907)
Gross value added  112,344   35,587   87,124   28,293 
Depreciation, amortization and depletion  (8,489)  (8,012)  (4,122)  (3,988)
Net value added  103,855   27,575   83,002   24,305 
                 
Received from third parties                
Equity results from entities  (2,358)  (3,552)  20,841   (3,557)
Financial income  648   7,421   70   6,338 
Total value added to be distributed  102,145   31,444   103,913   27,086 
                 
Personnel and charges  4,834   3,981   2,483   1,971 
Taxes and contributions  27,787   1,342   24,284   221 
Interest (net derivatives and monetary and exchange rate variation)  (1,164)  20,268   5,211   17,813 
Other remunerations of third party funds  667   339   1,276   808 
Reinvested net income  70,659   6,273   70,659   6,273 
Loss attributable to noncontrolling interest  (638)  (759)  -   - 
Distributed value added  102,145   31,444   103,913   27,086 

 

The accompanying notes are an integral part of these interim financial statements.

 

11

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

1.        Corporate information

 

Vale S.A. and its subsidiaries (“Vale” or the “Company”) are iron ore and iron ore pellets producers, which are key raw materials for steelmaking, and nickel producers, which is used to produce stainless steel and metal alloys employed in the production process of several products. The Company also produces copper, metallurgical and thermal coal, manganese ore and, platinum group metals, gold, silver and cobalt. The information by segment is presented in note 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 Madrid – LATIBEX (XVALO). 

 

2.        Basis of preparation of the interim financial statements

 

a)    Statement of compliance

 

The consolidated and individual interim financial statements of the Company (“interim financial statements”) have been prepared and are being presented in accordance with IAS 34 Interim Financial Reporting (Technical pronouncement - CPC 21(R1) Interim Financial Reporting) of the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), as implemented in Brazil by the Brazilian Accountant Pronouncements Committee ("CPC"), approved by the Brazilian Securities Exchange Commission ("CVM") and by the Brazilian Federal Accounting Council (“CFC”). All relevant information from its own interim financial statements, and only this information, are being presented and correspond to those used by the Company's Management.

 

The presentation of the parent company and consolidated statements of value added is required by the Brazilian corporate legislation and the accounting practices adopted in Brazil for listed companies, while it is not required by IFRS. Therefore, under the IFRS, the presentation of such statements is considered supplementary information, and not part of the set of financial statements. The Statement of Value Added was prepared in accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of Value Added".

 

b)    Basis of presentation

 

The interim financial statements have been prepared to update users about relevant events and transactions that occurred in the period and should be read in conjunction with the financial statements for the year ended December 31, 2020. The accounting policies, accounting estimates and judgements, risk management and measurement methods are the same as those applied when preparing the last annual financial statements, except for the change in the accounting practice for the share-based payment plans as disclosed in note 24. The selected notes of the Parent Company are presented in a summarized form in note 27.

 

These interim financial statements were authorized for issue by the Executive Board on July 28, 2021.

 

The interim financial statements of the Company 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 (“R$”).

 

The exchange rates used by the Company to translate its foreign operations are as follows:

 

     Average rate 
  Closing rate  Three-month period ended  Six-month period ended 
  June 30, 2021  December 31, 2020  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
United States dollar  5.0022   5.1967   5.2907   5.3854   5.3862   4.9218 
Canadian dollar ("CAD")  4.0334   4.0771   4.3096   3.8882   4.3209   3.5992 
Euro ("EUR")  5.9276   6.3779   6.3789   5.9279   6.4902   5.4211 

 

3.        Significant events in the current period

 

The financial position, cash flows and performance of the Company were particularly affected by the following events and transactions during the three-month period ended June 30, 2021:

 

·In April 2021, the Company approved a share buyback program for its common shares, limited to a maximum of 270,000,000 common shares and their respective ADRs. Until June 30, 2021, the Company acquired 93,088,200 shares, in the total amount of R$10,407 (US$2,004 million) (note 25).

 

12

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

·In June 2021, the Company approved and paid dividends to its shareholders in the amount of R$11,046 (US$2,200 million) (note 25).

 

·In June 2021, the Company paid R$12,665 (US$2,517 million) in relation to the Project Finance and concluded all precedent conditions to acquire the interests held by Mitsui & Co., Ltd (“Mitsui”) in both Moatize coal mine and Nacala Logistics Corridor (“NLC”). Following the conclusion of the transaction, the Company has started consolidating NLC on its balance sheet and recognized a loss in the amount of R$3,880 (US$771 million) as “Impairment and disposals of non-current assets” (note 12).

 

·In June 2021, Fundação Renova reviewed the expected cash outflows to comply with the mitigation and compensation programs, which resulted in an addition of R$2,820 (US$560 million) to the provision. This amount was recognized in the income statement as “Equity results and other results in associates and joint ventures” for the three-month period ended June 30, 2021 (note 21).

 

·In June 2021, production and maintenance employees of Sudbury, Canada, represented by United Steelworkers (“USW”) voted to reject the Company’s offer of a new five-year collective bargaining agreement. As a result, the Company stopped its operation at that location and recognized a loss in the amount of R$296 (US$59 million) as “Pre-operating and operational stoppage”. However, if the strike continues for an extended period of time, the results of that operations may be materially impacted. The Company will continue discussions with USW to reach an agreement as soon as possible in order to resume its operation.

 

4.        Information by business segment and by geographic area

 

The Company operates the following reportable segments: Ferrous Minerals, Base Metals and Coal. The segments are aligned with products and reflect the structure used by Management to evaluate Company’s performance. The responsible bodies for making operational decisions, allocating resources and evaluating performance ("chief operating decision maker" under IFRS 8 - Operating Segments) are the Executive Boards and the Board of Directors. Accordingly, the performance of the operating segments is assessed based on a measure of adjusted LAJIDA (EBITDA).

 

The Company allocates 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. Additionally, the costs related to the Brumadinho event are not directly linked to the Company's operating activities and, therefore, are allocated to "Other" as well.

 

In the current period, the Company has allocated the financial information of Vale Nouvelle-Calédonie SAS (“VNC”) operation to “Others” as this operation is no longer analyzed by the chief operating decision maker as part of to the performance of the Base Metals business segment due to the sale of this operation. The comparative periods were restated to reflect this change in the allocation criteria.

 

a)    Adjusted LAJIDA (EBITDA)

 

The definition of Adjusted LAJIDA (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.

 

13

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

  Consolidated 
  Three-month period ended June 30, 2021 
  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
LAJIDA
(EBITDA)
 
Ferrous minerals                            
Iron ore  64,163   (14,781)  (330)  (226)  (395)  -   48,431 
Iron ore pellets  10,261   (2,742)  9   (2)  (65)  114   7,575 
Ferroalloys and manganese  272   (205)  (5)  -   (21)  -   41 
Other ferrous products and services  516   (377)  6   (4)  -   -   141 
   75,212   (18,105)  (320)  (232)  (481)  114   56,188 
                             
Base metals                            
Nickel and other products  7,911   (5,049)  (142)  (97)  (300)  -   2,323 
Copper  3,680   (1,219)  (7)  (105)  (8)  -   2,341 
   11,591   (6,268)  (149)  (202)  (308)  -   4,664 
                             
Coal  855   (1,731)  1   (10)  -   -   (885)
                             
Others  189   (256)  (540)  (297)  (1)  116   (789)
   87,847   (26,360)  (1,008)-  (741)  (790)  230   59,178 
                             
Brumadinho event  -   -   (953)  -   -   -   (953)
COVID-19  -   -   (84)  -   -   -   (84)
Total  87,847   (26,360)  (2,045)  (741)  (790)  230   58,141 

 

  Consolidated 
  Three-month period ended June 30, 2020 
  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
LAJIDA
(EBITDA)
 
Ferrous minerals                            
Iron ore  26,069   (9,343)  (320)  (130)  (656)  -   15,620 
Iron ore pellets  4,858   (2,030)  10   (5)  (90)  283   3,026 
Ferroalloys and manganese  366   (226)  -   (5)  (51)  -   84 
Other ferrous products and services  403   (298)  3   (2)  -   -   106 
   31,696   (11,897)  (307)  (142)  (797)  283   18,836 
                             
Base metals                            
Nickel and other products  4,802   (2,936)  (87)  (50)  (155)  -   1,574 
Copper  2,809   (999)  (14)  (79)  -   -   1,717 
   7,611   (3,935)  (101)  (129)  (155)  -   3,291 
                             
Coal  510   (1,959)  16   (32)  -   -   (1,465)
                            ��
Others (i)  617   (928)  (1,014)  (180)  (9)  126   (1,388)
   40,434   (18,719)  (1,406)  (483)  (961)  409   19,274 
                             
Brumadinho event  -   -   (693)  -   -   -   (693)
COVID-19  -   -   (469)  -   -   -   (469)
Total  40,434   (18,719)  (2,568)-  (483)  (961)  409   18,112 
                             

(i) Includes the reclassification of the EBITDA of VNC in the amount of R$260.

 

14

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

  Consolidated 
  Six-month period ended June 30, 2021 
  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
LAJIDA
(EBITDA)
 
Ferrous minerals                            
Iron ore  114,316   (26,237)  (447)  (410)  (898)  -   86,324 
Iron ore pellets  16,898   (4,847)  169   (6)  (137)  114   12,191 
Ferroalloys and manganese  522   (327)  (10)  (1)  (44)  -   140 
Other ferrous products and services  1,052   (739)  16   (5)  -   -   324 
   132,788   (32,150)  (272)  (422)  (1,079)  114   98,979 
                             
Base metals                            
Nickel and other products  15,791   (9,287)  (196)  (157)  (302)  -   5,849 
Copper  6,690   (2,123)  (6)  (207)  (11)  -   4,343 
   22,481   (11,410)  (202)  (364)  (313)  -   10,192 
                             
Coal  1,364   (3,541)  9   (21)  -   424   (1,765)
                             
Others (i)  515   (877)  (1,104)  (485)  (6)  116   (1,841)
   157,148   (47,978)  (1,569)  (1,292)  (1,398)  654   105,565 
                             
Brumadinho event  -   -   (1,590)  -   -   -   (1,590)
COVID-19  -   -   (93)  -   -   -   (93)
Total  157,148   (47,978)  (3,252)  (1,292)  (1,398)  654   103,882 

 

(i) Includes the EBITDA of VNC in the amount of R$358.

  

  Consolidated 
  Six-month period ended June 30, 2020 
  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
LAJIDA
(EBITDA)
 
Ferrous minerals                            
Iron ore  45,444   (16,891)  (407)  (238)  (1,405)  -   26,503 
Iron ore pellets  8,682   (3,878)  58   (9)  (202)  283   4,934 
Ferroalloys and manganese  577   (449)  -   (5)  (56)  -   67 
Other ferrous products and services  786   (615)  8   (5)  -   -   174 
   55,489   (21,833)  (341)  (257)  (1,663)  283   31,678 
                             
Base metals                            
Nickel and other products  9,065   (5,322)  (173)  (107)  (155)  -   3,308 
Copper  4,518   (1,923)  (10)  (156)  -   -   2,429 
   13,583   (7,245)  (183)  (263)  (155)  -   5,737 
                             
Coal  1,183   (3,643)  22   (72)  -   324   (2,186)
                             
Others (i)  1,430   (1,928)  (1,605)  (320)  (26)  126   (2,323)
   71,685   (34,649)  (2,107)  (912)  (1,844)  733   32,906 
                             
Brumadinho event  -   -   (1,401)  -   -   -   (1,401)
COVID-19  -   -   (469)  -   -   -   (469)
Total  71,685   (34,649)  (3,977)  (912)  (1,844)  733   31,036 

 

(i) Includes the reclassification of the EBITDA of VNC in the amount of R$469.

 

Adjusted LAJIDA (EBITDA) is reconciled to net income as follows:

 

15

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net income attributable to Vale's stockholders  40,095   5,289   70,659   6,273 
Loss attributable to non-controlling interests  (263)  (412)  (638)  (759)
Net income  39,832   4,877   70,021   5,514 
Depreciation, depletion and amortization  4,477   4,336   8,489   8,012 
Income taxes  11,018   854   20,968   (2,248)
Financial results  (1,862)  2,591   (1,686)  13,077 
LAJIDA (EBITDA)  53,465   12,658   97,792   24,355 
                 
Items to reconciled adjusted LAJIDA (EBITDA)                
Equity results and other results in associates and joint ventures  2,265   2,785   2,358   3,552 
Dividends received and interest from associates and joint ventures (i)  230   409   654   733 
Impairment and disposal of non-current assets  2,181   2,260   3,078   2,396 
Adjusted LAJIDA (EBITDA)  58,141   18,112   103,882   31,036 

 

(i) Includes the remuneration of the financial instrument of the Coal segment.

 

b)       Assets by segment

 

  Consolidated 
  June 30, 2021  December 31, 2020 
   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  12,022   6,255   152,902   10,483   5,995   152,970 
Base metals  6,442   85   100,821   6,398   91   101,593 
Coal (note 12)  443   -   11,714   129   -   - 
Others  -   4,651   9,091   -   4,471   7,582 
Total  18,907   10,991   274,528   17,010   10,557   262,145 

 

  Consolidated 
  Three-month period ended June 30, 
  2021  2020 
   Capital expenditures (ii)       Capital expenditures (ii)     
   Sustaining capital   Project
execution
   Depreciation,
depletion and
amortization
   Sustaining capital   Project
execution
   Depreciation,
depletion and
amortization
 
Ferrous minerals  2,836   590   2,404   2,595   315   2,568 
Base metals  1,898   364   1,934   1,588   338   1,663 
Coal (note 12)  191   -   86   168   -   - 
Others (iii)  6   147   53   186   11   105 
Total  4,931   1,101   4,477   4,537   664   4,336 

 

  Consolidated 
  Six-month period ended June 30, 
  2021  2020 
   Capital expenditures (ii)       Capital expenditures (ii)     
   Sustaining capital   Project
execution
   Depreciation,
depletion and
amortization
   Sustaining capital   Project
execution
   Depreciation,
depletion and
amortization
 
Ferrous minerals  5,734   1,036   4,584   4,976   721   4,460 
Base metals  3,492   738   3,672   2,938   573   3,215 
Coal (note 12)  350   -   86   513   -   83 
Others (iii)  64   159   147   457   22   254 
Total  9,640   1,933   8,489   8,884   1,316   8,012 

 

(i) Goodwill is allocated to ferrous minerals and base metals segments in the amount of R$7,133 and R$9,880 in June 30, 2021 and R$7,133 and R$10,008 in December 31, 2020, respectively.

(ii) Cash outflows.

(iii) Includes the reclassification of VNC under the captions “Sustaining capital” and “depreciation, depletion and amortization”, in the amount of R$182 and R$42, respectively, for the three-month period ended on June 30, 2020 and in the amount of R$448 and R$123, respectively, for the six-month period ended on June 30, 2020.

 

16

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

c)       Net operating revenue by geographic area

 

  Consolidated 
  Three-month period ended June 30, 2021 
  Ferrous minerals  Base metals  Coal  Others  Total 
Americas, except United States and Brazil  1,306   694   -   -   2,000 
United States of America  848   1,516   -   -   2,364 
Germany  816   2,472   -   -   3,288 
Europe, except Germany  5,218   3,101   30   -   8,349 
Middle East, Africa and Oceania  3,542   39   108   -   3,689 
Japan  5,010   628   103   -   5,741 
China  45,461   1,394   248   -   47,103 
Asia, except Japan and China  5,199   1,672   354   -   7,225 
Brazil  7,812   75   12   189   8,088 
Net operating revenue  75,212   11,591   855   189   87,847 

 

  Consolidated 
  Three-month period ended June 30, 2020 
  Ferrous minerals  Base metals  Coal  Others (i)  Total 
Americas, except United States and Brazil  71   269   -   306   646 
United States of America  156   496   -   -   652 
Germany  359   1,508   -   -   1,867 
Europe, except Germany  1,205   2,287   178   -   3,670 
Middle East, Africa and Oceania  1,518   26   117   -   1,661 
Japan  1,556   576   1   -   2,133 
China  22,342   889   -   -   23,231 
Asia, except Japan and China  2,221   1,323   191   -   3,735 
Brazil  2,268   237   23   311   2,839 
Net operating revenue  31,696   7,611   510   617   40,434 

 

(i) Includes the reclassification of VNC in the amount of R$306.

 

  Consolidated 
  Six-month period ended June 30, 2021 
  Ferrous minerals  Base metals  Coal  Others (i)  Total 
Americas, except United States and Brazil  2,506   1,214   -   21   3,741 
United States of America  1,392   3,083   -   -   4,475 
Germany  1,753   5,018   -   -   6,771 
Europe, except Germany  8,452   6,965   130   -   15,547 
Middle East, Africa and Oceania  5,041   41   207   -   5,289 
Japan  7,903   1,155   103   -   9,161 
China  82,669   2,269   324   -   85,262 
Asia, except Japan and China  9,478   2,537   588   -   12,603 
Brazil  13,594   199   12   494   14,299 
Net operating revenue  132,788   22,481   1,364   515   157,148 

 

(i) Includes the revenue of VNC in the amount of R$21.

 

  Consolidated 
  Six-month period ended June 30, 2020 
  Ferrous minerals  Base metals  Coal  Others (i)  Total 
Americas, except United States and Brazil  529   451   -   696   1,676 
United States of America  357   1,894   -   -   2,251 
Germany  1,185   2,373   -   -   3,558 
Europe, except Germany  2,481   3,976   397   -   6,854 
Middle East, Africa and Oceania  2,593   62   243   -   2,898 
Japan  3,248   1,000   56   -   4,304 
China  36,131   1,394   75   -   37,600 
Asia, except Japan and China  4,071   2,030   389   -   6,490 
Brazil  4,894   403   23   734   6,054 
Net operating revenue  55,489   13,583   1,183   1,430   71,685 

 

(i) Includes the reclassification of VNC in the amount of R$696.

 

17

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

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 price (note 16). The selling price of these products can be measured reliably at each period, since the price is quoted in an active market.

 

The sensitivity of the Company’s risk on final settlement of provisionally priced accounts receivables is presented below:

 

  June 30, 2021 
  Thousand metric tons  Provisional price
(US$/tonne)
  Change  Effect on Revenue 
Iron ore  18,155   181.3   +/-10%  1,742 
Copper  65   11,627.7   +/-10%  401 

 

5.       Costs and expenses by nature

 

a)    Cost of goods sold and services rendered

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Personnel  2,342   1,950   4,484   3,804 
Materials and services  4,323   4,040   8,177   7,671 
Fuel oil and gas  1,406   1,107   2,550   2,364 
Maintenance  4,214   3,315   7,775   6,318 
Royalties  1,849   900   3,228   1,624 
Energy  892   793   1,711   1,636 
Ores acquired from third parties (i)  3,633   1,069   5,511   1,335 
Depreciation, depletion and amortization  4,215   3,948   7,994   7,233 
Freight (ii)  5,195   3,706   9,488   6,824 
Others  2,506   1,839   5,054   3,073 
Total  30,575   22,667   55,972   41,882 
                 
Cost of goods sold  29,821   21,993   54,486   40,492 
Cost of services rendered  754   674   1,486   1,390 
Total  30,575   22,667   55,972   41,882 

 

(i) The increase in “Ores acquired from third parties” is mainly due to the significant increase in the reference price of iron ore compared to 2020.

(ii) The increase in "Freight" is mainly due to the significant increase in volumes of CFR sales and higher international freight prices reference price and the effect of the devaluation of the R$ against the US$, considering that this cost is totally denominated in US$.

 

Tax on mineral production (Taxa de Fiscalização de Recursos Minerais - “TFRM”) – Several Brazilian states, including Minas Gerais, Pará and Mato Grosso do Sul, impose a TFRM, which is currently assessed at rates ranging from R$0.50 to R$3.72 per metric ton of minerals produced in or transferred from the state. The expenses related to the TFRM are presented in these interim financial statements under “Royalties”. In March 2021, a state decree increased the TFRM rate in the state of Para to R$11.19 per metric ton, with effectiveness as at April 2021. According to the prior rule, which would expire in 2031, the TFRM rate was R$3.72 per ton until the production of 10 million metric tons and R$0.74 for volumes over than 10 million metric tons. The Company is evaluating in the legal aspects of this change and, based on the Brazilian constitutional principle of mandatory notice period, which sets out the tax increase would become in force only in the subsequent year of its enactment, therefore the Company did not apply this increase in the current period and does not expect any impact for the year ending December 31, 2021. The Company is also evaluating other legal aspects to avoid the overcharge in the future.

 

b)       Selling and administrative expenses

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Selling  132   112   230   183 
Personnel  279   213   539   424 
Services  120   175   212   254 
Depreciation and amortization  53   71   101   153 
Others  125   93   204   166 
Total  709   664   1,286   1,180 

 

18

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

c)       Other operating expenses (income), net

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Provision for litigations  146   237   234   326 
Profit sharing program  281   68   403   218 
COVID-19 expenses  84   469   93   469 
Others (i)  (76)  508   (254)  536 
Total  435   1,282   476   1,549 

 

(i) Includes the gain related to the exclusion of ICMS from the PIS and COFINS computation tax base, as detailed in note 23(e).

 

6.        Financial result

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Financial income                
Short-term investments  214   148   363   379 
Others  240   566   493   827 
   454   714   856   1,206 
Financial expenses                
Loans and borrowings gross interest (note 19)  (935)  (1,037)  (2,068)  (1,991)
Capitalized loans and borrowing costs  73   69   160   207 
Participative stockholders' debentures (note 18)  (1,397)  (1,236)  (6,711)  (1,339)
Interest on REFIS  (55)  (69)  (93)  (178)
Interest on lease liabilities (note 19)  (90)  (93)  (188)  (171)
Financial guarantees (i)  2,017   (163)  1,816   (866)
Expenses with cash tender offer redemption (note 19)  -   -   (354)  - 
Others  (575)  (603)  (1,062)  (1,084)
   (962)  (3,132)  (8,500)  (5,422)
Other financial items, net                
Net foreign exchange gains (losses)  (2,051)  534   (311)  (1,742)
Derivative financial instruments (note 16)  4,552   (421)  2,130   (6,815)
Reclassification of cumulative translation adjustment on VNC sale (note 12)  -   -   6,391   - 
Indexation gains (losses), net  (131)  (286)  1,120   (304)
   2,370   (173)  9,330   (8,861)
Total  1,862   (2,591)  1,686   (13,077)

 

(i) Refers to the fair value adjustments on financial guarantees given to associates due to their rating improvement, leading to a decrease in the probability of default on the guaranteed loans. Further details are disclosed in note 13.

 

7.        Income taxes

 

a) Deferred income tax assets and liabilities

 

  Consolidated 
  Assets  Liabilities  Deferred taxes, net 
Balance at December 31, 2020  53,711   9,198   44,513 
Effect in income statement  (6,212)  214   (6,426)
Translation adjustment  (408)  (237)  (171)
Other comprehensive income  (380)  753   (1,133)
Balance at June 30, 2021  46,711   9,928   36,783 

 

  Consolidated 
  Assets  Liabilities  Deferred taxes, net 
Balance at December 31, 2019  37,151   7,585   29,566 
Effect in income statement  5,288   (294)  5,582 
Translation adjustment  2,770   2,010   760 
Other comprehensive income  8,480   (368)  8,848 
Balance at June 30, 2020  53,689   8,933   44,756 

 

19

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

b)    Income tax reconciliation – Income statement

 

Income tax expense is recognized based on the estimate of the weighted average effective tax rate expected for the full year. The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as follows:

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Income before income taxes  50,850   5,731   90,989   3,266 
Income taxes at statutory rate - 34%  (17,289)  (1,948)  (30,936)  (1,110)
Adjustments that affect the basis of taxes:                
Tax incentives  6,147   970   8,648   2,349 
Equity results  187   77   132   (100)
Addition(reversal) of tax loss carryforward  (317)  302   (574)  2,237 
Others  254   (255)  1,762   (1,128)
Income taxes  (11,018)  (854)  (20,968)  2,248 

 

Income tax expense is recognized based on the estimate of the weighted average effective tax rate expected for the full year, adjusted for the tax effect of certain items that are recognized in full on the interim tax calculation. Therefore, the effective tax rate in the interim financial statements may differ from management’s estimate of the effective tax rate for the year.

 

c) Income taxes - Settlement program (“REFIS”)

 

  June 30, 2021  December 31, 2020 
Current liabilities  1,781   1,769 
Non-current liabilities  11,686   12,493 
REFIS liabilities  13,467   14,262 
         
SELIC rate  4.25% per year   2.00% per year 

 

The balance mainly relates to the settlement program 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. As at June 30, 2021, the balance is due in 88 remaining monthly installments, bearing the SELIC interest rate (Special System for Settlement and Custody), which is the Brazilian federal funds rate.

 

d) Uncertain tax positions

 

There have been no developments on matters related to the uncertain tax positions since the December 31, 2020 financial statements.

 

8.Basic and diluted earnings per share

 

The basic and diluted earnings per share are presented below:

 

  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net income attributable to Vale's stockholders:                
Net income  40,095   5,289   70,659   6,273 
                 
Thousands of shares                
Weighted average number of shares outstanding - common shares  5,097,908   5,129,911   5,113,959   5,129,254 
                 
Basic and diluted earnings per share:                
Common share (R$)  7.86   1.03   13.82   1.22 

 

The Company does not have potential outstanding shares or other instruments with dilutive effect on the earnings per share computation.

 

20

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

9.Accounts receivable

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Accounts receivable  25,024   26,205 
Expected credit loss  (242)  (261)
   24,782   25,944 
         
Revenue related to the steel sector - %  89.27%  87.25%

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Impairment of accounts receivable recorded in the income statement  13   (14)  12   41 

 

As at June 30, 2021, there is no customer that individually represents more than 10% of the Company’s accounts receivable or revenues. In 2020, the Company had a customer of the Ferrous Minerals Segment whose revenue individually represented 10.1% of the Company’s total revenue.

 

10.Inventories

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Finished products  15,289   13,659 
Work in progress  3,618   3,351 
Consumable inventory  4,606   4,093 
Total  23,513   21,103 

 

  Consolidated 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Reversal (provision) for net realizable value  (60)  127   4   (213)

 

Finished and work in progress products inventories by segments are presented in note 4(b) and the cost of goods sold is presented in note 5(a).

 

11.       Other financial assets and liabilities

 

  Consolidated 
  Current  Non-Current 
  June 30, 2021  December 31, 2020  June 30, 2021  December 31, 2020 
Other financial assets                
Restricted cash  -   -   626   197 
Derivative financial instruments (note 16)  1,069   698   1,048   347 
Investments in equity securities  -   -   5,485   3,936 
Related parties (i)  -   1,009   -   4,791 
   1,069   1,707   7,159   9,271 
Other financial liabilities                
Derivative financial instruments (note 16)  1,023   1,712   2,612   3,578 
Related parties (i)  941   3,759   -   4,655 
Financial guarantees provided (note 13)  -   -   2,745   4,558 
Liabilities related to the concession grant (note 14)  1,745   1,088   9,784   10,928 
Advances received  4,026   3,347   -   - 
   7,735   9,906   15,141   23,719 

 

(i) The decrease refers to the settlement of the loans due to the transaction for the acquisition of NLC, as detailed in note 12.

 

Investment in equity securities – Mainly refers to 34.2 million common shares of The Mosaic Company (“Mosaic”), which is accounted for as a financial instrument measured at fair value through other comprehensive income. The recorded amount was calculated based on Mosaic’s share price at the end of each financial reporting period.

 

21

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

12.Acquisitions and divestitures

 

a)Business Combinations

 

The Company has coal operations in Mozambique, through Vale Moçambique S.A. (“Vale Moçambique”), where the metallurgical and thermal coal extraction and processing are operated. Vale Moçambique is a company controlled by Vale, with a non-controlling interest of 15% held by Mitsui & Co. Ltd. (“Mitsui”). Coal products are transported from the Moatize mine to the maritime terminal by the Nacala Logistics Corridor (“NLC”), that is a joint venture between Vale and Mitsui, in which each company holds 50% of the share capital. The NLC’s main assets are the railways and port concessions located in Mozambique and Malawi.

 

In April 2021, the Company signed an Investment Agreement with Mitsui for the acquisition by Vale of the totality of Mitsui´s interest in Vale Moçambique and NLC, which was concluded on June 22, 2021. With the conclusion, the following events have occurred:

 

(a.i) Acquisition of non-controlling interest in Vale Moçambique

 

The Company acquired the 15% interest held by Mitsui in Vale Moçambique for an immaterial consideration, which resulted in a loss of R$1,666 (US$331 million) due to the negative reserves of Vale Moçambique at the conclusion of the transaction. This transaction with non-controlling interests was recognized in Stockholders’ Equity for the period ended June 30,2021 as “Acquisition and disposal of non-controlling interest”. After the acquisition of the interests previously held by Mitsui, the Company holds 95% of the share capital of Vale Moçambique and the remaining interest is held by the government of Mozambique.

 

(a.ii) Business combinations - NLC

 

On June 22, 2021, the acquisition was concluded with the settlement of NLC’s loans with third parties (“Project Finance”), in the amount of R$ 12,665 (US$2,517 million), satisfying all conditions to acquire the additional 50% held by Mitsui. Therefore, the Company started consolidating the NLC’s assets and liabilities on its balance sheet.

 

Additionally, the Company has updated the discounted cash flow model to assess the fair value of the acquired business, resulting in a loss of R$3,880 (US$771 million) (R$4,015 (US$798 million) as at December 31, 2020) on the fair value of the loans receivable from NLC, mainly due to the decrease in the long-term price assumption for both metallurgical and thermal coal as well as the reduction in the expected production to reflect the operational challenges to reach the ramp-up of the coal business, after the revamp of the processing plants. The cash flows were discounted at a rate of 11.6%, and the loss was recognized as “Impairment and disposals of non-current assets” for the three-months period ended June 30, 2021.

 

The fair values of identifiable assets acquired and liabilities assumed as a result of the NLC’s acquisition are as follows:

 

  June 22, 2021 
Acquired assets    
  Cash and cash equivalents  865 
  Inventory, recoverable tax and other assets  2,128 
Intangible  11,166 
  Property, plant and equipment  6,858 
Assumed liabilities  (795)
Net identifiable assets acquired  20,223 
  Fair value adjustments (i)  (8,001)
Total identifiable net assets at fair value (ii)  12,222 
     
Pre-existing relationship (Loans receivable from NLC)  4,322 
Loss on pre-existing relationship  (3,880)
   12,665 
     
Cash consideration  12,665 
(-) Balances acquired    
  Cash and cash equivalents  865 
Net cash outflow  11,800 

 

(i) Of this amount, R$2,218 was allocated to property, plant and equipment and R$3,978 was allocated to intangible and the remaining amount was allocated to other assets.

(ii) The fair value was assessed using the fair value less costs of disposal model, through discounted cash flow techniques, which is classified as “level 3” in the fair value hierarchy. The cash flows were discounted by using a post-tax discount rate expressed in real terms, which represents an estimate of the rate that a market participant would apply having regard to the time value of money and the asset’s specific risk.

 

22

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

(a.iii) Reclassification of the cumulative translation adjustments

 

On the announcement of the Investment Agreement with Mitsui, the Company has also informed the market its divestiture intention in the coal segment. However, the Company has assessed that the criteria to classify the coal segment as a “discontinued operation” have not been met yet, since the conclusion of an eventual sale to a third party within the next 12 months is not deemed highly probable under IFRS 5 - Non-current assets held for sale and discontinued operations. The Company will continue assessing at each reporting date whether the coal segment meets the “discontinued operation”criteria.

 

Furthermore, the Company assessed that its Australian entities (part of the coal segment), which are no longer operational, were considered "abandoned" under IAS 21 - The Effects of Changes in Foreign Exchange Rates and, therefore, the Company recognized a gain related to the accumulated translation adjustments in the amount of R$2,134 (US$424 million), which was reclassified to net income as “Impairment and disposals of non-current assets” for the three-months period ended June 30, 2021.

 

b)Other acquisitions and divestitures

 

Boston Electrometallurgical Company (“Boston Metal”) – In February 2021, the Company made an investment of R$33 (US$6 million) in Boston Metal to acquire a non-controlling interest of 3.24%, aiming promote the development of a technology focused on the reduction of carbon dioxide on the steel production. Boston Metal has a diverse shareholding structure which includes venture capital funds, mining companies and private investors. Since the Company does not have significant influence over Boston Metal, this investment has been classified as a financial instrument and recorded as “Investments in equity securities”.

 

Vale Nouvelle-Calédonie S.A.S. (“VNC”) – In December 2020, the Company signed a binding put option agreement to sell its interest in VNC for an immaterial consideration to a consortium constituted in a new company called “Prony Resources”, led by the current management and employees of VNC and supported by the Caledonian and French authorities with Trafigura Pte. Ltd. as a non-controlling shareholder. Under the terms of agreement, the Company has assumed an obligation to pay to the buyers an amount of R$2,573 (US$500 million) upon closing of the transaction and this amount has been provided for as at December 31, 2020.

 

In March 2021, the Company signed the share purchase and sale agreement with Prony Resources, concluding the transaction to sell its interest in VNC. With the final agreement, Vale's obligation to pay to buyers increased by R$302 (US$55 million), which combined with other working capital adjustments, resulted in an additional loss of R$549 (US$98 million), recorded as “Impairment and disposals of non-current assets”. On March 31, 2021, the Company disbursed R$3,134 (US$555 million) to VNC on the closing of the transaction, thus the liabilities recorded as at December 31, 2020 were settled and there is no outstanding balance in these interim financial statements.

 

The agreement also established that Vale may purchase a certain amount of VNC’s annual nickel production with a cap price over a period of 13 years. Such cap included in contract is an embedded derivative, however, it is deemed closely related to the host contract (nickel supply agreement) because the cap was out of the money on inception of the contract. Therefore, this derivative will not be separated from the host contract, which will be accounted for as an executory contract.

 

Upon closing of the transaction, the Company also recognized a gain of R$6,391 (US$1,132 million) arising from the accumulated exchange differences reclassified from the stockholders’ equity to the income statement under “Other financial items, net”.

 

Companhia Paulista de Ferroligas ("CPFL"), Valesul Alumínio S.A. ("Valesul") and Minerações Brasileiras Reunidas S.A. ("MBR") - In April 30, 2021, the Company approved (i) the merger of the spun-off net assets of MBR and (ii) the total merger of CPFL and Valesul into Vale, which already held 100% interest in the merged companies. The merger did not result in the issuance of new shares or changed Vale's share capital, and the respective net assets were incorporated.

 

23

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

13.       Investments in associates and joint ventures

 

a) Investment information

 

        Consolidated 
        Investments in associates and
joint ventures
  Equity results in the income statement  Dividends received 
              Three-month period
ended June 30,
  Six-month period
ended June 30,
  Three-month period
ended June 30,
  Six-month period
ended June 30,
 
Associates and joint ventures % ownership  % voting
capital
  June 30, 2021  December 31,
2020
  2021  2020  2021  2020  2021  2020  2021  2020 
Ferrous minerals                                                
Baovale Mineração S.A.  50.00   50.00   117   103   7   6   14   11   -   -   -   - 
Companhia Coreano-Brasileira de Pelotização  50.00   50.00   306   249   55   10   84   25   9   89   9   89 
Companhia Hispano-Brasileira de Pelotização (i)  50.89   50.89   207   223   1   4   1   16   35   72   35   72 
Companhia Ítalo-Brasileira de Pelotização (i)  50.90   51.00   290   228   45   27   67   51   30   119   30   119 
Companhia Nipo-Brasileira de Pelotização (i)  51.00   51.11   674   627   49   30   67   40   40   -   40   - 
MRS Logística S.A.  48.16   46.75   2,211   2,069   97   77   191   68   -   -   -   - 
Samarco Mineração S.A. (note 21)  50.00   50.00   -   -   -   -   -   -   -   -   -   - 
VLI S.A.  29.60   29.60   2,450   2,495   36   39   (47)  (92)  -   -   -   - 
           6,255   5,994   290   193   377   119   114   280   114   280 
Base metals                                                
Korea Nickel Corp.  25.00   25.00   85   91   1   -   1   2   -   -   -   - 
           85   91   1   -   1   2   -   -   -   - 
Others                                                
Aliança Geração de Energia S.A. (i)  55.00   55.00   1,860   1,909   36   38   91   84   116   126   116   126 
Aliança Norte Energia Participações S.A. (i)  51.00   51.00   591   606   (10)  (11)  (16)  (15)  -   -   -   - 
California Steel Industries, Inc.  50.00   50.00   1,476   1,218   255   26   323   (2)  -   -   -   - 
Companhia Siderúrgica do Pecém ("CSP") (ii)  50.00   50.00   -   -   -   -   (237)  (364)  -   -   -   - 
Mineração Rio do Norte S.A.  40.00   40.00   351   367   36   (9)  (15)  (55)  -   -   -   - 
Others          373   372   (59)  (9)  (137)  (62)  -   3   -   3 
           4,651   4,472   258   35   9   (414)  116   129   116   129 
Total          10,991   10,557   549   228   387   (293)  230   409   230   409 

 

24

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

(i) Although the Company held a majority of the voting capital, the entities are accounted under the equity method due to the stockholders' agreement where relevant decisions are shared with other parties.

(ii) CSP is a joint venture and its results are accounted for under the equity method, in which the accumulated losses are capped to the Company ́s interest in the investee’s capital based on the applicable law and requirements. That is, after the investment is reduced to zero, the Company does not recognize further losses nor liabilities associated with the investee.

(iii) “Equity results and other results in associates and joint ventures” presented in the Income Statement considers, in addition to the equity results in associates and joint ventures shown in the table above, the results of Renova Foundation and Samarco (note 21) and other results with group entities.

 

b) Movements during the period

 

  Consolidated 
  2021  2020 
Balance at January 1,  10,557   11,278 
Capital contribution to CSP  237   365 
Translation adjustment  (74)  426 
Equity results in income statement  387   (293)
Equity results in statement of comprehensive income  -   (8)
Dividends declared  (260)  (488)
Others  144   63 
Balance at June 30,  10,991   11,343 

 

The amount of investments by segments are presented in note 4(b).

 

c) Financial guarantees provided

 

As at June 30, 2021 and December 31, 2020, the notional value of corporate financial guarantees provided by the Company (within the limit of its direct or indirect interest) for certain associates and joint ventures were R$7,798 (US$1,559 million) and R$8,091 (US$1,557 million), respectively. The fair value of these financial guarantees is shown in note 17.

 

14.       Intangibles

 

Movements during the period

 

  Consolidated 
  Goodwill  Concessions  Contract right  Software  Research and
development
project and
patents
  Total 
Balance at December 31, 2020 17,141  28,015  -  396  2,757  48,309 
Additions  -   307   -   112   -   419 
Disposals  -   (29)  -       -   (29)
Amortization  -   (618)  -   (85)  -   (703)
Acquisition of NLC (note 12)  -   7,188   -   -   -   7,188 
Translation adjustment  (128)  (42)  -   (4)  -   (174)
Balance at June 30, 2021  17,013   34,821   -   419   2,757   55,010 
Cost  17,013   40,511   -   3,947   2,757   64,228 
Accumulated amortization  -   (5,690)  -   (3,528)  -   (9,218)
Balance at June 30, 2021  17,013   34,821   -   419   2,757   55,010 
                         
   Consolidated 
   Goodwill   Concessions   Contract right   Software   Research and
development
project and
patents
   Total 
Balance at December 31, 2019  14,628   16,005   563   304   2,757   34,257 
Additions  -   358   -   37   -   395 
Disposals  -   (18)  -   -   -   (18)
Amortization  -   (451)  (3)  (57)  -   (511)
Translation adjustment  2,431   -   139   29   2   2,601 
Balance at June 30, 2020  17,059   15,894   699   313   2,759   36,724 
Cost  17,059   20,767   1,221   3,734   2,759   45,540 
Accumulated amortization  -   (4,873)  (522)  (3,421)  -   (8,816)
Balance at June 30, 2020  17,059   15,894   699   313   2,759   36,724 

 

25

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

15.       Property, plant and equipment

 

a) Movements during the period

 

  Consolidated 
  Building
and land
  Facilities  Equipment  Mineral
properties
  Railway
equipment
  Right of
use assets
  Others  Constructions
in progress
  Total 
Balance at December 31, 2020 44,646  39,448  25,637  41,853  13,108  8,121  12,968  28,055  213,836 
Additions (i)  -   -   -   -   -   247   -   11,558   11,805 
Disposals  (10)  (14)  (66)  -   (5)  -   (1)  (146)  (242)
Assets retirement obligation (ii)  -   -   -   (1,424)  -   -   -   -   (1,424)
Depreciation, depletion and amortization  (1,224)  (1,258)  (1,792)  (1,373)  (421)  (440)  (703)  -   (7,211)
Impairment (iii)  -   -   -   -   -   -   -   (465)  (465)
Acquisition of NLC (note 12)  1,185   2,293   515   -   10   167   10   460   4,640 
Translation adjustment  (298)  (110)  (238)  (141)  (14)  (237)  (79)  (304)  (1,421)
Transfers  418   1,074   1,604   919   278   -   626   (4,919)  - 
Balance at June 30, 2021  44,717   41,433   25,660   39,834   12,956   7,858   12,821   34,239   219,518 
Cost  79,561   63,728   56,289   87,063   20,239   10,059   28,571   34,239   379,749 
Accumulated depreciation  (34,844)  (22,295)  (30,629)  (47,229)  (7,283)  (2,201)  (15,750)  -   (160,231)
Balance at June 30, 2021  44,717   41,433   25,660   39,834   12,956   7,858   12,821   34,239   219,518 

 

  Consolidated 
  Building
and land
  Facilities  Equipment  Mineral
properties
  Railway
equipment
  Right of
use assets
  Others  Constructions
in progress
  Total 
Balance at December 31, 2019 43,137  38,713  22,921  33,302  13,064  6,819  12,137  17,640  187,733 
Additions (i)  -   -   -   -   -   166   -   8,974   9,140 
Disposals  (13)  (17)  (17)  (38)  (4)  -   (15)  (160)  (264)
Assets retirement obligation  -   -   -   1,770   -   -   -   -   1,770 
Depreciation, depletion and amortization  (1,091)  (1,349)  (1,930)  (1,267)  (567)  (402)  (670)  -   (7,276)
Impairment  (947)  (1,289)  (93)  (692)  -   (3)  (342)  (529)  (3,895)
Translation adjustment  3,993   2,385   4,218   6,771   336   1,805   1,293   1,239   22,040 
Transfers  575   754   972   1,779   274   -   732   (5,086)  - 
Balance at June 30, 2020  45,654   39,197   26,071   41,625   13,103   8,385   13,135   22,078   209,248 
Cost  78,486   59,276   55,725   87,228   19,598   10,062   30,662   22,078   363,115 
Accumulated depreciation  (32,832)  (20,079)  (29,654)  (45,603)  (6,495)  (1,677)  (17,527)  -   (153,867)
Balance at June 30, 2020  45,654   39,197   26,071   41,625   13,103   8,385   13,135   22,078   209,248 

 

(i) Includes capitalized borrowing costs.

(ii) Refers to changes in discount rates.

(iii) Due to the Company's assessment of the fair value of the coal assets, the assets acquired during the year are provided for impairment in full. In the current year, the Company recognized an impairment loss related to coal assets acquired this year in the amount of R$465.

 

b) Right-of-use assets (Leases)

 

  December 31,
2020
  Additions and contract
modifications
  Depreciation  Translation
adjustment
  June 30, 2021 
Ports  3,732   -   (122)  (112)  3,498 
Vessels  2,779   -   (115)  (94)  2,570 
Pellets plants  683   200   (104)  -   779 
Properties  579   16   (68)  (14)  513 
Energy plants  287   2   (18)  (4)  267 
Mining equipment and locomotives (i)  61   196   (13)  (13)  231 
Total  8,121   414   (440)  (237)  7,858 

 

(i) "Additions and contract modifications" includes the effects arising from the acquisition of NLC in the amount of R$167.

 

Lease liabilities are presented in note 19.

 

26

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

16.       Financial and capital risk management

 

a) Effects of derivatives on the balance sheet

 

  Consolidated 
  Assets 
  June 30, 2021  December 31, 2020 
  Current  Non-current  Current  Non-current 
Foreign exchange and interest rate risk                
CDI & TJLP vs. US$ fixed and floating rate swap  5   5   -   - 
IPCA swap  45   210   37   197 
Eurobonds swap  -   -   -   13 
Pre-dollar swap and forward (NDF)  487   723   -   46 
Libor swap  -   25   -   - 
   537   963   37   256 
Commodities price risk                
Base metals products  34   9   158   - 
Gasoil, Brent and freight  498   -   503   - 
   532   9   661   - 
                 
Others  -   76   -   91 
   -   76   -   91 
Total  1,069   1,048   698   347 
                 
  Consolidated 
  Liabilities 
  June 30, 2021  December 31, 2020 
  Current  Non-current  Current  Non-current 
Foreign exchange and interest rate risk                
CDI & TJLP vs. US$ fixed and floating rate swap  480   2,038   576   2,724 
IPCA swap  2   460   382   520 
Eurobonds swap  -   -   19   - 
Pre-dollar swap and forward (NDF)  242   50   324   303 
Libor swap  10   10   5   31 
   734   2,558   1,306   3,578 
Commodities price risk                
Base metals products  235   -   242   - 
Gasoil, Brent and freight  -   -   64   - 
Thermal coal  10   54   -   - 
   245   54   306   - 
                 
Others  44   -   100   - 
Total  1,023   2,612   1,712   3,578 

 

a.i) Net exposure

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap  (2,508)  (3,300)
IPCA swap  (207)  (668)
Eurobonds swap  -   (6)
Pre-dollar swap and forward (NDF)  918   (581)
Libor swap (i)  5   (36)
   (1,792)  (4,591)
Commodities price risk        
Base metals products  (192)  (84)
Gasoil, Brent and freight  498   439 
Thermal coal  (64)  - 
   242   355 
         
Others  32   (9)
   32   (9)
Total  (1,518)  (4,245)
         

 

(i) In July 2017, the U.K. Financial Conduct Authority (FCA), which regulates the London Interbank Offered Rate (‘‘LIBOR’’), announced the effective discontinuation of LIBOR. After June 30, 2023, the FCA will no longer require panel banks to submit quotes for any U.S. dollar LIBOR settings. The Company is currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.

 

27

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

a.ii)       Effects of derivatives on the income statement and cash flows

 

  Consolidated 
  Gain (loss) recognized in the income statement 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Foreign exchange and interest rate risk                
CDI & TJLP vs. US$ fixed and floating rate swap  1,732   (969)  243   (4,095)
IPCA swap  287   (123)  367   (1,212)
Eurobonds swap  -   38   (154)  (107)
Pre-dollar swap and forward (NDF)  2,189   (146)  1,053   (807)
Libor swap  (14)  -   39   - 
   4,194   (1,200)  1,548   (6,221)
Commodities price risk                
Base metals products  -   3   (13)  3 
Gasoil, Brent and freight  336   540   565   (1,098)
   336   543   552   (1,095)
Others  22   236   30   501 
   22   236   30   501 
Total  4,552   (421)  2,130   (6,815)

 

  Consolidated 
  

Financial settlement

inflows (outflows)

 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Foreign exchange and interest rate risk                
CDI & TJLP vs. US$ fixed and floating rate swap  (42)  (168)  (528)  (248)
IPCA swap  -   -   (97)  1 
Eurobonds swap  -   -   (162)  (24)
Pre-dollar swap and forward (NDF)  (27)  42   (450)  (58)
Libor swap  (2)  -   (4)  - 
   (71)  (126)  (1,241)  (329)
Commodities price risk                
Base metals products  (6)  219   (39)  1,462 
Gasoil, Brent and freight  383   (702)  492   (706)
   377   (483)  453   756 
Others  -   11   -   307 
   -   11   -   307 
Total  306   (598)  (788)  734 
                 

 

a.iii) Hedge accounting

 

  Consolidated 
  Gain (loss) recognized in the other comprehensive income 
  Three-month period ended June 30,  Six-month period ended June 30, 
  2021  2020  2021  2020 
Net investments hedge  1,072   (632)  221   (3,026)
Thermal Coal Cash flow hedge  (37)  -   (37)  - 
Cash flow hedge (Nickel and Palladium)  (157)  (269)  (69)  8 

 

Net investment hedge:

 

In March 2021, the Company redeemed all its euro bonds (note 19). As a result, the amount of debt designated as a hedge instrument for this investment is R$11,662 (US$2,331 million) as at June 30,2021.

 

Cash flow hedge (Thermal Coal):

 

To reduce the volatility of its cash flow as a result of fluctuations in thermal coal prices, in May 2021, the Company implemented a Thermal Coal Revenue Hedge Program. Under this program, hedge transactions were executed through forward contracts to protect a portion of the projected sales of this product at fluctuating prices that is highly probable to occur. Hedge accounting treatment is being given to the program. The contracts are traded over-the-counter and the cash settlement in/out results are offset by the protected items' loss/gain results due to thermal coal price variations. In July 2021 (subsequent event), the Company also implemented a Metallurgical Coal Revenue Hedge program applying the same strategy.

 

28

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

  Notional (ton)     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value
by year
 
Flow June 30,
2021
  December 31,
2020
 Bought /
Sold
 Average strike
(US$/t oz)
 June 30,
2021
  December
31, 2020
 June 30,
2021
 June 30,
2021
 2021 
                      
Coal Revenue Hedging Program                             
Call Options  600,000   - S  108  (48)  -  (10) 16  (48)
Put Options  390,000   - B  105  (5)  -  (3) 28  (5)
Total              (53)  -  (13) 44  (53)

 

Cash Flow Hedge (Nickel):

 

  Notional (ton)     Fair value  Financial settlement Inflows (Outflows)  Value at
Risk
 Fair
value by
year
 
Flow June 30,
2021
  December 31,
2020
 Bought /
Sold
 Average
strike
(US$/ton)
 June 30, 2021  December
31, 2020
  June 30,
2021
  June 30,
2021
 2021 
                        
Nickel Revenue Hedging Program (i)                               
Call options  35,120   58,620 S  17,618  (204)  (239)  (43)  50  (204)
Put options  35,120   58,620 B  15,000  15   143   -   5  15 
Total              (189)  (96)  (43)  55  (189)

 

(i) With the hedge structure, the company ensures prices between US$15,000/t and US$17,618/t for the program’s sales volume.

 

Cash flow hedge (Palladium):

 

  Notional (t oz)     Fair value  Financial settlement Inflows (Outflows)  Value at Risk Fair value
by year
 
Flow June 30,
2021
  December 31,
2020
 Bought /
Sold
 Average
strike (US$/t oz)
 June 30,
2021
  December
31, 2020
  June 30,
2021
  June 30,
2021
 2021 
                        
Palladium Revenue Hedging Program                               
Call Options  67,362   7,200 S  3,437  (55)  (5)  (2)  15  (55)
Put Options  67,362   7,200 B  2,397  73   1   -   14  73 
Total              18   (4)  (2)  29  18 

 

29

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

b) Protection programs for the R$ and EUR denominated debt instruments and other liabilities

 

  Notional      Fair value  Financial Settlement Inflows (Outflows) Value at Risk Fair value by year 
Flow June 30, 2021 December 31,
2020
 Index Average rate  June 30, 2021 December 31, 2020  June 30, 2021 June 30,
2021
 2021 2022 2023+ 
                          
CDI vs. US$ fixed rate swap               (1,841) (2,454)  (155) 213  (130) (392) (1,319)
Receivable  R$ 8,841  R$ 9,445  CDI  100.53%                       
Payable  US$ 2.072  US$ 2.213  Fix  2.57%                       
                                     
TJLP vs. US$ fixed rate swap               (668) (846)  (136) 42  (114) (198) (356)
Receivable  R$ 1,421  R$ 1,651  TJLP +  1.12%                       
Payable  US$ 390  US$ 460  Fix  3.11%                       
                                     
R$ fixed rate vs. US$ fixed rate swap               308  (575)  (490) 129  48  (132) 392 
Receivable  R$ 6,671  R$ 2,512  Fix  3.58%                       
Payable  US$ 1.265  US$ 621  Fix  -1.60%                       
                                     
IPCA vs. US$ fixed rate swap               (453) (900)  (352) 45  4  -  (457)
Receivable  R$ 1,617  R$ 2,363  IPCA +  4.54%                       
Payable  US$ 400  US$ 622  Fix  3.88%                       
                                     
IPCA vs. CDI swap               245  232   -  2  34  211  - 
Receivable  R$ 726  R$ 694  IPCA +  6.63%                       
Payable  R$ 1,350  R$ 550  CDI  98.76%                       
                                     
EUR fixed rate vs. US$ fixed rate swap               -  (6)  (162) -  -  -  - 
Receivable  -  EUR 500  Fix  0.00%                       
Payable  -  US$ 613  Fix  0.00%                       
                                     
Forward  R$ 7,020  R$ 916  B  5.98   610  (6)  61  115  85  319  206 

 

c) Protection program for Libor floating interest rate US$ denominated debt

 

  Notional      Fair value  Financial Settlement Inflows (Outflows)  Value at Risk Fair value by year 
Flow June 30, 2021 December 31,
2020
 Index Average rate  June 30, 2021 December 31, 2020  June 30,
2021
  June 30,
2021
 2021 2022 2023+ 
                           
Libor vs. US$ fixed rate swap               5  (36)  (3)  13  (4) (3) 12 
Receivable  US$ 950  US$ 950  Libor  0.13%                        
Payable  US$ 950  US$ 950  Fix  0.48%                        

 

d) Protection program for product prices and input costs

 

  Notional   Average Fair value Financial settlement Inflows (Outflows) Value at
Risk
 Fair
value by
year
 
Flow June 30, 2021 December 31,
2020
 Bought /
Sold
 strike
(US$/bbl)
 June 30, 2021 December
31, 2020
 June 30,
2021
 June 30,
2021
 2021+ 
                    
Brent crude oil (bbl)                           
Call options  4,488,809  13,746,945 B  55  238  478  610  33  238 
Put options  4,488,809  13,746,945 S  29  -  (59) -  -  - 
                            
Forward Freight Agreement (days)                           
Freight forwards (days)  990  1,625 B  23,302  73  22  22  14  73 

 

30

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

e) Embedded derivatives in contracts

 

  Notional     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value 
Flow June 30,  
2021
 December 31, 2020 Bought /
Sold
 Average
strike
 June 30,
2021
 December
31, 2020
 June 30,
2021
 June 30,
2021
 2021+ 
                    
Option related to a Special Purpose Entity “SPE” (quantity)                           
Call option  137,751,623  137,751,623 B  3.02  76  95  -  10  76 
                            
Embedded derivatives in contracts for the sale of part of its shareholding (quantity)                           
Put option  1,105,070,863  1,105,070,863 S  4.38  (27) (100) -  9  (27)
                            
Embedded Derivative in natural gas purchase agreement (volume/month)                           
Call options  729,571  746,667 S  233  (18) -  -  14  (18)
                            
Hedge program for finished products                           
Nickel forwards  604  - S  18,147  -  -  1  2  - 
                            
Fixed prices sales protection                           
Nickel forwards  626  - B  16,341  6  -  4  2  6 
                            
Embedded in raw material purchase contract (ton)                           
Nickel forwards  3,436  1,979 S  17,120  (16) 10  -  9  (16)
Copper forwards  1,247  976 S  9,620  1  2  -  1  1 

 

f) 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:

 

- Probable: the probable scenario was defined as the fair value of the derivative instruments as at June 30, 2021

- Scenario I: fair value estimated considering a 25% deterioration in the associated risk variables

- Scenario II: fair value estimated considering a 50% deterioration in the associated risk variables

 

31

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Instrument Instrument's main risk events Probable  Scenario I  Scenario II 
            
CDI vs. US$ fixed rate swap R$ depreciation  (1,841)  (4,504)  (7,167)
  US$ interest rate inside Brazil decrease  (1,841)  (1,982)  (2,128)
  Brazilian interest rate increase  (1,841)  (2,009)  (2,184)
Protected item: R$ denominated liabilities R$ depreciation   n.a.   -   - 
               
TJLP vs. US$ fixed rate swap R$ depreciation  (668)  (1,180)  (1,692)
  US$ interest rate inside Brazil decrease  (668)  (685)  (703)
  Brazilian interest rate increase  (668)  (725)  (777)
  TJLP interest rate decrease  (668)  (706)  (745)
Protected item: R$ denominated debt R$ depreciation   n.a.   -   - 
               
R$ fixed rate vs. US$ fixed rate swap R$ depreciation  308   (1,229)  (2,766)
  US$ interest rate inside Brazil decrease  308   266   223 
  Brazilian interest rate increase  308   94   (106)
Protected item: R$ denominated debt R$ depreciation   n.a.   -   - 
               
IPCA vs. US$ fixed rate swap R$ depreciation  (453)  (994)  (1,536)
  US$ interest rate inside Brazil decrease  (453)  (482)  (514)
  Brazilian interest rate increase  (453)  (546)  (637)
  IPCA index decrease  (453)  (507)  (562)
Protected item: R$ denominated debt R$ depreciation   n.a.   -   - 
               
IPCA vs. CDI swap Brazilian interest rate increase  245   232   219 
  IPCA index decrease  245   235   226 
Protected item: R$ denominated debt linked to IPCA IPCA index decrease   n.a.   (235)  (226)
               
US$ floating rate vs. US$ fixed rate swap US$ Libor decrease  5   (22)  (48)
Protected item: Libor US$ indexed debt US$ Libor decrease  n.a.   22   48 
               
NDF BRL/USD R$ depreciation  610   (830)  (2,271)
  US$ interest rate inside Brazil decrease  610   580   549 
  Brazilian interest rate increase  610   466   329 
Protected item: R$ denominated liabilities R$ depreciation  n.a.   -   - 

 

32

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Instrument Instrument's main risk events Probable  Scenario I  Scenario II 
            
Fuel oil protection              
Options Price input decrease  238   90   70 
Protected item: Part of costs linked to fuel oil prices Price input decrease  n.a.   (90)  (70)
               
Forward Freight Agreement              
Forwards Freight price decrease  73   26   (21)
Protected item: Part of costs linked to maritime freight prices Freight price decrease  n.a.   (26)  21 
               
Nickel sales fixed price protection              
Forwards Nickel price decrease  6   (8)  (23)
Protected item: Part of nickel revenues with fixed prices Nickel price decrease  n.a.   8   23 
               
Nickel Revenue Hedging Program              
Options Nickel price increase  (189)  (800)  (1,485)
Protected item: Part of nickel future revenues Nickel price increase  (189)  800   1,485 
               
Palladium Revenue Hedging Program              
Options Palladium price increase  18   (114)  (280)
Protected item: Part of palladium future revenues Palladium price increase  18   114   280 
               
Thermal Coal Revenue Hedging Program              
Options Thermal coal price increase  (54)  (199)  (344)
Protected item: Part of thermal coal future revenues Thermal coal price increase  (54)  199   344 
               
Option - SPCs SPCs stock value decrease  76   23   2 

 

Instrument Main risks Probable  Scenario I  Scenario II 
            
Embedded derivatives - Raw material purchase (nickel) Nickel price increase  (16)  (93)  (170)
Embedded derivatives - Raw material purchase (copper) Copper price increase  1   (14)  (29)
Embedded derivatives - Gas purchase Pellet price increase  (18)  (42)  (65)
Embedded derivatives - Guaranteed minimum return Stock value decrease  (27)  (304)  (1,437)

 

g) Financial counterparties’ ratings

 

The table below presents the ratings published by Moody’s regarding the main financial institutions that we hire derivative instruments, cash and cash equivalents transactions.

 

   Consolidated 
   June 30, 2021  December 31, 2020 
   Cash and cash equivalents
and short-term investment
  Derivatives  Cash and cash
equivalents and
short-term investment
  Derivatives 
Aa1   470   -   11,487   188 
Aa2   1,921   65   1,884   79 
Aa3   3,016   205   8,735   214 
A1   20,629   100   14,612   109 
A2   22,155   650   20   105 
A3   5,172   335   27   188 
Baa1   -   -   18   - 
Baa2   95   -   8   - 
Ba1   -   175   15,516   - 
Ba2   12,761   255   21,767   31 
Ba3   6,398   65   -   - 
Others   417   267   18   131 
    73,034   2,117   74,092   1,045 

 

33

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

17.       Financial assets and liabilities

 

a) Financial instruments classification

 

  Consolidated 
  June 30, 2021  December 31, 2020 
 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 (note 19)  68,275   -   -   68,275   70,086   -   -   70,086 
Short-term investments (note 19)  -   -   4,759   4,759   -   -   4,006   4,006 
Derivative financial instruments (note 16)  -   -   1,069   1,069   -   -   698   698 
Accounts receivable (note 9)  11,334   -   13,448   24,782   7,865   -   18,079   25,944 
Related parties (note 26)  -   -   -   -   1,009   -   -   1,009 
   79,609   -   19,276   98,885   78,960   -   22,783   101,743 
Non-current                                
Judicial deposits (note 23)  6,633   -   -   6,633   6,591   -   -   6,591 
Restricted cash  626   -   -   626   197   -   -   197 
Derivative financial instruments (note 16)  -   -   1,048   1,048   -   -   347   347 
Investments in equity securities  -   5,485   -   5,485   -   3,936   -   3,936 
Related parties (note 26)  -   -   -   -   4,791   -   -   4,791 
   7,259   5,485   1,048   13,792   11,579   3,936   347   15,862 
Total of financial assets  86,868   5,485   20,324   112,677   90,539   3,936   23,130   117,605 
                                 
Financial liabilities                                
Current                                
Suppliers and contractors  18,893   -   -   18,893   17,496   -   -   17,496 
Derivative financial instruments (note 16)  -   -   1,023   1,023   -   -   1,712   1,712 
Loans, borrowings and leases (note 19)  4,963   -   -   4,963   5,901   -   -   5,901 
Dividends payable  133   -   -   133   6,342   -   -   6,342 
Liabilities related to the concession grant (note 14)  1,745   -   -   1,745   1,088   -   -   1,088 
Related parties (note 26)  941   -   -   941   3,759   -   -   3,759 
Other financial liabilities (note 11)  4,026   -   -   4,026   3,347   -   -   3,347 
   30,701   -   1,023   31,724   37,933   -   1,712   39,645 
Non-current                                
Derivative financial instruments (note 16)  -   -   2,612   2,612   -   -   3,578   3,578 
Loans, borrowings and leases (note 19)  64,380   -   -   64,380   72,187   -   -   72,187 
Related parties (note 26)  -   -   -   -   4,655   -   -   4,655 
Participative stockholders' debentures (note 18)  -   -   23,447   23,447   -   -   17,737   17,737 
Liabilities related to the concession grant (note 14)  9,784   -   -   9,784   10,928   -   -   10,928 
Financial guarantees (note 13)  -   -   2,745   2,745   -   -   4,558   4,558 
   74,164   -   28,804   102,968   87,770   -   25,873   113,643 
Total of financial liabilities  104,865   -   29,827   134,692   125,703   -   27,585   153,288 

 

b) Hierarchy of fair value

 

  Consolidated 
  June 30, 2021  December 31, 2020 
  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
Financial assets                                
Short-term investments  4,759   -   -   4,759   4,006   -   -   4,006 
Derivative financial instruments  -   2,041   76   2,117   -   950   95   1,045 
Accounts receivable  -   13,448   -   13,448   -   18,079   -   18,079 
Investments in equity securities  5,485   -   -   5,485   3,936   -   -   3,936 
Total  10,244   15,489   76   25,809   7,942   19,029   95   27,066 
                                 
Financial liabilities                                
Derivative financial instruments  -   3,608   27   3,635   -   5,190   100   5,290 
Participative stockholders' debentures  -   23,447   -   23,447   -   17,737   -   17,737 
Financial guarantees  -   2,745   -   2,745   -   4,558   -   4,558 
Total  -   29,800   27   29,827   -   27,485   100   27,585 

 

There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the six-month period ended June 30, 2021.

 

34

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

b.i) Changes in Level 3 assets and liabilities during the period

 

  Consolidated 
  Derivative financial instruments 
   Financial assets   Financial liabilities 
Balance at December 31, 2020  95   100 
Gain and losses recognized in income statement  (19)  (73)
Balance at June 30, 2021  76   27 

 

c) Fair value of loans and financing

 

  Consolidated 
  June 30, 2021  December 31, 2020 
   Carrying amount   Fair value   Carrying amount   Fair value 
Quoted in the secondary market:                
Bonds  37,259   46,832   38,708   52,100 
Eurobonds  -   -   4,783   5,118 
Debentures  2,177   2,177   2,577   2,578 
Debt contracts in Brazil in:                
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI  3,397   3,397   4,470   4,452 
R$, with fixed interest  121   124   180   180 
Basket of currencies and bonds in US$ indexed to LIBOR  256   268   290   291 
Debt contracts in the international market in:                
US$, with variable and fixed interest  16,902   17,011   16,759   17,036 
Other currencies, with variable interest  52   58   -   - 
Other currencies, with fixed interest  553   616   616   698 
Total  60,717   70,483   68,383   82,453 

 

Due to the short-term cycle, the fair value of cash and cash equivalents balances, financial investments, accounts receivable and accounts payable approximate their book values.

 

18.       Participative stockholders’ debentures

 

At the time of its privatization in 1997, the Company issued a total of 388,559,056 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. This obligation will cease when all the relevant mineral resources are exhausted, sold or otherwise disposed of by the Company.

 

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, derived from these mineral resources. On April 1, 2021, the Company made available for withdrawal as remuneration the amount of R$1,073 (US$193 million) for the second semester of 2020, as disclosed on the “Shareholders’ debentures report” made available on the Company’s website.

 

To calculate the fair value of the liability, the Company uses the weighted average price of trades in the secondary market for the last month of the quarter. The average price increased from R$45.65 per debenture for the year ended December 31, 2020 to R$60.34 per debenture for the period ended June 30, 2021 (R$29.04 for the period ended June 30, 2020), resulting in an expense of R$1,397 (US$278 million) and R$6,711 (US$1,261 million) recorded in the income statement for the three and six-month periods ended June 30, 2021 (R$1,236 (US$231 million) and R$1,339 (US$280 million) for the three and six-month periods ended June 30, 2020), respectively. As at June 30, 2021 the liability was R$23,447 (US$4,687 million) (R$17,737 (US$3,413 million) as at December 2020).

 

35

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

19.       Loans, borrowings, leases, 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.

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Debt contracts in the international markets  55,993   61,787 
Debt contracts in Brazil  4,802   7,639 
Leases  8,548   8,662 
Total of loans, borrowings and leases  69,343   78,088 
         
(-) Cash and cash equivalents  68,275   70,086 
(-) Short-term investments  4,759   4,006 
Net debt (cash)  (3,691)  3,996 

 

b)      Cash and cash equivalents

 

Cash and cash equivalents include cash, immediately redeemable deposits and short-term investments with an insignificant risk of change in value. They are readily convertible to cash, being R$16,882 (US$3,375 million) (R$14,805 (US$2,849 million) as at December 31, 2020) denominated in R$, indexed to the CDI, R$49,887 (US$9,973 million) (R$52,979 (US$10,195 million) as at December 31, 2020) denominated in US$ and R$1,506 (US$301 million) (R$2,302 (US$443 million) as at December 31, 2020) denominated in other currencies as at June 30,2021.

 

c)      Short-term investments

 

At June 30, 2021, the balance of R$4,759 (US$951 million) (R$4,006 (US$771 million) as at December 31, 2020) is substantially comprised of investments in an exclusive investment fund immediately liquid, whose portfolio is composed of committed transactions and Financial Treasury Bills (“LFTs”), which are floating-rate securities issued by the Brazilian government.

 

d)      Loans, borrowings and leases

 

i) Total debt

 

     Consolidated 
     Current liabilities  Non-current liabilities 
  Average interest
rate (i)
  June 30,
2021
  December 31,
2020
  June 30,
2021
  December 31,
2020
 
Quoted in the secondary market:                    
Bonds  6.01%  -   -   37,256   38,709 
Eurobonds      -   -   -   4,783 
Debentures  10.48%  250   555   1,891   2,021 
Debt contracts in Brazil in:                    
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI (ii)  9.29%  640   1,662   1,661   2,808 
R$, with fixed interest  2.76%  95   107   30   73 
Basket of currencies and bonds in US$ indexed to LIBOR  2.32%  165   232   -   58 
Debt contracts in the international market in:                    
US$, with variable and fixed interest  2.26%  1,626   942   15,371   15,817 
Other currencies, with variable interest  4.09%  430   -   50   - 
Other currencies, with fixed interest  3.35%  60   61   490   555 
Accrued charges      780   1,043   -   - 
Total      4,046   4,602   56,749   64,824 

 

(i) In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable as at June 30, 2021.

(ii) R$ denominated debt that bears interest at IPCA, CDI, TR or TJLP, plus spread. For a total of R$4,462 the Company entered into derivative transactions to mitigate the exposure to the cash flow variations of the floating rate debt denominated in R$, resulting in an average cost of 2.92% per year in US$.

 

Future flows of debt payments, principal and interest

 

   Consolidated 
   Principal  

Estimated future

interest payments (i)

 
2021   865   1,499 
2022   6,273   2,967 
2023   1,490   2,779 
2024   10,075   2,688 
Between 2025 and 2029   10,716   5,042 
2030 onwards   30,596   18,212 
Total   60,015   33,187 

 

(i) Based on interest rate curves and foreign exchange rates applicable as at June 30, 2021 and considering that the payments of principal will be made on their contracted payments dates. The amount includes the estimated interest not yet accrued and the interest already recognized in the interim financial statements.

 

36

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Credit and financing lines

 

The Company has two revolving credit facilities to assist the short-term liquidity management and to enable more efficiency in cash management in the available amount of R$25,010 (US$5,000 million), of which R$10,004 (US$2,000 million) will mature in 2022 and R$15,006 (US$3,000 million) in 2024. As at June 30, 2021, these lines are undrawn.

 

Funding and payments

 

In January 2021, the Company contracted the credit line R$1,633 (US$300 million) with The New Development Bank maturing at 2035 and indexed to Libor + 2.49% per year.

 

In March 2021, the Company redeemed all of its 3.750% bonds due January 2023, in the total amount of R$4,946 (EUR750 million) and for it paid a premium of R$354 (US$63 million), which was recorded as “Expenses with cash tender offer redemption” under the financial results for six-month period ended June 30, 2021

 

Covenants

 

Some of the Company’s debt agreements with lenders contain financial covenants. The primary financial covenants in those agreements require maintaining certain ratios, such as debt to EBITDA (LAJIDA) (as defined in note 4(a)) and interest coverage. The Company has not identified any instances of noncompliance as at June 30, 2021.

 

Reconciliation of debt to cash flows arising from financing activities

 

 Consolidated 
  Quoted in the
secondary market
  Debt contracts in Brazil  Debt contracts on the
international market
  Total 
December 31, 2020  47,010   4,980   17,436   69,426 
Additions  -   -   1,633   1,633 
Payments (i)  (5,500)  (744)  (1,689)  (7,933)
Interest paid  (437)  (455)  (1,408)  (2,300)
Cash flow from financing activities  (5,937)  (1,199)  (1,464)  (8,600)
                 
Effect of exchange rate  (1,312)  (1,535)  1,019   (1,828)
Interest accretion  342   355   1,100   1,797 
Non-cash changes  (970)  (1,180)  2,119   (31)
                 
June 30, 2021  40,103   2,601   18,091   60,795 

 

(i) Includes expenses with the redemption in the amount of R$4,946.

 

ii) Lease liabilities

 

  Consolidated 
  December 31,
2020
  Additions and
contract
modifications
  Payments (i)  Interest (ii)  Translation
adjustment
  June 30,
2021
 
Ports  3,860   -   (216)  73   (126)  3,591 
Vessels  2,770   -   (170)  59   (91)  2,568 
Pellets plants  708   200   (9)  16   -   915 
Properties  738   16   (130)  11   (23)  612 
Energy plants  322   2   (11)  16   (16)  313 
Mining equipment and locomotives (iii)  264   291   (27)  13   8   549 
Total  8,662   509   (563)  188   (248)  8,548 

 

(i) 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 three and six-month periods ended June 30, 2021 was R$411 and R$591 (R$51 and R$199 for the three and six-month periods ended June 30, 2020), respectively.

(ii) The interest accretion recognized in the income statement is disclosed in note 6.

(iii) "Additions and contract modifications" includes the effects arising from the acquisition of NLC in the amount of R$262.

 

37

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Annual minimum payments

 

  2021  2022  2023  2024  2025 onwards  Total 
Ports  174   315   308   303   4,013   5,113 
Vessels  162   317   309   302   2,024   3,114 
Pellets plants  223   202   67   67   581   1,140 
Properties  121   140   118   110   203   692 
Energy plants  17   35   33   29   305   419 
Mining equipment and locomotives  54   104   81   75   397   711 
Total  751   1,113   916   886   7,523   11,189 

 

The amounts in the table above presents the undiscounted lease obligation by maturity date. The lease liability recognized in the balance sheet is measured at the present value of such obligations.

 

e) Guarantees

 

As at June 30, 2021 and December 31, 2020, loans and borrowings are secured by property, plant and equipment in the amount of R$440 (US$88 million) and R$915 (US$176 million), respectively. The securities issued through Vale’s wholly-owned finance subsidiary Vale Overseas Limited are fully and unconditionally guaranteed by Vale.

 

20.       Brumadinho dam failure

 

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, including 10 victims still missing, and caused extensive property and environmental damage in the region.

 

As a result of the dam failure, the Company has recognized provisions to meet its assumed obligations, individual indemnification to those affected by the event, remediation of the affected areas and compensation to the society. The Company also recognized a provision for de-characterization of the dams. Below are the changes in during the current period:

 

  Consolidated 
  December 31,
2020
   Impact on the
income
statement
   Present value
adjustment
   Disbursements
(ii)
   June 30,
2021
 
Global Settlement for Brumadinho  20,726    -    (470)   (142)   20,114 
Provision for individual indemnification and other commitments  3,048    -    (36)   (660)   2,352 
Liabilities related to Brumadinho  23,774 -  - -  (506)-  (802)-  22,466 
                         
De-characterization of dams  11,897    -    (244)   (875)   10,778 
Incurred expenses (i)  -    1,590    -    (1,590)   - 
   35,671    1,590    (750)   (3,267)   33,244 

 

(i) The Company has incurred expenses, which have been recognized straight to the income statement, in relation to communication services, accommodation and humanitarian assistance, equipment, legal services, water, food aid, taxes, among others. For the three and six-month periods ended June 30, of 2021, the Company incurred expenses in the amount of R$953 and R$1,590, respectively (R$585 and R$1,293 for the three and six-month periods ended June 30, 2020).

(ii) Disbursement is presented net of the judicial deposits utilization.

 

a) Global Settlement for Brumadinho

 

On February 4, 2021, the Company entered into a Judicial Settlement for Integral Reparation (“Global Settlement”), which was under negotiations since 2019, with the State of Minas Gerais, the Public Defender of the State of Minas Gerais and the Federal and the State of Minas Gerais Public Prosecutors Offices, to repair the environmental and social damage resulting from the Dam I rupture. The Global Settlement was ratified by the Minas Gerais State Court on February 4, 2021 and the res judicata was drawn up on April 7, 2021.

 

With the Global Settlement, the requests contained in public civil actions regarding the socio-environmental and socioeconomic collective damages caused by the dam rupture were substantially resolved and the parameters for the reparation and compensation of said damages were established. As a result, the Company recorded an additional provision as at December 31, 2020.

 

38

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

The provision is discounted at presented value using an observable rate that reflects the current market assessments of the time value of money and the risks specific to the liability at the reporting date. During the current year, the discount rate applied on the provisions for the Global Settlement, individual indemnification and other commitments, has increased from 2.0% at December 31, 2020 to 3.7% at June 30, 2021.

 

Based on the present value of the projected cash outflows, the provision related to Global Settlement is detailed as follows:

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Cash settlement obligation, net of judicial deposits  11,905   12,172 
Provision for socio-economic reparation and others  4,267   4,468 
Provision for social and environmental reparation  3,942   4,086 
   20,114   20,726 

 

   June 30, 2021   December 31, 2020 
Current liabilities  9,784   8,110 
Non-current liabilities  10,330   12,616 
Liabilities  20,114   20,726 

 

(a.i) Cash settlement obligation

 

The cash settlement obligation relates to the socio-economic reparation and socio-environmental compensation projects that will be carried out or managed directly by the State of Minas Gerais and Institutions of Justice, mainly aiming to develop the urban mobility program and strengthening public service programs, as well as other projects that will be proposed by the affected population. In addition, resources will be used in a program of income transfer to those affected by the event, which will be carried out by Institutions of Justice. Of the total amount, R$4,400 (US$880 million) relates to the income transfer program that will be fully paid in 2021. The remaining amount of R$7,505 (US$1,500 million) is the present value of the semiannual fixed payments obligation, which will last 5 years on average.

 

(a.ii) Provision for socio-economic reparation and others

 

The Global Settlement includes remediation projects for Brumadinho and other affected municipalities of the Paraopeba basin. The socioeconomic reparation actions aims to strengthen the productive activities of the affected region, through measures for greater economic diversification of the municipality of Brumadinho, reducing its historical dependence on mining, and, for the rest of the Basin, finding ways to support the transformation of the economy of the impacted municipalities. These projects will be carried out directly by the Company for an average period of 3 years.

 

The estimated amounts for the project execution, although set in the agreement, may vary since the implementation of those projects are Vale's responsibility and changes against the original budget may result in changes in provision in future reporting periods.

 

(a.iii) Provision for social and environmental reparation

 

The Global Settlement establishes the rule for the development of the environmental reparation plan, and projects for the compensation of environmental damage already known. These measures aim to repair the damage caused, restore the ecosystems disruption, restore local infrastructure, repair social and economic losses, recover affected areas and repair the loss of memory and cultural heritage caused by the dam rupture. It also includes several actions to clean up the affected areas and improvements to the water catchment system along the Paraopeba River and other water collection points near the affected area. These measures and compensation projects will be carried out directly by the Company for an average period of 5 years.

 

The estimated amount to carry out the environmental recovery actions is part of the Global Settlement. However, it has no cap due

to the Company's legal obligation to fully repair the environmental damage caused by the dam rupture. Therefore, this provision may change in the future depending on several factors that are not under the control of the Company.

 

b) Provision for individual indemnification and other commitments

 

For the individual indemnification, Vale and the Public Defendants of the State of Minas Gerais formalized an agreement on April 5, 2019, 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, following rules and principles of the United Nations (“UN”). As at June 30, 2021, the provision recorded is R$789 (US$158 million) (R$930 (US$179 million) as at December 31, 2020).

 

39

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

In addition to the Global Settlement, the Company has been working 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 of Dam I. As at June 30, 2021, the provision recorded is R$1,262 (US$252 million) (R$1,387 (US$267 million) as at December 31, 2020).

 

In addition, the Company was notified of the imposition of administrative fines by the Brazilian Institute of the Environment and Renewable Natural Resources (“IBAMA”), in the amount of R$250 (US$50 million). The Company signed an agreement with IBAMA, of which R$150 (US$30 million) will be used in environmental projects in 7 parks in the state of Minas Gerais, covering an area of approximately 794 thousand hectares, and R$100 (US$20 million) will be used in basic sanitation programs in the state of Minas Gerais.

 

c) De-characterization of other dams in Brazil

 

Following the Brumadinho Dam rupture, the Company has decided to speed up the plan to “de-characterize” its tailings dams built under the upstream method (same method as Brumadinho’s dam), certain “centerline structures” and dikes, located in Brazil. The observable rate applied to the provision for the de-characterization of dams, increased from 3.5% at December 31, 2020 to 4.4% at June 30, 2021. The Company has a total provision to comply with these assumed obligations in the amount of R$10,778 (US$2,155 million) at June 30, 2021 (R$11,897 (US$2,289 million) as at December 31, 2020).

 

(c.i) Operation stoppages

 

The Company has suspended some operations due to judicial decisions or technical analysis performed by Vale on its upstream dam structures. The Company has been recording losses in relation to the operational stoppage and idle capacity of the ferrous mineral segment in the amounts of R$426 (US$80 million) and R$1,046 (US$193 million) for the three and six-months periods ended June 30,2021 (R$557 (US$104 million) and R$1,279 (US$267 million) for the three and six-months periods ended June 30, 2020), respectively. The Company is working on legal and technical measures to resume all operations at full capacity.

 

d) Contingencies and other legal matters

 

(d.i) Requests for fines or forfeit of assets

 

On August 26, 2020, the Public Prosecutor's Office of Minas Gerais (“MPMG”) and other plaintiffs of the Public Civil Actions presented a request for ruling condemning Vale to indemnify alleged economic losses of the State of Minas Gerais and collective moral damages, both claims already considered in said Public Civil Actions filed against Vale in January 2019 as a result of the Brumadinho dam rupture. In that submission, the plaintiffs also requested the immediate freezing of R$26,7 billion (US$5,1 billion) from the Company as a guarantee for the reimbursement of the alleged economic losses, which was dismissed by the judge of the 2nd Lower Court of Public Treasury of Belo Horizonte on October 6, 2020. This claim was extinguished with the Global Settlement.

 

In other proceeding, in May 2020, the MPMG requested the imposition of fines or forfeit of assets, rights and amounts of the Company, allegedly based on Article 5, item V of Brazilian Law 12.846/2013. According to the MPMG, Vale would have, through its employee’s actions, hindered the inspection activities of public agencies in the complex. Vale was not required to present any guarantees of R$7,9 billion (US$1,4 billion) based on a judicial decision. The Company believes that the likelihood of loss is remote. In January 2021, the Comptroller General of the State of Minas Gerais (“CGE”) notified Vale to present it defense against the Administrative Liability Proceeding (“PAR”) initiated based on the same article. Vale presented its defense in March 2021, and filed a writ of mandamus in the face of the establishment of this PAR, which had the injunction granted to suspend the proceeding of the PAR.

 

In October 2020, the Company was informed that the Brazilian Office of the Comptroller General (“CGU”) initiated an administrative proceeding based on the same allegations made by the MPMG. As this is a discretionary procedure from the CGU, the Company estimates its likelihood of a loss during the administrative phase as possible, but it reaffirms its assessment of loss as remote in the annulment lawsuit to be instituted against any decision by CGU, if necessary.

 

(d.ii) U.S. Securities putative class action suit

 

Vale is defending itself in a putative class action brought before a Federal Court in New York and filed by holders of securities - American Depositary Receipts ("ADRs") - issued by Vale. 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 adequacy of the related programs and procedures.

 

40

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Following the decision of the Court, in May 2020, that denied the Motion to Dismiss presented by the Company, the Discovery phase has started and the fact Discovery was expected to be concluded by June 2021. However, due to the pandemic, the fact Discovery term has been extended to be concluded by March 2022, the fact Discovery is currently ongoing. In parallel, in February 2021 the Plaintiff filed a motion for class certification, which we opposed on April, 2021. On June, 2021 a Reply was filed by the Plaintiff and rebuttal expert reports were filed by the parties. A decision by the Court on the motion for class certification is expected to be issued in the upcoming weeks.

 

Based on the evaluation of the Company's legal counsel and given the very preliminary stage, the expectation of loss of this process is classified as possible. However, considering the initial stage of this putative class action, it is not possible at this time to reliably estimate the amount of a potential loss.

 

(d.iii) Arbitration proceedings in Brazil filed by shareholders and a class association

 

In Brazil, Vale is a defendant in (i) one arbitration filed by 166 minority shareholders, (ii) one arbitration filed by a class association allegedly representing all Vale’s minority shareholders, and (iii) one arbitration filed by foreign investment funds.

 

In the three proceedings, the Claimants argue Vale would be aware of the risks associated with the dam, and failed to disclose it to the shareholders, which would be required under the Brazilian applicable laws and the rules of Comissão de Valores Mobiliários (Securities and Exchange Commission of Brazil). Based on such argument, they claim compensation for losses caused by the decrease of the value of the shares.

 

Based on the evaluation of the Company's legal counsel and given the very preliminary stage, the expectation of loss of these proceedings is classified as possible.

 

Specifically, in the proceeding filed by foreign funds, the Claimants estimated the amount of the alleged losses at approximately R$1,800 (US$346 million). However, the Company disagrees with the estimated losses alleged by the foreign funds and believes that the likelihood of loss is remote based on the current status of the proceeding.

 

(d.iv) Investigations by the CVM and the Securities and Exchange Commission (“SEC”)

 

The Company is cooperating with the CVM and the SEC by providing documents and other information related to the Dam I rupture in connection with ongoing investigations by both agencies. These investigations relate to Vale's disclosure of relevant information to shareholders, investors and the market in general, especially regarding the conditions and management of Vale's dams. The CVM and SEC investigations may result in the application of fines and administrative penalties either through negotiated resolutions or court proceedings.

 

(d.v) Criminal proceedings and investigations

 

In January 2020, the MPMG brought criminal charges against 16 individuals (including former executive officers of Vale 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 the Company cannot estimate when a decision on this criminal proceeding will be issued. The criminal action is currently suspended while the MPMG organizes the relevant documents to enable defendants to defend themselves properly.

 

(d.vi) Labor Collective Civil Action

 

In 2021, public civil actions were filed by a labor union in the Labor Court of Betim in the Brazilian State of Minas Gerais, claiming the indemnification payment for death damage to each direct and outsourced employee who has died due to the Dam I rupture. They are claiming to represent 246 workers and have requested indemnification payments ranging between R$1.5 (US$300 thousand) and R$3 (US$600 thousand) to each fatal victim. There has been an initial decision condemning Vale to pay R$1 (US$200 thousand) per each direct employees (131 fatal victims). Vale is defending itself against these actions and believes that, despite the lack of provision in the Brazilian legal framework, the likelihood of loss is deemed possible.

 

41

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

e) Insurance and financial guarantees

 

(e.i) Insurance

 

The Company is negotiating with insurers the payment of indemnification under its operational risk and civil liability. However, these negotiations are still at a preliminary stage, therefore any payment of insurance proceeds will depend on the coverage definitions under these policies and assessment of the amount of loss. Due to uncertainties, no indemnification to the Company was recognized in these interim financial statements.

 

(e.ii) Financial guarantees

 

In April 2021, the financial guarantees related to the Brumadinho event were released, due the Global Settlement. As at December 31, 2020, the Company had financial guarantees in the amount of R$5,843 (US$1,124 million).

 

21.       Liabilities related to associates and joint ventures

 

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.

 

In June 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’’). 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.

 

On April 9, 2021, Samarco announced the request for Judicial Reorganization (“RJ”) was filed with the Minas Gerais Court to renegotiate its debt, which is held by bondholders abroad. The purpose of RJ is to restructure Samarco’s debts and establish an independent and sustainable financial position, allowing Samarco to keep working to resume its operations safely and to fulfill its obligations related to the Renova Foundation.

 

The RJ does not affect Samarco's obligation to remediate and compensate the impacts of the Fundão tailings dam failure. However, as Samarco began the gradual resumption of operations in December 2020, it is not yet possible to reliably estimate when Samarco will generate cash to comply with its assumed obligation in the TTAC. Thus, the liability recorded by Vale on June 30, 2021 does not consider Samarco's potential cash flows generation. Therefore, the RJ did not have any additional impact on these interim financial statements.

 

In addition, the Company has a provision of R$1,123 (US$225 million) (R$1,148 (US$ 221 million) as at December 31, 2020) for the de-characterization of the Germano dam.

 

42

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

Movements during the period

 

  Consolidated 
  2021  2020 
Balance at January 1,  10,782   6,853 
Provision  2,820   2,939 
Disbursements  (743)  (852)
Present value valuation  (396)  198 
Balance at June 30,  12,463   9,138 

 

  June 30, 2021  December 31, 2020 
Current liabilities  7,339   4,554 
Non-current liabilities  5,124   6,228 
Liabilities  12,463   10,782 

 

Renova Foundation

 

During the second quarter of 2021, Fundação Renova reviewed the assumptions used on the preparation of the estimates incorporated into the mitigation and compensation programs mainly due recent judicial decisions increasing the scope of some TTAC programs. The periodic review, resulted in an additional provision of R$2,820 (US$560 million), which corresponds to its portion of the responsibility to support the Renova Foundation.

 

Samarco’s working capital

 

In addition to the provision, Vale S.A. made available R$113 (US$21 million) during the first quarter of 2021 (2020: R$246 (US$56 million)), which was fully used to fund Samarco’s working capital. This expense was recognized as “Equity results and other results in associates and joint ventures”. No amount was made available during the three-month period ended June 30, 2021 (2020: R$116 (US$20 million)) Vale S.A. may provide an additional short-term credit facility up to R$320 (US$64 million) in 2021.

 

Contingencies related to Samarco accident

 

These proceedings include public civil actions brought by Brazilian authorities and multiple proceedings involving claims for significant amounts of damages and remediation measures. The Company expects the Framework Agreements to represent the settlement of the public civil action brought by the MPF and other related proceedings. There are also putative securities class actions in the United States against Vale and some of its current and former officers and a criminal proceeding in Brazil. The main updates regarding the lawsuits in the period were as follows:

 

(i) Public Civil Action filed by the Federal Government and others and public civil action filed by the Federal Public Prosecutors ("MPF")

 

The Framework Agreement (‘TAC-Gov”) considers the renegotiation of the Renova Foundation's reparation programs depending on the results of the studies carried out by the experts. The negotiations started in April 2021 and a letter of principles was signed in June 2021 by Vale, BHP and Samarco with the representatives of the government and various justice institutions. Based on terms set on this letter, there has been a request from the MPF to a new suspension of the proceedings for 120 days in order to continue the extrajudicial negotiation.

 

In March 2021, a new incidental proceeding (“Eixo Prioritário”) was initiated, at the request of the Federal Attorney General’s Office (“AGU”), with the purpose of discuss a restructure on Renova Foundation's organizational management structure, the “Eixo Prioritário 13”. There was granted an injunction for an expert procedure and diagnosis report to be made at the Renova Foundation, in particular of its governance mechanisms. The companies filed a motion for clarification, arguing that, in order to remedy the alleged inefficiency of the governance system that permeates the reparation, it is appropriate to expand the scope of the expert's analysis, to consider the entire management structure of such measures, created with the TTAC, and requesting that the expert also assess the external management carried out by the Interfederative Committee (“CIF”) in the scope of the preliminary diagnosis.

 

The “Eixo Prioritário 7”, which relates to the individual compensation of Renova Foundation, has a risk in relation to decisions that could be decided in favor to the claims to include new categories of professional damages and new areas. Depending on the outcome of these proceedings, the provision recorded by the Company may have a material impact in future reporting periods.

 

43

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

(ii) Class Action in the United States

 

In March 2017, the holders of securities issued by Samarco Mineração S.A. filed a potential collective action in the New York Federal Court against Samarco, Vale, BHP Billiton Limited, BHP Billiton PLC and BHP Brasil Ltda. based on U.S. Federal Securities laws, which was dismissed without prejudice, in June 2019. In December 2019 the plaintiffs filed a Notice of Appeal to the NY Court of Appeals.

 

In January 2021, it was held a hearing before the Second Circuit of the New York State Court of Appeals. In March 2021 the Second Circuit denied the plaintiff’s appeal. This decision became res judicata in June 2021, since no further appeal has been filed by the Plaintiff. Thus, the case is closed and should be filed by the Court.

 

(iii) Criminal proceeding

 

In September 2019, the federal court of Ponte Nova dismissed all criminal charges against Vale representatives relating to the first group of charges, which concerns the results of the Fundão dam failure, remaining only the legal entity in the passive pole. The second group of charges against Vale S.A. and one of the Company’s employees, which concerns the accusation of alleged crimes committed against the Environmental Public Administration, remained unchanged. In June 2021, the Company filed an appeal with the Superior Court of Justice against the decision of the Federal Regional Court of the 1st Region that did not decided in favor of Vale. In July 2021, the Federal Prosecutor filed an appeal with the Federal Regional Court of the 1st Region, against the judge's decision that rejected the resumption of the procedural instruction, requesting the review of the decision. The Company cannot estimate when a final decision on the case will be issued.

 

Insurance

 

Since the Fundão dam rupture, the Company has been negotiating with insurers the indemnification payments based on its general liability policies. For the period ended June 30, 2021, the Company received payments in the amount of R$181 (US$33 million), and recognized a gain in the income statement as “Equity results and other results in associates and joint ventures”.

 

22.        Provisions

 

  Consolidated 
  Current liabilities  Non-current liabilities 
  June 30,
2021
  December 31,
2020
  June 30,
2021
  December 31,
2020
 
Payroll, related charges and other remunerations  3,461   4,560   -   - 
Onerous contracts  265   302   4,211   4,360 
Environmental obligations  473   533   1,069   1,038 
Asset retirement obligations (i)  509   516   19,882   21,413 
Provision related to VNC sale (note 12)  -   2,598   -   - 
Provisions for litigation (note 23)  514   455   5,370   5,216 
Employee postretirement obligations (note 24)  558   534   9,501   11,802 
Provisions  5,780   9,498   40,033   43,829 

 

(i) The Company has issued letters of credit and surety bonds for R$3,106 as at June 30, 2021 in connection with the Asset retirement obligations for its Base Metals operations.

 

23.       Litigations

 

a)        Provision for legal proceedings

 

The Company has considered all information available to assess the likelihood of an outflow of resources and in the preparation on the estimate of the costs that may be required to settle the obligations. The main litigations refer to:

 

Tax litigations - Mainly refers to the lawsuit filed in 2011 by Valepar (merged by Vale) seeking the right to exclude the amount of dividends received in the form of interest on stockholders’ equity (“JCP”) from the PIS and COFINS tax base. The amount reserved for this proceeding as at June 30, 2021 is R$2,210 (US$442 million) (R$2,197 (US$423 million) as at December 31, 2020). This proceeding is guaranteed by a judicial deposit in the amount of R$2,546 (US$509 million) recorded at June 30, 2021 (R$2,529 (US$487 million) as at December 31, 2020).

 

44

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated

 

Civil litigations - Refers to lawsuits for: (i) indemnities for losses, payments and contractual fines due to contractual imbalance or non-compliance that are alleged by suppliers, and (ii) land claims referring to real estate Vale's operational activities.

 

Labor litigations - Refers to lawsuits for individual claims by in-house employees and service providers, primarily involving demands for additional compensation for overtime work, moral damages or health and safety conditions.

 

Environmental litigations - Refers mainly to proceedings for environmental damages and issues related to environmental licensing.

 

  Consolidated 
  Tax litigation  Civil litigation  Labor litigation  Environmental
litigation
  Total of
litigation
provision
 
Balance at December 31, 2020  2,520   1,354   1,741   56   5,671 
Additions and reversals, net  (8)  -   240   2   234 
Payments  -   (87)  (146)  (21)  (254)
Acquisition of NLC (note 12)  -   6   23   -   29 
Indexation and interest  16   53   133   2   204 
Balance at June 30 2021  2,528   1,326   1,991   39   5,884 
Current liabilities  42   86   385   1   514 
Non-current liabilities  2,486   1,240   1,606   38   5,370 
   2,528   1,326   1,991   39   5,884 

 

  Consolidated 
  Tax litigation  Civil litigation  Labor litigation  Environmental
litigation
  Total of
litigation
provision
 
Balance at December 31, 2019  2,804   1,213   1,835   43   5,895 
Additions and reversals, net  95   153   68   10   326 
Payments  (58)  (51)  (167)  -   (276)
Indexation and interest  65   77   60   3   205 
Translation adjustment  107   8   -   -   115 
Balance at June 30, 2020  3,013   1,400   1,796   56   6,265 
Current liabilities  40   76   343   2   461 
Non-current liabilities  2,973   1,324   1,453   54   5,804 
   3,013   1,400   1,796   56   6,265 

 

b) Contingent liabilities

 

The main contingent liabilities, updated by applicable interest rates, for which the likelihood of loss is not considered remote are presented by nature as follows:

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Tax litigations  40,850   35,914 
Civil litigations  8,222   7,005 
Labor litigations  2,863   2,926 
Environmental litigations  5,031   4,717 
Total  56,966   50,562 

 

The contingent liabilities related to the Brumadinho event and Samarco are not presented above. Further information is presented in notes 20 and 21.

 

As reported in the annual financial statements for 2020, the Company is party in several actions and the main updates on contingent liabilities since then, are discussed as follows:

 

(b.i) Assessments regarding the disallowance of JCP:

 

In February 2021 Vale was assessed for collection of corporate income tax (IRPJ, CSLL) and penalties regarding the disallowance of the JCP expenses deducted from the 2017 taxable income, in the amount of R$3,426 (US$685 million). There was also a reduction in tax losses, with the corresponding tax impact of R$698 (US$140 million) in June 30,2021. The Company had filed an administrative appeal and a decision is pending. As at June 30, 2021, the likelihood of loss is possible.

 

45

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

(b.ii) Proceeding related to income tax paid abroad:

 

In March 2021, Vale was assessed for the collection of R$2,171 (US$434 million) due to the disregard of taxes paid abroad that were offset by the IRPJ debt in 2016. Tax authorities allege the Company has failed to comply with the applicable rules relating to the offset, in Brazil, of income taxes paid abroad. The Company had filed an administrative appeal and a decision is pending. As at June 30, 2021, the likelihood of loss is possible.

 

c) Judicial deposits

 

  Consolidated 
  June 30, 2021  December 31, 2020 
Tax litigations  5,261   5,132 
Civil litigations  413   441 
Labor litigations  842   924 
Environmental litigations  117   94 
Total  6,633   6,591 
         

 

d) Guarantees contracted for legal proceedings

 

In addition to the above-mentioned tax, civil, labor and environmental judicial deposits, the Company contracted R$11.8 billion (US$2.4 billion) in guarantees for its lawsuits.

 

e) ICMS included in PIS and COFINS computation tax base

 

Vale has been discussing the issue regarding the exclusion of ICMS in PIS and COFINS tax basis in two judicial proceedings filed before March, 2017. In one of the proceedings includes refers to the taxable events from March 2012 onwards and has a definitive favorable decision (res judicata). This proceeding gave rise to the recognition of a gain in the amount of R$313 (US$63 million) in the income statement for the year ended December 31, 2020. This amount was calculated based on the thesis that the collected ICMS was supposed to be excluded from the contribution basis. With the definition of the subject by Federal Supreme Court in the leading case (RE 574.706), which is binding to all taxpayers, and has determined that the ICMS to be excluded shall be the amount stated in the invoices, the Company recognized an additional gain of R$146 (US$29 million) for the three-month period ended June 30,2021.

 

The other proceeding, which covers the taxable events occurred between December 2001 and February 2012, resulted in a gain of R$808 (US$162 million) for the three-month period ended June 30, 2021, due to the favorable decision to the Company, in accordance to the recent decision of the Federal Supreme Court about the referred leading case.

 

24.       Employee benefits

 

a) Long-term incentive programs

 

For the long-term awarding of eligible executives, the Company compensation plans includes Matching program and Performance Share Unit program (“PSU”), with three years-vesting cycles, respectively, with the aim of encouraging employee’s retention and encouraging their performance.

 

Matching Program

 

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 shares is defined by Vale, the share initially purchased by the executives have no restriction and can be sold at any time. However, if it’s done before the end of the three-year-vesting period, they would lose its right of receiving the related award to be paid by Vale.

 

Performance Shares Units

 

For PSU program, the eligible executives have the opportunity to receive during a three year-vesting cycle, an award equivalent to the market value of a determined number of common shares depending on the to Vale’s performance factor, which is measured based on indicators of the total return to the shareholders (“TSR”) and Environmental, Social, and Governance (“ESG”). It is comprised by 80% of TSR metrics and 20% of ESG indicators.

 

46

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

At the Annual and Extraordinary Shareholders' Meeting ("AGOE") held on April 30, 2021, the Company's shareholders approved changes in the PSU program to be implemented as from the 2021 grant, consisting of (i) a change in the payment of the program award, which will be paid with common shares of the Company, and (ii) additional payment at the end of each cycle based on the remuneration that will be paid by Vale to its stockholders during the cycle.

 

b) Modification altering manner of settlement

 

Both programs were classified as “cash-settled” due to the PSU requirements and the Company’s settlement practice for the Matching program and, therefore, presented as a liability. However, the decision taken at the AGOE (“modification date”) demonstrates the Company's declared intention to change the form of liquidation of the programs. As a result, those programs were modified to become “equity-settled” and were remeasured at the modification-date fair value.

 

Fair value at modification date

 

The fair value of the Matching program was estimated using the Company’s stock price and ADR at the modification date, which was R$109.02 and US$20.12 per share, respectively. The number of shares granted for the 2019, 2020 and 2021 cycles were 1,222,721, 2,154,534 and 1,046,255, respectively. The fair value of the program will be expensed on a straight-line basis over the three-year required service period, net of estimated forfeitures.

 

For the PSU, the program was measured using Monte Carlo simulations to estimate the TSR indicator and ESG indicators. The assumptions used in the Monte Carlo simulation to estimate the fair value of the TSR indicator are shown below:

 

PSU 2021 
Granted shares  1,474,723 
Date shares were granted  04/30/2021 
VALE (BRL)  109.02 
VALE ON (USD)  20.12 
Expected volatility  39.00%p.y. 
Expected dividend yield (i)  3.18%p.y. 
Expected term (in years)  3 
Expected value of the total shareholder return (TSR)  51.20%
Expected value of the performance factor (Total)  60.96%

 

(i) Source: Bloomberg 04/30/2021

 

Reclassification from cash-settled to equity-settled

 

Matching April 30, 2021  Remeasurement  Reclassification  May 1, 2021  Expense  June 30, 2021 
Liability  164   23   (187)  -       - 
Stockholders' equity  -   -   187   187   25   212 
Net income  -   (23)  -   (23)  (25)  (48)

 

PSU April 30, 2021  Remeasurement  Reclassification  May 1, 2021  Expense  June 30, 2021 
Liability  16   (5)  (11)  -       - 
Stockholders' equity  -   -   11   11   6   17 
Net income  -   5   -   5   (6)  (1)

 

47

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

c) Employee post-retirement obligations

 

Reconciliation of net liabilities recognized in the statement of financial position

 

  Consolidated 
  June 30, 2021  December 31, 2020 
  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  (15,921)  (22,209)  (8,340)  (16,138)  (24,073)  (9,007)
Fair value of assets  20,234   20,490   -   20,626   20,744   - 
Effect of the asset ceiling  (4,313)  -   -   (4,488)  -   - 
Liabilities  -   (1,719)  (8,340)  -   (3,329)  (9,007)
                         
Current liabilities  -   (204)  (354)  -   (204)  (499)
Non-current liabilities  -   (1,515)  (7,986)  -   (3,125)  (8,508)
Liabilities  -   (1,719)  (8,340)  -   (3,329)  (9,007)
                         

 

25.Stockholders’ equity

 

a) Share capital

 

As at June 30, 2021, the share capital was R$77,300 (US$61,614 million) corresponding to 5,284,474,782 shares issued and fully paid without par value.

 

  June 30, 2021 
Stockholders Common shares  Golden shares  Total 
Shareholders with more than 5% of total capital  1,904,734,340   -   1,904,734,340 
Previ  447,780,782   -   447,780,782 
Capital World Investors  302,201,922   -   302,201,922 
Capital Research Global Investors  294,934,543   -   294,934,543 
Bradespar  293,907,266   -   293,907,266 
Mitsui&co  286,347,055   -   286,347,055 
Blackrock, Inc  279,562,772   -   279,562,772 
Others  3,132,978,884   -   3,132,978,884 
Golden shares  -   12   12 
Total outstanding (without shares in treasury)  5,037,713,224   12   5,037,713,236 
Shares in treasury  246,761,546   -   246,761,546 
Total capital  5,284,474,770   12   5,284,474,782 

 

The information presented above is based on the communications provided by the stockholders in connection with the Instruction 358 issued by the Brazilian Securities and Exchange Commission ("CVM").

 

b) Share buyback program

 

On April 1, 2021, the Board of Directors approved a share buyback program for Vale’s common share which will be limited to a maximum of 270,000,000 common shares, and their respective ADRs, representing up to 5.3% of the total number of outstanding shares. The program will be carried out over up to a 12-month period and the repurchased shares will be cancelled after the expiration of the program or utilized on the executive compensation programs (note 24). The shares have been acquired in the stock market based on regular trading conditions. Until June 30, 2021, the Company acquired 93,088,200 common shares at an average cost of R$111.79 (US$21.52) per share, which represents a total amount of RS$10,407 (US$2,004 million).

 

c) Treasury shares

 

The Company utilized 890,482 and 1,628,485 units from its treasury shares, for the share-based payment program of its executives (note 24), corresponding to R$37 (US$7 million) and R$68 (US$14 million) recognized as “Treasury shares utilized in the period” in the Statement of Changes in Equity, for the periods ended June 30, 2021 and 2020, respectively.

 

48

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

d) Stockholder’s remuneration

 

On February 25, 2021, based on the Company’s dividends policy, the Board of Directors approved the stockholder’s remuneration in the amount of R$21,866 (US$3,972 million), equivalent to R$4.262386983 per share, which was fully paid on March 15, 2021. Of the total amount, R$4,288 (US$762 million) was in the form of interest on stockholders’ equity and R$17,578 (3,122 million) in the form of dividends.

 

On June 17, 2021, the Board of Directors approved an additional stockholder’s remuneration in the total amount of R$11,046 (US$2,200 million), equivalent to R$2.177096137 per share, which was fully paid on June 30, 2021. Of the total amount, R$3,634 (US$724 million) relates to the anticipation of the 2021 year-end result and R$7,412 (US$1,476 million) was paid from the balance on the Company’s profit reserves.

 

26.       Related parties

 

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.

 

In June 2021, the Company concluded the transaction for the acquisition of the interests held by Mitsui (related party) in Vale Moçambique and Nacala Logistics Corridor. (note 12).

 

a) Transactions with related parties

 

  Consolidated 
  Three-month period ended June 30, 
  2021  2020 
  Joint
Ventures
  Associates  Stockholders  Total  Joint
Ventures
  Associates  Stockholders  Total 
Net operating revenue  948   357   316   1,621   370   303   296   969 
Cost and operating expenses  (789)  (21)  -   (810)  (1,411)  (25)  -   (1,436)
Financial result  (115)  (5)  708   588   43   (8)  (61)  (26)

 

  Consolidated 
  Six-month period ended June 30, 
  2021  2020 
  Joint
Ventures
  Associates  Stockholders  Total  Joint
Ventures
  Associates  Stockholders  Total 
Net operating revenue  1,836   683   611   3,130   678   577   438   1,693 
Cost and operating expenses  (1,756)  (50)  -   (1,806)  (2,612)  (53)  -   (2,665)
Financial result  (43)  (7)  (2,244)  (2,294)  76   16   (167)  (75)

 

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.

 

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 variable lease payments of the pelletizing plants and the logistics costs for using the Nacala Logistics Corridor, which has been consolidated since June 2021 as described in note 12.

 

49

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

b)       Outstanding balances with related parties

 

  Consolidated 
  June 30, 2021  December 31, 2020 
  Joint Ventures  Associates  Stockholders  Total  Joint Ventures  Associates  Stockholders  Total��
Assets                                
Cash and cash equivalents (i)  -   -   6,763   6,763   -   -   10,820   10,820 
Accounts receivable  875   142   10   1,027   565   236   11   812 
Dividends receivable  129   -   -   129   101       -   101 
Loans (ii)  -   -   -   -   5,800   -   -   5,800 
Derivatives financial instruments (i)  -   -   559   559   -   -   12   12 
Other assets  188   17   -   205   354   8   -   362 
               -                 
Liabilities              -                 
Supplier and contractors  784   22   115   921   627   54   181   862 
Loans (ii)  -   -   -   -   -   7,192   4,907   12,099 
Derivatives financial instruments (i)  -   -   1,191   1,191   -   -   1,255   1,255 
Other liabilities  941   603   -   1,544   1,222   248   -   1,470 

 

(i) Refers to regular financial instruments with large financial institutions that are deemed related parties.

 

(ii) Refers to loans settled upon completion of the acquisition of NLC (note 12).

 

27.       Select notes to Parent Company information (individual interim information)

 

a)       Other financial assets and liabilities

 

  Parent company 
  Current  Non-Current 
  June 30, 2021  December 31, 2020  June 30, 2021  December 31, 2020 
Other financial assets                
Restricted cash  -   -   356   20 
Derivative financial instruments  535   37   1,016   338 
Investments in equity securities  -   -   4,795   3,438 
Related parties - Loans  -   -   42   42 
   535   37   6,209   3,838 
Other financial liabilities                
Derivative financial instruments  696   1,166   2,156   3,076 
Related parties - Loans  3,369   2,484   75,076   88,908 
Financial guarantees  -   -   2,746   4,558 
Liabilities related to the concession grant  1,748   1,088   9,784   10,928 
Advance receipts  23   9   -   - 
   5,836   4,747   89,762   107,470 

 

b)        Investments

 

  Parent company 
  2021  2020 
Balance as January 1st,  181,319   144,594 
Additions and Capitalizations  521   1,341 
Translation adjustment  (14,349)  36,445 
Equity results and others results from subsidiaries  23,199   (5)
Equity results and other results in associates and joint ventures  387   (293)
Equity results in statement of comprehensive income  1,889   (1,157)
Equity results in statement of non controlling  (1,666)  - 
Dividends declared  (1,439)  (839)
Merger (i)  (3,436)  (2,105)
Others  (1,041)  566 
Balance at June 30,  185,384   178,547 

 

(i) In 2021, refers to the merger of the spun-off net assets of Minerações Brasileiras Reunidas S.A., and the wholly owned subsidiaries Valesul Alumínio S.A. and Companhia Paulista de Ferro-Ligas, all approved at the Extraordinary General Meeting held on April 30, 2021. In 2020, refers to the merger of the wholly owned subsidiary Ferrous Resources do Brasil S.A., approved at the Extraordinary General Meeting held on April 30, 2020.

 

50

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

c)        Intangibles

 

  Parent company 
  Concessions  Contract right  Software  Total 
Balance at December 31, 2020  28,015   -   228   28,243 
Additions  306   -   68   374 
Disposals  (30)  -   -   (30)
Amortization  (585)  -   (39)  (624)
Balance at June 30, 2021  27,706   -   257   27,963 
Cost  33,396   -   2,691   36,087 
Accumulated amortization  (5,690)  -   (2,434)  (8,124)
Balance at June 30, 2021  27,706   -   257   27,963 

 

  Parent company 
  Concessions  Contract right  Software  Total 
Balance at December 31, 2019  15,993   99   179   16,271 
Additions  370   -   31   401 
Disposals  (18)  -   -   (18)
Amortization  (451)  (3)  (29)  (483)
Merger of Ferrous  -   -   5   5 
Balance at June 30, 2020  15,894   96   186   16,176 
Cost  20,767   223   2,559   23,549 
Accumulated amortization  (4,873)  (127)  (2,373)  (7,373)
Balance at June 30, 2020  15,894   96   186   16,176 

 

d)        Property, plant and equipment

 

  Parent company 
  

Building

and land

  Facilities  Equipment  Mineral properties  

Railway

equipment

  

Right of

use assets

  Others  Constructions in progress  Total 
Balance at December 31, 2020  28,299   30,567   10,232   9,016   12,713   2,115   7,065   11,331   111,338 
Additions (i)  -   -   -   -   -   201   -   6,656   6,857 
Disposals  -   (9)  (16)  -   (8)  (923)  (3)  (99)  (1,058)
Assets retirement obligation  -   -   -   (326)  -   -   -   -   (326)
Depreciation, amortization and depletion  (699)  (814)  (754)  (359)  (398)  (133)  (540)  -   (3,697)
Merger of MBR  434   293   277   641   25   -   104   1,226   3,000 
Transfers  267   714   1,220   409   274   -   572   (3,456)  - 
Balance at June 30, 2021  28,301   30,751   10,959   9,381   12,606   1,260   7,198   15,658   116,114 
Cost  39,935   43,646   21,935   13,124   19,505   2,051   16,355   15,658   172,209 
Accumulated depreciation  (11,634)  (12,895)  (10,976)  (3,743)  (6,899)  (791)  (9,157)  -   (56,095)
Balance at June 30, 2021  28,301   30,751   10,959   9,381   12,606   1,260   7,198   15,658   116,114 

 

  Parent company 
  Building
and land
  Facilities  Equipment  Mineral
properties
  Railway
equipment
  Right of
use assets
  Others  Constructions
in progress
  Total 
Balance at December 31, 2019  28,352   30,219   10,213   7,153   12,766   2,114   6,840   8,218   105,875 
Additions (i)  -   -   -   -   -   133   -   4,348   4,481 
Disposals  (6)  (10)  (5)  (17)  (4)  -   (4)  (71)  (117)
Assets retirement obligation  -   -   -   (250)  -   -   -   -   (250)
Depreciation, amortization and depletion  (571)  (1,047)  (698)  (246)  (459)  (173)  (491)  -   (3,685)
Merger of Ferrous  680   325   73   990   -   2   6   (136)  1,940 
Transfers  387   698   512   1,159   427   -   547   (3,730)  - 
Balance at June 30, 2020  28,842   30,185   10,095   8,789   12,730   2,076   6,898   8,629   108,244 
Cost  37,419   40,453   19,183   11,614   18,763   2,557   15,217   8,629   153,835 
Accumulated depreciation  (8,577)  (10,268)  (9,088)  (2,825)  (6,033)  (481)  (8,319)  -   (45,591)
Balance at June 30, 2020  28,842   30,185   10,095   8,789   12,730   2,076   6,898   8,629   108,244 

 

(i) Includes capitalized borrowing costs.

 

51

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

e)        Loans and borrowings

 

     Parent company 
     Current liabilities  Non-current liabilities 
  Average interest
rate (i)
  June 30, 2021  December 31,
2020
  June 30, 2021  December 31,
2020
 
Quoted in the secondary market:                    
Bonds  6.01%  -   -   2,603   2,704 
Eurobonds      -   -   -   4,783 
Debentures  10.48%  250   555   1,891   2,021 
Debt contracts in Brazil in:                    
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI  9.29%  640   1,203   1,661   2,808 
R$, with fixed interest  2.76%  79   84   31   71 
Basket of currencies and bonds in US$ indexed to LIBOR  2.32%  168   232   -   58 
Debt contracts in the international market in:                    
US$, with variable interest  2.26%  626   871   8,266   7,405 
Others, with variable interest  4.09%  432   -   51   - 
Accrued charges      155   369   -   - 
Total      2,350   3,314   14,503   19,850 

 

(i) In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable as at June 30, 2021.

 

The future flows of debt payments (principal) are as follows:

 

  Parent company 
  Debt principal 
2021  851 
2022  3,438 
2023  1,422 
2024  5,003 
Between 2025 and 2029  1,879 
2030 onwards  4,105 
   16,698 

 

Reconciliation of debt to cash flows arising from financing activities

 

  Parent company 
  Quoted in the
secondary market
  Debt contracts in Brazil  Debt contracts on the
international market
  Total 
December 31, 2020  10,396   4,471   8,297   23,164 
Additions  -   -   1,633   1,633 
Repayments  (5,328)  (1,449)  (571)  (7,348)
Interest paid  (592)  (210)  (67)  (869)
Cash flow from financing activities  (5,920)  (1,659)  995   (6,584)
                 
Effect of exchange rate  (15)  (361)  68   (308)
Interest accretion  396   140   45   581 
Non-cash changes  381   (221)  113   273 
                 
June 30, 2021  4,857   2,591   9,405   16,853 

 

f)        Provisions

 

  Parent company 
  Current liabilities  Non-current liabilities 
  June 30, 2021  December 31, 2020  June 30, 2021  December 31, 2020 
Payroll, related charges and other remunerations  2,523   3,154   -   - 
Environmental obligations  400   419   798   583 
Asset retirement obligations  335   323   5,216   4,405 
Provisions for litigation  509   455   5,113   4,782 
Employee postretirement obligations  281   255   3,265   3,246 
Provisions  4,048   4,606   14,392   13,016 

 

52

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of Brazilian reais, unless otherwise stated
 

 

g)        Provisions for litigation

 

  Parent company 
  Tax litigation  Civil litigation  Labor litigation  Environmental
litigation
  Total of litigation
provision
 
Balance at December 31, 2020  2,410   1,090   1,687   50   5,237 
Additions and reversals, net  (7)  (4)  238   3   230 
Payments  -   (86)  (136)  (19)  (241)
Indexation and interest  16   38   129   2   185 
Merger (note 12)  79   125   4   3   211 
Balance at June 30, 2021  2,498   1,163   1,922   39   5,622 
Current liabilities  43   81   384   1   509 
Non-current liabilities  2,455   1,082   1,538   38   5,113 
   2,498   1,163   1,922   39   5,622 

 

  Parent company 
  Tax litigation  Civil litigation  Labor litigation  Environmental
litigation
  Total of litigation
provision
 
Balance at December 31, 2019  2,325   1,004   1,734   39   5,102 
Additions and reversals, net  87   42   75   7   211 
Payments  (56)  (30)  (158)  -   (244)
Indexation and interest  41   61   62   3   167 
Merger of Ferrous  1   3   3   2   9 
Balance at June 30, 2020  2,398   1,080   1,716   51   5,245 
Current liabilities  40   76   343   2   461 
Non-current liabilities  2,358   1,004   1,373   49   4,784 
   2,398   1,080   1,716   51   5,245 

 

h)        Contingent liabilities

 

  Parent company 
  June 30, 2021  December 31, 2020 
Tax litigations  39,803   32,902 
Civil litigations  6,713   5,522 
Labor litigations  2,776   2,846 
Environmental litigations  4,143   3,837 
Total  53,435   45,107 

 

i)        Income taxes

 

The total amount presented as income taxes in the income statement is reconciled to the rate established by law, as follows:

 

  Parent company 
  Six-month period ended June 30, 
  2021  2020 
Income before income taxes  88,498   3,334 
Income taxes at statutory rates - 34%  (30,089)  (1,134)
Adjustments that affect the basis of taxes:        
Tax incentives  8,219   2,011 
Equity results  8,022   (101)
Others  (3,991)  2,163 
Income taxes  (17,839)  2,939 

 

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 Vale S.A.
 (Registrant)
   
 By:/s/ Ivan Fadel
Date: July 28, 2021 Head of Investor Relations

 

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