Good morning, ladies and gentlemen. Welcome to Vale’s Conference Call to discuss the second quarter of 2017 results. [Operator Instructions] As a reminder, this conference is being recorded, and the recording will be available on the company’s website at vale.com at the Investors link. The replay of this conference call will be available by phone until August 2, 2017, on 55 11-3193-1012 or 2820-4012, access code 977-5487#. This conference call and the slide presentation are being transmitted via Internet as well, also through the company’s website. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us today are: Mr. Fabio Schvartsman, President and CEO; Mr. Clovis Torres, Executive Officer and General Counsel; Ms. Jennifer Maki, Executive Director of Base Metals; Mr. Luciano Siani Pires, CFO; Mr. Luis Eduardo Osorio, Sustainability and Institutional Relations; Mr. Peter Poppinga, Executive Director of Ferrous Minerals and Coal; and Mr. Juarez Saliba, Director of Strategy, Exploration, New Business and Technology. First, Mr. Fabio Schvartsman will proceed to the presentation. And after that, we will open for questions and answers. It’s now my pleasure to turn the call over to Mr. Fabio Schvartsman. Sir, you may now begin.

Thank you. Good morning to all. It is a pleasure to have this opportunity of presenting my first conference call of Vale for second quarter of 2017. As this is my first time, I will make it slightly different than normal. Instead of starting with discussing the results, I will comment on the points that I know that many of you are interested in understanding how we have been moving forward in general since I joined the company. Well, let’s start with this very recent diagnosis that was made, we call it internally a 60-day diagnosis. It was just delivered. I received it this week. It was far expecting my expectations, I’m sorry, rather than my expectations, we’ve had a lot more detailed vision of what to do with Vale. So – but it is important to understand how the sequence, which or in other words, which will be the schedule for delivering information on the diagnosis. First, we are going to present this diagnosis to the Board of Directors of this company. And this presentation will be made in the next board meeting in 1 month’s time. That means that just after that and if this diagnosis gets approved by the board, we are going to start delivering to the market, the information that could be delivered that are not confidential regarding the diagnosis that was made. Nevertheless, I would like to mention a few points that I can because we’re not in a conflict with anything that requires approval. First, in iron ore we have a very strong diagnosis towards cost efficiency, cost reduction, sustainability and so forth. And here, we have the work of Professor Falconi just starting. He was just hired. And he is going to make a simple case out of the Pellets division. And…

Good morning, everyone. So my goal here is to just highlight a few specifics on the results. So starting by the free cash flow. Remarking to you that capital expenditures were the lowest for the quarter since the third quarter of 2006. And looking forward, we see the strength to continue. We are almost at the end of spending money with S11D. In this regard, we are even ahead of schedule. We should conclude the works on the logistics by the end of ‘18, instead of going through ‘19, as we expected before. Some large expenditures on, for example, in Canada, in the atmospheric emissions reduction program, they are coming to an end as well. And because of the review of the Base Metals business, it is likely that some of the capital to be spent will be deferred. So in the end, capital expenditures continue to trend down and cash flows will continue to trend up. And even in an environment of lower prices, we are spending today in a quarter what we used to spend 2 years ago in a single month in capital expenditure, so it makes a big difference. Other offenders of the cash flows they have gone, for example, the hedge cash expenditures that we had very intensely last year they are gone and opportunities are in the short term, for example, preoperational expenses are bound to decline. One example of this is that Long Harbour, the Long Harbour refinery for example, in June, we had no preoperating expenditures. The refinery had reached 60% of capacity. And S11D expenditures are supposed to decline as well in the future. So very good perspectives for cash flows. In terms of the composition of EBITDA, no news here. Still highly concentrated on iron ore. However, I would like…

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

And first question has to do with the discrepancies or the gap between iron ore shipments and iron ore production. What can we expect going forward on these metrics? I understand from the release that it’s around 5 million tons, which seems a little bit short relative to the gap that we saw in numbers, but if we can help us understand how these GAAP will evolve in the next few quarters? And maybe next year, that will be useful. And the second question, we saw news announced by another producer that Vale sold a couple of autoclaves to them for around $7 million. My question is does this have anything to do with what Vale would do at VNC? Does this mean that the company will – I mean this autoclaves VNC equipment or not?

Carlos, this is Peter speaking. Yes, this gap between shipments and this happened in the last quarters and is now at its, in my opinion, at its peak in Q2. We will – you know the reason for that, we have a running strategy, which is not only Malaysia and Oman, but also other offshore locations, mainly China. This is CapEx avoidance and it’s about price realization and it’s about sales distribution, new sales channels. So all this comes into this positive strategy. But this year the blending in Malaysia was – will be around 25 million tons. The blending elsewhere, including China, will be 45 million tons. And we will have the 70 million tons blended. So stocks are building up and probably what I can tell you is that in 2018, what you’ll see is the conversion in the shipments and the sales volumes. There can be 1 or 2 quarters up and down again, actually the trend towards the end of the year is to slightly reduce the stocks we have today, but I would say that during the year of 2018, we will have very much a conversion, a very narrow correlation, and narrow gap if any between sales and shipments.

Thanks Carlos. Those autoclaves in question that were sold relate back to our Vermelho project, which we had in Brazil a few years ago, which we didn’t proceed with. So it’s unrelated to Vale and Caledonia.

We are coming full circle. If you imagine this was a project approved at the Board of Directors of Vale in November 2005, and here we are 12 years later putting a lid on it, selling 2 autoclaves for $6 million.

Our next question comes from Jon Brandt with HSBC.

Two questions for me. First, on the overall strategy. So I understand that you want to continue focusing on deleveraging. I noticed that there wasn’t really a mention of the $15 billion to $17 billion net debt target like you’ve mentioned previously and that using the language that you wanted to be in a more comfortable leverage situation by the end of the year. Have you moved away from the $15 billion to $17 billion target? And then I guess sort of related to that, once you reach what you deem is comfortable should we continue to expect the rest of the free cash flow to be paid out in dividends? And then my second question relates to VNC. Fabio, I know you want to take some time and have this be more of a sustainable project. I’m wondering how much time you’re willing to give this, and if you’ve analyzed potential shutdown costs if you have to go that route?

Jon, thank you for your questions. First, in the initial leverage. Well, we can say that we are reducing the target. Actually, we want to have less than $15 billion to $17 billion debt. And my reasoning here is very simple. Vale is too much dependent upon one single commodity, iron ore. And this is a very volatile commodity, doesn’t go well with any kind of debt. So in my point of view, Vale has to have the lowest possible debt. And we are moving in this direction. By doing that, we will be improving and making our balance sheet stronger and this will be one of the measures that we are looking for besides improving performance, besides improving governance, besides improving execution. If we can put everything here together, it will probably represent an improving perception value of the company. And therefore, we will be able to use in a broader way the stock of the company. That’s my goal here. Actually, I don’t want to use debt in the future in this company based upon that. I think it doesn’t work to follow this road. Therefore, we are going to keep the dividends and we are going to keep the leverage in the company. As a note, even in my former job in execution of the largest product of the entire life of the companies I worked for, we have been growing dividends throughout the construction of that big investment there. So it gives you an idea how do I feel about dividends. Second, regarding VNC. I said exactly what I meant. We are clearly looking in a deep way how and if we can transform it in a sustainable business. And then and only then, if it’s not the case, we are going to look into shutting it down. As a consequence, we are analyzing and evaluating all the scenarios. Calculations are being made, but I have no idea, which is the results – which are going to be the results of this calculation. Because the priority is to find a sustainable solution. Closing is the last resort. Imagine, after investing billions of dollars there, I just cannot go bear and close it without take into consideration all the efforts, all the jobs that we have, everything that is there. Only if in the end we cannot continue. One point is clear, we are not going to put more money to work there. So we have to find a solution without putting more money there. And we are focusing on that.

Our next question comes from Amos Fletcher with Barclays.

Good morning. Congratulations on this funding free cash generation quarter. In particular, you had a very strong $1.4 billion receivables in flow and can you explain what was behind that? And then secondly, on line , or you mentioned on the Portuguese call, that you went 400 million-ton next year, could you clarify when you envisage reaching the 400 million-ton level? Thank you.

Amos, Luciano. I understood from the first question – the line was a little creepy – that you want some comments on the free cash flow on the highlights for the free cash flow, is that it?

Yes. Just to clarify there was a $1.4 billion receivable in flow, just sort of explain what was behind that? And whether there was any kind of receivables within that carry forward? Thank you.

Okay. Part of that reduction is a natural consequence of the declining prices. So you collect sales at the beginning of the quarter at higher prices and then you record sales at the end of the quarter at lower prices. So that explains a little bit of the disconnect between EBITDA and cash flows, which goes through the – you see the accounts receivable reducing. The second topic is because of the very steep increase in iron ore prices at the end of the fourth quarter and going through the first quarter, there were lots of outstanding invoices of the provisional price adjustments, who weren’t immediately collected because of the sheer volume of those. So there was some inefficiency in the collection of provisional price adjustment invoices, and we’ve resolved that so that explained a little bit also the reduction of accounts receivable. But we believe now we are at a more normalized level of accounts receivable. So going forward, only eventual price frames will explain the ups and downs.

Regarding the 400 million tons annual production question. We have stated repeatedly that although we have a 450 million tons capacity, it doesn’t mean we are going to use it. It depends on market conditions and more importantly, on our margins maximization optimization efforts. If you take our recent ramp up schedule, which was revised the last Vale Day instead of 2 years ramping up in 4 years, and mainly concerning the logistical corridor, then you reach the full ramp up of the S11D at 2020. It may be if market conditions are right, and if we are maximizing our margins that means that we are reaching in 2019 or in 2020, our goal, our target of 400 million tons. It will not mean that we go beyond that. And again, like we said, we are – this is our optimum level of operations, and we think it fits well into the midterm market. And so to answer your question, reaching probably to 400 million tons, either in ‘19 or in ‘20.

The next question comes from Andreas Bokkenheuser with UBS.

Yes, thank you very much for taking my question. Two questions actually. The first one is that as Mitch has talked this year, and I think you reiterated some of that this morning, that management may be looking to diversify out of iron ore to watch other commodities over time, not to be so dependent on a single commodity. How do you think about that in terms of a comfort level? Would that be for example, iron ore shouldn’t account for more than 60% of EBITDA? Is that the way to think about it? So if you could give us some clarity there, that would be great. And the second question is potentially financing this diversification. Given that you’re also trying to delever the balance sheet, would you consider potentially selling some of your iron ore assets to effectively refinance and move into other commodities? So that would be my second question.

Andreas, thank you for your questions. First of all, the idea of diversifying the company. As we reiterated our intention of diversifying the company to become less dependent of this one commodity that we have today. But in our way of seeing things we are going to do it in a very cautious way. The first step being trying to get the most of what we already have, especially to make the operation profitable and in a meaningful part of our portfolio. Today, we are not getting much of this huge investment that was laid there. So for starters, we have to stress the keys that we have in hand. Second, sorry about the guidance, 50%, there is no magic number. We are not looking for numbers. But we really want to have very good and competitive situation in anything that we are – we get involve to. Regarding financing. If there is no chance whatsoever, in any case, that Vale will sell in any of its iron ore assets to do anything, other than iron ore. Look, what we are going to do, we are going to use as I’m saying time and time again that we are going to use our only tool that is for real for this. This is the stock of the company. If we are going to move forward, and when we are going to move forward, depends upon the capacity of using in a negative way shares of this company. So this is the only financing tool because Andreas, we know by experience that diversifying is a very difficult thing. And if you do it in any other fashion than using your own stock, you are just adding risk to the process. And we are not going to do that.

The next question comes from Daniel Lurch with BNP.

Couple of questions on strategy and then iron ore. Maybe a follow up from my previous question on your organic growth and strategy potentially diversified the business. Is there still a focus on allocating some CapEx on any organic growth projects? What I’m thinking about here, for example, Salobo III, which is exposure to copper and currently going very well? And my second question is could you on iron ore. On S11D, you mentioned the progress there, and can you give us a bit more detail on how the operation is running at the moment? And how much you are planning to produce this year? And on iron ore cost, lastly, you were highlighting that you expect costs to go down to BRL 46 million to BRL 47 million in the second half. Can you explain how quickly you expect this to happen? Is it a more gradual process or is it towards the end of the year?

Thank you for your questions about organic growth. Yes. Obviously, organic growth is part of the strategy of any company, that’s no different in Vale. The issue here is that we have to be very careful not to spend capacity to put money to work in markets that are already oversupplied. But having said that, there are some commodities and assets that Vale have already like copper, where we can continue to invest in organic way because the market can absorb it easily. So the decision here will be very simple. The assets that can be profitable in areas where clearly there are no evidence of oversupply, Vale will invest organically. Now to Peter to answer about S11D.

Daniel, thanks for the question. So for S11D, more detail if you want. So you saw that we are already at in minus 99% improvement. And 90% overall in the project. We have not encountered any major problem in terms of commissioning, but we are now of course, we are producing and commissioning at the same time. Where are we raised in the fields of this. It’s in the mine, where we actually couldn’t have test the total capacity of the contractors because we are producing and commissioning at the same time, like I said. The long-term conveyor is going well, was tested. The mobile crushers were tested. Some smaller issues in locomotion. A pleasant problem that actually capacity of the MSRs are actually exceeding our expectations. So – but all this means interference no major problem, that’s why in the second half of this year we expect to focus more on production and then the commissioning will be less and less. The nominal capacity as you know is 90 million tons. We have already have produced around 10 million tons this year and we expect to – for the whole year, we expect to have 25% of the nominal capacity. And probably being in the pace of 40% to 50% at the end of the year. Now that’s for S11D. On the iron ore cost, yes, you saw the increase in costs, mainly was the merged increase and that was related to the maintenance of the peer 1 and PDM. We are changing the big bad conveyor there. And since peer 4 is still not ready yet, it’s still being tested, we couldn’t compensate there. So also we have some railway problems in the Torremolinos railway, which also increased the costs a bit. Our one-off events, which will not repeat. We had an increase in our freight costs because of the – was caught by surprise in some of our contracted freight running out and at the same time we had to go to the stock market, which was high. This could also be – this will be overcome in the midterm by our second and third generation ships, Valemax being delivered. And all the focus on the cost reduction is more and more on the integrated supply chain management, not only in terms of efficiency but in terms of price regulations. That’s why the biggest cost advantages and cost reductions will happen in the future. Thank you.

And the next question comes from Alex Hacking with Citi.

Hai good morning and thank you for the question , My first question is a follow up to Peter. You mentioned earlier that Vale line of capacity will be 450 million tons. My question is does that include the 50 million tons of high silica capacity, that’s been closed and is in the process of closing, being the $50 million that was closed last year, and $90 million that is closing in the second half of this year. And my second question is on the cost structure of the Coal business. Can you remind us, how much coal are you shifting through Europe today versus Nacala? What is your contractual obligation to ship in Europe? And once that’s contractual obligation is over, should we assume that you will ship 100% of the margin coal through Nacala? Thank you.

The 450 million tons capacity is when you add all the 4 ports together, right. And this includes the domestic markets. It doesn’t mean export, okay. It includes the domestic markets when you have – where you have around 30 million tons to 40 million tons capital markets. So the 450 million tons is when you add all the export and deduct the domestic market. The southern systems have some high silica, but also some normal silica normal quality iron ore. So closing down almost 20 million tons of this is not only related to southern system, it’s also relates to southeastern system. So you will have all, if you have in the mines, not closing the mines, but you will have product flows being rationalized and eliminated and by that, you are reducing production on the 20 million tons in the south and southeast on annual basis. It seems to be today at 365 million tons production this year, and we preferably will go to 400 million tons in the midterm. And I just said to your colleague, I’m not sure if it’s 2019 or 2020, when the margins are good and when the market is permitting. So that means that we are going to compensate – more than compensate the 20 million tons, which will be eliminated in the southern system and southeastern system. The flows will be compensated by more production in the Northern System S11D and Carajás.

On the costs structure for coal, the cash costs through beta is around $125 per ton. So very difficult to make money in this quarter. We still have transportation obligations of around 200,000 tons per month. Those obligations, they extend to the end of this year and they go a little bit into next year. Overall, the way to think about it is that there is an 18 million-ton capacity through Nacala and another 4 million tons capacity through beta, which leads us to the 22 million tons, which was the original design for the 2 process plants for coal. So if you want to run the mines at the full capacity, you will need to increase capacity in the Nacala corridor, which means adding a little bit of rolling stock and seeing if the car dumper can run at very high availability to try to reach the 22 million tons just on Nacala. But the key message here is that beta is not on the plans or the longer-term and therefore, this is an upside for the cost structure for whole Mozambique.

The next question comes from John Tumazos with John Tumazos Very Independent Research.

Could you explain a little bit the Sumic transaction? It might be in your footnotes, but there’s a lot of press releases this morning. And second, could you explain the political process in restarting Samarco permits? Those of us that are far away might not understand all the issues after a couple of years. I visited BHP in Melbourne this month and I was very pleased at how supportive and completed agreement they were with you?

John, the Sumic transaction is related to a prior year transaction when they left the Goro project and essentially, the payment of that would’ve happened in this past quarter.

On Samarco, there are basically 2 environmental permits that need to be obtained. One is for the unexhausted pit, which will receive the tailings on the short on the first 2 years of the restart. And the other one is the so-called corrective license because the whole operating license of Samarco was suspended. And both of the license, the permits are in negotiations with the relevant authorities and they depend on several smaller issues. No fundamental structural issue, but several smaller issues. Also on the legal front, there is a preliminary agreement established with the public prosecutors, which leads us to until October 30th. They will be – they may be part of the larger framework agreement establishing the beginning of 2016 with federal and state authorities, therefore providing legal stability for the restart of Samarco, which is also very important. So these are the 3 main challenges, the obtaining of the 2 permits, which are in the state authority and the final negotiation with the prosecutors expected for October. And the restructuring of the debt, which again is also going with the banks and loan holders.

The next question comes from [indiscernible]

Hai guys thank for the opportunity listen I have two questions related to CapEx. First, Luciano, could you please compare the levels of maintenance CapEx we saw in the first half of the year to the Vale Day guidance that we saw at the end of last year? And second, still on maintenance CapEx, I would like to hear a little bit from you about the reasons for the lower maintenance CapEx in the second Q, if any of these reasons are the same as the reasons, which you said –which you cited then to maintain in lower looking forward? How should I look at CapEx looking forward concerning these 2 points?

So the guidance for Vale Day was $4.5 billion total CapEx for the year. When we announced the sale of the fertilizer business, we removed $300 million, which was the capital for fertilizer from this number so we are talking above $4.2 billion. We should be very sharply close to this number this year. But as you saw, we had some higher number in the first quarter. And now we have a small number in the second quarter. We should have smaller numbers for capital investments in capital in the third and fourth quarter, but higher number for sustaining. So all in all, we should reach the $4.2 billion. The reason being because I wouldn’t give much weight on the sustaining capital variations quarter-over-quarter because they depend on the wide number of factors, but they tend to accelerate towards the end of the year. The way to think about sustaining in iron ore is basically we’ve been going around the magic number of $3 per ton. So this is a good rule of thumb going forward. On nickel, there is a more longer-term trend towards reduction. Given that all this single furnace transition, the AER, atmospheric emissions reduction program, they are all charged into sustaining capital. So you should expect sustaining capital for nickel to reduce going forward. So my – our hopes of declining capital expenditures going forward, they are mostly driven by the reduction of expenditures in S11D and the reduction of sustaining capital in nickel.

The next question comes from Thiago Lofiego with Bradesco BBI.

Hi, thank you. Just a follow-up question to Peter. Peter, could you give us your view on the swing production. So with iron ore approaching $70 per ton and even when no iron ore prices were at no lower levels than $70 per ton. We were seeing some more volumes from domestic concentrates in China and more volumes from some exotic procedures. So I just want to understand your view on whether your $70 per ton iron ore price assessment for this year really holds? Whether you think that we should see more feed production coming back to the market?

Thiago, thanks for the question. I will give you exactly my numbers we are working with. So in 2016 we – now I’m talking on a net basis. We had 85 million tons of additional seaborne. It was 120 million tons coming in and 35 million tons coming out. Now what we are working with is coming in 60 million tons, this is mainly Vale and others this year, right, others in Brazil. Broyhill as you know, is around 15-plus million tons coming in. India came in increasing with 15 million tons and some others. So 60 million tons coming in. But seaborne is also coming out. You see Atlas, South African and other exotics. So – and then China, China surprised us actually, it is a fairly inelastic behavior because it’s underground mines, it’s environmental problems, there’s security problems. So we thought the Chinese, and we are reluctant to jump in again. So we thought they would come over. But in our focus, there is only 5 million tons to 10 million tons coming. So it’s what I’m saying, it’s 50 million tons. If you add all this together, seaborne in 60 million tons, seaborne out 15 million tons and China in, maybe increasing little bit 5 million tons to 10 million tons, you will reach 50 million tons. And 50 million tons iron ore equals roughly to 20 million tons to 30 million tons of steel, and that’s exactly the steel increase we are having this year, the steel production increase revenues. So that’s why I’m saying. The market is fairly balanced and it shouldn’t be different from the price levels we are seeing today. Of course, you can have ups and downs according to sentiments. But in the whole year, the fundamentals are what they are. So $70 per ton also remind that the breakeven of some concentrates in the Chinese marginal suppliers are around $70 per ton. So I don’t see market holding for several months below $70 per ton. So that’s my model behind that and I hope you see that the market is fairly balanced this year.

The next question comes from Marcos Assumpcao with Itau Corretora de Valores. Marcos Assumpção: Hi, good afternoon everyone. My first question is regarding S11D. If you – when do you expect the S11D to start reducing Vale’s average costs? And also, on the preoperating expenses, when do you expect that to finish for S11D? And on the coal business, the second question, if you could provide us a little bit more details on the run rate of what is the production and also cost performance in the late this month. You mentioned that production has been ramping up and the cost has been going down. So if you could provide more updated numbers it will be useful.

Marcos, I will try to answer the first question. And left the others for my colleagues if they can check those numbers. But S11D, for sure, this year will be a higher cost still then because we are not at main plate capacity. Although, we are putting some of the cost as preoperating expenses of course. And so I would guess that it’s going to happen towards the end of next year that we are going to see real cost reduction on the S11D. On the coal business, I am just stepping in, I’m not so familiar with it now.

Yes, Marcos. We overcome 1 million tons for the first time this quarter per month and now we are heading towards 1.2 million tons, 1.3 million tons. This is the next target to stabilize production at that level. And I don’t have the due numbers top of my head, but again I wouldn’t place too much emphasis on those monthly numbers. So what we should see incremental cost reductions going into the third quarter for sure.

This concludes today’s question-and-answer session. Mr. Fabio Schvartsman, at this time, you may proceed with your closing statement, sir.

Thank you. Again, I appreciate very much this call. It was a pleasure to deliver my first conference at Brazil. And I hope you would be able to join us for the next one. Thank you, and have a good day, all of you. Thank you. Bye, Bye.

That does conclude Vale’s Conference Call for today. Thank you very much for your participation. You may now disconnect.