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Report from Administration 1
REPORT FROM
ADMINISTRATION 2019
Ground Zero Project for environmental recovery in Brumadinho (MG) – section of the Paraopeba river
Report from Administration 2
A Letter from our Chairman of the Board of Directors
Dear Fellow Shareholders,
The tragedy that happened in Brumadinho was a time of great grief and profound impact. The
Board of Directors acted immediately, suspending the policies for the executives’ remuneration
and the shareholders’ remuneration, as well as creating three extraordinary independent
advisory committees, to support the investigation of the causes of the Dam I rupture, to evaluate
the safety measures and to support the process of immediate response and repair to the
damage caused. Furthermore, the company’s management hired a panel of technical experts
to investigate the causes of the breach.
The Board of Directors continues to work closely with the executives, shareholders, authorities
and society, with open dialogue and transparency, towards integral reparation of Brumadinho
and the construction of a safety-oriented culture at Vale.
Business risk oversight
Vale’s risk profile has been reviewed and key policies have been improved to promote the
expected behavioral models and conservative risk approach. Our participation in the company’s
routines was intensified – we held 46 board meetings in 2019, nearly three times the number
in 2018.
The Board of Directors encourages the pursuit of excellence in Vale's operations and
businesses, as a way of ensuring the company's safety and sustainability. We promote the
acceleration of investments in alternative processes to the use of tailings dams, such as dry
processing, which is estimated to reach 70% of the iron ore production volume in 2023.
We are moving forward with the implementation of behavioral models for a culture in which
safety and risk management at Vale are at the center of decision making. The Board of
Directors supports senior leadership in transforming Vale into one of the safest and most
reliable mining companies in the world.
Ethics and transparency
The Board of Directors is fully committed to the investigations on the Dam I rupture. Report on
the technical causes of the rupture, issued by the expert panel, was promptly shared with the
authorities, mining industry and society. The executive summary of the final report issued by
the Extraordinary Independent Consulting Committee for Investigation was disclosed to the
market today and will be shared in its entirety with the authorities.
Compliance disruptions do not and will not be tolerated. In this sense, the Statutory Audit
Committee is being created to oversight the compliance with the Code of Conduct and to
monitor the integrity of the internal control mechanisms.
ESG approach
Our new pact with society goes beyond repairing Brumadinho. Vale’s board of Directors drives
the company towards becoming an enabler of development in areas where it operates,
Report from Administration 3
promoting a safer and more sustainable industry, besides contributing actively to a low-carbon
mining industry.
In this regard, Vale’s practices related to the Environment, Social and Governance areas (ESG)
are also evolving. In order to promote excellence in those three areas, a roadmap to address
the company’s relevant ESG gaps has been drawn up and is disclosed in the new internet
portal dedicated to detailing the company’s ESG practices.
We have also improved incentives to the leadership, to ensure the achievement of such
ambitious goals. In the current short-term compensation, a stake of at least 30% is directly
related to safety, risk management and sustainability. In the long-term compensation, 20% of
targets are based on ESG indicators, starting in the 2020 cycle, which makes Vale one of the
industry's pioneers in adopting ESG factors in long-term goals.
Another important change in the remuneration plan for statutory executive officers was the
inclusion of the malus clause in their respective contracts, allowing the reduction of variable
remuneration by decision of the Board of Directors in case of occurrence of facts or events of
exceptional severity.
2020, a transitional period
With the current Shareholder Agreement expiring in November, Vale is going through a
transitional period. The Board of Directors is conducting the transition in an orderly and
balanced way, while leading and supporting Vale to overcome several challenges ahead.
The current composition of the Board of Directors reflects the changes going forward. In 2019,
six members were elected or appointed for their first mandate, and minority shareholders have
increased representation, now with three independent members. Vale’s Board is currently
comprised of five members with mining or industry-related experience, five with expertise in
sustainability and ten with a solid background in governance.
On behalf of Vale’s Board of Directors, I would like to thank you for your support during the
most challenging period of Vale’s history. As we change and advance with Vale’s strategy,
governance, safety, reparation and cultural transformation, we are taking important steps
towards building a better Vale.
We will never forget Brumadinho!
José Maurício Pereira Coelho
Chairman of the Board of Directors
Report from Administration 4
A message from Vale’s CEO
Dear Vale Shareholders,
Vale remains firm in its purposes: to integrally repair Brumadinho and to ensure the safety of
our people and our assets. People, Safety and Reparation will continue to be our priorities. We
have made significant progress, by outlining an integral reparation program, improving
governance and operational procedures and implementing the de-characterization plan for our
upstream tailings dams under accelerated conditions.
With open dialogue and transparency, we have already entered into relevant agreements with
authorities and those people affected to restore the livelihood of the families, and to
compensate for damages in a broad sense and with the due urgency. Additional negotiations
are ongoing, and we expect to reach a definitive understanding soon.
We have also advanced with environmental recovery actions, such as the Ground Zero project,
which is recovering the Paraopeba river and the Ferro Carvão stream, and the completion of
two water treatment plants. Beyond that, our reparation program includes actions aiming at the
recovery of the local socio-economic capacity, considering the views and demands from
communities, local organizations and governments.
In Safety, our approach has become even more conservative. We are rigorously executing the
necessary improvements to turn Vale into one of the safest and most reliable companies in the
world. The Safety and Operational Excellence Office was created in 2019 with scope and
targets independent from operations, to fortify our risk management framework. The area has
outlined a roadmap to improve the safety culture, standards and processes at Vale. We want
to ensure that risk and safety assessment are at the center of every decision made at our
company.
The first upstream dam was de-characterized in December 2019, as planned, while the second
dam will be completed in 2020. As we make progress with the assessment of ageing
geotechnical structures, more precise information is being added to improve our asset
management, which has driven our decision of complementing the de-characterization plan.
We are leading the efforts to reduce mining dependency on tailings dams. In the next three
years, we will expand our dry processing capacity and our wet operations with the filtration and
dry stacking system, while investing in new dry-concentration technologies.
We have set ambitious goals in the Environmental, Social and Governance (ESG) areas, to
ensure that Vale is helping society to move forward. We are building a positive legacy in health,
education and income generation with our communities, while protecting forests. We will lead
the transition to carbon neutral mining, thus inducing our value chain.
Report from Administration 5
Finally, we are working to ensure value creation for our shareholders and society, by stabilizing
our production under safe conditions. Our 2019 performance was evidence of Vale’s resilience
and response capacity. Our discipline in capital allocation remains intact.
We are de-risking Vale. We are confident we are paving the way for new approaches to make
our business better, safer and more stable.
Eduardo Bartolomeo President & Chief Executive Officer
Report from Administration 6
Report from the administration 2019
We will never forget Brumadinho
One year later after the Dam I rupture, Vale restates its respect for the victims and their families,
and thanks the authorities engaged with the search and rescue measures, as well as all of
those who dedicated time and efforts to provide support and comfort amidst such tragedy. To
date, 395 people were located, 259 deceased victims and 11 missing persons.
Since the first hours, Vale has taken care of victims and families impacted, providing assistance
to restore the livelihoods of the people affected, and means to help them cope with the losses.
Vale has also provided support to local governments and public entities, given the extent of the
impacts of the dam rupture and of the halting of Vale’s operations in the region.
Repairing the damage caused in a fair and agile way is fundamental for the families, and Vale
has prioritized initiatives and resources for that end. Based on open dialogue with authorities
and people affected, Vale has drawn up the Integral Reparation Program, structured in social,
environmental and infrastructure pillars, to ensure that actions and resources will effectively
compensate individuals and communities, recover the environment and enable the sustainable
development of Brumadinho and surroundings.
Vale moves forward on its path to make its business better, based on People, Safety and
Reparation and continues firm in its ambition to become one of the safest and most reliable
companies in the world.
Immediate support to victims and families
Vale has provided humanitarian assistance to victims and families from the very first moments.
Support to people affected has been offered in a broad basis, with large teams dedicated to
listening to the people affected, recording their emergency demands, ensuring the immediate
assistance and delivering them updates in the fastest way possible. To the extent possible, a
variety of actions were taken to offer people affected aid and relief.
For emergency healthcare and psychological support, Vale has mobilized 10 hospitals and
health unities, as well as 7 assistance centers, making available doctors, psychologists and
social workers to all of those in need. More than 14,000 medical and psychological
consultations and 185,000 pharmacy items have been provided.
Vale made donations to assist the families of people deceased or missing with financial
expenses in such a critical moment, regardless any future compensation. In this sense,
donations were also made to those who lived or had business activities in the Self-Rescue
Zone.
Basic items, such as water, food and shelter, were made available to all the communities in
need. Over 580 million liters of water have been supplied to the population, artesian wells have
been drilled and a new water pipeline was built to serve the municipality of Pará de Minas, for
instance. For people who had to be evacuated from neighborhoods close to the impacted area,
Vale has provided full support with relocation, housing and the overall well-being.
Report from Administration 7
To support the rescue of fauna and mitigate environmental impacts, over 700 professionals,
including veterinarians, biologists, technicians and field staff were involved, as well as a hospital
and an animal shelter have been made provided. Over 9,800 animals have been rescued so
far, and more than 500 of them remain under Vale’s care.
Vale has also made financial contributions over R$ 400 million to the municipality of
Brumadinho, as well as to 10 municipalities impacted by halted mining operations and the
Government of the State of Minas Gerais.
Donations were destined to public entities engaged with the search and rescue efforts,
especially the State Fire Department, the State Civil Defense, and the State Military Police.
State-of-the-art equipment was bought for the Institute of Forensics of Belo Horizonte. Vale
thanks the tireless efforts of the firefighters and the local authorities to search for victims and to
provide comfort and support to the affected families.
Emergency infrastructure works have been carried out to ensure the fast reestablishment of
logistics, such as the installation of the Alberto Flores bridge, which grants safe access to the
central area of Brumadinho.
Reparation progress
Based on the dialogue kept with communities impacted and authorities, Vale has developed a
comprehensive program to repair damage caused. Economic compensation has evolved with
agility, as per three relevant framework agreements entered into with authorities1:
• Labour indemnification to 244 of the 250 employees that lost their lives in the disaster,
comprehending 611 agreements, 1,570 beneficiaries and R$1.4 billion paid out2;
• Individual or colective indemnification reaching 4,451 beneficiaries and more than R$
679 million paid;
• Emergency aid payment to approximately 106,000 people that reside in Brumadinho and
along the Paraopeba river has been extended until October 2020. Over R$ 1.2 billion has
already been paid;
• Other 27 agreements signed to cover specific fronts, such as: (i) support for municipalities
in providing public services and infrastructure; (ii) environmental recovery; (iii) water
supply, including new water withdrawal and treatment systems with COPASA; (iv)
emergency payments to families relocated in Barão de Cocais and for the Pataxós
indigenous community; and (v) external audits and asset integrity studies, providing
technical support for the authorities, with measures to review and reinforce structures
and halting of operations.
1 Figures as of February 20th, 2020.
2 The amount includes R$ 400 million paid in indemnifications for collective moral damages.
Report from Administration 8
The three pillars of The Integral Reparation Program also encompass relevant forms of non-
economic compensation.
On the environmental front, a plan was developed to remove and treat tailings, recover fauna
and flora and ensure the water catchment and supply to the Belo Horizonte metropolitan region.
Two Water Treatment Stations (ETAF) are already operating to clean and return treated water
to the Ferro-Carvão stream and the Paraopeba river. The Ground Zero project will fully recover
the original conditions of the Ferro-Carvão stream by 2023.
On the socio-economic front, non-economic compensation measures aim to ensure respect for
human rights and are negotiated and defined following the perspectives and demands of the
people affected and authorities.
Vale’s initiatives are being designed to provide structured assistance for long-term results in
education, healthcare and well-being, employment and income generation, ultimately enabling
sustainable development in the region.
Some initiatives already in place welcome residents of Córrego do Feijão to share experiences
and feelings, to rebuild self-esteem and strengthen the sense of belonging to that community
and location. Activities are also developed to enhance local vocations, such as cultural tourism,
productive backyards, community gardens and handicrafts.
Vale knows there is still a lot to be done to integrally repair Brumadinho and reinforces its
commitment to doing it. For further information on the updated balance of actions Vale has
taken so far, see the following website: vale.com/repairoverview.
Safety
Vale has implemented significant improvements in governance, processes and people towards
achieving its goal to become one of the safest mining companies in the world.
Vale’s Board of Directors has approved a new Risk Management Policy, establishing, among
other measures, four Executive Risk Committees to deal with Operational Risks, Strategic,
Financial and Cyber Risks, Compliance Risks and Geotechnical Risks. With this structure, risks
will be monitored in a more effective way, enhancing the information flow at all organizational
levels.
Additionally, the new Safety and Operational Excellence Office, which reports directly to the
CEO and has the authority to halt operations on safety grounds, has outlined its work plan for
the next two years, with actions covering the four areas around which it is organized: (i) Tailings
Management, to assure Vale’s dams are safe and comply with international standards, (ii) Asset
Integrity, to assure that assets are well maintained and safe to operate, (iii) Operational
Excellence, to enhance the Vale Production System (VPS) across the company, guaranteeing
the continuity of the improvements that are being implemented, and (iv) Health & Safety and
Operational Risk, to enhance the safety culture and also map all risks throughout the company.
Report from Administration 9
In December 2019, the independent Expert Panel retained to provide an assessment of the
technical causes of the Dam I rupture reported on its conclusions, which were promptly taken
to the authorities and made public knowledge. Results of this sort are also an important input
to improve the tailings management practices at Vale. Also, in February 2020, the Board of
Directors received the report from the Extraordinary Independent Consulting Committee for
Investigation, with recommendations at the technical and governance levels, which will be
analyzed in detail by Vale.
One of the key milestones to reduce the risk level at the company is the decharacterization of
the upstream structures, a process that will continue over the next few years. The first dam to
have work completed, was 8B on December 2019, and the conclusion of the second one,
Fernandinho dam, is scheduled for 2020. Vale has also completed the construction of the
containment structure for Sul Superior Dam in the city of Barão de Cocais, while the
containment structures for B3/B4 and Forquilhas dams will be concluded in 1H20, increasing
the safety conditions in the areas downstream from the dams and allowing the
decharacterization works at these sites to start thereafter.
As of September 2019, due to the technical revaluation of the construction method of the Doutor
and Campo Grande dam, the Brazilian National Mining Agency (ANM) reclassified their
construction method from center line to upstream, and therefore Vale included them in the
decharacterization plan. Additionally, smaller dikes that were raised through the upstream
method and drained stack structures will also be decharacterized.
For the future, Vale plans to reduce significantly its use of dams and will invest US$ 1.8 billion
in alternatives that will allow the substitution of the wet processing to more sustainable
processes. Dry processing will reach 70% of Ferrous Minerals production volume in the next
three years.
Reducing uncertainties
Following the Brumadinho dam rupture, Vale’s iron ore production capacity was significantly
impacted by the stoppage of operations with interdictions on Brucutu, Vargem Grande, Alegria,
Timbopeba and Fábrica operations. Over the year, Vale has made progress as regards the
resumption of the stopped production capacity:
• Brucutu mine: In June 2019, following the decision of the legal authorities, Brucutu mine
restarted adding back 30 Mtpy of production capacity. However, in December 2019, Vale
took the decision to suspend temporarily the disposal of tailings at the Laranjeiras dam,
while assessing the dam’s geotechnical characteristics. Until at least the end of March
2020, the Brucutu plant will operate at around 40% of its capacity, with the impact of the
temporary suspension estimated at 1.5 Mt per month, approximately.
Report from Administration 10
• Vargem Grande Complex: In July 2019, the ANM authorized the partial resumption of
the dry processing operations at the site. The partial resumption enabled 5 Mt of
production in 2019, which represents 12 Mtpy of production capacity.
• Alegria mine: In November 2019, Vale received the necessary authorization from the
ANM to resume the operations of the Alegria Mine, which had been halted since March
2019. The authorization allowed 3 Mt of production in 2019, which represents 8 Mtpy of
production capacity.
Vale plans to resume approximately 40 Mtpy of halted capacity, by 2021, since it has already
reached several milestones and there are other initiatives in progress. Below are more details
on the timeline for resumption:
• Vale expects to receive the necessary authorization from the Minas Gerais State Public
Prosecutor’s Office (“MPMG”) to restart the Timbopeba site in 1Q20 using dry
processing, after the appraisal of the external audit by the MPMG. Wet processing
activities are expected to be resumed in 4Q20 following the completion of a pipeline to
dispose tailings at Timbopeba pit. Alternatives are being evaluated to anticipate the
use of wet processing.
• The Fábrica operation is expected to be resumed in 2Q20. First, it is necessary to run
vibration trigger tests to certify the absence of impacts on the site’s structures, which
relies on approval by MPMG’s external audit and the ANM. Vale expects to operate
using wet processing with tailings disposal at Forquilha V, starting in 3Q20.
• The Vargem Grande pellet plant is expected to be resumed in 3Q20. The pellet feed
for pellet production will be sourced from the iron ore beneficiation plant, which will
require tailings disposal at the Maravilhas I dam and Cianita waste dump until the start-
up of the Maravilhas III dam, which is expected for 4Q20. Running trigger tests at the
pellet plant relies on approval by MPMG’s external audit, while the beneficiation plant
restart and its economic mining plan depend on approval by the ANM.
The resumption plan considers that all of these operations will be able to operate in wet process
in 2020, an important step towards improving Vale’s average production quality.
Report from Administration 11
Vale’s Environmental, Social and Governance Framework
2019 initiatives
Vale is constantly working to transform natural resources into prosperity and sustainable
development. This goal is achieved when the business, and in particular mining activities,
generate value for shareholders and other stakeholders.
Throughout 2019, Vale continued with its sustainability initiatives to mitigate and offset the
impacts of its activities. It also developed environmental and value creation actions for
communities. During the year, earmarked R$ 2.4 billion3 for social and environmental initiatives.
Environmental
Vale wants to lead the transition towards a low carbon mining industry. In 2019, Vale has
defined internally its carbon price at US$ 50/t and a new and ambitious target was announced,
which is specified as follows, in the 2030 Commitments. Throughout its climate change
management process, Vale expects to develop a portfolio of low carbon projects made possible
by the internal price of carbon, in addition to a better understanding of regulatory risks and their
impacts. Vale is also committed to evaluate its risks and opportunities related to a low carbon
economy, which is required by TCFD (Task-Force on Climate Financial Related Disclosure).
Water is one of the main inputs for mineral production and crucial for some environmental
controls. In 2019, Vale achieved a 3.1% reduction in fresh water withdrawal, paving the way to
meet the target in the 2030 Commitments. Since 2018, Vale has set a goal to reduce (base
year 2017) the new withdrawal water for use in the company's production processes, fixed at
10% by 2030, in an intensive manner and in line with the UN SDGs (Sustainable Development
Goals). Over the year, the focus was in improving the accuracy of data through waterflow
meters acquisition, and identification of reduction opportunities in the processes. In addition,
Vale is working on the development of a policy for water resources, in line with world best
practices, and with International Council on Mining and Metals (ICMM) standards.
Vale operates within conservation units in regions of high biodiversity value, always respecting
the legal determinations in each category of conservation unit. In Pará, Brazil, for example,
there are operations in the Carajás National Forest (mines in Serra Norte and S11D) and the
Tapirapé Aquiri National Forest (Salobo). These are conservation units for sustainable use, a
category that allows anthropic activities in joint development with biodiversity conservation. In
Minas Gerais, in Brazil, most of the operational units of the Iron Quadrangle are within the
3 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.
Report from Administration 12
Southern Environmental Protection Area (APA Sul), also in the category of sustainable use
conservation units. In the pursuit of biodiversity conservation, Vale establishes partnerships
with third-party conservation units, formalized or not, in which it invests in infrastructure,
ecosystem protection (firebreaks, fences, fire prevention and fighting, and hunting), research
and innovation. In addition to these areas, there is also the Vale Natural Reserve (RNV). It is
one of the main protected areas maintained by Vale, and it covers approximately 23,000
hectares and is located in northern Espírito Santo, Brazil.
In total, Vale already protects and helps to protect an area approximately 6 times larger than
the area occupied by operations, that is, approximately 8.5 thousand km² of natural areas. In
terms of biodiversity, the long-term purpose is to achieve No Net Loss4.
In 2019, Vale dedicated R$ 2.0 billion5 to environmental initiatives, 61% of which were
mandatory and 39% voluntary. The main categories were related to waste and air emissions.
Stands out the improvements in the atmospheric emissions reduction system at the Tubarão
unit, in Brazil, where Vale made adjustments to wind fences, improvements to drainage and
sprinkling systems and access paving. In Moatize coal site, Vale installed equipment for
sprinkling with polymers, Rom Pad cannons, revitalization of the storage yard and acquisition
of water tank trucks. In the waste category, it is worth mentioning the initiative for drying tailings
disposal in a landfill in New Caledonia.
Social
Vale is committed to the UN Guiding Principles on Business and Human Rights. In 2019, Vale
carried out the Human Rights risk self-assessment in 100% of its sites (except those that had
operations suspended) and prepared action plans. Seven due diligence assessments were also
carried out in 2019 and others are planned for 2020 and the coming years, in addition to the
self-assessment of Human Rights risks. Moreover, in 2019, Vale´s Human Rights Policy
underwent its second revision, which included a public consultation.
To improve performance, in 2019, the grievance channels in Brazil were consolidated, which
include demands and complaints from the communities registered by the community relations
area in the Stakeholders, Demands and Issues (SDI) System, as well as reporting channels
such as the Alô Ferrovia (grievance channel for railways) and 0800 Reparation telephone lines.
For 2020, the consolidation of these channels, such as Ombudsman, Contact Us and social
media, is planned. In addition, the SDI was implemented last year in Oman and Peru,
expanding the model for registering and handling demands, complaints and claims, which
currently operates in Brazil, Mozambique and Malawi.
4 When losses are equal to gains. There are impacts, but measures are taken to prevent and minimize them in order
to implement rehabilitation/ restoration and offset. 5 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.
Report from Administration 13
Eradicating gender inequalities is a huge challenge, but Vale believes that an approach of
inclusion is key to eliminating the barriers that hinder the hiring and retention of women and
resulting performance improvement due to gender diversity. In 2019, a bold goal was set out:
to double the female workforce in Vale by 2030, to 26% from 13%, also to increase female
presence in leadership roles to 20% from 12%. Improving its transparency, Vale has also
disclosed the median salary per gender and seniority level.
In 2019, R$ 442 million6 were dedicated to social initiatives, 62% of which were voluntary and
38% mandatory. In the voluntary sphere, the largest investment was in the areas of culture (R$
115 million6), indigenous peoples (R$ 47 million6) and generation of labour and income
generation (R$ 32 million6). In the initiatives focused on culture, stand out music programs such
as Vale Música, Orquestra Ouro Preto, and the maintenance of various cultural instruments
and museums in Brazil. For Indigenous Peoples, investments were made in Brazil and in New
Caledonia, to the quality of life and promoting the development of these communities. In the
field of Labour and Income Generation, standing out the AGIR Program of Fundação Vale,
which includes project with the Women Network of Maranhão, in Brazil, and the Rural
Development Program in Indonesia. In addition, there were R$ 67 million6 in investments in the
fields of education, health, support to entities, urban infrastructure and mobility, among others.
For the mandatory sphere, we highlight the expenses in Brazil with Indigenous Peoples arising
from lawsuits and environmental conditions (R$ 79 million6) and with urban infrastructure and
mobility in the northern region (R$ 24 million6). In Mozambique, R$ 28 million6 were invested in
involuntary resettlement and studies and monitoring initiatives. In Canada, the mandatory
expenses were R$ 12 million6 in taxes for economic diversification.
Main voluntary investments
The Vale Foundation ended 2019 having benefited approximately 770 thousand people through
its social projects in 68 Brazilian municipalities. Aiming at the territorial development of locations
where Vale is present, the support given to 689 social entrepreneurs and around 1,200 people
via rural development projects stands out, in addition to the contribution to the training of 941
educators and 1,672 health professionals.
The Vale Fund acts as an instrument to promote business with a social and environmental
impact in Brazil, in three main areas: creating and developing financial instruments;
accelerating the impact from socio-environmental innovation businesses; and strengthening
this ecosystem. For 2019, it is worth highlighting projects aimed at the conservation of the
Amazon forest.
6 Estimated value in BRL, using the FX BRL/USD 3.95 average for 2019.
Report from Administration 14
Social innovation
Within the scope of the Sustainability Department, Vale also invests in R&D, through lines of
research and training of human resources at the Vale Technological Institute - Sustainability
(ITV-DS) and through partnerships with universities, research institutes and government
agencies, in Science, Technology & Innovation.
In ITV-DS, 5 lines of research are developed: natural resources and climate, biodiversity and
environmental genomics, environmental technology, territorial development and bioinformatics
and computing.
In the field of Science, Technology & Innovation, the research portfolio includes projects on
recovery of degraded areas, biodiversity, remediation of contaminated areas, atmospheric
emissions, climate change and relationship with communities, representing a multi-annual
investment of about R$ 29 million.
Renova Foundation
The Renova Foundation is responsible for the reparation of the impacts caused by the rupture
of Samarco’s Fundão dam, in Mariana (MG), joint venture between Vale and BHP. Since the
Foundation's creation in November 2015, approximately R$ 7.8 billion have been invested by
Vale, BHP and Samarco, in the 42 programs agreed in the Term of Transaction and Conduct
Adjustment (TTAC), of which R$ 7.3 billion are for reparation initiatives and R$ 0.5 billion for
compensation of the affected parties. Of this total, approximately R$ 2.1 billion (R$ 780 million
in 2019) were paid in indemnities, which represents more than 320,000 people covered.
Governance
At a Board of Directors level, 2019 was highlighted by the addition of a 3rd independent board
member in April 2019 election. Additionally, as a result of the Dam I rupture, three Extraordinary
Independent Consulting Committees were established, composed by independent members
with reputations and experience relevant to the subject matter of the Committees on which they
sit, namely:
• Extraordinary Independent Consulting Committee for Support and Recovery;
• Extraordinary Independent Consulting Committee for Investigation;
• Extraordinary Independent Consulting Committee for Dam Safety.
In terms of compensation, several initiatives were implemented, such as: (i) 60% of the
Executive Directors performance goals of 2019 were based on Health and Safety, Sustainability
and actions to repair the damage caused by the Dam I rupture; (ii) inclusion of a malus clause,
i.e. upon facts or events of exceptional severity, the Board of Directors may resolve to reduce
the variable compensation set forth in the bylaws; (iii) implementation of minimum share
ownership by the Executive Board, equivalent to at least thirty-six (36) honorary fees for the
Report from Administration 15
CEO and twenty-four (24) honorary fees for the Executive Directors; and (iv) inclusion of 20%
of long-term compensation targets based on ESG metrics.
New pact with society
The mining sector is essential to deliver resources that fuel economic development and societal
well-being. Nonetheless, given society’s evolving demands, the industry faces the challenge of
reconsider the way it creates and shares value with its stakeholders. In this context and in light
of the events in Brumadinho, 2019 was a time to rethink the sustainability approach.
Vale wants to strengthen the search for Social License to Operate and its relationship with
society, through a new ambition that takes into consideration our company’s relevance in the
mining industry.
Vale aims to become development enabler in the area it operates in, promoting safer and more
sustainable industry, as well as actively contribute to a low carbon mining. Vale is building a
new pact with society.
Vale is working on this direction and established more ambitious targets and commitments to
reflect profound transformation in its resources and technology allocation, at the same time as
in the development of new internal capabilities.
2030 Commitments review for more ambitious goals
Vale’s sustainability goals, announced in December 2018 were set in line with the Sustainable
Development Goals of the United Nations 2030 Agenda. The environmental goals prioritize
reduction of greenhouse gas emissions, recovery of degraded areas and water resources. The
social goals prioritize local income generation, basic health and education in Brazil.
Enhanced 2030 Commitments Climate change: reduce greenhouse gas emissions aligned with the Paris Agreement,
and become carbon neutral by 2050
Vale positions itself today on the irreversible path towards a low carbon economy and is
committed to contributing to the global journey to limit global warming to below 2°C as
defined in the Paris Agreement. Vale is targeting carbon neutrality in scope 1 and 2 by 2050
and wants to induce the value chain, since Vale has the high-grade iron-ore pellets and
products that customers need to reach their goals in terms of emissions reductions.
Energy: 100% self-generation of clean energy globally
Vale’s electricity consumption is mostly from clean sources – around 80% of the worldwide
electricity consumption comes from renewable sources, but only part of this energy is self-
produced (close to 60%). Vale’s target is to self-produce 100% from clean sources in Brazil
by 2025, and globally by 2030.
Report from Administration 16
Water: reduced new water collection by 10%
Vale develops programs and implements actions that go beyond compliance with legal
requirements to optimize water use and consumption. Vale’s water reuse represents 83% of
total production demand. Vale wants to reduce by 10% per ton produces the new water
captured and used in processes.
Forest: recover and protect 500,000 ha of degraded land beyond Vale’s boundaries
Vale’s ambition is to act as a global catalyst for protection and reforestation. Currently, Vale
already helps to protect 1,018,405 hectares as a result of compensation measures, voluntary
initiatives and partnerships. On the top of this, Vale has established a commitment to protect
and reforest an additional 500,000 hectares by 2030, strengthening the 2018 target.
Socioeconomic Contribution: health care, education and income generation
Vale is engaged in contributing to the development of the territories where it operates, by
supporting education, promoting health and strengthening local business.
ESG gaps: eliminate main ESG gaps in relation to best practices
Vale has mapped out the relevant gaps that it has for these three factors, based on
information provided by some of the most prominent ESG rating agencies in the market.
Vale has discussed and addressed each item, and a roadmap has been drawn and disclosed
in Vale’s ESG Portal.
Transparency
Vale presents its Sustainability Report annually as an initiative for transparency and disclosure
of information on the main topics related to its business. The sustainability report is produced
in accordance with the GRI methodology, the most widely disseminated internationally.
Additionally, in order to have a single source for ESG data, Vale launched the ESG Portal in
December 2019, a channel that shows this action plan and more transparency in Vale’s
sustainability approach and initiatives. Find out more about Vale’s ESG approach at
www.vale.com/esg
Integrity
Ethics and integrity are principles that guide Vale’s daily activities, guided by its Code of
Conduct whose principles and guidelines should drive the professional conduct of all Vale’s
employees as well as our subsidiaries and both directly and indirectly controlled companies.
Vale has held, annually since 2015, the Movement for Integrity aimed at all leaders, employees
and third parties, where it has debated ethical values and how to report incorrect behavior at
all hierarchical levels of the company.
Vale has zero tolerance towards corruption and the Global Anti-Corruption Program is one of
the instruments for preventing and fighting corruption by public officials. Every year, Vale carries
out initiatives such as in-person and online training, which is mandatory for all employees with
computer access.
Report from Administration 17
Our People
Vale employs approximately 71 thousand own employees and 78 thousand outsourced
professionals. We aim at developing competencies and encouraging talent by conducting
educational activities and offering compensation consistent with the complexity of the job, the
performance of our employees and the market. We promote an environment suitable to
dialogue, and value straightforward communication. The work of each one of Vale's employees
is essential to the success and growth of the company. Caring for people is a commitment that
is part of Vale's values, and internally such caring translates into initiatives to zero accidents,
support to the development of employees, and to be the company of choice to work in, with an
environment ideal for safe professional growth. Respecting diversity and promoting inclusion
are ethical imperatives, indispensable for a sustainable company.
Per business units
Number of own employees 2019 2018
Ferrous minerals 42,077 43,504
Coal 2,927 2,350
Base metals 13,738 14,349
Fertilizer nutrients - 12
Energy 3,809 4,058
Corporate activities 8,598 5,997
Total 71,149 70,270
Per geographic location
Number of own employees 2019 2018
Brazil 55,439 55,230
South America (ex-Brazil) 202 193
North America 6,082 6,032
Europe 308 298
Asia 4,455 4,475
Oceania 1,384 1,378
Africa 3,279 2,664
Total 71,149 70,270
Per business units
Number of outsourced employees 2019 2018
Ferrous minerals 27,749 26,714
Coal 5,900 4,212
Base metals 10,828 8,850
Energy 496 633
Corporate activities 33,170 14,235
Total 78,143 54,644
Per geographical location
Number of outsourced employees 2019 2018
Brazil 57,388 40,371
South America (ex-Brazil) 89 80
North America 3,892 2,918
Europe 106 96
Asia 6,855 4,408
Oceania 1,082 1,203
Africa 8,731 5,568
Total 78,143 54,644
Report from Administration 18
As a global company, Vale knows that attracting the best professionals, retaining talents,
encouraging and engaging professionals in strategic positions, especially executive officers, is
a critical challenge for the Company's success at all times.
Turnover rate is calculated based on own employees data from Vale and its subsidiaries in the
following countries: Brazil, Canada, Indonesia, New Caledonia, Australia, United States of
America, China, Mozambique, Peru, Colombia, Chile, Argentina, Austria, Dubai, India, Japan,
Korea, Malaysia, Oman, Paraguay, Philippines, Singapore, Switzerland, United Kingdom and
Uruguay.
2019 2018
Turnover rate 6.44% 6.57%
Report from Administration 19
Innovation
Vale seeks to incorporate innovation through research & development (R&D) into its processes
and operations, to ensure growth and competitiveness in the domestic and international
markets. Today, this is done through artificial intelligence, advanced computational analysis
and collaborative work.
The company also invests in research & development of innovative projects. These initiatives
are changing the mining landscape, connecting people and bringing greater operational
efficiency.
Vale in Industry 4.0
In 2018, Vale began implementing a digital transformation program to accelerate the Industry
4.0 adoption, becoming a catalyst for building a safer and reliable company as well as bringing
agility and an innovation mindset through the democratization of new tools, methods, and
behaviors. The result of simpler and more efficient process will lead to operational excellence.
Vale is using Internet of Things, Advanced Analytics, Machine Learning, Artificial Intelligence
and mobile applications, among other technologies.
Geotechnical: drones have started to perform advanced surveillance to monitor the conditions
of Vale’s dams, providing an integrated view for the new Geotechnical Monitoring Centers.
Autonomous: as a result of R&D initiatives, autonomous trucks used to transport iron ore from
the mining front to the processing plant started to be part of Vale’s daily operations. Compared
with the conventional transport model, safety is increased by removing people out of harm’s
way, while operational excellence is reinforced through a stable and predictable process,
increasing productivity. At Brucutu mine, the entire fleet of 13 trucks operates with the new
technology, making it the first to operate autonomously in Brazil. At the Carajás mine, in Pará,
the autonomous operation test for haul trucks has already started, with completion planned for
2020. Autonomous drills are also operating throughout several of Vale’s operations in Brazil,
while autonomous scoops are being implemented at underground mines in Sudbury, bringing
similar benefits to nickel operations.
New technologies to reduce reliance on tailings dam
Vale continues to study different solutions and technologies for ore processing and to reduce
its reliance on tailings dams.
Dry stacking: Vale plans to invest almost US$ 1.8 billion for implementation of dry tailings
stacking technology in Minas Gerais between 2020 and 2024. The technique allows filtering
and reusing water from the tailings so that tailings can be stacked, thus reducing the use of
Report from Administration 20
dams. The first sites to use these techniques will be the operations of Vargem Grande, in Nova
Lima; Pico, Cauê and Conceição, in Itabira; and a Brucutu mine in São Gonçalo do Rio Abaixo.
Dry magnetic concentration: the Brazilian technology, known by the English acronym FDMS
(Fines Dry Magnetic Separation), is the only one in the world and was developed by New Steel,
a company acquired by Vale at the end of 2018. This technology eliminates the use of water in
the process of concentrating the low-grade iron ore, which allows the tailings to be disposed in
piles as waste rock, like the process used in dry stacking. In 2Q20, a pilot plant will start
operating at the Centro Tecnológico de Ferrosos (CTF), in Nova Lima (MG). The unit will be
able to concentrate 30 tons of dry ore per hour, using magnetic separation technology, based
on rare earth magnets. The pilot project at CTF is the second carried out by Vale. Between
2015 and 2017, a similar plant operated successfully at the Fábrica mine.
Technology for a greener industry
Vale is committed to provide solutions to its clients, in particular in relation to CO2 challenges.
Vale has developed a new technology, known as Tecnored, to produce pig iron, which employs
a variety of raw materials such as biomass, reducing the CO2 emitted.
In order to validate this technology, Vale built an industrial plant of 75 ktpy in São Paulo that
confirmed the economic viability in 2018 – running 24x7 over 6 months. Vale is currently at the
engineering phase of a 500 ktpy plant.
Report from Administration 21
Selected financial information
Income statement R$ million 2019 2018
Net operating revenue 148,640 134,483
Cost of goods sold and services rendered (83,836) (81,201)
Gross profit 64,804 53,282
Gross margin (%) 43.6% 39.6%
Selling and administrative expenses (1,924) (1,917)
Research and evaluation expenses (1,765) (1,376)
Pre-operating and operational stoppage (4,559) (984)
Other operational expenses, net (2,052) (1,613)
Brumadinho event (28,818) -
Impairment and disposal of non-current assets (20,762) (3,523)
Operating income 4,924 43,869
Financial income 2,092 1,549
Financial expenses (14,973) (8,394)
Other financial items, net (565) (11,213)
Equity results and other results in associates and joint ventures (2,684) (693)
Income (loss) before income taxes (11,206) 25,118
Current tax (5,985) (2,806)
Deferred tax 8,494 3,772
Total Tax 2,509 966
Net income (loss) from continuing operations (8,697) 26,084
Net income (loss) attributable to noncontrolling interests (2,025) 117
Net income (loss) from continuing operations attributable to Vale’s stockholders
(6,672) 25,967
Discontinued operations
Loss from discontinued operations - (310)
Income (loss) from discontinued operations attributable to Vale’s stockholders - (310)
Net income (loss) (8,697) 25,774
Net income (loss) attributable to noncontrolling interests (2,025) 117
Net income (loss) attributable to Vale’s stockholders (6,672) 25,657
Balance sheet – consolidated R$ million 2019 2018
Assets
Current 68,698 59,256
Non-current 67,705 51,631
Investments 11,278 12,495
Intangibles 34,257 30,850
Property plant and equipment 187,733 187,481
Total 369,671 341,713
Liabilities
Current 55,806 35,285
Non-current liabilities 156,716 132,745
Stockholders’ equity 157,149 173,683
Equity attributable to Vale’s stockholders 161,480 170,403
Equity attributable to non-controlling interests (4,331) 3,280
Total 369,671 341,713
Report from Administration 22
Cash flow
R$ million 2019 2018
Cash flow from operations 61.163 56.682
Interest on loans and borrowings paid (4.760) (4.023)
Derivatives received (paid), net (1.287) (250)
Interest on participative stockholders' debentures paid (715) (400)
Income taxes (including settlement program) (7.119) (4.089)
Net cash provided by operating activities from continuing operations 47.282 47.920
Cash flow from investing activities:
Capital expenditures (14.774) (13.899)
Additions to investments (287) (79)
Acquisition of subsidiary, net of cash (3.513) -
Proceeds from disposal of assets and investments 546 4.959
Dividends received from associates and joint ventures 1.423 922
Judicial deposits and restricted cash (6.169) -
Short-term investment (LFTs) (3.408) (180)
Other investments activities, net (358) 7.353
Net cash used in investing activities from continuing operations (26.540) (924)
Cash flow from financing activities:
Loans and borrowings from third-parties (9.988) (23.565)
Payments of leasing (891) -
Dividends and interest on capital paid to stockholders - (12.415)
Dividends and interest on capital paid to noncontrolling interest (695) (635)
Share buyback program - (3.858)
Transactions with noncontrolling stockholders (3.310) (56)
Net cash used in financing activities from continuing operations (14.884) (40.529)
Net cash used in discontinued operations - (157)
Increase in cash and cash equivalents 5.858 6.310
Cash and cash equivalents in the beginning of the year 22.413 14.318
Effect of exchange rate changes on cash and cash equivalents 1.356 2.170
Effects of disposals of subsidiaries and merger, net of cash and cash equivalents - (385)
Cash and cash equivalents at end of the year 29.627 22.413
Non-cash transactions:
Additions to property, plant and equipment - capitalized loans and borrowing costs 551 704
Cash flow from operating activities:
Income (loss) before income taxes from continuing operations (11.206) 25.118
Adjusted for:
Provisions related to Brumadinho 25.447 -
Equity results and other results in associates and joint ventures 2.684 693
Impairment and disposal of non-current assets 20.762 3.523
Depreciation, amortization and depletion 14.751 12.240
Financial results, net 13.446 18.058
Changes in assets and liabilities:
Accounts receivable (41) (1.012)
Inventories 669 (2.994)
Suppliers and contractors 2.836 (1.414)
Provision - Payroll, related charges and other remunerations (318) 349
Proceeds from streaming transactions - 2.603
Payments related to Brumadinho (3.982) -
Other assets and liabilities, net (3.885) (482)
Cash flow from operations 61.163 56.682
Report from Administration 23
Operational and economic-financial performance
Selected financial indicators R$ million 2019 2018
Net operating revenues 148,640 134,483
Adjusted EBIT 27,556 48,825
Adjusted EBIT margin (%) 18.5% 36.3%
Adjusted EBITDA 42,307 61,065
Net income (loss) from continuing operations attributable to Vale’s stockholders
(6,672) 25,967
Reconciliation of EBITDA
R$ million 2019 2018
Net income (loss) from continuing operations attributable to Vale’s stockholders
(6,672) 25,967
Net income (loss) attributable to noncontrolling interests (2,025) 117
Net income (loss) from continuing operations (8,697) 26,084
Depreciation, depletion and amortization 14,751 12,240
Income taxes (2,509) (966)
Net financial result 13,446 18,058
EBITDA 16,991 55,416
Items for Adjusted EBITDA reconciliation
Equity results and other results in associates and joint ventures 2,684 693
Impairment and disposal of non-current assets 20,762 3,523
Dividends received and interest from associates and joint ventures 1,870 1,433
Adjusted EBITDA from continuing operations 42,307 61,065
Segment information ― 2019 Expenses
R$ million Net
Revenues Cost¹
SG&A and others¹
R&D¹ Pre operating
& stoppage¹
Dividends and interests
on associates
and JVs
Adjusted EBITDA
Ferrous Minerals 118,767 (47,505) (1,393) (569) (3,249) 1,193 67,244
Iron ore fines 92,504 (34,843) (1,281) (491) (2,963) 120 53,046
Pellets 23,446 (10,515) (81) (65) (282) 1,036 13,539
Others ferrous 1,705 (1,278) 1 (4) - 37 461
Mn & Alloys 1,112 (869) (32) (9) (4) - 198
Base Metals 24,351 (14,874) (319) (347) (192) - 8,619
Nickel² 16,845 (11,305) (297) (174) (111) - 4,958
Copper³ 7,506 (3,569) (22) (173) (81) - 3,661
Coal 4,005 (6,462) 3 (121) - 447 (2,128)
Others 1,517 (1,541) (2,045) (728) (43) 230 (2,610)
Brumadinho impact - - (28,818) - - - (28,818)
Total 148,640 (70,382) (32,572) (1,765) (3,484) 1,870 42,307
¹ Excluding depreciation, depletion and amortization
² Including copper and by-products from our nickel operations
³ Including by-products from our copper operations
Report from Administration 24
Comments on the economic and business
environment
IRON ORE
Iron ore 62% Fe reference price averaged US$ 93.4/dmt in 2019, 34% higher than in 2018
driven by disruptions on supply side, attributable mainly to the Brumadinho tragedy in Brazil
and the impact of cyclone Veronica in Australia and a record steel production in China.
MB65% index averaged US$ 104.5/dmt in 2019, 15% higher than in 2018, following the overall
iron ore price trend. Going forward, Vale is positive about high Fe grade ores use and
premiums, in response to China’s reforms and Ministry of Industry and Information Technology
(MIIT) recent policy of not approving more steel capacity swaps and ordering local governments
to inspect steel projects meant to swap older capacity in compliance with environmental, energy
consumption and other policies.
In China, crude steel production was record, achieving 996.3 Mt in 2019, with a strong
performance in the 4Q19, driven by continued momentum in the real estate sector, a recovery
in manufacturing and softer winter restrictions.
Ex-China, according to the World Steel Association (WSA), crude steel production decreased
to 873.6 Mt in 2019, 1.6% lower than in 2018, as the steel-using sectors suffered the side-
effects of trade tensions between the US and China.
Europe has been hit the hardest, as the export-oriented sectors such as automotive and
machinery were impacted by lack of investments and lower trade flows. Steel production in the
region totaled 159.4 Mt in 2019, 5% lower than 2018.
In North America, the US was the only country to increase steel production, achieving 87.9 Mt
in 2019, 1.5% higher than 2018, due particularly to higher steel production from electric arc
furnaces.
In developing countries, India’s steel production increased below expectations to 111.2 Mt,
1.8% higher than in 2018. The modest growth was attributed to slow manufacturing and
domestic consumption. On the other hand, Southeast Asia has kept the steel production
momentum observed in the past years and steel production was 11% higher than in 2018,
based on preliminary figures from WSA.
Vale remains overall positive on steel demand in China, this time driven by a rebound in
infrastructure investments. Nevertheless, we see growing risks emerging from the coronavirus,
which have led to travel restrictions and a longer Chinese New Year holiday, impacting first
mainly services, consumer goods manufacturing and overall sentiment. Iron ore price may be
impacted in the short-term by the overall sentiment and uncertainties, but it should recover,
reacting to restocking activity and stimulus policies. Ex-China, iron ore seaborne demand will
be driven by growth of steel production in emerging economies, such as Southeast Asia, and
a slow recovery in developed markets such as Europe, Japan and Korea.
Report from Administration 25
COAL
Seaborne coking coal prices averaged US$ 177.0/t in 2019, 15% lower than in 2018. Poor
performance of seaborne coking coal during the year was mainly driven by factors in 2H19 such
as (i) weak macro data in India, due to lower housing and infrastructure spending over an
extended monsoon period and weak auto sales and consumer spending; (ii) shutdown of
several blast furnaces in Europe due to weak steel margins due to high carbon prices, steel
raw material prices and weak auto sales because of trade concerns; (iii) decrease in coke prices
and domestic coking coal prices in China; (iv) lower crude steel production in Japan with
completion of Olympic Games demand and weak auto sales; (v) steady supply from Australia
with no disruptions as those observed in 2018.
Seaborne coking coal market should remain bearish on prices, mainly due to lower than
expected growth in Indian steel demand and emerging uncertainties due to coronavirus in
China. Support can be seen from growing demand for coking coal with commissioning of new
blast furnaces in Southeast Asia.
In the thermal coal market, Richards Bay FOB price averaged US$ 71.5/t in 2019, 27% lower
than in 2018. Weaker prices in the year were mainly driven by (i) lower LNG prices due to rise
in gas supply by 12% amid warm winters; (ii) higher carbon prices in Europe squeezing the
margins for coal fired power generation; (iii) rising alternate power generation sources such as
renewables in Europe, hydro in China, nuclear in Japan and Korea; (iv) weaker seasonal
demand in India due to monsoon period; (v) higher stock levels in China and steady domestic
coal supply; (vi) rise in Indonesian thermal coal production by 10%.
Thermal coal market sentiment remains negative due to the same drivers observed in 2019
and added uncertainties around the coronavirus, impacting industrial demand and power
generation in China. However, prices should be supported by steady demand from the Indian
DRI (direct reduction iron) sector due to their technical dependence on this type of coal.
NICKEL
LME nickel prices averaged 2019 at US$ 13,936/t, 6% stronger compared to US$ 13,122/t in
2018.
Total exchange inventories (LME and SHFE) had a net decline, closing at 190.5 kt by the end
of 2019, down 28.4 kt since 2018. LME inventories at the end of 2019 stood at 153.3 kt, a
decline of 53.1 kt since the end of 2018. SHFE inventories increased 24.7 kt to 37.1 kt by the
end of 2019.
Global stainless-steel production increased 3.3% in 2019 relative to 2018 with strong growth
led by Indonesia, India and China. This mismatch of stainless steel production and stainless
steel consumption is resulting in surplus and is evidenced by the record high reported stainless
steel inventories, particularly in China. Sales of electric vehicles worldwide grew 12% in 11M19
relative to 11M18 amid a continued decline in overall automotive sales. Demand for nickel in
other applications is mixed, with aerospace supporting increased growth in super alloy
applications and the poor results for the automotive market negatively impacting plating
applications. Nickel supply increased approximately 8% in 2019 relative to 2018, with Class II
production growing 15% whereas Class I production increased 1% during this period.
Report from Administration 26
The Indonesian export ore ban, which was fast tracked and has taken effect in the beginning
of 2020, two years earlier than previously indicated, contributed significantly to recent price
gains. Chinese NPI (nickel pig iron) production, which relies heavily on Indonesian ore imports,
will be negatively impacted in the long-term. However, in the near-term, alternative sources of
ore could soften the impact, such as, current Chinese ore stockpiles (visible and invisible), the
additional Indonesian quotas for the current year (which are permitted for export) and the
potential export increases from the Philippines, New Caledonia and Guatemala. Further to the
supply developments, an important consideration for all commodities is the impact of the
overarching macroeconomic factors such as the coronavirus outbreak, the ongoing trade
dispute between China and the US and a slowing global economy, which influences sentiment,
demand and, therefore, prices. The physical market reflects a slowing growth environment. Due
to these factors, our near-term view on nickel is subdued.
The long-term outlook for nickel is positive. Nickel in electric vehicle batteries will become an
increasingly important source of demand growth, particularly as battery chemistry favors higher
nickel content due to lower cost and higher energy density, against the backdrop of robust
demand growth in other nickel applications. Additionally, there is indication of price support
from recent announcements of increasing HPAL costs in Indonesia. HPAL projects are more
complex than originally envisioned and this has the potential to increase the financial burden
on nickel producers to meet the growing battery demand. While the Indonesian export ore ban
will limit Chinese NPI in the longer term, the ban has incentivized domestic nickel RKEF and
HPAL developments within the country. As a result, several projects and expansions have been
announced, and in some cases, construction at current developments is ahead of schedule.
COPPER
LME copper price averaged US$ 6,000/t in 2019, a decrease of 8% from 2018 (US$ 6,523/t).
Copper inventories on the LME increased by 13 kt in 2019 vs. 2018. In 2019, COMEX
decreased by 73 kt, while SHFE increased by 5 kt in comparison with 2018. Overall, copper
exchange inventory reduced by 55 kt.
Global demand remained relatively flat in 2019 compared to 2018. Global refined copper
production increased slightly by 0.3% in 2019 vs. 2018 while the recent China scrap ban
supported primary use.
The near-term outlook for copper is relatively positive. Market is expected to remain essentially
balanced with some upside risk for deficits in 2020, with macroeconomic factors, such as the
ongoing trade dispute between China and the US, though negotiations are currently making
progress, continuing to influence price and subdue refined copper demand as it has over this
past year. In consequence of the coronavirus, additional Chinese stimuli is expected to support
short-term growth.
The long-term outlook for copper is positive. Copper demand is expected to grow, partially
driven by electric vehicles and renewable energy, as well as infrastructure investments, while
future supply growth is challenged given declining ore grades and the need for greenfield
investment, creating a positive market outlook.
Report from Administration 27
Comments on operational and economic-
financial performance
Net operating revenue in 2019 totaled R$ 148.6 billion, an increase of R$ 14.2 billion when
compared to 2018, due to higher realized prices mainly in iron ore fines and pellets (R$ 23.6
billion) which were partially offset by lower sales volumes (R$ 19.6 billion).
Costs and expenses7 totaled R$ 108.2 billion in 2019, R$ 33.4 billion higher than in 2018, mainly
due to the provisions and incurred expenses related to the Dam I rupture (R$ 28.8 billion) and
higher costs and expenses (R$ 11.3 billion), which were partially offset by lower sales volumes
(R$ 10,0 billion).
Adjusted EBITDA totaled R$ 42.3 billion in 2019, a decrease of R$ 18.8 billion when compared
to the R$ 61.1 billion recorded in 2018, mainly due to the provisions and incurred expenses
related to the Dam I rupture, lower volumes and higher stoppage expenses, which were partially
offset by higher sales prices.
Ferrous Minerals
Adjusted EBITDA in the Ferrous Minerals segment was R$ 67.2 billion in 2019, R$ 13.0 billion
higher than in 2018, mainly due to higher realized prices (R$ 24.1 billion) and the positive impact
of the exchange rate variations (R$ 5.8 billion), which were partially offset by lower sales
volumes (R$ 8.4 billion) and higher costs and expenses8 (R$ 8.9 billion).
Costs and expenses9 for Ferrous Minerals totaled R$ 52.7 billion, R$ 3.4 billion higher than in
2018, mainly due to third party ore purchases (R$ 1.1 billion) and maintenances costs (R$ 1.5
billion).
Sales volumes of iron ore fines and pellets reached 312.510 Mt in 2019, in line with the annual
guidance of 307-312 Mt. Vale’s iron ore fines production totaled 302.0 Mt, 21.5% lower than in
2018, while pellets production in 2019 was 41.8 Mt, 24.4% lower than in 2018. The operational
disruption which followed the Dam I rupture and the stronger rains than usual weather-related
seasonality in 1H19 had major impacts on sales volumes, which were partly offset by (i) the
S11D ramp-up, (ii) inventory drawdowns, and (iii) the gradual resumption of operations.
7 Excluding depreciation, depletion and amortization.
8 Excluding exchange rate variations and volumes.
9 Excluding depreciation, depletion and amortization.
10 Including run-of-mine and chips.
Report from Administration 28
The average realized price of iron ore fines, encompassing CFR and FOB sales11, was US$
87.1/t in 2019, 31.6% above the US$ 66.2/t in 2018. The average price of pellets increased
from US$ 117.5/t in 2018 to US$ 137.7/t in 2019.
Base Metals
Adjusted EBITDA of Base Metals was R$ 8.6 billion in 2019, 8% lower than the R$ 9.3 billion
registered in 2018, mainly due to higher costs and expenses (R$ 1.8 billion) and lower sales
volumes (R$ 478 million), which were partially offset by the positive impact of exchange rate
variations (R$ 1.3 billion) and higher prices (R$ 320 million).
Nickel operations are progressing towards higher reliability with production at the refineries
going back to regular operating rates after the scheduled and unscheduled maintenance
activities at the Copper Cliff Nickel Refinery, in Sudbury, and at the Clydach, Matsusaka and
Long Harbour refineries. Likewise, production at Onça Puma mine and plant was resumed after
a judicial authorization granted in September.
The performance of copper operations was supported by Salobo’s solid performance during
the year, reaching close to zero unit cash costs after by-products in 2H19, notwithstanding the
impact of unscheduled maintenance in Sossego.
Coal
Adjusted EBITDA was a negative R$ 2.1 billion in 2019, R$ 2.7 billion lower than in 2018, mainly
due to higher costs and expenses (R$ 1.4 billion), lower sales volumes (R$ 596 million) and
lower sales prices (R$ 746 million).
Coal sales volumes totaled 8.8 Mt in 2019, reflecting the impacts of lower productivity at the
processing plants throughout the year. As a response, Vale reviewed its business plan in 2019
and has been implementing two initiatives, which are expected to produce sustainable results
– a new mining plan and a new operational strategy for the processing plants.
11 CFR (Cost and Freight) sales include maritime freight in the price and FOB (Free on Board) sales consider the
product delivered at the loading port and therefore do not include sea freight.
Report from Administration 29
Net income (loss)
Vale posted a loss of R$ 6.7 billion in 2019, compared to a net income of R$ 25.7 billion in
2018, the second loss in the last 20 years. The R$ 32.4 billion decrease was mostly driven by:
(i) provisions and reparation expenses related to the Dam I rupture, including
decharacterization of dams (R$ 10.3 billion) and provisions and incurred expenses (R$ 18.5
billion); (ii) provisions related to the Renova Foundation (R$ 2.0 billion) and to the
decharacterization of Germano dam (R$ 1.0 billion); (iii) recognition of non-cash impairment in
Base Metals and Coal business (R$ 17.3 billion), which were partially offset by lower foreign
exchange losses (R$ 9.2 billion).
Financial results
Net financial results accounted for a loss of R$ 13.4 billion, R$ 4.6 billion lower than in 2018.
The decrease was mainly due to lower foreign exchange losses (R$ 9.2 billion) in the year, due
to the adoption of net investment hedge, therefore reducing the exposure to foreign exchange
volatility, which were partially offset by higher mark-to-marked expense adjustments in the
shareholder debentures (R$ 3.8 billion).
Financial Results R$ million
2019 2018
Financial expenses (14,973) (8,394)
Gross interest (3,894) (4,301)
Capitalization of interest 551 704
Shareholder debentures (5,687) (1,871)
Others (5,338) (2,213)
Financial expenses (REFIS) (605) (713)
Financial income 2,092 1,549
Derivatives 926 (1,006)
Currency and interest rate swaps 154 (1,054)
Others (bunker oil, commodities, etc) 772 48
Foreign Exchange 144 (8,237)
Monetary variation (1,635) (1,970)
Financial result, net (13,446) (18,058)
Impairments and onerous contracts
Asset impairments from continuing operations, disposal of non-current assets and onerous
contracts, all with no cash effect, totaled R$ 20.8 billion in 2019, mainly due to charges in the
Nickel and Coal businesses.
In the Base metals Nickel business, the New Caledonian operation experienced challenging
issues throughout 2019, mainly in relation to production and processing. Thus, Vale has revised
its business plan, reducing the expected production levels for the remaining life of the operation.
The new business strategy led to an impairment charge of R$ 10.3 billion in 2019.
In the Coal business, a revaluation of the expectations related to the yield of metallurgical and
thermal coal in the operations in Mozambique, the review of the mining plan, which drove a
Report from Administration 30
reduction in the proven and probable reserves, and the lowering the long-term price assumption
led to an impairment charge of R$ 6.9 billion in 2019.
Vale also recognized R$ 2.0 billion of asset write-off, mainly related to the Córrego do Feijão
mine and other upstream dams in Brazil.
Impairment and onerous contracts of assets R$ million 2019
Base Metals – Nickel – VNC 10,319
Coal – Moatize mine 6,949
Other assets impairments and write-off 2,507
Onerous contracts 987
Total 20,762
Investments in associates, joint ventures and controlled companies
Vale has investments in associates, joint ventures and controlled companies for important
business areas, such as iron ore, pelletizing, nickel, coal, copper, energy and other businesses.
The amount of investments recorded at Vale’s financial statement for the main companies on
the portfolio are listed at the table below. The investments for these companies are accounted
under the equity method, and may differ from the stand-alone financial information reported on
their financial statements, as they are prepared considering Vale’s accounting policies.
Investments Equity results in the Income
Statement
R$ million 2019 2018 2019 2018
Associates and joint ventures
Pelletizing plants 1,505 1,614 777 1,132
Aliança Geração de Energia 1,894 1,882 122 81
Aliança Norte Energia 646 628 17 54
California Steel Industries (CSI) 975 958 88 289
Companhia Siderúrgica do Pecém (CSP) - - (282) (867)
Mineração do Rio Norte (MRN) 393 360 58 6
MRS Logística (MRS) 1,999 1,922 196 264
Nacala Logistic Corridor - - (99) 20
VLI 3,273 3,319 1 119
Others 593 1,812 (7) 47
Controlled
Vale International 71,797 65,927 4.901 4.054
Vale Canada 11,236 20,260 (11.515) (569)
Salobo Metais 11,213 10,716 2.186 2.384
Minerações Brasileiras Reunidas (MBR) 8,302 5,760 1.112 752
Vale Malaysia 5,476 5,210 174 226
Others 25,292 19,142 (3,528) (2,652)
Total 144,594 139,510 (5,799) 5,340
Report from Administration 31
Investments
Investments in 2019 remained in line with 2018, totaling US$ 3.704 billion, consisting of US$
544 million in project execution and US$ 3.160 billion in maintenance of operations.
US$ million 2019 2018
Projects 544 888
Maintenance of existing operations 3,160 2,896
Total 3,704 3,784
Investment made by business area1 US$ million 2019 2018
Ferrous Minerals 2,070 2,392
Coal 240 156
Base Metals 1,376 1,223
Others 18 13
Total 3,704 3,784
¹ Excludes R&D.
Project execution
Investments in project execution totaled US$ 544 million in 2019, 38.7% lower than in 2018.
Two main multi-year projects are under development: the Northern System Logistics 240 Mtpy
project and the Salobo III project.
The first project aims to expand the Northern System’s logistics capacity and had its first
installation license granted in December 2019. The second project is a brownfield expansion of
the copper throughput capacity at the Salobo site and had its installation license granted in
November 2018.
Projects Capacity (tons per
year)
Estimated start-up
Executed capex (US$ million)
Estimated capex
(US$ million) Physical
progress (%) 2019 Total Total
Ferrous Minerals Project
Northern System Logistics 240 Mtpy
240 (10)¹ Mt 2H22 69 69 770 14%
Base Metals Project
Salobo III (30-40) kt 1H22 133 136 1,128 40%
¹ Net additional capacity.
Investments in the maintenance of operations
In 2019, investments in the maintenance of operations increased 9.1% compared to 2018, with
the continuity of the Gelado project, in Brazil, and Voisey's Bay underground mine extension
(“VBME”), in Canada.
Report from Administration 32
The Gelado project aims to recover approximately 10 Mtpy of pellet feed with 64.3% Fe content,
2.0% silica and 1.65% alumina in the Carajás Complex in order to feed the São Luís pellet
plant.
The VBME project is expected to extend the mine life of Voisey’s Bay, with annual underground
mine production of around 45 kt of nickel in concentrate, on average, about 20 kt of copper and
about 2.6 kt of cobalt. VBME will replace Voisey’s Bay existing mine production.
Replacement projects progress indicator
Projects Capacity
(ktpy) Estimated start-up
Executed capex (US$ million)
Estimated capex (US$ million)
Physical progress
(%) 2019 Total Total
Voisey’s Bay Mine Extension
45 1H21 249 471 1,694 41
Gelado 9.6 2H21 70 75 428 48
Investments in dam management
Vale has been continuously investing in the maintenance and safety of its dams, with standards
being updated and in constant alignment with the most rigorous international practices.
In 2019, investments in dam management reached US$ 102 million, an increase of 67%
compared to 2018. Investments in dam management encompass: dam maintenance,
monitoring, safety and operational improvements, audits and risk analysis, revisions of the
Emergency Action Plan for Mining Dams (PAEBM), and warning systems, video monitoring and
instrumentation.
Investments in new dams totaled US$ 53 million in 2019 and reflect ongoing construction
projects and Vale's operational requirements. Vale applies the conventional construction
method to any new dam, in line with the 2016 decision to render inactive and de-characterize
all upstream dams, following the rupture of Samarco's Fundão dam, in Mariana (MG).
Vale aims to develop safe and sustainable alternatives to tailings dams. The company will
increase dry processing up to 70% of its iron ore production volume by 2023, while investing
approximately US$ 1.8 billion between 2020-2024 to increase wet processing with the filtration
and dry stacking system to up to 16% of its iron ore production volume. Additionally, Vale will
invest in innovative technologies for dry magnetic concentration of iron ore fines. In such
context, investments in new dams and dam raising will be gradually decreased.
US$ million 2019 2018
Dam management 102 61
Report from Administration 33
Investments in Health and Safety
Investments in Health & Safety (H&S) reached US$ 279 million in 2019, an increase of 20%
compared to 2018, mainly due to the review of safety standards and procedures being carried
out by the Safety and Operational Excellence Office.
Actions being taken are structural rehabilitation and operational adequacy, fire prevention and
firefighting systems, as well as other actions aimed at mitigating risks and increasing health &
safety levels.
US$ million 2019 2018
Investments in H&S 279 233
Report from Administration 34
Debt indicators
Gross debt totaled US$ 13.056 billion as of December 31st, 2019, decreasing by US$ 2.410
billion from December 31st, 2018, mainly as a result of net debt repayments of US$ 2.270 billion
related to the early repurchase of bonds during the year.
Net debt totaled US$ 4.880 billion as of December 31st, 2019, a substantial decrease of US$
4.770 billion when compared to US$ 9.650 billion as of December 31st, 2018. The reduction in
net debt is mainly due to strong cash generated during the year.
Net debt has reached the lowest level since 2008. Nevertheless, in a broader view, considering
leases and Refis obligations, the expanded net debt is US$ 10.578 billion as of December 31st,
2019. Furthermore, taking into consideration other relevant commitments, such as the
Brumadinho provisions and Samarco and Renova obligations, the expanded net debt would be
US$ 17.750 billion, as of December 31st, 2019.
In December 2019, Vale completed the syndication of a US$ 3.0 billion revolving credit facility,
which will be available for five years. The new line, together with the existing US$ 2.0 billion
facility that expires in 2022, preserves the total available amount of US$ 5.0 billion in revolving
credit facilities.
Average debt maturity decreased to 8.5 years on December 31st, 2019 when compared to 8.9
years on December 31st, 2018. Likewise, average cost of debt, after currency and interest rate
swaps, decreased to 4.87% per annum on December 31st, 2019 when compared to 5.07% per
annum on December 31st, 2018, mainly due to the repurchase of higher yield and longer-term
bonds during the year.
Report from Administration 35
Interest coverage, measured by the ratio of the LTM12 adjusted EBITDA to LTM gross interest,
decreased to 10.7x on December 31st, 2019 against 14.0x on December 31st, 2018. Gross
debt/enterprise value (EV) decreased to 17.5% on December 31st, 2019 from 19.7% on
December 31st, 2018, due to the substantial reduction in debt levels throughout the year.
Debt indicators US$ million 2019 2018
Gross debt ¹ 13,056 15,466
Net debt ¹ 4,880 9,650
Leases (IFRS 16) 1,791 -
Gross debt / LTM EBITDA adjusted (x) 1.2 0.9
LTM EBITDA adjusted/gross interest expenses (x) 10.7 14.0
Gross debt / EV 17.5% 19.7%
1 Does not include leases (IFRS 16, equivalent to Brazillian regulation CPC 06 (R2)).
Liability management
The main liability management transactions related to the repurchase of the bonds in 2019
were:
i. The full redemption of US$ 281 million of the outstanding notes due 2021 and US$ 908
million of the outstanding notes due 2022, and;
ii. Cash repurchases of US$ 264 million of the outstanding notes due 2039, US$193
million of the outstanding notes due 2036, US$ 294 million of the outstanding notes
due 2026, US$ 66 million of the outstanding notes due 2034, US$ 161 million of the
outstanding notes due 2022 and US$ 103 million of the outstanding notes due 2032.
12 Last twelve months.
Report from Administration 36
Shareholder structure and capital markets
As of December 31, 2019, the share capital of Vale S.A. was comprised of 5,284,474,782
common shares, 3,169,587,497 of which composed the free float.
Shareholders Agreement
The shareholders Litel Participações S.A., Bradespar S.A., Mitsui & Co., Ltd. and BNDES
Participações S.A., on August 14th, 2017, entered into the Shareholder Agreement of Vale. The
Agreement is of a transitional nature, since it shall be in force until November 09th, 2020, with
no provision for renewal, and aims to provide the Company with stability and to adjust its
corporate governance structure during the period of transition to become a corporation.
Free float
The shares issued by Vale are listed in B3 (ticker: VALE 3), in NYSE (ticker: VALE, Level II
ADR’s) and in Latibex (ticker XVALO). In December 2019, Vale delisted its ADSs from
Euronext, aiming to simplify its structure.
Report from Administration 37
In B3, Vale’s shares appreciation increased 8% in 2019, compared to 2018. On December 31st,
2019, Vale’s stock closing price was R$ 53.3 per share, compared to R$ 49.7 per share on
December 31st, 2018. Vale’s market cap (outstanding shares x share price) was approximately
R$ 282 billion at the end of 2019. The shares’ average daily trading volume was R$ 983 million
in 2019, an increase of 16% over the volume traded in 2018.
The shares issued by Vale comprise the main indices in B3, such as IBOV, IBRA, IBXL, IBXX,
IGCT, IGCX, IGNM, IMAT, ITAG and MLCX.
Market information 2019 2018
Closing price (R$/share) 53.3 49.7
Volume average - VALE3 (R$ billion) 983 847
Price average - VALE3 (R$/share) 47.9 47.8
Market cap - VALE3 (R$ billion) 282 270
Book value (R$/share) 29.7 32.9
VALE3 variation 7.8% 31.8%
Ibovespa variation 32.5% 15.0%
Shareholder rights
Since December 2017, Vale's shares are part of the Novo Mercado, the highest level of
corporate governance in B3. After the Novo Mercado migration, Vale has converted its shares
to a capital structure made up exclusively of common shares with voting rights, and new rights
have been granted to the company's shareholders. In the event of sale of control, all
shareholders have the right to sell their shares at the same price (tag along of 100%) attributed
to the shares held by the controlling shareholder. The Company continues with the evolution
process of its governance model, in order to adapt it to the new requirements of the Novo
Mercado regulation, and also to prepare Vale for a new scenario after the end of its
shareholders' agreement.
Report from Administration 38
Shareholder remuneration
As a result of the Dam I rupture in Brumadinho (MG), Vale’s Board of Directors, decided to
suspend the Shareholder Remuneration Policy, as well as any other resolution on the
repurchase of shares of its own issuance.
In 2019, Vale posted a loss of R$ 6.7 billion and, therefore, there is no obligation to distribute
minimum remuneration, according to Brazilian law.
Nevertheless, on December 19th, 2019, the Board of Directors, approved interest on capital,
considering the 2019 calendar year and based on balance sheet revenue reserves as of
September 30th, 2019, in the gross amount of R$ 7,253,260,000.00, equivalent to R$
1.414364369 per outstanding common share and per special-class preferred share issued by
Vale, based on total capital excluding shares in treasury (5,128,282,469).
The approved interest on capital does not modify the Board of Directors’ decision of suspending
the Shareholder Remuneration Policy. The allocation of the interest on capital will be decided
in due course, which will not occur while the Shareholder Remuneration Policy is suspended.
Prior to the suspension, the Shareholder Remuneration Policy that was previously in effect was
as follows:
1. The shareholder remuneration will be composed by two semi-annual installments,
the first in September of the current year and the second in March of the subsequent year. The
Board of Directors may declare interest on capital in December of each year, for payment in
March of the subsequent year. These amounts will be reduced from the March instalment.
2. The minimum amount of the remuneration will be 30% of the Adjusted EBITDA less
Sustaining Investments calculated based on the first half of the year results for the September
installment, and on the second half of the year results for the March installment.
3. The Board of Directors may approve additional remuneration through the distribution
of extraordinary dividends.
Report from Administration 39
2020 business perspectives
Ferrous Minerals
Vale’s iron ore fines production guidance in 2020 is 340-355 Mt. Production volumes will
depend mostly on the granting of external authorizations to resume halted production, while the
achievement of the higher end of production range continues to be possible depending on
several upsides being explored.
Due to the lower availability of pellet feed and to the suspension of tailings disposal at
Laranjeiras dam, the annual guidance for pellets production was revised to 44 Mt, while the iron
ore fines production guidance for 1Q20 was revised to 63-68 Mt.
The abovementioned estimates do not factor in any second-order effects of the Coronavirus
epidemic, which at the time of this writing seems to be accommodated through price changes
only.
Vale reinforces its strategy of margin over volume, prioritizing blended products in its portfolio,
therefore inventories will be replenished in 2020 to ensure supply as appropriate, which may
imply lower sales in comparison to production volumes.
Base Metals
The refining activities in VNC responsible for processing the feed into nickel oxide will cease
from April 2020 onwards, as part of the process to improve short-term cash flow. With this
flowsheet simplification, VNC's nickel product mix will be solely comprised of nickel hydroxide
cake. Considering that, Vale’s nickel production guidance is 200-210 kt in 2020.
Coal
Vale reviewed its business plan in 2019 and has been implementing two initiatives, which are
expected to produce sustainable results – a new mining plan and a new operational strategy
for the processing plants, both previously disclosed. As a result of that, coal production
guidance is expected to range between 8 Mt and 10 Mt in 2020.
Report from Administration 40
Policy regarding independent auditors
Vale has specific internal procedures for the pre-approval of services contracted with its
external auditors, in order to avoid conflict of interest or the loss of objectivity of its external
independent auditors.
In line with best corporate governance practices, all services provided by our independent
auditors are supported by a letter of independence issued by the auditors and pre-approved by
the Fiscal Council.
According to CVM Instruction 381/2003, the services contracted with external auditors of the
company, PricewaterhouseCoppers Auditores Independentes (“PwC”), for a five years term
until December 2023, for the financial year of 2019 for Vale and its subsidiaries were as follows:
Fees in R$ thousand Vale and subsidiaries %¹
Financial Audit 23,078 87.8
Auditing - Sarbanes Oxley Act 2,304 8.8
Audit Related Services² 901 3.4
Total External Audit Services 26,283 100.00
1 Percentage relating to total fees of external audit services. 2 Those services are mostly contracted for periods of less than one year.
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