Table of Contents

 

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the

Securities Exchange Act of 1934

 

For the month of

 

July 2018

 

Vale S.A.

 

Avenida das Américas, No. 700 – Bloco 8, Sala 218
22640-100 Rio de Janeiro, RJ, Brazil

(Address of principal executive office)

 

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

 

 

(Check One) Form 20-F x  Form 40-F o

 

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

 

 

(Check One) Yes o  No x

 

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

 

 

(Check One) Yes o  No x

 

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

 

 

(Check One) Yes o  No x

 

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

 

 

 



Table of Contents

 

Interim Financial Statements

June 30, 2018

 

BRGAAP in R$ (English)

 



Table of Contents

 

 

Vale S.A. Interim Financial Statements

Contents

 

 

Page

Report on the review of the quarterly information - ITR

3

Consolidated and Parent Company Income Statement

5

Consolidated and Parent Company Statement of Comprehensive Income

7

Consolidated and Parent Company Statement of Cash Flows

8

Consolidated and Parent Company Statement of Financial Position

10

Consolidated Statement of Changes in Equity

11

Consolidated and Parent Company Value Added Statement

12

Selected Notes to the Interim Financial Statements

13

1. Corporate information

13

2. Basis for preparation of the interim financial statements

13

3. Information by business segment and by geographic area

15

4. Special events occurred during the period

20

5. Costs and expenses by nature

21

6. Financial results

21

7. Income taxes

22

8. Basic and diluted earnings (loss) per share

23

9. Accounts receivable

24

10. Inventories

24

11. Other financial assets and liabilities

24

12. Non-current assets and liabilities held for sale and discontinued operations

25

13. Investments in associates and joint ventures

26

14. Intangibles

28

15. Property, plant and equipment

28

16. Loans, borrowings, cash and cash equivalents and financial investments

29

17. Liabilities related to associates and joint ventures

31

18. Financial instruments classification

32

19. Fair value estimate

32

20. Derivative financial instruments

34

21. Provisions

39

22. Litigation

39

23. Employee postretirement obligations

43

24. Stockholders’ equity

43

25. Related parties

44

26. Parent Company information (individual interim information)

45

27. Additional information about derivative financial instruments

48

 

2



Table of Contents

 

 

KPMG Auditores Independentes

Rua do Passeio, 38 - Setor 2 - 17º andar - Centro

20021-290 - Rio de Janeiro/RJ - Brasil

Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil

Telefone +55 (21) 2207-9400, Fax +55 (21) 2207-9000

www.kpmg.com.br

 

Report on the review of quarterly information — ITR

 

(A free translation of the original report in Portuguese, as filed with the Brazilian Securities and Exchange Commission (CVM), prepared in accordance with the accounting practices adopted in Brazil, rules of the CVM and of the International Financial Reporting Standards - IFRS)

 

To the Board of Directors and Stockholders of

Vale S.A.

Rio de Janeiro - RJ

 

Introduction

 

1.                    We have reviewed the interim financial information, individual and consolidated, of Vale S.A. (“the Company”), identified as Parent Company and Consolidated, respectively, included in the quarterly information form - ITR for the quarter ended June 30, 2018, which comprises the individual and consolidated statement of financial position as of June 30, 2018 and the respective statements of income and comprehensive income for the three and six months periods ended on June 30, 2018, the statements of changes in equity for the six-month period then ended and of the individual statement of cash flows for the six-month period and the consolidated statements of cash flows for the three and six months periods then ended, including the explanatory notes.

 

2.                    The Company`s Management is responsible for the preparation of these interim financial information in accordance with the CPC 21(R1) — Demonstração Intermediária and the IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board — IASB, as well as the presentation of these information in accordance with the standards issued by the Brazilian Securities and Exchange Commission, applicable to the preparation of quarterly information - ITR. Our responsibility is to express our conclusion on this interim financial information based on our review.

 

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.

 

KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

3



Table of Contents

 

Scope of the review

 

3.                    We conducted our review in accordance with Brazilian and International Interim Information Review Standards (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries primarily of the management responsible for financial and accounting matters and applying analytical procedures and other review procedures. The scope of a review is significantly less than an audit conducted in accordance with auditing standards and, accordingly, it did not enable us to obtain assurance that we were aware of all the material matters that would have been identified in an audit. Therefore, we do not express an audit opinion.

 

Conclusion on the interim financial information

 

4.                    Based on our review, we are not aware of any fact that might lead us to believe that the individual and consolidated interim financial information included in the aforementioned quarterly information was not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, issued by the IASB, applicable to the preparation of the quarterly review - ITR, and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission.

 

Other matters

 

Statements of added value

 

5.                    The individual and consolidated interim financial information related to the statement of value added for the six-month period ended June 30, 2018, prepared under the responsibility of the Company’s management, and presented as supplementary information for the purposes of IAS 34, was submitted to the same review procedures followed together with the review of the Company’s interim financial information. In order to form our conclusion, we evaluated whether this statement was reconciliated to the interim financial information and to the accounting records, as applicable, and whether their form and content are in accordance with the criteria set on Technical Pronouncement CPC 09 - Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that the accompanying statement of value added was not prepared, in all material respects, in accordance with the individual and consolidated interim financial information taken as a whole.

 

Rio de Janeiro, July 25, 2018

 

KPMG Auditores Independentes

CRC SP-014428/O-6 F-RJ

(Original report in Portuguese signed by)

Manuel Fernandes Rodrigues de Sousa

Accountant CRC RJ-052428/O-2

 

4



Table of Contents

 

 

Income Statement

In millions of Brazilian reais, except earnings per share data

 

 

 

 

 

Consolidated

 

 

 

 

 

Three-month period ended
June 30,

 

Six-month period ended
June 30,

 

 

 

Notes

 

2018

 

2017

 

2018

 

2017

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

Net operating revenue

 

3(c)

 

31,234

 

23,363

 

59,166

 

50,105

 

Cost of goods sold and services rendered

 

5(a)

 

(19,463

)

(16,462

)

(36,433

)

(31,327

)

Gross profit

 

 

 

11,771

 

6,901

 

22,733

 

18,778

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

5(b)

 

(440

)

(426

)

(842

)

(814

)

Research and evaluation expenses

 

 

 

(330

)

(257

)

(553

)

(463

)

Pre operating and operational stoppage

 

 

 

(242

)

(286

)

(495

)

(650

)

Other operating expenses, net

 

5(c)

 

(392

)

(271

)

(798

)

(518

)

 

 

 

 

(1,404

)

(1,240

)

(2,688

)

(2,445

)

Impairment and other results on non-current assets

 

4

 

10

 

(726

)

(42

)

877

 

Operating income

 

 

 

10,377

 

4,935

 

20,003

 

17,210

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

 

6

 

608

 

600

 

1,367

 

1,803

 

Financial expenses

 

6

 

(4,153

)

(2,835

)

(6,355

)

(6,444

)

Other financial items

 

6

 

(7,385

)

(2,106

)

(8,013

)

(1,594

)

Equity results in associates and joint ventures

 

13

 

177

 

(83

)

450

 

142

 

Impairment and other results in associates and joint ventures

 

17

 

(1,547

)

(110

)

(1,591

)

(301

)

Income (loss) before income taxes

 

 

 

(1,923

)

401

 

5,861

 

10,816

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

7

 

 

 

 

 

 

 

 

 

Current tax

 

 

 

(460

)

(222

)

(755

)

(1,807

)

Deferred tax

 

 

 

2,753

 

378

 

709

 

(253

)

 

 

 

 

2,293

 

156

 

(46

)

(2,060

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

 

 

370

 

557

 

5,815

 

8,756

 

Net income attributable to noncontrolling interests

 

 

 

25

 

99

 

87

 

147

 

Net income from continuing operations attributable to Vale’s stockholders

 

 

 

345

 

458

 

5,728

 

8,609

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

12

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

 

(39

)

(388

)

(310

)

(645

)

Net income attributable to noncontrolling interests

 

 

 

 

10

 

 

13

 

Loss from discontinued operations attributable to Vale’s stockholders

 

 

 

(39

)

(398

)

(310

)

(658

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

331

 

169

 

5,505

 

8,111

 

Net income attributable to noncontrolling interests

 

 

 

25

 

109

 

87

 

160

 

Net income attributable to Vale’s stockholders

 

 

 

306

 

60

 

5,418

 

7,951

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Vale’s stockholders:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share (restated):

 

8

 

 

 

 

 

 

 

 

 

Common share (R$)

 

 

 

0.06

 

0.01

 

1.04

 

1.54

 

 

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

 

5



Table of Contents

 

 

Income Statement

In millions of Brazilian reais, except earnings per share data

 

 

 

 

 

Parent company

 

 

 

 

 

Three-month period ended
June 30,

 

Six-month period ended
June 30,

 

 

 

Notes

 

2018

 

2017

 

2018

 

2017

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

Net operating revenue

 

3(c)

 

18,427

 

15,502

 

34,132

 

32,664

 

Cost of goods sold and services rendered

 

5(a)

 

(9,605

)

(8,338

)

(17,981

)

(16,089

)

Gross profit

 

 

 

8,822

 

7,164

 

16,151

 

16,575

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (expenses) income

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

5(b)

 

(226

)

(235

)

(452

)

(461

)

Research and evaluation expenses

 

 

 

(192

)

(152

)

(339

)

(273

)

Pre operating and operational stoppage

 

 

 

(182

)

(212

)

(383

)

(404

)

Equity results from subsidiaries

 

 

 

1,346

 

(1,449

)

3,573

 

1,616

 

Other operating expenses, net

 

5(c)

 

(287

)

(257

)

(550

)

(85

)

 

 

 

 

459

 

(2,305

)

1,849

 

393

 

Impairment and other results on non-current assets

 

4

 

(144

)

(27

)

(224

)

(68

)

Operating income

 

 

 

9,137

 

4,832

 

17,776

 

16,900

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

 

6

 

122

 

252

 

441

 

1,097

 

Financial expenses

 

6

 

(3,872

)

(2,563

)

(5,796

)

(5,844

)

Other financial items

 

6

 

(7,162

)

(1,945

)

(7,722

)

(1,417

)

Equity results in associates and joint ventures

 

13

 

177

 

(83

)

450

 

142

 

Impairment and other results in associates and joint ventures

 

17

 

(1,547

)

(101

)

(1,591

)

(292

)

Income (loss) before income taxes

 

 

 

(3,145

)

392

 

3,558

 

10,586

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

7

 

 

 

 

 

 

 

 

 

Current tax

 

 

 

1

 

166

 

 

(1,066

)

Deferred tax

 

 

 

3,489

 

(100

)

2,170

 

(911

)

 

 

 

 

3,490

 

66

 

2,170

 

(1,977

)

Net income from continuing operations

 

 

 

345

 

458

 

5,728

 

8,609

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

12

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

 

(39

)

(398

)

(310

)

(658

)

Net income

 

 

 

306

 

60

 

5,418

 

7,951

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Vale’s stockholders:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share (restated):

 

 

 

 

 

 

 

 

 

 

 

Common share (R$)

 

 

 

0.06

 

0.01

 

1.04

 

1.54

 

 

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

 

6



Table of Contents

 

 

Statement of Comprehensive Income

In millions of Brazilian reais

 

 

 

Consolidated

 

 

 

Three-month period ended
June 30,

 

Six-month period ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Net income

 

331

 

169

 

5,505

 

8,111

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Items that will not be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

(208

)

(644

)

(32

)

(715

)

Fair value adjustment to investment in equity securities

 

285

 

 

171

 

 

Transfer to retained earnings

 

16

 

 

(51

)

 

Total items that will not be reclassified subsequently to the income statement, net of tax

 

93

 

(644

)

88

 

(715

)

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Translation adjustments

 

14,908

 

4,345

 

14,969

 

2,109

 

Net investments hedge

 

(1,934

)

(836

)

(2,030

)

(277

)

Transfer of realized results to net income

 

 

 

(257

)

 

Total of items that may be reclassified subsequently to the income statement, net of tax

 

12,974

 

3,509

 

12,682

 

1,832

 

Total comprehensive income

 

13,398

 

3,034

 

18,275

 

9,228

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

240

 

275

 

318

 

192

 

Comprehensive income attributable to Vale’s stockholders

 

13,158

 

2,759

 

17,957

 

9,036

 

From continuing operations

 

13,158

 

2,731

 

17,941

 

9,036

 

From discontinued operations

 

 

28

 

16

 

 

 

 

13,158

 

2,759

 

17,957

 

9,036

 

 

 

 

Parent company

 

 

 

Three-month period ended
June 30,

 

Six-month period ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Net income

 

306

 

60

 

5,418

 

7,951

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Items that will not be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

(28

)

(14

)

(37

)

(27

)

Fair value adjustment to investment in equity securities

 

235

 

 

149

 

 

Equity results in associates and joint ventures

 

(130

)

(630

)

27

 

(688

)

Transfer to retained earnings

 

16

 

 

(51

)

 

Total items that will not be reclassified subsequently to the income statement, net of tax

 

93

 

(644

)

88

 

(715

)

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to the income statement

 

 

 

 

 

 

 

 

 

Translation adjustments

 

14,693

 

4,179

 

14,593

 

2,077

 

Net investments hedge

 

(1,934

)

(836

)

(2,030

)

(277

)

Transfer of realized results to net income

 

 

 

(112

)

 

Total of items that may be reclassified subsequently to the income statement, net of tax

 

12,759

 

3,343

 

12,451

 

1,800

 

Total comprehensive income

 

13,158

 

2,759

 

17,957

 

9,036

 

 

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

 

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

 

7



Table of Contents

 

 

Statement of Cash Flows

In millions of Brazilian reais

 

 

 

Consolidated

 

 

 

Three-month period ended
June 30,

 

Six-month period ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes from continuing operations

 

(1,923

)

401

 

5,861

 

10,816

 

Continuing operations adjustments for:

 

 

 

 

 

 

 

 

 

Equity results in associates and joint ventures

 

(177

)

83

 

(450

)

(142

)

Impairment and other results on non-current assets and associates and joint ventures

 

1,537

 

836

 

1,633

 

(576

)

Depreciation, amortization and depletion

 

3,112

 

2,907

 

5,946

 

5,758

 

Financial results, net

 

10,930

 

4,341

 

13,001

 

6,235

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

589

 

4,377

 

630

 

5,347

 

Inventories

 

(885

)

(787

)

(732

)

(1,495

)

Suppliers and contractors

 

(205

)

791

 

(1,377

)

1,101

 

Provision - Payroll, related charges and others remunerations

 

626

 

568

 

(1,027

)

(153

)

Proceeds from cobalt stream transaction

 

2,603

 

 

2,603

 

 

Other assets and liabilities, net

 

(1,512

)

(360

)

(1,815

)

(964

)

 

 

14,695

 

13,157

 

24,273

 

25,927

 

Interest on loans and borrowings paid

 

(994

)

(1,351

)

(2,231

)

(2,946

)

Derivatives paid, net

 

37

 

(15

)

(43

)

(353

)

Interest on participative stockholders’ debentures paid

 

(245

)

(221

)

(245

)

(221

)

Income taxes

 

(168

)

(101

)

(941

)

(1,257

)

Income taxes - Settlement program

 

(409

)

(387

)

(813

)

(766

)

Net cash provided by operating activities from continuing operations

 

12,916

 

11,082

 

20,000

 

20,384

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

Financial investments redeemed (invested)

 

(28

)

115

 

(80

)

(52

)

Loans and advances - net receipts (payments) (note 25)

 

(355

)

(314

)

8,296

 

(769

)

Additions to property, plant and equipment, intangibles and investments

 

(2,558

)

(3,933

)

(5,501

)

(7,449

)

Proceeds from disposal of assets and investments (note 12)

 

925

 

28

 

4,461

 

1,642

 

Dividends and interest on capital received from associates and joint ventures

 

505

 

266

 

538

 

266

 

Others investments activities

 

(59

)

(64

)

(8

)

(68

)

Net cash provided by (used in) investing activities from continuing operations

 

(1,570

)

(3,902

)

7,706

 

(6,430

)

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

 

 

 

 

Additions

 

2,814

 

963

 

2,814

 

4,539

 

Repayments

 

(9,365

)

(5,899

)

(16,813

)

(9,432

)

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

Dividends and interest on capital paid to stockholders

 

 

(4,660

)

(4,721

)

(4,660

)

Dividends and interest on capital paid to noncontrolling interest

 

(20

)

(14

)

(310

)

(23

)

Transactions with noncontrolling stockholders

 

 

 

(56

)

799

 

Net cash used in financing activities from continuing operations

 

(6,571

)

(9,610

)

(19,086

)

(8,777

)

 

 

 

 

 

 

 

 

 

 

Net cash used in discontinued operations (note 12)

 

(7

)

(152

)

(157

)

(167

)

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

4,768

 

(2,582

)

8,463

 

5,010

 

Cash and cash equivalents in the beginning of the period

 

17,841

 

21,279

 

14,318

 

13,891

 

Effect of exchange rate changes on cash and cash equivalents

 

2,002

 

225

 

2,161

 

65

 

Effects of disposals of subsidiaries and merger, net on cash and cash equivalents

 

(54

)

 

(385

)

(44

)

Cash and cash equivalents at end of the period

 

24,557

 

18,922

 

24,557

 

18,922

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment - capitalized loans and borrowing costs

 

160

 

265

 

354

 

587

 

 

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

 

8



Table of Contents

 

 

Statement of Cash Flows

In millions of Brazilian reais

 

 

 

Parent company

 

 

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

 

 

(Restated)

 

Cash flow from operating activities:

 

 

 

 

 

Income before income taxes from continuing operations

 

3,558

 

10,586

 

Continuing operations adjustments for:

 

 

 

 

 

Equity results in subsidiaries, associates and joint ventures

 

(4,023

)

(1,758

)

Impairment and other results on non-current assets and associates and joint ventures

 

1,815

 

360

 

Depreciation, amortization and depletion

 

2,903

 

2,693

 

Financial results, net

 

13,077

 

6,164

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,547

 

12,695

 

Inventories

 

(60

)

(373

)

Suppliers and contractors

 

698

 

28

 

Provision - Payroll, related charges and others remunerations

 

(577

)

(54

)

Other assets and liabilities, net

 

151

 

(779

)

 

 

19,089

 

29,562

 

Interest on loans and borrowings paid

 

(1,028

)

(2,978

)

Derivatives paid, net

 

(112

)

(132

)

Interest on participative stockholders’ debentures paid

 

(245

)

(221

)

Income taxes

 

(30

)

(678

)

Income taxes - Settlement program

 

(796

)

(750

)

Net cash provided by operating activities

 

16,878

 

24,803

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Financial investments redeemed (invested)

 

(74

)

(97

)

Loans and advances - net receipts (payments)

 

(1,752

)

(4,528

)

Additions to property, plant and equipment, intangibles and investments

 

(4,527

)

(4,650

)

Proceeds from disposal of assets and investments (note 12)

 

414

 

15

 

Dividends and interest on capital received from subsidiaries, associates and joint ventures

 

1,998

 

424

 

Others investments activities

 

(55

)

(54

)

Net cash used in investing activities

 

(3,996

)

(8,890

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

Additions

 

2,814

 

321

 

Repayments

 

(8,433

)

(8,897

)

Transactions with stockholders:

 

 

 

 

 

Dividends and interest on capital paid to stockholders

 

(4,721

)

(4,660

)

Net cash used in financing activities

 

(10,340

)

(13,236

)

 

 

 

 

 

 

Increase in cash and cash equivalents

 

2,542

 

2,677

 

Cash and cash equivalents in the beginning of the period

 

1,876

 

1,203

 

Cash and cash equivalents at end of the period

 

4,418

 

3,880

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

Additions to property, plant and equipment - capitalized loans and borrowing costs

 

353

 

585

 

 

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

 

9



Table of Contents

 

 

Statement of Financial Position

In millions of Brazilian reais

 

 

 

 

 

Consolidated

 

Parent company

 

 

 

Notes

 

June 30,
2018

 

December 31,
2017

 

June 30,
2018

 

December 31,
2017

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

16

 

24,557

 

14,318

 

4,418

 

1,876

 

Accounts receivable

 

9

 

9,052

 

8,602

 

10,207

 

9,560

 

Other financial assets

 

11

 

1,850

 

6,689

 

368

 

409

 

Inventories

 

10

 

15,418

 

12,987

 

4,807

 

4,601

 

Prepaid income taxes

 

 

 

2,534

 

2,584

 

2,159

 

2,378

 

Recoverable taxes

 

 

 

3,944

 

3,876

 

2,065

 

2,091

 

Others

 

 

 

2,284

 

1,780

 

1,252

 

1,542

 

 

 

 

 

59,639

 

50,836

 

25,276

 

22,457

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets held for sale

 

12

 

 

11,865

 

 

7,082

 

 

 

 

 

59,639

 

62,701

 

25,276

 

29,539

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

Judicial deposits

 

22(c)

 

6,726

 

6,571

 

6,313

 

6,110

 

Other financial assets

 

11

 

11,728

 

10,690

 

4,988

 

1,865

 

Prepaid income taxes

 

 

 

1,948

 

1,754

 

 

 

Recoverable taxes

 

 

 

2,174

 

2,109

 

2,128

 

2,062

 

Deferred income taxes

 

7(a)

 

25,199

 

21,959

 

17,454

 

14,200

 

Others

 

 

 

1,170

 

882

 

1,420

 

810

 

 

 

 

 

48,945

 

43,965

 

32,303

 

25,047

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

13

 

12,441

 

11,802

 

138,699

 

117,387

 

Intangibles

 

14

 

30,805

 

28,094

 

15,201

 

13,471

 

Property, plant and equipment

 

15

 

187,816

 

181,535

 

101,335

 

102,978

 

 

 

 

 

280,007

 

265,396

 

287,538

 

258,883

 

Total assets

 

 

 

339,646

 

328,097

 

312,814

 

288,422

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

 

 

13,832

 

13,367

 

7,826

 

7,503

 

Loans and borrowings

 

16

 

7,027

 

5,633

 

5,655

 

4,378

 

Other financial liabilities

 

11

 

3,070

 

3,260

 

5,073

 

4,413

 

Taxes payable

 

7(c)

 

2,469

 

2,307

 

2,081

 

1,991

 

Provision for income taxes

 

 

 

982

 

1,175

 

 

 

Liabilities related to associates and joint ventures

 

17

 

1,051

 

1,080

 

1,051

 

1,080

 

Provisions

 

21

 

3,875

 

4,610

 

2,203

 

2,904

 

Dividends and interest on capital

 

 

 

 

4,742

 

 

4,439

 

Others

 

 

 

3,115

 

3,284

 

2,881

 

2,552

 

 

 

 

 

35,421

 

39,458

 

26,770

 

29,260

 

Liabilities associated with non-current assets held for sale

 

12

 

 

3,899

 

 

 

 

 

 

 

35,421

 

43,357

 

26,770

 

29,260

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

16

 

62,016

 

68,759

 

25,076

 

28,966

 

Other financial liabilities

 

11

 

11,539

 

9,575

 

65,406

 

54,955

 

Taxes payable

 

7(c)

 

15,696

 

16,176

 

15,383

 

15,853

 

Deferred income taxes

 

7(a)

 

6,472

 

5,687

 

 

 

Provisions

 

21

 

25,317

 

23,243

 

7,798

 

6,900

 

Liabilities related to associates and joint ventures

 

17

 

3,449

 

2,216

 

3,449

 

2,216

 

Deferred revenue - Gold stream

 

 

 

6,649

 

6,117

 

 

 

Others

 

 

 

7,749

 

4,861

 

7,217

 

6,514

 

 

 

 

 

138,887

 

136,634

 

124,329

 

115,404

 

Total liabilities

 

 

 

174,308

 

179,991

 

151,099

 

144,664

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

24

 

 

 

 

 

 

 

 

 

Equity attributable to Vale’s stockholders

 

 

 

161,715

 

143,758

 

161,715

 

143,758

 

Equity attributable to noncontrolling interests

 

 

 

3,623

 

4,348

 

 

 

Total stockholders’ equity

 

 

 

165,338

 

148,106

 

161,715

 

143,758

 

Total liabilities and stockholders’ equity

 

 

 

339,646

 

328,097

 

312,814

 

288,422

 

 

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

 

10



Table of Contents

 

 

Statement of Changes in Equity

In millions of Brazilian reais

 

 

 

Share capital

 

Results on
conversion of
shares

 

Capital
reserve

 

Results from
operation
with
noncontrolling
interest

 

Profit
reserves

 

Treasury
stocks

 

Unrealized
fair value gain
(losses)

 

Cumulative
translation
adjustments

 

Retained
earnings

 

Equity
attributable to
Vale’s
stockholders

 

Equity
attributable to
noncontrolling
interests

 

Total
stockholders’
equity

 

Balance at December 31, 2017

 

77,300

 

50

 

3,634

 

(2,663

)

24,539

 

(2,746

)

(3,912

)

47,556

 

 

143,758

 

4,348

 

148,106

 

Net income

 

 

 

 

 

 

 

 

 

5,418

 

5,418

 

87

 

5,505

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

 

(32

)

 

(51

)

(83

)

 

(83

)

Net investments hedge (note 20c)

 

 

 

 

 

 

 

 

(2,030

)

 

(2,030

)

 

(2,030

)

Translation adjustments

 

 

 

 

 

 

 

(257

)

14,738

 

 

14,481

 

231

 

14,712

 

Fair value adjustment to investment in equity securities

 

 

 

 

 

 

 

171

 

 

 

171

 

 

171

 

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(312

)

(312

)

Acquisitions and disposal of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(751

)

(751

)

Capitalization of noncontrolling interest advances

 

 

 

 

 

 

 

 

 

 

 

20

 

20

 

Balance at June 30, 2018

 

77,300

 

50

 

3,634

 

(2,663

)

24,539

 

(2,746

)

(4,030

)

60,264

 

5,367

 

161,715

 

3,623

 

165,338

 

 

 

 

Share capital

 

Results on
conversion of
shares

 

Capital
reserve

 

Results from
operation
with
noncontrolling
interest

 

Profit
reserves

 

Treasury
stocks

 

Unrealized
fair value gain
(losses)

 

Cumulative
translation
adjustments

 

Retained
earnings

 

Equity
attributable to
Vale’s
stockholders

 

Equity
attributable to
noncontrolling
interests

 

Total
stockholders’
equity

 

Balance at December 31, 2016

 

77,300

 

50

 

 

(1,870

)

13,698

 

(2,746

)

(3,739

)

44,548

 

 

127,241

 

6,461

 

133,702

 

Net income

 

 

 

 

 

 

 

 

 

7,951

 

7,951

 

160

 

8,111

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

 

(715

)

 

 

(715

)

 

(715

)

Net investments hedge (note 20c)

 

 

 

 

 

 

 

 

(277

)

 

(277

)

 

(277

)

Translation adjustments

 

 

 

 

 

 

 

(30

)

2,107

 

 

2,077

 

32

 

2,109

 

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and interest on capital of Vale’s stockholders

 

 

 

 

 

(2,065

)

 

 

 

 

(2,065

)

 

(2,065

)

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(336

)

(336

)

Acquisitions and disposal of noncontrolling interest

 

 

 

 

(329

)

 

 

 

 

 

(329

)

(1,672

)

(2,001

)

Capitalization of noncontrolling interest advances

 

 

 

 

 

 

 

 

 

 

 

84

 

84

 

Balance at June 30, 2017

 

77,300

 

50

 

 

(2,199

)

11,633

 

(2,746

)

(4,484

)

46,378

 

7,951

 

133,883

 

4,729

 

138,612

 

 

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

 

11



Table of Contents

 

 

Value Added Statement

In millions of Brazilian Reais

 

 

 

Consolidated

 

Parent company

 

 

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Generation of value added from continuing operations

 

 

 

 

 

 

 

 

 

Gross revenue

 

 

 

 

 

 

 

 

 

Revenue from products and services

 

59,952

 

50,800

 

34,678

 

33,172

 

Impairment and other results on non-current assets

 

(42

)

877

 

(224

)

(68

)

Revenue from the construction of own assets

 

5,023

 

3,144

 

3,422

 

2,875

 

Allowance for doubtful accounts

 

(17

)

(14

)

(4

)

6

 

Other revenues

 

7,057

 

264

 

3,107

 

195

 

Less:

 

 

 

 

 

 

 

 

 

Acquisition of products

 

(781

)

(1,027

)

(356

)

(343

)

Material, service and maintenance

 

(15,474

)

(12,423

)

(8,917

)

(8,165

)

Oil and gas

 

(2,523

)

(1,967

)

(1,652

)

(1,348

)

Energy

 

(1,661

)

(1,434

)

(839

)

(674

)

Freight

 

(6,353

)

(4,566

)

(75

)

(42

)

Impairment and other results in associates and joint ventures

 

(1,591

)

(301

)

(1,591

)

(292

)

Other costs and expenses

 

(8,430

)

(3,051

)

(4,980

)

(1,085

)

Gross value added

 

35,160

 

30,302

 

22,569

 

24,231

 

Depreciation, amortization and depletion

 

(5,946

)

(5,758

)

(2,903

)

(2,693

)

Net value added

 

29,214

 

24,544

 

19,666

 

21,538

 

 

 

 

 

 

 

 

 

 

 

Received from third parties

 

 

 

 

 

 

 

 

 

Equity results from entities

 

450

 

142

 

4,023

 

1,758

 

Financial income

 

669

 

571

 

105

 

212

 

Monetary and exchange variation of assets

 

2,276

 

156

 

2,623

 

18

 

Total value added from continuing operations to be distributed

 

32,609

 

25,413

 

26,417

 

23,526

 

Value added from discontinued operations to be distributed

 

63

 

251

 

 

 

Total value added to be distributed

 

32,672

 

25,664

 

26,417

 

23,526

 

 

 

 

 

 

 

 

 

 

 

Personnel

 

4,385

 

3,651

 

2,289

 

1,720

 

Taxes and contributions

 

5,142

 

4,247

 

2,688

 

3,045

 

Current income tax

 

755

 

1,807

 

 

1,066

 

Deferred income tax

 

(709

)

253

 

(2,170

)

911

 

Financial expense (excludes capitalized interest)

 

5,614

 

5,138

 

5,397

 

6,165

 

Monetary and exchange variation of liabilities

 

10,289

 

1,750

 

10,344

 

1,009

 

Other remunerations of third party funds

 

1,628

 

469

 

2,451

 

1,659

 

Reinvested net income

 

5,418

 

7,951

 

5,418

 

7,951

 

Net income attributable to noncontrolling interest

 

87

 

147

 

 

 

Distributed value added from continuing operations

 

32,609

 

25,413

 

26,417

 

23,526

 

Distributed value added from discontinued operations

 

63

 

251

 

 

 

Distributed value added

 

32,672

 

25,664

 

26,417

 

23,526

 

 

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

 

12



Table of Contents

 

 

Selected Notes to the Interim Financial Statements

Expressed in millions of Brazilian reais, unless otherwise stated

 

1.            Corporate information

 

Vale S.A. (the “Parent Company”) is a public company headquartered in the city of Rio de Janeiro, Brazil with securities traded on the stock exchanges of São Paulo — B3 S.A. (Vale3), New York - NYSE (VALE), Paris - NYSE Euronext (Vale3) and Madrid — LATIBEX (XVALO).

 

Vale S.A. and its direct and indirect subsidiaries (“Vale” or “Company”) are global producers of iron ore and iron ore pellets, key raw materials for steelmaking, and producers of nickel, which is used to produce stainless steel and metal alloys employed in the production of several products. The Company also produces copper, metallurgical and thermal coal, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The information by segment is presented in note 3.

 

2.         Basis for preparation of the interim financial statements

 

a)   Statement of compliance

 

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

 

The selected notes of the Parent Company are presented in a summarized form in note 26.

 

b)   Basis of presentation

 

The interim financial statements have been prepared to update users about relevant events and transactions occurred in the period and should be read in conjunction with the financial statements for the year ended December 31, 2017. The accounting policies, accounting estimates and judgments, risk management and measurement methods are the same as those applied when preparing the last annual financial statements, except for new accounting policies related to the application of IFRS 9 — Financial instrument (CPC 48) and IFRS 15 — Revenue from contracts with customers (CPC 47), which are adopted by the Company from January 1, 2018. The accounting policy for recognizing and measuring income taxes in the interim period is described in note 7.

 

The interim financial statements of the Company and its associates and joint ventures are measured using the currency of the primary economic environment in which the entity operates (“functional currency”), which in the case of the Parent Company is the Brazilian real (“R$”). For presentation purposes, these interim financial statements are presented in Brazilian Reais.

 

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

 

 

 

 

 

 

 

Average rate

 

 

 

Closing rate

 

Three-month period ended

 

Six-month period ended

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

 

US Dollar (“US$”)

 

3.8558

 

3.3080

 

3.6056

 

3.2174

 

3.4274

 

3.1807

 

Canadian dollar (“CAD”)

 

2.9344

 

2.6344

 

2.7928

 

2.3937

 

2.6807

 

2.3847

 

Australian dollar (“AUD”)

 

2.8529

 

2.5849

 

2.7280

 

2.4154

 

2.6407

 

2.3986

 

Euro (“EUR” or “€”)

 

4.5032

 

3.9693

 

4.2944

 

3.5480

 

4.1430

 

3.4479

 

 

The issue of these interim financial statements was authorized by the Board of Directors on July 25, 2018.

 

13



Table of Contents

 

 

c) Accounting standards issued but not yet effective

 

The standards and interpretations issued by IASB relevant to the Company but not yet effective are the same as those applicable when preparing the financial statements for the year ended December 31, 2017.

 

d) Restatement of corresponding figures

 

The amounts corresponding to the Parent Company’s statements of cash flows, for the six-month period ended June 30, 2017, originally presented in the interim financial statements for that period, have been restated for reclassification from financing activities in the amount of R$4,096 to investing activities. This amount relates to intercompany loans between the Parent Company and its subsidiary and was presented as cash flows from financing activities in the aforementioned period. This reclassification aligns the Company’s accounting practice with its cash management policy, which aims to manage at the Parent Company the cash generated by its subsidiaries, including sale of investments and planning for future investments.

 

The effects of these restatements are as follows:

 

 

 

Parent company

 

 

 

Six-month period ended June 30, 2017

 

 

 

Original balance

 

Reclassification

 

Restated

 

Statement of cash flows

 

 

 

 

 

 

 

Net cash provided by operating activities

 

24,803

 

 

24,803

 

 

 

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

 

 

Loans and advances - net receipts (payments)

 

(432

)

(4,096

)

(4,528

)

Net cash used in investing activities

 

(4,794

)

(4,096

)

(8,890

)

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

 

 

Additions

 

6,742

 

(6,421

)

321

 

Repayments

 

(19,414

)

10,517

 

(8,897

)

Net cash used in financing activities

 

(17,332

)

4,096

 

(13,236

)

Increase in cash and cash equivalents

 

2,677

 

 

2,677

 

 

14



Table of Contents

 

 

3.         Information by business segment and by geographic area

 

The information presented to the Executive Board on the performance of each segment is derived from the accounting records, adjusted for reclassifications between segments.

 

a)   Adjusted LAJIDA (EBITDA)

 

Management uses adjusted LAJIDA (EBITDA) to assess each segment’s contribution to the Company’s performance and to support the decision making process.  Adjusted LAJIDA (EBITDA) is calculated for each segment using operating income or loss plus dividends received and interest from associates and joint ventures, and adding back the amounts charged as (i) depreciation, depletion and amortization and (ii) special events (additional information can be found in note 4).

 

In 2018, the Company has allocated general and corporate expenses to “Others” as these expenses are not directly related to the performance of each business segment. Therefore, “Others” includes unallocated corporate expenses. The comparative period was restated in order to reflect this change in the criteria for allocation.

 

 

 

Consolidated

 

 

 

Three-month period ended June 30, 2018

 

 

 

Net operating
revenue

 

Cost of goods
sold and
services
rendered

 

Sales,
administrative
and other
operating
expenses (i)

 

Research and
evaluation

 

Pre operating
and
operational
stoppage

 

Dividends
received and
interest from
associates and
joint ventures

 

Adjusted
LAJIDA
(EBITDA)

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

16,608

 

(7,785

)

(96

)

(91

)

(98

)

2

 

8,540

 

Iron ore Pellets

 

5,469

 

(2,910

)

(21

)

(20

)

(21

)

391

 

2,888

 

Ferroalloys and manganese

 

415

 

(237

)

(5

)

(2

)

 

 

171

 

Other ferrous products and services

 

428

 

(304

)

4

 

(2

)

(1

)

 

125

 

 

 

22,920

 

(11,236

)

(118

)

(115

)

(120

)

393

 

11,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

1,287

 

(1,186

)

(25

)

(21

)

 

105

 

160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

4,858

 

(2,923

)

(62

)

(33

)

(25

)

 

1,815

 

Copper

 

1,916

 

(883

)

(2

)

(14

)

 

 

1,017

 

 

 

6,774

 

(3,806

)

(64

)

(47

)

(25

)

 

2,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

253

 

(247

)

(480

)

(147

)

(20

)

112

 

(529

)

Total of continuing operations

 

31,234

 

(16,475

)

(687

)

(330

)

(165

)

610

 

14,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

109

 

(121

)

(11

)

 

 

 

(23

)

Total

 

31,343

 

(16,596

)

(698

)

(330

)

(165

)

610

 

14,164

 

 


(i) Adjusted for the special events occurred in the period, which represents a loss of R$98.

 

15



Table of Contents

 

 

 

 

Consolidated

 

 

 

Three-month period ended June 30, 2017

 

 

 

Net operating
revenue

 

Cost of goods
sold and
services
rendered

 

Sales,
administrative
and other
operating
expenses

 

Research and
evaluation

 

Pre operating
and
operational
stoppage

 

Dividends
received and
interest from
associates and
joint ventures

 

Adjusted
LAJIDA
(EBITDA)

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

11,484

 

(6,104

)

(79

)

(72

)

(130

)

 

5,099

 

Iron ore Pellets

 

4,285

 

(2,293

)

10

 

(16

)

(4

)

119

 

2,101

 

Ferroalloys and manganese

 

373

 

(258

)

(4

)

 

(3

)

 

108

 

Other ferrous products and services

 

394

 

(246

)

43

 

(2

)

(1

)

 

188

 

 

 

16,536

 

(8,901

)

(30

)

(90

)

(138

)

119

 

7,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

1,544

 

(980

)

(7

)

(11

)

(15

)

 

531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

3,251

 

(2,640

)

(27

)

(36

)

(36

)

 

512

 

Copper

 

1,622

 

(794

)

(4

)

(7

)

 

 

817

 

 

 

4,873

 

(3,434

)

(31

)

(43

)

(36

)

 

1,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

410

 

(407

)

(558

)

(111

)

(3

)

147

 

(522

)

Total of continuing operations

 

23,363

 

(13,722

)

(626

)

(255

)

(192

)

266

 

8,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

1,291

 

(1,194

)

(62

)

(11

)

(34

)

 

(10

)

Total

 

24,654

 

(14,916

)

(688

)

(266

)

(226

)

266

 

8,824

 

 

 

 

Consolidated

 

 

 

Six-month period ended June 30, 2018

 

 

 

Net operating
revenue

 

Cost of goods
sold and
services
rendered

 

Sales,
administrative
and other
operating
expenses (i)

 

Research and
evaluation

 

Pre operating
and
operational
stoppage

 

Dividends
received and
interest from
associates and
joint ventures

 

Adjusted
LAJIDA
(EBITDA)

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

31,886

 

(14,541

)

(137

)

(156

)

(211

)

2

 

16,843

 

Iron ore Pellets

 

10,611

 

(5,548

)

(26

)

(36

)

(31

)

391

 

5,361

 

Ferroalloys and manganese

 

821

 

(479

)

(8

)

(3

)

 

 

331

 

Other ferrous products and services

 

800

 

(541

)

(5

)

(2

)

(1

)

 

251

 

 

 

44,118

 

(21,109

)

(176

)

(197

)

(243

)

393

 

22,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

2,521

 

(2,272

)

(19

)

(32

)

 

298

 

496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

8,533

 

(5,214

)

(110

)

(62

)

(52

)

 

3,095

 

Copper

 

3,543

 

(1,687

)

(5

)

(26

)

 

 

1,825

 

 

 

12,076

 

(6,901

)

(115

)

(88

)

(52

)

 

4,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

451

 

(472

)

(981

)

(236

)

(38

)

145

 

(1,131

)

Total of continuing operations

 

59,166

 

(30,754

)

(1,291

)

(553

)

(333

)

836

 

27,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

397

 

(393

)

(15

)

 

 

 

(11

)

Total

 

59,563

 

(31,147

)

(1,306

)

(553

)

(333

)

836

 

27,060

 

 


(i) Adjusted for the special events occurred in the period, which represents a loss of R$244.

 

16



Table of Contents

 

 

 

 

Consolidated

 

 

 

Six-month period ended June 30, 2017

 

 

 

Net operating
revenue

 

Cost of goods
sold and
services
rendered

 

Sales,
administrative
and other
operating
expenses

 

Research and
evaluation

 

Pre operating
and
operational
stoppage

 

Dividends
received and
interest from
associates and
joint ventures

 

Adjusted
LAJIDA
(EBITDA)

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

26,629

 

(11,361

)

133

 

(123

)

(257

)

 

15,021

 

Iron ore Pellets

 

8,870

 

(4,343

)

10

 

(26

)

(8

)

119

 

4,622

 

Ferroalloys and manganese

 

646

 

(397

)

(7

)

 

(12

)

 

230

 

Other ferrous products and services

 

789

 

(485

)

33

 

(3

)

(1

)

 

333

 

 

 

36,934

 

(16,586

)

169

 

(152

)

(278

)

119

 

20,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

2,564

 

(1,759

)

(19

)

(21

)

(15

)

 

750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

6,809

 

(5,352

)

(68

)

(65

)

(157

)

 

1,167

 

Copper

 

3,086

 

(1,515

)

(6

)

(12

)

 

 

1,553

 

 

 

9,895

 

(6,867

)

(74

)

(77

)

(157

)

 

2,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

712

 

(714

)

(1,247

)

(211

)

(6

)

147

 

(1,319

)

Total of continuing operations

 

50,105

 

(25,926

)

(1,171

)

(461

)

(456

)

266

 

22,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

2,453

 

(2,260

)

(111

)

(16

)

(67

)

 

(1

)

Total

 

52,558

 

(28,186

)

(1,282

)

(477

)

(523

)

266

 

22,356

 

 

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

 

From continuing operations

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Net income from continuing operations

 

370

 

557

 

5,815

 

8,756

 

Depreciation, depletion and amortization

 

3,112

 

2,907

 

5,946

 

5,758

 

Income taxes

 

(2,293

)

(156

)

46

 

2,060

 

Financial results, net

 

10,930

 

4,341

 

13,001

 

6,235

 

LAJIDA (EBITDA)

 

12,119

 

7,649

 

24,808

 

22,809

 

 

 

 

 

 

 

 

 

 

 

Items to reconciled adjusted LAJIDA (EBITDA)

 

 

 

 

 

 

 

 

 

Special events (note 4)

 

88

 

726

 

286

 

(877

)

Equity results in associates and joint ventures

 

(177

)

83

 

(450

)

(142

)

Impairment and other results in associates and joint ventures

 

1,547

 

110

 

1,591

 

301

 

Dividends received and interest from associates and joint ventures

 

610

 

266

 

836

 

266

 

Adjusted LAJIDA (EBITDA) from continuing operations

 

14,187

 

8,834

 

27,071

 

22,357

 

 

From discontinued operations

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Loss from discontinued operations

 

(39

)

(388

)

(310

)

(645

)

Depreciation, depletion and amortization

 

 

3

 

 

3

 

Income taxes

 

(30

)

(493

)

(134

)

(588

)

Financial results, net

 

6

 

12

 

18

 

26

 

LAJIDA (EBITDA)

 

(63

)

(866

)

(426

)

(1,204

)

 

 

 

 

 

 

 

 

 

 

Items to reconciled underlying LAJIDA (EBITDA)

 

 

 

 

 

 

 

 

 

Equity results in associates and joint ventures

 

 

(1

)

 

(2

)

Impairment of non-current assets

 

40

 

857

 

415

 

1,205

 

Underlying LAJIDA (EBITDA) from discontinued operations

 

(23

)

(10

)

(11

)

(1

)

 

17



Table of Contents

 

 

b)        Assets by segment

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Product inventory

 

Investments in
associates and joint
ventures

 

Property, plant
and equipment
and intangible (i)

 

Product inventory

 

Investments in
associates and joint
ventures

 

Property, plant
and equipment
and intangible (i)

 

Ferrous minerals

 

6,860

 

6,617

 

121,084

 

5,859

 

6,357

 

119,429

 

Coal

 

526

 

1,264

 

7,079

 

271

 

1,048

 

5,686

 

Base metals

 

4,391

 

54

 

84,550

 

3,336

 

43

 

78,080

 

Others

 

55

 

4,506

 

5,908

 

20

 

4,354

 

6,434

 

Total

 

11,832

 

12,441

 

218,621

 

9,486

 

11,802

 

209,629

 

 

 

 

Three-month period ended

 

Six-month period ended

 

 

 

June 30, 2018

 

 

 

Additions to property, plant and
equipment and intangible (ii)

 

 

 

Additions to property, plant and
equipment and intangible (ii)

 

 

 

 

 

Sustaining
investments

 

Capital
expenditures

 

Depreciation,
depletion and
amortization (iii)

 

Sustaining
investments

 

Capital
expenditures

 

Depreciation, depletion
and amortization (iii)

 

Ferrous minerals

 

1,050

 

612

 

1,532

 

2,095

 

1,689

 

2,938

 

Coal

 

67

 

53

 

200

 

146

 

81

 

412

 

Base metals

 

682

 

69

 

1,328

 

1,271

 

118

 

2,465

 

Others

 

7

 

 

52

 

10

 

15

 

131

 

Total

 

1,806

 

734

 

3,112

 

3,522

 

1,903

 

5,946

 

 

 

 

Three-month period ended

 

Six-month period ended

 

 

 

June 30, 2017

 

 

 

Additions to property, plant and
equipment and intangible (ii)

 

 

 

Additions to property, plant and
equipment and intangible (ii)

 

 

 

 

 

Sustaining
investments

 

Capital
expenditures

 

Depreciation,
depletion and
amortization (iii)

 

Sustaining
investments

 

Capital
expenditures

 

Depreciation,
depletion and
amortization (iii)

 

Ferrous minerals

 

790

 

1,188

 

1,376

 

1,744

 

2,849

 

2,684

 

Coal

 

26

 

21

 

238

 

104

 

120

 

567

 

Base metals

 

796

 

16

 

1,279

 

1,430

 

46

 

2,477

 

Others

 

5

 

10

 

14

 

7

 

39

 

30

 

Total

 

1,617

 

1,235

 

2,907

 

3,285

 

3,054

 

5,758

 

 


(i) Goodwill is allocated mainly to ferrous minerals and base metals segments in the amount of R$7,133 and R$7,316 in June 30, 2018 and R$7,133 and R$6,460 in December 31, 2017, respectively.

(ii) Includes only cash outflows.

(iii) Refers to amounts recognized in the income statement.

 

Base Metals

 

(i) Onça Puma

 

In September 2017, the Federal Court granted an injunction suspending certain of nickel mining operations at Onça Puma. The Company has appealed this decision to seek a suspension of this injunction, but it is not possible to anticipate when Onça Puma activities will resume. In December 31, 2017, the Company has calculated the recoverable amount and no losses were identified. The Company has assessed the impairment risk related to this specific cash-generating unit and concluded that no significant changes occurred that could lead to a loss that should be recognized in the income statement for the period ended June 30, 2018.

 

18



Table of Contents

 

 

(ii) Cobalt streaming transactions

 

In June 2018, the Company entered into two different agreements, one with Wheaton Precious Metals Corp (“Wheaton”) and other with Cobalt 27 Capital Corp. (“Cobalt 27”), to sell a stream equivalent to 75% of the cobalt extracted as a by-product from the Voisey’s Bay mine, in Canada, starting on January 1, 2021. Furthermore, the Company restarted the Voisey’s Bay underground mine expansion project, which is going to increase the expected useful life of Voisey’s Bay mine from 2023 to 2034. The first year of underground production is expected to be 2021, when the current operations on the open pit mine begins to ramp down.

 

Upon completion of the transaction, the Company received an upfront payment of R$2,603 (US$690 millions) in cash, R$1,471 (US$390 millions) from Wheaton and R$1,132 (US$300 millions) from Cobalt 27, has been recorded as others non-current liabilities. Vale will receive additional payments of 20%, on average, of the market reference price for cobalt, for each pound of finished cobalt delivered.

 

Thus, from January 1, 2021 onwards, Wheaton and Cobalt 27 will be entitled to receive 42.4% and 32.6%, respectively, of cobalt equivalent to the production from the Voisey’s Bay mine, while Vale remains exposed to approximately 40% of the cobalt economic exposure, as Vale retains the rights to 25% of the future cobalt production and will receive 20% additional payments for the cobalt stream. The result of the sale of the mineral rights will be accounted for once certain production thresholds have been met at Voisey’s Bay mine and is not expected to be significant.

 

c)         Net operating revenue by geographic area

 

 

 

Consolidated

 

 

 

Three-month period ended June 30, 2018

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

702

 

 

659

 

 

1,361

 

United States of America

 

315

 

 

957

 

1

 

1,273

 

Germany

 

1,028

 

 

519

 

 

1,547

 

Europe, except Germany

 

2,078

 

322

 

1,665

 

 

4,065

 

Middle East/Africa/Oceania

 

1,814

 

119

 

21

 

 

1,954

 

Japan

 

2,225

 

 

524

 

 

2,749

 

China

 

11,131

 

 

755

 

 

11,886

 

Asia, except Japan and China

 

1,523

 

797

 

1,420

 

 

3,740

 

Brazil

 

2,104

 

49

 

254

 

252

 

2,659

 

Net operating revenue

 

22,920

 

1,287

 

6,774

 

253

 

31,234

 

 

 

 

Consolidated

 

 

 

Three-month period ended June 30, 2017

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

445

 

 

609

 

174

 

1,228

 

United States of America

 

392

 

 

609

 

42

 

1,043

 

Germany

 

625

 

 

279

 

 

904

 

Europe, except Germany

 

1,578

 

360

 

1,392

 

45

 

3,375

 

Middle East/Africa/Oceania

 

1,142

 

118

 

9

 

 

1,269

 

Japan

 

1,412

 

142

 

289

 

 

1,843

 

China

 

8,044

 

 

278

 

 

8,322

 

Asia, except Japan and China

 

960

 

790

 

1,265

 

 

3,015

 

Brazil

 

1,938

 

134

 

143

 

149

 

2,364

 

Net operating revenue

 

16,536

 

1,544

 

4,873

 

410

 

23,363

 

 

19



Table of Contents

 

 

 

 

Consolidated

 

 

 

Six-month period ended June 30, 2018

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

1,413

 

 

1,168

 

 

2,581

 

United States of America

 

582

 

 

1,749

 

25

 

2,356

 

Germany

 

2,081

 

 

748

 

 

2,829

 

Europe, except Germany

 

3,606

 

653

 

3,285

 

 

7,544

 

Middle East/Africa/Oceania

 

3,738

 

259

 

35

 

 

4,032

 

Japan

 

3,708

 

107

 

897

 

 

4,712

 

China

 

22,137

 

 

1,432

 

 

23,569

 

Asia, except Japan and China

 

2,647

 

1,284

 

2,226

 

 

6,157

 

Brazil

 

4,206

 

218

 

536

 

426

 

5,386

 

Net operating revenue

 

44,118

 

2,521

 

12,076

 

451

 

59,166

 

 

 

 

Consolidated

 

 

 

Six-month period ended June 30, 2017

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

887

 

 

1,565

 

174

 

2,626

 

United States of America

 

558

 

 

1,193

 

182

 

1,933

 

Germany

 

1,593

 

 

443

 

51

 

2,087

 

Europe, except Germany

 

3,405

 

642

 

2,818

 

45

 

6,910

 

Middle East/Africa/Oceania

 

2,486

 

280

 

18

 

 

2,784

 

Japan

 

2,639

 

246

 

566

 

 

3,451

 

China

 

19,526

 

 

781

 

 

20,307

 

Asia, except Japan and China

 

1,759

 

1,106

 

2,242

 

 

5,107

 

Brazil

 

4,081

 

290

 

269

 

260

 

4,900

 

Net operating revenue

 

36,934

 

2,564

 

9,895

 

712

 

50,105

 

 

Provisionally priced commodities sales — As at June 30, 2018, there were 21 million metric tons of iron ore (2017: 26 million metric tons) and 71 thousand metric tons of copper (2017: 106 thousand metric tons) provisionally priced based on forward prices. The final price of these sales will be determined during the third quarter of 2018. A 10% change in the realized prices compared to the provisionally priced sales, all other factors held constant, would increase or reduce iron ore net income by R$544 and copper net income by R$204.

 

4.         Special events occurred during the period

 

The special events occurred during the period are those that, in the Company’s judgment, have non-operational effect on the performance of the period due to their size and nature. To determine whether an event or transaction should be disclosed as “special events”, the Company considers quantitative and qualitative factors, such as frequency and magnitude.

 

The special events identified by the Company are as follows:

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Gain (loss) with disposals of assets

 

10

 

(298

)

(42

)

(305

)

Provision for litigation

 

(98

)

 

(244

)

 

Nacala Logistic Corridor

 

 

 

 

1,610

 

Impairment of non-current assets

 

 

(428

)

 

(428

)

Total

 

(88

)

(726

)

(286

)

877

 

 

Result in disposals of assets -  The Company recognized a gain of R$10 and a loss of R$42 in the income statement during the three and six-month periods ended June 30, 2018, respectively, as “Impairment and other results on noncurrent assets” due to non-viable projects and operating assets written off through sale or obsolescence.

 

Provision for litigation — During the three and six month-periods ended June 30, 2018, the Company’s assessment of the likelihood of loss for various litigations have been updated and a net impact of R$98 and R$244, respectively, was charged to the income statement.

 

Nacala Logistic Corridor — In March 2017, the Company concluded the transaction with Mitsui to sell 15% of its stake in Vale Moçambique and 50% of its stake in the Nacala Logistics Corridor and recognized a gain in the income statement of R$1,610.

 

Impairment of non-current assets — In the second quarter of 2017, the Company placed an underground mine in Sudbury in “care and maintenance” and an impairment of R$428 was recognized in the income statement.

 

20



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5.                            Costs and expenses by nature

 

a)        Cost of goods sold and services rendered

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Personnel

 

2,076

 

1,791

 

3,870

 

3,512

 

Materials and services

 

3,500

 

2,894

 

6,369

 

5,350

 

Fuel oil and gas

 

1,362

 

997

 

2,509

 

1,966

 

Maintenance

 

2,438

 

2,430

 

4,831

 

4,700

 

Energy

 

865

 

747

 

1,639

 

1,423

 

Acquisition of products

 

364

 

512

 

763

 

1,027

 

Depreciation and depletion

 

2,988

 

2,740

 

5,679

 

5,401

 

Freight

 

3,422

 

2,500

 

6,353

 

4,566

 

Others

 

2,448

 

1,851

 

4,420

 

3,382

 

Total

 

19,463

 

16,462

 

36,433

 

31,327

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

18,877

 

15,960

 

35,368

 

30,387

 

Cost of services rendered

 

586

 

502

 

1,065

 

940

 

Total

 

19,463

 

16,462

 

36,433

 

31,327

 

 

b)        Selling and administrative expenses

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Personnel

 

145

 

199

 

347

 

367

 

Services

 

63

 

60

 

126

 

99

 

Depreciation and amortization

 

57

 

72

 

114

 

162

 

Others

 

175

 

95

 

255

 

186

 

Total

 

440

 

426

 

842

 

814

 

 

c)         Other operating expenses, net

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Provision for litigation

 

98

 

55

 

244

 

93

 

Profit sharing program

 

216

 

98

 

370

 

221

 

Others

 

78

 

118

 

184

 

204

 

Total

 

392

 

271

 

798

 

518

 

 

6.                            Financial result

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Financial income

 

 

 

 

 

 

 

 

 

Short-term investments

 

182

 

166

 

264

 

277

 

Derivative financial instruments

 

321

 

229

 

698

 

1,232

 

Others

 

105

 

205

 

405

 

294

 

 

 

608

 

600

 

1,367

 

1,803

 

Financial expenses

 

 

 

 

 

 

 

 

 

Loans and borrowings gross interest

 

(1,059

)

(1,447

)

(2,149

)

(3,026

)

Capitalized loans and borrowing costs

 

160

 

265

 

354

 

587

 

Derivative financial instruments

 

(1,422

)

(513

)

(1,514

)

(852

)

Participative stockholders’ debentures

 

(1,032

)

(285

)

(1,622

)

(1,581

)

Expenses of REFIS

 

(185

)

(347

)

(372

)

(742

)

Others

 

(615

)

(508

)

(1,052

)

(830

)

 

 

(4,153

)

(2,835

)

(6,355

)

(6,444

)

Other financial items

 

 

 

 

 

 

 

 

 

Net foreign exchange losses on loans and borrowings

 

(8,522

)

(2,387

)

(8,938

)

(790

)

Other net foreign exchange gains (losses)

 

1,532

 

420

 

1,714

 

(410

)

Net indexation losses

 

(395

)

(139

)

(789

)

(394

)

 

 

(7,385

)

(2,106

)

(8,013

)

(1,594

)

Financial results, net

 

(10,930

)

(4,341

)

(13,001

)

(6,235

)

 

21



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7.                            Income taxes

 

a)        Deferred income tax assets and liabilities

 

Changes in deferred tax are as follows:

 

 

 

Consolidated

 

 

 

Assets

 

Liabilities

 

Deferred taxes, net

 

Balance at March 31, 2018

 

20,298

 

5,665

 

14,633

 

Effect in income statement

 

2,813

 

60

 

2,753

 

Transfers between asset and liabilities

 

2

 

2

 

 

Translation adjustment

 

1,033

 

795

 

238

 

Other comprehensive income

 

1,044

 

(50

)

1,094

 

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

30

 

 

30

 

Transfer to net assets held for sale

 

(21

)

 

(21

)

Balance at June 30, 2018

 

25,199

 

6,472

 

18,727

 

 

 

 

Consolidated

 

 

 

Assets

 

Liabilities

 

Deferred taxes, net

 

Balance at March 31, 2017

 

22,582

 

5,314

 

17,268

 

Effect in income statement

 

202

 

(176

)

378

 

Translation adjustment

 

438

 

323

 

115

 

Other comprehensive income

 

251

 

(282

)

533

 

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

493

 

 

493

 

Transfer to net assets held for sale

 

(493

)

 

(493

)

Balance at June 30, 2017

 

23,473

 

5,179

 

18,294

 

 

 

 

Consolidated

 

 

 

Assets

 

Liabilities

 

Deferred taxes, net

 

Balance at December 31, 2017

 

21,959

 

5,687

 

16,272

 

Effect in income statement

 

768

 

59

 

709

 

Transfers between asset and liabilities

 

29

 

29

 

 

Translation adjustment

 

1,016

 

718

 

298

 

Other comprehensive income

 

1,333

 

(21

)

1,354

 

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

134

 

 

134

 

Transfer to net assets held for sale

 

(40

)

 

(40

)

Balance at June 30, 2018

 

25,199

 

6,472

 

18,727

 

 

 

 

Consolidated

 

 

 

Assets

 

Liabilities

 

Deferred taxes, net

 

Balance at December 31, 2016

 

23,931

 

5,540

 

18,391

 

Effect in income statement

 

(517

)

(264

)

(253

)

Translation adjustment

 

145

 

196

 

(51

)

Other comprehensive income

 

(86

)

(293

)

207

 

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

588

 

 

588

 

Transfer to net assets held for sale

 

(588

)

 

(588

)

Balance at June 30, 2017

 

23,473

 

5,179

 

18,294

 

 

22



Table of Contents

 

 

b)        Income tax reconciliation — Income statement

 

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

 

 

 

Consolidated

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Income (loss) before income taxes

 

(1,923

)

401

 

5,861

 

10,816

 

Income taxes at statutory rates - 34%

 

654

 

(136

)

(1,993

)

(3,677

)

Adjustments that affect the basis of taxes:

 

 

 

 

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

1,372

 

396

 

1,588

 

793

 

Tax incentives

 

563

 

3

 

651

 

561

 

Equity results

 

60

 

(28

)

153

 

49

 

Unrecognized tax losses of the period

 

(398

)

(297

)

(875

)

(852

)

Gain on sale of subsidiaries (note 4)

 

 

 

 

548

 

Others

 

42

 

218

 

430

 

518

 

Income taxes

 

2,293

 

156

 

(46

)

(2,060

)

 

Income tax expense is recognized based on the estimate of the weithed average effective tax rate expected for the full year, adjusted for the tax effect of certain items recognized in full in the interim period. Therefore, the effective tax rate in the interim financial statement may differ from management’s estimate of the effective tax rate for the annual financial statement.

 

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

 

The balance mainly relates to REFIS to settle most of the claims related to the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. As at June 30, 2018, the balance of R$17,335 (R$1,638 as current and R$15,696 as non-current) is due in 124 remaining monthly installments, bearing interest at the SELIC rate (Special System for Settlement and Custody).

 

8.                            Basic and diluted earnings (loss) per share

 

The basic and diluted earnings (loss) per share are presented below:

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017 (i)

 

2018

 

2017 (i)

 

Net income (loss) attributable to Vale’s stockholders:

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

345

 

458

 

5,728

 

8,609

 

Loss from discontinued operations

 

(39

)

(398

)

(310

)

(658

)

Net income

 

306

 

60

 

5,418

 

7,951

 

 

 

 

 

 

 

 

 

 

 

Thousands of shares

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding — common shares

 

5,197,432

 

5,197,432

 

5,197,432

 

5,197,432

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

Common share (R$)

 

0.07

 

0.09

 

1.10

 

1.67

 

Basic and diluted loss per share from discontinued operations:

 

 

 

 

 

 

 

 

 

Common share (R$)

 

(0.01

)

(0.08

)

(0.06

)

(0.13

)

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Common share (R$)

 

0.06

 

0.01

 

1.04

 

1.54

 

 


(i) Restated to reflect the conversion of the class “A” preferred shares into common shares.

 

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

 

23



Table of Contents

 

 

9.                  Accounts receivable

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Accounts receivable

 

9,278

 

8,802

 

Impairment of accounts receivable

 

(226

)

(200

)

 

 

9,052

 

8,602

 

 

 

 

 

 

 

Accounts receivable related to the steel sector - %

 

75.20

%

82.90

%

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Impairment of trade receivables recorded in the income statement

 

(17

)

(14

)

(17

)

(14

)

 

There is no customer that individually represents over 10% of accounts receivable or revenues.

 

10.           Inventories

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Finished products

 

9,283

 

7,324

 

Work in progress

 

2,549

 

2,162

 

Consumable inventory

 

3,586

 

3,501

 

Total

 

15,418

 

12,987

 

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Reversal (Provision) for net realizable value

 

(61

)

50

 

(67

)

186

 

 

Finished and work in progress product inventory by segments is presented in note 3(b).

 

11.                     Other financial assets and liabilities

 

 

 

Consolidated

 

 

 

Current

 

Non-Current

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

December 31, 2017

 

Other financial assets

 

 

 

 

 

 

 

 

 

Financial investments

 

68

 

61

 

 

 

Loans

 

 

 

593

 

498

 

Derivative financial instruments (note 20)

 

484

 

351

 

1,368

 

1,497

 

Investments in equity securities (note 12)

 

 

 

3,689

 

 

Related parties - Loans (note 25)

 

1,298

 

6,277

 

6,078

 

8,695

 

 

 

1,850

 

6,689

 

11,728

 

10,690

 

Other financial liabilities

 

 

 

 

 

 

 

 

 

Derivative financial instruments (note 20)

 

967

 

344

 

2,382

 

2,269

 

Related parties - Loans (note 25)

 

2,103

 

2,916

 

3,713

 

3,226

 

Participative stockholders’ debentures

 

 

 

5,444

 

4,080

 

 

 

3,070

 

3,260

 

11,539

 

9,575

 

 

24



Table of Contents

 

 

12.                     Non-current assets and liabilities held for sale and discontinued operations

 

 

 

Consolidated

 

 

 

December 31, 2017

 

 

 

Fertilizers

 

Assets

 

 

 

Accounts receivable

 

297

 

Inventories

 

1,522

 

Other current assets

 

363

 

Investments in associates and joint ventures

 

274

 

Property, plant and equipment and Intangible

 

7,110

 

Other non-current assets

 

2,299

 

Total assets

 

11,865

 

 

 

 

 

Liabilities

 

 

 

Suppliers and contractors

 

1,070

 

Other current liabilities

 

711

 

Other non-current liabilities

 

2,118

 

Total liabilities

 

3,899

 

Net non-current assets held for sale

 

7,966

 

 

a)        Fertilizers (discontinued operations)

 

In December 2016, the Company entered into an agreement with The Mosaic Company (“Mosaic”) to sell (i) the phosphate assets located in Brazil, except for the assets located in Cubatão, Brazil; (ii) the control of Compañia Minera Miski Mayo S.A.C., in Peru; (iii) the potassium assets located in Brazil; and (iv) the potash projects in Canada.

 

In January 2018, the Company and Mosaic concluded the transaction and the Company received R$3,495 (US$1,080 million) in cash and 34.2 million common shares, corresponding to 8.9% of Mosaic’s equity after the issuance of these shares (R$2,907 (US$899 million), based on the Mosaic’s quotation at closing date of the transaction) and a loss of R$184 was recognized in the income statement from discontinued operations.

 

Mosaic shares received was accounted for an equity investment measured at fair value through other comprehensive income. For the three and six-month period ended June 30, 2018, the Company recognized a gain of R$285 and R$171 in other comprehensive income as “Fair value adjustment to investment in equity securities”.

 

b)        Cubatão (part of the fertilizer segment)

 

In November 2017, the Company entered into an agreement with Yara International ASA (“Yara”) to sell its assets located in Cubatão, Brazil. In May 2018, the transaction was concluded and the Company received R$882 (US$255 million) in cash and a loss of R$231 was recognized for the six-month period ended June 30, 2018, in the income statement from discontinued operations.

 

The results and cash flows of discontinued operations of the Fertilizer segment for the three and six-month period ended June 30, 2018 and 2017 are presented as follows:

 

Income statement

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Net operating revenue

 

109

 

1,291

 

397

 

2,453

 

Cost of goods sold and services rendered

 

(121

)

(1,194

)

(393

)

(2,260

)

Operating expenses

 

(11

)

(110

)

(15

)

(197

)

Impairment of non-current assets

 

(40

)

(857

)

(415

)

(1,205

)

Operating loss

 

(63

)

(870

)

(426

)

(1,209

)

Financial Results, net

 

(6

)

(12

)

(18

)

(26

)

Equity results in associates and joint ventures

 

 

1

 

 

2

 

Loss before income taxes

 

(69

)

(881

)

(444

)

(1,233

)

Income taxes

 

30

 

493

 

134

 

588

 

Loss from discontinued operations

 

(39

)

(388

)

(310

)

(645

)

Net income attributable to noncontrolling interests

 

 

10

 

 

13

 

Loss attributable to Vale’s stockholders

 

(39

)

(398

)

(310

)

(658

)

 

25



Table of Contents

 

 

Statement of cash flow

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Cash flow from operating activities

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(69

)

(881

)

(444

)

(1,233

)

Adjustments:

 

 

 

 

 

 

 

 

 

Equity results in associates and joint ventures

 

 

(1

)

 

(2

)

Depreciation, amortization and depletion

 

 

3

 

 

3

 

Impairment of non-current assets

 

40

 

857

 

415

 

1,205

 

Others

 

18

 

 

18

 

 

Increase (decrease) in assets and liabilities

 

4

 

26

 

(110

)

321

 

Net cash provided by (used in) operating activities

 

(7

)

4

 

(121

)

294

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(263

)

(36

)

(460

)

Net cash used in investing activities

 

 

(263

)

(36

)

(460

)

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

 

 

 

 

Additions (Repayments)

 

 

107

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

107

 

 

(1

)

Net cash used in discontinued operations

 

(7

)

(152

)

(157

)

(167

)

 

13.                     Investments in associates and joint ventures

 

a)        Changes during the period

 

Changes in investments in associates and joint ventures are as follows:

 

 

 

Consolidated

 

 

 

Associates

 

Joint ventures

 

Total

 

Balance at December 31, 2017

 

4,774

 

7,028

 

11,802

 

Additions

 

 

76

 

76

 

Translation adjustment

 

219

 

124

 

343

 

Equity results in income statement

 

10

 

440

 

450

 

Dividends declared

 

 

(525

)

(525

)

Transfer from non-current assets held for sale (i)

 

280

 

 

280

 

Others

 

21

 

(6

)

15

 

Balance at June 30, 2018

 

5,304

 

7,137

 

12,441

 

 


(i) Refers to 18% interest held by Vale Fertilizantes at Ultrafertil which was transferred to Vale as part of the final settlement in January 2018 (note 12).

 

 

 

Consolidated

 

 

 

Associates

 

Joint ventures

 

Total

 

Balance at December 31, 2016

 

4,683

 

7,363

 

12,046

 

Additions

 

 

103

 

103

 

Translation adjustment

 

17

 

14

 

31

 

Equity results in income statement

 

63

 

79

 

142

 

Dividends declared

 

(134

)

(265

)

(399

)

Others

 

3

 

 

3

 

Balance at June 30, 2017

 

4,632

 

7,294

 

11,926

 

 

b)        Guarantees provided

 

As of June 30, 2018, corporate guarantees provided by Vale (within the limit of its direct or indirect interest) for the companies Norte Energia S.A. and Companhia Siderúrgica do Pecém S.A. were R$1,272 and R$5,603, respectively.

 

The investments by segments are presented in note 3(b).

 

26



Table of Contents

 

 

Investments in associates and joint ventures (continued)

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Investments in associates and joint
ventures

 

Equity results in the income statement

 

Dividends received

 

 

 

 

 

 

 

 

 

 

 

Three-month period
ended June 30,

 

Six-month period ended
June 30,

 

Three-month period
ended June 30,

 

Six-month period ended
June 30,

 

Associates and joint ventures

 

% ownership

 

% voting
capital

 

June 30, 2018

 

December 31, 2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Baovale Mineração S.A.

 

50.00

 

50.00

 

97

 

87

 

5

 

6

 

10

 

12

 

2

 

 

2

 

 

Companhia Coreano-Brasileira de Pelotização

 

50.00

 

50.00

 

335

 

295

 

63

 

41

 

113

 

78

 

56

 

 

56

 

 

Companhia Hispano-Brasileira de Pelotização (i)

 

50.89

 

51.00

 

261

 

270

 

30

 

35

 

78

 

68

 

87

 

18

 

87

 

18

 

Companhia Ítalo-Brasileira de Pelotização (i)

 

50.90

 

51.00

 

308

 

263

 

54

 

42

 

106

 

63

 

122

 

54

 

122

 

54

 

Companhia Nipo-Brasileira de Pelotização (i)

 

51.00

 

51.11

 

556

 

453

 

113

 

76

 

211

 

145

 

127

 

47

 

127

 

47

 

MRS Logística S.A.

 

48.16

 

46.75

 

1,764

 

1,711

 

67

 

70

 

105

 

118

 

 

 

 

 

VLI S.A.

 

37.60

 

37.60

 

3,207

 

3,202

 

48

 

61

 

5

 

21

 

 

 

 

 

Zhuhai YPM Pellet Co.

 

25.00

 

25.00

 

89

 

76

 

1

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

6,617

 

6,357

 

381

 

331

 

629

 

505

 

394

 

119

 

394

 

119

 

Coal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Henan Longyu Energy Resources Co., Ltd.

 

25.00

 

25.00

 

1,264

 

1,048

 

28

 

20

 

41

 

51

 

 

 

 

 

 

 

 

 

 

 

1,264

 

1,048

 

28

 

20

 

41

 

51

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Korea Nickel Corp.

 

25.00

 

25.00

 

54

 

43

 

1

 

(1

)

4

 

1

 

 

 

 

 

 

 

 

 

 

 

54

 

43

 

1

 

(1

)

4

 

1

 

 

 

 

 

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aliança Geração de Energia S.A. (i)

 

55.00

 

55.00

 

1,882

 

1,889

 

19

 

26

 

81

 

47

 

55

 

36

 

88

 

36

 

Aliança Norte Energia Participações S.A. (i)

 

51.00

 

51.00

 

605

 

529

 

11

 

1

 

33

 

11

 

 

 

 

 

California Steel Industries, Inc.

 

50.00

 

50.00

 

868

 

663

 

74

 

52

 

141

 

79

 

56

 

43

 

56

 

43

 

Companhia Siderúrgica do Pecém

 

50.00

 

50.00

 

461

 

867

 

(267

)

(423

)

(407

)

(456

)

 

 

 

 

Mineração Rio do Norte S.A.

 

40.00

 

40.00

 

334

 

333

 

(31

)

4

 

(21

)

2

 

 

68

 

 

68

 

Others

 

 

 

 

 

356

 

73

 

(39

)

(93

)

(51

)

(98

)

 

 

 

 

 

 

 

 

 

 

4,506

 

4,354

 

(233

)

(433

)

(224

)

(415

)

111

 

147

 

144

 

147

 

Total

 

 

 

 

 

12,441

 

11,802

 

177

 

(83

)

450

 

142

 

505

 

266

 

538

 

266

 

 


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

 

27



Table of Contents

 

 

14.                               Intangibles

 

Changes in intangibles are as follows:

 

 

 

Consolidated

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2017

 

13,593

 

13,236

 

506

 

759

 

28,094

 

Additions

 

 

2,167

 

 

15

 

2,182

 

Disposals

 

 

(35

)

 

 

(35

)

Amortization

 

 

(224

)

(12

)

(205

)

(441

)

Translation adjustment

 

856

 

77

 

53

 

19

 

1,005

 

Balance at June 30, 2018

 

14,449

 

15,221

 

547

 

588

 

30,805

 

Cost

 

14,449

 

18,920

 

827

 

5,250

 

39,446

 

Accumulated amortization

 

 

(3,699

)

(280

)

(4,662

)

(8,641

)

Balance at June 30, 2018

 

14,449

 

15,221

 

547

 

588

 

30,805

 

 

 

 

Consolidated

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2016

 

10,041

 

10,759

 

480

 

1,115

 

22,395

 

Additions

 

 

1,614

 

 

58

 

1,672

 

Disposals

 

 

(7

)

 

 

(7

)

Amortization

 

 

(284

)

(3

)

(233

)

(520

)

Translation adjustment

 

286

 

3

 

18

 

9

 

316

 

Balance at June 30, 2017

 

10,327

 

12,085

 

495

 

949

 

23,856

 

Cost

 

10,327

 

16,110

 

762

 

5,119

 

32,318

 

Accumulated amortization

 

 

(4,025

)

(267

)

(4,170

)

(8,462

)

Balance at June 30, 2017

 

10,327

 

12,085

 

495

 

949

 

23,856

 

 

15.                     Property, plant and equipment

 

Changes in property, plant and equipment are as follows:

 

 

 

Consolidated

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2017

 

2,375

 

40,028

 

38,986

 

22,803

 

29,999

 

27,104

 

20,240

 

181,535

 

Additions (i)

 

 

 

 

 

 

 

3,443

 

3,443

 

Disposals

 

(1

)

(121

)

(125

)

(52

)

(15

)

(185

)

(26

)

(525

)

Assets retirement obligation

 

 

 

 

 

(50

)

 

 

(50

)

Depreciation, amortization and depletion

 

 

(1,035

)

(1,210

)

(1,490

)

(993

)

(1,177

)

 

(5,905

)

Translation adjustment

 

87

 

1,707

 

1,372

 

1,795

 

2,660

 

993

 

704

 

9,318

 

Transfers

 

24

 

1,372

 

3,837

 

1,999

 

913

 

2,177

 

(10,322

)

 

Balance at June 30, 2018

 

2,485

 

41,951

 

42,860

 

25,055

 

32,514

 

28,912

 

14,039

 

187,816

 

Cost

 

2,485

 

68,696

 

66,957

 

47,677

 

61,175

 

42,264

 

14,039

 

303,293

 

Accumulated depreciation

 

 

(26,745

)

(24,097

)

(22,622

)

(28,661

)

(13,352

)

 

(115,477

)

Balance at June 30, 2018

 

2,485

 

41,951

 

42,860

 

25,055

 

32,514

 

28,912

 

14,039

 

187,816

 

 

 

 

Consolidated

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2016

 

2,360

 

34,790

 

30,866

 

22,141

 

27,312

 

24,494

 

38,653

 

180,616

 

Additions (i)

 

 

 

 

 

 

 

4,098

 

4,098

 

Disposals

 

(1

)

(2

)

(112

)

(22

)

(401

)

(247

)

(50

)

(835

)

Assets retirement obligation

 

 

 

 

 

4

 

 

 

4

 

Depreciation, amortization and depletion

 

 

(846

)

(1,099

)

(1,259

)

(990

)

(1,104

)

 

(5,298

)

Translation adjustment

 

12

 

357

 

270

 

238

 

931

 

405

 

23

 

2,236

 

Transfers

 

54

 

3,788

 

5,269

 

2,258

 

2,074

 

3,410

 

(16,853

)

 

Balance at June 30, 2017

 

2,425

 

38,087

 

35,194

 

23,356

 

28,930

 

26,958

 

25,871

 

180,821

 

Cost

 

2,425

 

59,442

 

56,072

 

41,700

 

55,342

 

40,159

 

25,871

 

281,011

 

Accumulated depreciation

 

 

(21,355

)

(20,878

)

(18,344

)

(26,412

)

(13,201

)

 

(100,190

)

Balance at June 30, 2017

 

2,425

 

38,087

 

35,194

 

23,356

 

28,930

 

26,958

 

25,871

 

180,821

 

 


(i) Includes capitalized borrowing costs.

 

There are no material changes to the net book value of consolidated property, plant and equipment pledged to secure judicial claims and loans and borrowings (note 16(c)) compared to those disclosed in the financial statements as at December 31, 2017.

 

28



Table of Contents

 

 

16.                     Loans, borrowings, cash and cash equivalents and financial investments

 

a)             Net debt

 

The Company evaluates the net debt with the objective of ensuring the continuity of its business in the long term.

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Debt contracts in the international markets

 

53,410

 

57,187

 

Debt contracts in Brazil

 

15,633

 

17,205

 

Total of loans and borrowings

 

69,043

 

74,392

 

 

 

 

 

 

 

(-) Cash and cash equivalents

 

24,557

 

14,318

 

(-) Financial investments (note 11)

 

68

 

61

 

Net debt

 

44,418

 

60,013

 

 

b)        Cash and cash equivalents

 

Cash and cash equivalents includes cash, immediately redeemable deposits and short-term investments with an insignificant risk of change in value. They are readily convertible to cash, part in R$, indexed to the Brazilian Interbank Interest rate (“DI Rate”or”CDI”) and part denominated in US$, mainly time deposits.

 

c)         Loans and borrowings

 

i)           Total debt

 

 

 

Consolidated

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

December 31, 2017

 

Debt contracts in the international markets

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

US$

 

2,355

 

1,027

 

9,198

 

9,142

 

EUR

 

 

 

900

 

794

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

US$

 

24

 

 

36,011

 

41,642

 

EUR

 

 

 

3,377

 

2,977

 

Other currencies

 

130

 

57

 

639

 

682

 

Accrued charges

 

776

 

866

 

 

 

 

 

3,285

 

1,950

 

50,125

 

55,237

 

Debt contracts in Brazil

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

R$, indexed to TJLP, TR, IPCA, IGP-M and CDI

 

1,464

 

1,478

 

9,196

 

10,570

 

Basket of currencies and US$ indexed to LIBOR

 

1,186

 

1,121

 

2,196

 

2,341

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

R$

 

222

 

225

 

462

 

572

 

Accrued charges

 

870

 

859

 

37

 

39

 

 

 

3,742

 

3,683

 

11,891

 

13,522

 

 

 

7,027

 

5,633

 

62,016

 

68,759

 

 

The future flows of debt payments principal, per nature of funding and interest are as follows:

 

 

 

Consolidated

 

 

 

Principal

 

Estimated future

 

 

 

Bank loans

 

Capital markets

 

Development agencies

 

Total

 

interest payments (i)

 

2018

 

360

 

 

1,510

 

1,870

 

4,491

 

2019

 

2,285

 

 

2,721

 

5,006

 

3,715

 

2020

 

2,223

 

1,100

 

2,826

 

6,149

 

3,552

 

2021

 

1,470

 

1,383

 

2,844

 

5,697

 

3,212

 

Between 2022 and 2026

 

5,285

 

17,628

 

3,944

 

26,857

 

11,376

 

2027 onwards

 

306

 

21,163

 

312

 

21,781

 

16,182

 

 

 

11,929

 

41,274

 

14,157

 

67,360

 

42,528

 

 


(i) Estimated future payments of interest, calculated based on interest rate curves and foreign exchange rates applicable as at June 30, 2018 and considering that all amortization payments and payments at maturity on loans and borrowings will be made on their contracted payments dates. The amount includes the estimated values of future interest payments (not yet accrued), in addition to interest already recognized in the financial statements.

 

29



Table of Contents

 

 

At June 30, 2018, the average annual interest rates by currency are as follows:

 

 

 

Consolidated

 

 

 

Average interest rate (i)

 

Total debt

 

Loans and borrowings

 

 

 

 

 

US$

 

5.58

%

51,699

 

R$ (ii)

 

8.12

%

12,219

 

EUR (iii)

 

3.34

%

4,346

 

Other currencies

 

2.93

%

779

 

 

 

 

 

69,043

 

 


(i) In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable at June 30, 2018.

(ii) R$ denominated debt that bears interest at IPCA, CDI, TR or TJLP, plus spread. For a total of R$5,795 the Company entered into derivative transactions to mitigate the exposure to the cash flow variations of the floating rate debt denominated in R$, resulting in an average cost of 2,548% per year in US$.

(iii) Eurobonds, for which the Company entered into derivatives to mitigate the exposure to the cash flow variations of the debt denominated in EUR, resulting in an average cost of 4,291% per year in US$.

 

ii) Reconciliation of debt to cash flows arising from financing activities

 

 

 

Consolidated

 

 

 

 

 

Cash flow

 

Non-cash changes

 

 

 

 

 

December 31,
2017

 

Additions

 

Repayments

 

Interest
paid

 

Transferences

 

Effect of
exchange rate

 

Interest
accretion

 

June 30, 2018

 

Loans and borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

5,633

 

 

(16,813

)

(2,231

)

17,111

 

522

 

2,805

 

7,027

 

Non-current

 

68,759

 

2,814

 

 

 

(17,111

)

7,543

 

11

 

62,016

 

Total

 

74,392

 

2,814

 

(16,813

)

(2,231

)

 

8,065

 

2,816

 

69,043

 

 

iii)   Credit and financing lines

 

 

 

 

 

 

 

Period of the

 

 

 

Available amount

 

Type

 

Contractual currency

 

Date of agreement

 

agreement

 

Total amount

 

June 30, 2018

 

Credit lines

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facilities

 

US$

 

May 2015

 

5 years

 

11,567

 

11,567

 

Revolving credit facilities

 

US$

 

June 2017

 

5 years

 

7,712

 

7,712

 

Financing lines

 

 

 

 

 

 

 

 

 

 

 

BNDES - CLN 150

 

R$

 

September 2012

 

10 years

 

3,883

 

 

BNDES - S11D e S11D Logística

 

R$

 

May 2014

 

10 years

 

6,163

 

1,008

 

 

iv) Repayments

 

During the first half of 2018, the Company conducted a cash tender offer for Vale Overseas’ 5.875% guaranteed notes due 2021, 4.375% guaranteed notes due 2022 and a cash tender offer for Vale S.A.’ 5.625% guaranteed notes due 2042 and repurchased a total of R$9,431 (US$2,730 million). The Company also redeemed all of Vale Overseas’ 4.625% guaranteed notes due 2020 totaling R$1,698 (US$499 million).

 

v) Guarantees

 

As at June 30, 2018 and December 31, 2017, loans and borrowings are secured by property, plant and equipment in the amount of R$868 and R$910, respectively.

 

The securities issued through Vale’s 100%-owned finance subsidiary Vale Overseas Limited are fully and unconditionally guaranteed by Vale.

 

vi) Covenants

 

Some of the Company’s debt agreements with lenders contain financial covenants. The primary financial covenants in those agreements require maintaining certain ratios, such as debt to EBITDA (Earnings before Interest Taxes, Depreciation and Amortization) and interest coverage. The Company has not identified any instances of noncompliance as at June 30, 2018.

 

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17.                     Liabilities related to associates and joint ventures

 

The movements of the provision to comply with the obligations under the agreement related to the dam failure of Samarco Mineração S.A. (“Samarco”), which is a Brazilian joint venture between Vale S.A. and BHP Billiton Brasil Ltda. (“BHPB”), in the six-month periods ended June 30, 2018 and 2017 are as follows:

 

 

 

2018

 

2017

 

Balance at January 01,

 

3,296

 

3,511

 

Payments

 

(431

)

(441

)

Present value valuation

 

159

 

299

 

Provision increase

 

1,476

 

 

Balance at June 30,

 

4,500

 

3,369

 

 

 

 

 

 

 

Current liabilities

 

1,051

 

975

 

Non-current liabilities

 

3,449

 

2,394

 

Liabilities

 

4,500

 

3,369

 

 

During the second quarter of 2018, the Fundação Renova reviewed the estimates for the expenditures required to mitigate and compensate for the impacts of the disruption from Samarco’s tailing dam. As a result of this revision, Vale S.A. recognized an additional provision of R$1,476, which amounts to the present value of Vale’s new estimated secondary responsibility to support the Renova Foundation works and is equivalent to 50% of Samarco’s additional obligations over the next 12 years.

 

In addition to the provision above, Vale S.A. made available in the three and six-month period ended June 30, 2018 the amount of R$71 and R$115, respectively, which was fully used to fund Samarco’s working capital and was recognized in Vale´s income statement as “Impairment and other results in associates and joint ventures”. Vale S.A. intends to make available until December 31, 2018 up to R$204 to support Samarco’s working capital requirements, without any binding obligation to Samarco in this regard. Such amounts will be released by the shareholders, simultaneously and pursuant to the same terms and conditions, subject to the fulfillment of certain milestones.

 

Under Brazilian legislation and the terms of the joint venture agreement, Vale does not have an obligation to provide funding to Samarco. Therefore, Vale’s investment in Samarco was impaired in full and no provision was recognized in relation to the Samarco’s negative reserves.

 

The contingencies related to the Samarco dam failure are disclosed in note 22.

 

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18.                     Financial instruments classification

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Financial assets

 

Amortized
cost

 

At fair value
through OCI

 

At fair value
through
profit or loss

 

Total

 

Amortized
cost

 

At fair value
through
profit or loss

 

Total

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

24,557

 

 

 

24,557

 

14,318

 

 

14,318

 

Financial investments

 

68

 

 

 

68

 

61

 

 

61

 

Derivative financial instruments

 

 

 

484

 

484

 

 

351

 

351

 

Accounts receivable

 

9,680

 

 

(628

)

9,052

 

8,025

 

577

 

8,602

 

Related parties

 

1,298

 

 

 

1,298

 

6,277

 

 

6,277

 

 

 

35,603

 

 

(144

)

35,459

 

28,681

 

928

 

29,609

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

1,368

 

1,368

 

 

1,497

 

1,497

 

Investments in equity securities

 

 

3,689

 

 

3,689

 

 

 

 

Loans

 

593

 

 

 

593

 

498

 

 

498

 

Related parties

 

6,078

 

 

 

6,078

 

8,695

 

 

8,695

 

 

 

6,671

 

3,689

 

1,368

 

11,728

 

9,193

 

1,497

 

10,690

 

Total of financial assets

 

42,274

 

3,689

 

1,224

 

47,187

 

37,874

 

2,425

 

40,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

13,832

 

 

 

13,832

 

13,367

 

 

13,367

 

Derivative financial instruments

 

 

 

967

 

967

 

 

344

 

344

 

Loans and borrowings

 

7,027

 

 

 

7,027

 

5,633

 

 

5,633

 

Related parties

 

2,103

 

 

 

2,103

 

2,916

 

 

2,916

 

 

 

22,962

 

 

967

 

23,929

 

21,916

 

344

 

22,260

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

2,382

 

2,382

 

 

2,269

 

2,269

 

Loans and borrowings

 

62,016

 

 

 

62,016

 

68,759

 

 

68,759

 

Related parties

 

3,713

 

 

 

3,713

 

3,226

 

 

3,226

 

Participative stockholders’ debentures

 

 

 

5,444

 

5,444

 

 

4,080

 

4,080

 

 

 

65,729

 

 

7,826

 

73,555

 

71,985

 

6,349

 

78,334

 

Total of financial liabilities

 

88,691

 

 

8,793

 

97,484

 

93,901

 

6,693

 

100,594

 

 

19.                     Fair value estimate

 

a)        Assets and liabilities measured and recognized at fair value:

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

950

 

902

 

1,852

 

954

 

894

 

1,848

 

Investments in equity securities

 

3,689

 

 

 

3,689

 

 

 

 

Total

 

3,689

 

950

 

902

 

5,541

 

954

 

894

 

1,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

2,679

 

670

 

3,349

 

1,923

 

690

 

2,613

 

Participative stockholders’ debentures

 

 

5,444

 

 

5,444

 

4,080

 

 

4,080

 

Total

 

 

8,123

 

670

 

8,793

 

6,003

 

690

 

6,693

 

 

The Company changed its accounting estimate on the calculation of the participative stockholders’ debentures from January 1, 2018. The Company has replaced on the calculation the assumption of spot price at the reporting date used to the weighted average price traded on the market within the last month of the quarter.

 

There were no transfers between Level 1 and Level 2, or between Level 2 and Level 3 for the six-month period ended in June 30, 2018.

 

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Table of Contents

 

 

The following table presents the changes in Level 3 assets and liabilities for the six-month period ended in June 30, 2018:

 

 

 

Consolidated

 

 

 

Derivative financial instruments

 

 

 

Financial assets

 

Financial liabilities

 

Balance at December 31, 2017

 

894

 

690

 

Gain and losses recognized in income statement

 

8

 

(20

)

Balance at June 30, 2018

 

902

 

670

 

 

Methods and techniques of evaluation

 

Derivative financial instruments

 

Financial instruments are evaluated by calculating their present value through the use of instrument yield curves at the closing dates. The curves and prices used in the calculation for each group of instruments are detailed in the “market curves”.

 

The pricing method used for European options is the Black & Scholes model. In this model, the fair value of the derivative is a function of the volatility in the price of the underlying asset, the exercise price of the option, the interest rate and period to maturity. In the case of options which income is a function of the average price of the underlying asset over the period of the option, the Company uses Turnbull & Wakeman model. In this model, in addition to the factors that influence the option price in the Black-Scholes model, the formation period of the average price is also considered.

 

In the case of swaps, both the present value of the assets and liability are estimated by discounting the cash flow by the interest rate of the currency in which the swap is denominated. The difference between the present value of assets and liability of the swap generates its fair value.

 

For the TJLP swaps, the calculation of the fair value assumes that TJLP is constant, that is the projections of future cash flow in Brazilian Reais are made on the basis of the last TJLP disclosed.

 

Contracts for the purchase or sale of products, inputs and costs of selling with future settlement are priced using the forward yield curves for each product. Typically, these curves are obtained on the stock exchanges where the products are traded, such as the London Metals Exchange (“LME”), the Commodity Exchange (“COMEX”) or other providers of market prices. When there is no price for the desired maturity, Vale uses an interpolation between the available maturities.

 

The fair value for derivatives are within level 3 are measured using discounted cash flows and option model valuation techniques with main unobservable inputs discount rates, stock prices and commodities prices.

 

b)        Fair value of financial instruments not measured at fair value

 

The fair values and carrying amounts of loans and borrowings (net of interest) are as follows:

 

 

 

Consolidated

 

 

 

Balance

 

Fair value

 

Level 1

 

Level 2

 

Financial liabilities

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

 

 

 

 

 

 

Debt principal

 

67,360

 

68,158

 

42,436

 

25,722

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Debt principal

 

72,628

 

76,377

 

49,406

 

26,971

 

 

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

 

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Table of Contents

 

 

20.                     Derivative financial instruments

 

a)        Derivatives effects on statement of financial position

 

 

 

Consolidated

 

 

 

Assets

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

43

 

 

125

 

 

IPCA swap

 

18

 

267

 

30

 

271

 

Eurobonds swap

 

 

94

 

 

89

 

Pré-dolar swap

 

67

 

9

 

73

 

106

 

 

 

128

 

370

 

228

 

466

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

71

 

3

 

73

 

10

 

Bunker oil

 

285

 

 

50

 

 

 

 

356

 

3

 

123

 

10

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

995

 

 

1,021

 

 

 

 

995

 

 

1,021

 

Total

 

484

 

1,368

 

351

 

1,497

 

 

 

 

Consolidated

 

 

 

Liabilities

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Current

 

Non-current

 

Current

 

Non-current

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

746

 

1,373

 

314

 

1,356

 

IPCA swap

 

140

 

194

 

 

136

 

Eurobonds swap

 

19

 

 

13

 

 

Pré-dolar swap

 

35

 

139

 

17

 

79

 

 

 

940

 

1,706

 

344

 

1,571

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

22

 

 

 

 

Bunker oil

 

5

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

676

 

 

698

 

 

 

 

676

 

 

698

 

Total

 

967

 

2,382

 

344

 

2,269

 

 

b)        Effects of derivatives on the income statement and cash flow

 

 

 

Consolidated

 

 

 

Gain (loss) recognized in the income statement

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(824

)

(303

)

(717

)

277

 

IPCA swap

 

(237

)

(60

)

(180

)

16

 

Eurobonds swap

 

(141

)

97

 

(40

)

14

 

Euro forward

 

 

 

 

144

 

Pré-dolar swap

 

(190

)

(42

)

(129

)

33

 

 

 

(1,392

)

(308

)

(1,066

)

484

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

19

 

(11

)

32

 

(11

)

Bunker oil

 

239

 

(53

)

239

 

(290

)

 

 

258

 

(64

)

271

 

(301

)

 

 

 

 

 

 

 

 

 

 

Others

 

33

 

88

 

(21

)

197

 

Total

 

(1,101

)

(284

)

(816

)

380

 

 

34



Table of Contents

 

 

 

 

Consolidated

 

 

 

Financial settlement inflows (outflows)

 

 

 

Three-month period ended June 30,

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Derivatives not designated as hedge accounting

 

 

 

 

 

 

 

 

 

Foreign exchange and interest rate risk

 

 

 

 

 

 

 

 

 

CDI & TJLP vs. US$ fixed and floating rate swap

 

(55

)

5

 

(199

)

(133

)

IPCA swap

 

22

 

 

22

 

 

Eurobonds swap

 

(13

)

 

(13

)

(121

)

Pré-dolar swap

 

52

 

(4

)

49

 

(4

)

 

 

6

 

1

 

(141

)

(258

)

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

35

 

(16

)

73

 

(20

)

Bunker oil

 

(4

)

 

25

 

(75

)

 

 

31

 

(16

)

98

 

(95

)

 

 

 

 

 

 

 

 

 

 

Total

 

37

 

(15

)

(43

)

(353

)

 

The maturity dates of the derivative financial instruments are as follows:

 

 

 

Last maturity dates

 

Currencies and interest rates

 

January 2024

 

Bunker oil

 

September 2018

 

Nickel

 

December 2019

 

Others

 

December 2027

 

 

c) Hedge in foreign operations

 

As at June 30, 2018 the carrying value of the debts designated as instrument hedge of the Company’s investment in foreign operations (Vale International S.A. and Vale International Holding GmbH; hedging objects) are R$15,903 (US$4,124 million) and R$3,777 (EUR750 million), respectively. The foreign exchange loss of R$3,075 (R$2,030, net of taxes), was recognized in the “Cumulative translation adjustments” in stockholders’ equity for the six-month period ended June 30, 2018. This hedge was highly effective throughout the period ended June 30, 2018.

 

Additional information about derivatives financial instruments

In millions of Brazilian reais, except as otherwise stated

 

The risk of the derivatives portfolio is measured using the delta-Normal parametric approach, and considers that the future distribution of the risk factors and its correlations tends to present the same statistic properties verified in the historical data. The value at risk estimate considers a 95% confidence level for a one-business day time horizon.

 

The following tables detail the derivatives positions for Vale and its controlled companies as of June 30, 2018, with the following information: notional amount, fair value including credit risk, gains or losses in the period, value at risk and the fair value breakdown by year of maturity.

 

a)                           Foreign exchange and interest rates derivative positions

 

(i)       Protection programs for the R$ denominated debt instruments

 

In order to reduce cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments denominated in R$ with interest rates linked mainly to CDI, TJLP and IPCA. In those swaps, Vale pays fixed or floating rates in US$ and receives payments in R$ linked to the interest rates of the protected debt instruments.

 

The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to R$. These programs transform into US$ the obligations linked to R$ to achieve a currency offset in the company’s cash flows, by matching its receivables - mainly linked to US$ - with its payables.

 

35



Table of Contents

 

 

 

 

Notional

 

 

 

 

 

Fair value

 

Financial settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Index

 

Average rate

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

2019

 

2020+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(211

)

(108

)

(58

)

27

 

(48

)

(35

)

(128

)

Receivable

 

R$

1,690

 

R$

3,540

 

CDI

 

101.33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

509

 

US$

1,104

 

Fix

 

3.35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(1,642

)

(1,262

)

(132

)

99

 

(229

)

(1,173

)

(240

)

Receivable

 

R$

2,623

 

R$

2,982

 

TJLP +

 

1.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

1,154

 

US$

1,323

 

Fix

 

1.51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ floating rate swap

 

 

 

 

 

 

 

 

 

(223

)

(175

)

(9

)

9

 

(13

)

(210

)

 

Receivable

 

R$

195

 

R$

216

 

TJLP +

 

0.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

115

 

US$

123

 

Libor +

 

-1.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(98

)

80

 

49

 

74

 

(15

)

(4

)

(79

)

Receivable

 

R$

1,118

 

R$

1,158

 

Fix

 

7.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

368

 

US$

385

 

Fix

 

-0.72

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(325

)

(113

)

22

 

28

 

 

(132

)

(193

)

Receivable

 

R$

1,000

 

R$

1,000

 

IPCA +

 

6.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

434

 

US$

434

 

Fix

 

3.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. CDI swap

 

 

 

 

 

 

 

 

 

276

 

280

 

 

1

 

9

 

1

 

266

 

Receivable

 

R$

1,350

 

R$

1,350

 

IPCA +

 

6.62

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

R$

1,350

 

R$

1,350

 

CDI

 

98.58

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii)   Protection program for EUR denominated debt instruments

 

In order to reduce the cash flow volatility, swap transactions were implemented to convert into US$ the cash flows from certain debt instruments issued in Euros by Vale. In those swaps, Vale receives fixed rates in EUR and pays fixed rates in US$.

 

The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt instruments linked to EUR. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to EUR/US$ exchange rate.

 

 

 

Notional

 

 

 

 

 

Fair value

 

Financial settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Index

 

Average rate

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

2019

 

2020+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EUR fixed rate vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

75

 

76

 

(13

)

33

 

 

(17

)

92

 

Receivable

 

500

 

500

 

Fix

 

3.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

613

 

US$

613

 

Fix

 

4.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

b)                           Commodities derivative positions

 

(i)       Bunker Oil purchase cash flows protection program

 

In order to reduce the impact of bunker oil price fluctuation on maritime freight hiring/supply and, consequently, reducing the company’s cash flow volatility, bunker oil hedging transactions were implemented, through options contracts.

 

The derivative transactions were negotiated over-the-counter and the protected item is part of the Vale’s costs linked to bunker oil prices. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to bunker oil prices changes.

 

 

 

Notional (ton)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

2,025,000

 

 

B

 

442

 

254

 

 

5

 

53

 

254

 

Put options

 

2,025,000

 

 

S

 

321

 

(3

)

 

 

1

 

(3

)

Total

 

 

 

 

 

 

 

 

 

251

 

 

5

 

54

 

251

 

 

As at June 30, 2018 and December 31, 2017, includes R$29 and R$49, respectively, of transactions in which the financial settlement occurs subsequently of the closing month.

 

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Table of Contents

 

 

(ii)   Protection programs for base metals raw materials and products

 

In the operational protection program for nickel sales at fixed prices, derivatives transactions were implemented to convert into floating prices the contracts with clients that required a fixed price, in order to keep nickel revenues exposed to nickel price fluctuations. Those operations are usually implemented through the purchase of nickel forwards.

 

In the operational protection program for the purchase of raw materials and products, derivatives transactions were implemented, usually through the sale of nickel and copper forward or futures, in order to reduce the mismatch between the pricing period of purchases (concentrate, cathode, sinter, scrap and others) and the pricing period of the final product sales to the clients.

 

The derivative transactions are negotiated at London Metal Exchange or over-the-counter and the protected item is part of Vale’s revenues and costs linked to nickel and copper prices. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due to nickel and copper prices changes.

 

 

 

Notional (ton)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed prices sales protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

11,374

 

9,621

 

B

 

13,385

 

67

 

80

 

76

 

20

 

44

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials purchase protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

155

 

292

 

S

 

14,182

 

(0.4

)

(1.1

)

(2.5

)

0.3

 

(0.4

)

 

Copper forwards

 

54

 

79

 

S

 

6,894

 

0.1

 

(0.1

)

(0.0

)

0.0

 

0.1

 

 

Total

 

 

 

 

 

 

 

 

 

(0.3

)

(1.2

)

(2.5

)

0.3

 

(0.3

)

 

 

c)                            Freight derivative positions

 

In order to reduce the impact of maritime freight price volatility on the company’s cash flow, freight hedging transactions were implemented, through Forward Freight Agreements (FFAs). The protected item is part of Vale’s costs linked to maritime freight spot prices. The financial settlement inflows/outflows of the FFAs are offset by the protected items’ losses/gains due to freight prices changes.

 

The Forward Freight Agreements (FFAs) are contracts traded over the counter and can be cleared through a Clearing House, in this case subject to margin requirements.

 

 

 

Notional (days)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/day)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Freight forwards

 

75

 

0

 

B

 

20,170

 

0

 

 

(0

)

0.4

 

0

 

 

d)                           Wheaton Precious Metals Corp. warrants

 

The company owns warrants of Wheaton Precious Metals Corp. (WPM), a Canadian company with stocks negotiated in Toronto Stock Exchange and New York Stock Exchange. Such warrants configure American call options and were received as part of the payment regarding the sale of part of gold payable flows produced as a sub product from Salobo copper mine and some nickel mines in Sudbury.

 

 

 

Notional (quantity)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/share)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

10,000,000

 

10,000,000

 

B

 

44

 

93

 

128

 

 

10

 

93

 

 

e)                            Debentures convertible into shares of Valor da Logística Integrada (“VLI”)

 

The company has debentures in which lenders have the option to convert the outstanding debt into a specified quantity of shares of VLI owned by the company.

 

 

 

Notional (quantity)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/share)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion options

 

140,239

 

140,239

 

S

 

8,549

 

(208

)

(188

)

 

12

 

(208

)

 

37



Table of Contents

 

 

f)                             Options related to Minerações Brasileiras Reunidas S.A. (“MBR”) shares

 

The company entered into a stock sale and purchase agreement that has options related to MBR shares. Mainly, the company has the right to buy back this non-controlling interest in the subsidiary. Moreover, under certain restrict and contingent conditions, which are beyond the buyer’s control, such as illegality due to changes in the law, the contract has a clause that gives the buyer the right to sell back its stake to the company. It this case, the company could settle through cash or shares.

 

 

 

Notional (quantity, in millions)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/ação)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

2,139

 

2,139

 

B/S

 

1.6

 

839

 

831

 

 

51

 

839

 

 

g)                           Embedded derivatives in contracts

 

The Company has some nickel concentrate and raw materials purchase agreements in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.

 

 

 

Notional (ton)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel Forward

 

4,584

 

2,627

 

S

 

14,281

 

(14

)

3

 

 

 

8

 

(14

)

Copper Forward

 

2,043

 

2,718

 

S

 

6,866

 

(0.7

)

0

 

 

 

1

 

(0.7

)

Total

 

 

 

 

 

 

 

 

 

(15

)

3

 

 

9

 

(15

)

 

The Company has also a natural gas purchase agreement in which there´s a clause that defines that a premium can be charged if the Company’s pellet sales prices trade above a pre-defined level. This clause is considered an embedded derivative.

 

 

 

Notional (volume/month)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018

 

2019+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

746,667

 

746,667

 

S

 

233

 

(6

)

(6

)

 

4

 

(0

)

(6

)

 

In August 2014 the Company sold part of its stake in Valor da Logística Integrada (“VLI”) to an investment fund managed by Brookfield Asset Management (“Brookfield”). The sales contract includes a clause that establishes, under certain conditions, a minimum return guarantee on Brookfield’s investment. This clause is considered an embedded derivative, with payoff equivalent to that of a put option.

 

 

 

Notional (quantity)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

June 30, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/share)

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

June 30, 2018

 

2018+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put option

 

1,105,070,863

 

1,105,070,863

 

S

 

3.86

 

(399

)

(439

)

 

34

 

(399

)

 

For sensitivity analysis of derivative financial instruments, Financial counterparties’ rating and market curves please see note 27.

 

38



Table of Contents

 

 

21.                              Provisions

 

 

 

Consolidated

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

December 31, 2017

 

Payroll, related charges and other remunerations (i)

 

2,674

 

3,641

 

 

 

Onerous contracts

 

443

 

337

 

1,164

 

1,203

 

Environment Restoration

 

89

 

99

 

326

 

262

 

Asset retirement obligations

 

279

 

289

 

11,272

 

10,191

 

Provisions for litigation (note 22)

 

 

 

5,143

 

4,873

 

Employee postretirement obligations (note 23)

 

390

 

244

 

7,412

 

6,714

 

Provisions

 

3,875

 

4,610

 

25,317

 

23,243

 

 


(i) Change mainly due to payment of profit sharing program.

 

22.                     Litigation

 

a)        Provision for litigation

 

Vale is party to labor, civil, tax and other ongoing lawsuits, at administrative and court levels. Provisions for losses resulting from lawsuits are estimated and updated by the Company, based on analysis from the Company’s legal consultants.

 

Changes in provision for litigation are as follows:

 

 

 

Consolidated

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at December 31, 2017

 

2,483

 

432

 

1,924

 

34

 

4,873

 

Additions (reversals)

 

23

 

51

 

180

 

(10

)

244

 

Payments

 

(1

)

(60

)

(131

)

(5

)

(197

)

Additions - discontinued operations

 

56

 

3

 

59

 

1

 

119

 

Indexation and interest

 

44

 

47

 

(7

)

 

84

 

Translation adjustment

 

24

 

(4

)

 

 

20

 

Balance at June 30, 2018

 

2,629

 

469

 

2,025

 

20

 

5,143

 

 

 

 

Consolidated

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at December 31, 2016

 

695

 

272

 

1,742

 

25

 

2,734

 

Additions (reversals)

 

(35

)

(22

)

145

 

5

 

93

 

Payments

 

(277

)

(21

)

(150

)

 

(448

)

Indexation and interest

 

(3

)

31

 

40

 

(5

)

63

 

Translation adjustment

 

15

 

 

 

 

15

 

Balance at June 30, 2017

 

395

 

260

 

1,777

 

25

 

2,457

 

 

b)        Contingent liabilities

 

Contingent liabilities are administrative and judicial claims, with expectation of loss classified as possible, and for which the recognition of a provision is not considered necessary by the Company, based on legal advice. The contingent liabilities are as follows:

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Tax litigation

 

33,194

 

29,244

 

Civil litigation

 

6,616

 

5,371

 

Labor litigation

 

6,719

 

6,455

 

Environmental litigation

 

7,620

 

7,242

 

Total

 

54,149

 

48,312

 

 

i - Tax litigation - Our most significant tax-related contingent liabilities result from disputes related to (i) the deductibility of our payments of social security contributions on the net income (“CSLL”) from our taxable income, (ii) challenges of certain tax credits we deducted from our PIS and COFINS payments, (iii) assessments of CFEM (“royalties”), and (iv) charges of value-added tax on services and circulation of goods (“ICMS”), especially relating to certain tax credits we claimed from the sale and transmission of energy, ICMS charges to anticipate the payment in the entrance of goods to Pará State and ICMS/penalty charges on our own transportation. The changes reported in the period resulted, mainly, from new proceedings related to PIS, COFINS, CFEM, ICMS e ISS and the application interest and inflation adjustments to the disputed amounts.

 

39



Table of Contents

 

 

ii - Civil litigation - Most of those claims have been filed by suppliers for indemnification under construction contracts, primarily relating to certain alleged damages, payments and contractual penalties. A number of other claims related to contractual disputes regarding inflation index. The changes reported in the period resulted, mainly from review the process related to commercial divergences of supply contracts.

 

iii - Labor litigation - Represents individual claims by employees and service providers, primarily involving demands for additional compensation for overtime work, time spent commuting or health and safety conditions; and the Brazilian federal social security administration (“INSS”) regarding contributions on compensation programs based on profits.

 

iv - Environmental litigation - The most significant claims concern alleged procedural deficiencies in licensing processes, non-compliance with existing environmental licenses or damage to the environment.

 

c)         Judicial deposits

 

In addition to the provisions and contingent liabilities, the Company is required by law to make judicial deposits to secure a potential adverse outcome of certain lawsuits. These court-ordered deposits are monetarily adjusted and reported as non-current assets until a judicial decision to draw the deposit occurs.

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

Tax litigation

 

4,074

 

3,971

 

Civil litigation

 

155

 

199

 

Labor litigation

 

2,448

 

2,359

 

Environmental litigation

 

49

 

42

 

Total

 

6,726

 

6,571

 

 

d) Contingencies related to Samarco accident

 

(i) Public civil claim filed by the Federal Government and others

 

The federal government, the two Brazilian states affected by the failure (Espirito Santo and Minas Gerais) and other governmental authorities have initiated a public civil lawsuit against Samarco and its shareholders, Vale S.A. and BHPB, with an estimated value indicated by the plaintiffs of R$20.2 billion.

 

The Framework Agreement signed in March 2016, was ratified by the Regional Federal Court (“TRF”) in May 2016. This ratification was suspended by the Superior Court of Justice (“STJ”) in June 2016 and resulted in the restoration of the public civil action, and maintained other measures, such as: (a) the prohibition of the defendants from transferring or conveying any of their interest in its Brazilian iron ore concessions, without, however, limiting their production and commercial activities and; (b) the order of the deposit with the court of R$1.2 billion by January 2017, which was provisionally replaced by the guarantees provided for under the agreements with Federal Prosecution Office (“MPF”), as detailed in the item (ii) below. This public civil action is currently suspended by the abovementioned agreement with the MPF.

 

On June 2018, the parties in the action jointly with the Minas Gerais State, Espírito Santo State and Federal Public Prosecution Offices along with the Federal and Minas Gerais and Espírito Santo States Public Defenders Offices, entered into a new agreement to settle the case, which was submitted to the 12th Federal Lower Court and if and when homologated by the judge, it will terminate the action.

 

(ii) Public civil action filed by Federal Prosecution Office

 

On May 3, 2016, the Federal Prosecution Office (MPF) filed a public civil action against Samarco and its shareholders and presented several claims, including: (i) the adoption of measures for mitigating the social, economic and environmental impacts resulting from the dam failure and other emergency measures; (ii) the payment of compensation to the community; and (iii) payments for the collective moral damage. The action value indicated by the MPF is R$155 billion.

 

In January 2017 Samarco, Vale S.A. and BHPB entered into two preliminary agreements with the MPF. The first agreement (“First Agreement”) aims to outline the process and timeline for negotiations of a Final Agreement (“Final Agreement”), initially expected to occur by June 30, 2017, which was, nevertheless, extended by the parties to late June 2018.

 

This First Agreement establishes a timeline and actions to set the ground for conciliation of two public civil actions in the amounts of R$20.2 billion and R$155 billion, mentioned above, which are currently suspended.

 

40



Table of Contents

 

 

In addition, the First Agreement provides for: (a) the appointment of experts to give support to the Federal Prosecutors and paid for by the companies to conduct a diagnosis and monitor the progress of the programs under the Framework Agreement, and (b) holding at public hearings and the engagement of technical assistance to the affected people, in order to allow the communities to take part in the definition of the content of the Final Agreement.

 

Samarco, Vale S.A. and BHPB has agreed to provide a guarantee for fulfillment of the obligations regarding the financing and payment of the socio-environmental and socio-economic remediation programs resulting from the Fundão dam failure, pursuant to the two public civil actions, until the signing of the Final Agreement, amounting to R$2.2 billion, of which (i) R$100 in financial investments; (ii) R$1.3 billion in insurance bonds; and (iii) R$800 in assets of Samarco. If, by the deadline negotiated by the parties, the negotiations have not been completed, the Federal Prosecutor’s Office may require that the Court re-institute the order for the deposit of R$1.2 billion in relation to the R$20.2 billion public civil action and R$7.7 billion related R$155 billion, mentioned above, which are currently suspended.

 

On March 16, 2017, the 12th Judicial Federal Court of Belo Horizonte partially ratified the First Agreement, which decision includes: (i) ratification of the engagement of experts to perform a socio-environmental impact assessment and assessment of programs under the Framework Agreement and a period for the companies to engage an expert to perform the socio-economic impact assessment; (ii) the consolidation and suspension of related claims aiming to avoid contradictory or conflicting decisions and to establish a unified judicial procedure in order for the parties to be able to reach a final agreement; (iii) accepted the guarantees proposed by Samarco and its shareholders under the Preliminary Agreement on a temporary basis.

 

In addition, the Second Agreement (“Second Agreement”) was signed on January 19, 2017, which establishes a timetable to make funds available to remediate the social, economic and environmental damages caused by the Fundão dam failure in the municipalities of Barra Longa, Rio Doce, Santa Cruz do Escalvado and Ponte Nova, amounting to R$200. The 12th Judicial Federal Court of Belo Horizonte ratified this Second Agreement.

 

Parties are still negotiating an agreement regarding the choice of the expert to perform the socio-economic impact assessment. In this regard, on November 16, 2017, they signed an addendum to the First Agreement, in which the parties defined matters related to the socio-economic impact assessment, its institutional structure and the respective experts, which, in the period of 90 days from the signing of the addendum, shall present their technical and commercial proposals. As the deadline already expired the proposals are being negotiated for service agreements.

 

As mentioned before, on June 2018, the agreement on the Public civil action in the amount of R$20.2 billion was ratified, in which was submitted to the 12th Federal Lower Court for confirmation. The claims of this public civil action which are contained in this new Agreement shall be dismissed with prejudice by the settlement, while the remaining claims will be suspended until the result of the technical analysis by the experts appointed out by the Prosecutors testing the satisfaction of the Programs or the proposal of the potential renegotiation of these programs.

 

(iii) U.S. Securities class action suits

 

Related to the Vale´s American Depositary Receipts

 

Vale S.A. and certain of its officers were named as defendants in securities class action suits in the Federal Court in New York brought by holders of Vale’s American Depositary Receipts under U.S. federal securities laws. The lawsuits allege that Vale S.A. made false and misleading statements or did not make disclosures concerning the risks and dangers of the operations of Samarco’s Fundão dam and the adequacy of related programs and procedures. The plaintiffs have not specified an amount of alleged damages or indemnities in these actions.

 

On March 23, 2017 the judge issued a decision rejecting a significant portion of the claims against Vale S.A. and the individual defendants, and determining the prosecution of the action with respect to more limited claims. The portion of plaintiffs’ case that remains is related to certain statements about procedures, policies and risk mitigation plans contained in Vale S.A.’s sustainability reports in 2013 and 2014, and certain statements regarding to the responsibility of Vale S.A. for the Fundão dam failure made in a conference call in November 2015.

 

This lawsuit is currently ongoing under discovery with the gathering of documents to be provided to the plaintiffs. In addition, depositions of some custodians indicated by the parties should take place in the next few months.

 

Vale S.A. continues to contest the outstanding points related to this lawsuit.

 

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Related to the Samarco bonds

 

In March 2017, holders of bonds issued by Samarco filed a class action suit in the Federal Court in New York against Samarco, Vale S.A. and BHPB under U.S. federal securities laws demanding for indemnification for alleged violation of U.S. federal securities laws. The plaintiffs allege that false and misleading statements were made or disclosures omitted concerning the risks and dangers of the operations of Samarco’s Fundão dam and the adequacy of related programs and procedures. It is alleged that with the Fundão dam collapse, the securities have dramatically decreased, in order that the investors who have purchased such securities in a misleading way should be compensated, without, however, specifying an amount for the alleged damages or indemnities in this action.

 

In June 2017 the defendants presented a joint motion to dismiss the claims requested by the plaintiffs. In March 2018, the Judge issued an order dismissing defendant’s motion to dismiss without prejudice and ordering leading plaintiff to submit a final amended complaint, which was presented by the plaintiffs on March 21, 2018. As a result, a second joint motion to dismiss the claims was filed by the defendants a new decision regarding the merits of the motion to dismiss is expected to be issued by the Judge on the following months.

 

Vale S.A. continues to contest this lawsuit.

 

(iv) Criminal lawsuit

 

On October 20, 2016, the MPF brought a criminal lawsuit in the Brazilian Federal Justice Court against Vale S.A., BHPB, Samarco, VogBr Recursos Hídricos e Geotecnia Ltda. and 22 individuals for alleged crimes against the environment, urban planning and cultural heritage, flooding, landslide, as well as for alleged crimes against the victims of the Fundão dam failure.

 

In November 2016, the Federal Court of Ponte Nova received the complaint and began the criminal action, with the first of several witnesses filed in June, 2018.

 

(v) Other lawsuits

 

In addition, Samarco and its shareholders were named and have been still named as defendants in several other lawsuits brought by individuals, corporations, governmental entities or public prosecutor seeking personal and property damages.

 

After the ratification by the judge of the 12th Federal Lower Court of the new Agreement with public authorities and public prosecutors, some public civil actions shall be extinguished.

 

Given the status of these lawsuits, it is not possible at this time to provide a range of possible outcomes or a reliable estimates of potential exposures for Vale S.A. Consequently, no contingent liability has been quantified and no provision was recognized for lawsuits related to Samarco´s dam failure.

 

e) Other

 

In 2015, the Company filed an enforceable action in the amount of R$524 referring to the final court decision in favor of the Company of the accrued interest of compulsory deposits from 1987 to 1993.Currently it is not possible to estimate the economic benefit inflow as the counterparty can appeal on the calculation. Consequently, the asset was not recognized in the financial statements.

 

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23.                               Employee postretirement obligations

 

Reconciliation of net liabilities recognized in the statement of financial position

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Overfunded
pension
plans

 

Underfunded
pension
plans

 

Other
benefits

 

Total

 

Overfunded
pension
plans

 

Underfunded
pension
plans

 

Other
benefits

 

Total

 

Amount recognized in the statement of financial position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of actuarial liabilities

 

(11,182

)

(16,334

)

(5,156

)

(32,672

)

(11,239

)

(14,789

)

(4,661

)

(30,689

)

Fair value of assets

 

15,739

 

13,688

 

 

29,427

 

15,972

 

12,492

 

 

28,464

 

Effect of the asset ceiling

 

(4,557

)

 

 

(4,557

)

(4,733

)

 

 

(4,733

)

Liabilities

 

 

(2,646

)

(5,156

)

(7,802

)

 

(2,297

)

(4,661

)

(6,958

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

(203

)

(187

)

(390

)

 

(54

)

(190

)

(244

)

Non-current liabilities

 

 

(2,443

)

(4,969

)

(7,412

)

 

(2,243

)

(4,471

)

(6,714

)

Liabilities

 

 

(2,646

)

(5,156

)

(7,802

)

 

(2,297

)

(4,661

)

(6,958

)

 

24.                     Stockholders’ equity

 

a) Share capital

 

As at June 30, 2018, the share capital was R$77,300 corresponding to 5,284,474,782 shares issued and fully paid without par value.

 

 

 

June 30, 2018

 

Stockholders

 

ON

 

PNE

 

Total

 

Litel Participações S.A. and Litela Participações S.A.

 

1,108,483,410

 

 

1,108,483,410

 

BNDES Participações S.A.

 

401,457,757

 

 

401,457,757

 

Bradespar S.A.

 

332,965,266

 

 

332,965,266

 

Mitsui & Co., Ltd

 

286,347,055

 

 

286,347,055

 

Foreign investors - ADRs

 

1,272,455,795

 

 

1,272,455,795

 

Foreign institutional investors in local market

 

1,177,545,592

 

 

1,177,545,592

 

FMP - FGTS

 

57,463,205

 

 

57,463,205

 

PIBB - Fund

 

2,762,968

 

 

2,762,968

 

Institutional investors

 

271,253,464

 

 

271,253,464

 

Retail investors in Brazil

 

286,697,569

 

 

286,697,569

 

Brazilian Government (Golden Share)

 

 

12

 

12

 

Outstanding shares

 

5,197,432,081

 

12

 

5,197,432,093

 

Shares in treasury

 

87,042,689

 

 

87,042,689

 

Total issued shares

 

5,284,474,770

 

12

 

5,284,474,782

 

 

 

 

 

 

 

 

 

Share capital per class of shares (in millions)

 

77,300

 

 

77,300

 

 

 

 

 

 

 

 

 

Total authorized shares

 

7,000,000,000

 

 

7,000,000,000

 

 

b) Share buyback program

 

On July 25, 2018 (subsequent event), the Board of Directors approved a share buyback program for Vale’s common share which will be limited to a maximum of 80,000,000 common shares, and their respective ADSs, and up to US$1 billion (R$3,746). The program will be carried out over a period of up to 12-month period and the repurchased shares will be cancelled after the expiration of the program and/or alienated through the executive compensation programs. The shares will be acquired in the stock market based on regular trading conditions.

 

c) Remuneration to the Company’s stockholders

 

On July 25, 2018 (subsequent event), the Board of Directors approved the payment of the stockholders’ remuneration in the amount of R$7,694 (R$1.480361544 per share), R$6,801 based on the interest on capital and R$893 based on dividends. This payment is due to the new policy of stockholders’ remuneration of the Company, approved in March 2018, which provides for a semi-annual payment of 30% of Adjusted LAJIDA (EBITDA) from continuing operations less sustaining investments. This amount will be reduced from the minimum mandatory remuneration for the year ended 2018 and deducted from the profit reserve, if necessary.

 

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25.                     Related parties

 

The Company’s related parties are subsidiaries, joint ventures, associates, shareholders and its related entities and key management personnel of the Company. Transactions between the parent company and its subsidiaries are eliminated on consolidation and are not disclosed in this note.

 

Related party transactions were made by the Company on terms equivalent to those that prevail in arm´s-length transactions, with respect to price and market conditions that are no less favorable to the Company than those arranged with third parties.

 

Purchases, accounts receivable and other assets, and accounts payable and other liabilities relates largely to amounts charged by joint ventures and associates related to the pelletizing plants operational lease and railway transportation services.

 

Information about related party transactions and effects on the interim financial statements is set out below:

 

a)        Transactions with related parties

 

 

 

Consolidated

 

 

 

Three-month period ended June 30,

 

 

 

2018

 

2017

 

 

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Total

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Net operating revenue

 

256

 

279

 

189

 

724

 

192

 

261

 

113

 

22

 

588

 

Cost and operating expenses

 

(1,834

)

(14

)

 

(1,848

)

(1,596

)

(22

)

(21

)

(3

)

(1,642

)

Financial result

 

226

 

(1

)

(335

)

(110

)

82

 

(1

)

(750

)

(5

)

(674

)

 

 

 

Consolidated

 

 

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

 

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Total

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Net operating revenue

 

594

 

531

 

346

 

1,471

 

599

 

517

 

206

 

44

 

1,366

 

Cost and operating expenses

 

(3,469

)

(81

)

 

(3,550

)

(2,631

)

(49

)

(38

)

(8

)

(2,726

)

Financial result

 

355

 

 

(506

)

(151

)

43

 

(1

)

(1,017

)

(31

)

(1,006

)

 

Net operating revenue relates to sale of iron ore to the steelmakers and right to use capacity on railroads. Cost and operating expenses mostly relates to the operational leases of the pelletizing plants.

 

b)        Outstanding balances with related parties

 

 

 

Consolidated

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

5,201

 

 

5,201

 

 

 

2,716

 

 

2,716

 

Accounts receivable

 

255

 

198

 

18

 

76

 

547

 

242

 

125

 

10

 

57

 

434

 

Dividends receivable

 

354

 

26

 

 

 

380

 

371

 

48

 

 

 

419

 

Loans

 

7,376

 

 

 

 

7,376

 

14,972

 

 

 

 

14,972

 

Derivatives financial instruments

 

 

 

924

 

 

924

 

 

 

944

 

 

944

 

Other assets

 

63

 

 

 

 

63

 

57

 

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplier and contractors

 

1,736

 

80

 

 

49

 

1,865

 

636

 

67

 

667

 

50

 

1,420

 

Loans

 

930

 

4,886

 

11,681

 

 

17,497

 

2,023

 

4,119

 

14,984

 

 

21,126

 

Derivatives financial instruments

 

 

 

411

 

 

411

 

 

 

361

 

 

361

 

Other liabilities

 

 

232

 

 

 

232

 

 

 

53

 

 

53

 

 

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Table of Contents

 

 

Major stockholders

 

Refers to regular financial instruments with large financial institutions of which the stockholders are part of the controlling “shareholders’ agreement”.

 

Coal segment transactions

 

In March 2018, Nacala BV, a joint venture between Vale and Mitsui on the Nacala’s logistic corridor, closed the project financing and repaid a portion of the shareholders loans from Vale, in the amount of R$8,434 (US$2,572 million). The outstanding receivable of R$7,376 carries interest at 7.44% p.a. The Company has issued a financial guarantee in connection with the Project Finance of Nacala, in the proportion equivalent to its share in the Concessionaires (50%), and the fair value of this instrument is R$77 as at June 30, 2018.

 

The loan from related parties mainly relates to the loan from Pangea Emirates Ltd, part of the group of shareholders which owns 15% interest on Vale Moçambique, in the amount of R$4,627 (R$3,856 as at December 31, 2017), which carries interest at 6.54% p.a.

 

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

 

a)        Investments

 

 

 

Parent company

 

 

 

2018

 

2017

 

Balance at January 1st,

 

117,387

 

107,539

 

Additions/Capitalizations

 

882

 

966

 

Translation adjustment

 

14,118

 

2,326

 

Equity results in income statement

 

4,023

 

1,758

 

Equity results in statement of comprehensive income

 

(20

)

(936

)

Equity results in statement of non controlling

 

 

(329

)

Dividends declared

 

(1,672

)

(1,586

)

Others (i)

 

3,981

 

155

 

Balance at June 30,

 

138,699

 

109,893

 

 


(i) Includes assets held for sale (Vale Fertilizantes) that were indirectly sold by the Parent Company.

 

b)        Intangibles

 

 

 

Parent company

 

 

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2017

 

12,773

 

111

 

587

 

13,471

 

Additions

 

2,151

 

 

13

 

2,164

 

Disposals

 

(32

)

 

 

(32

)

Amortization

 

(221

)

(3

)

(178

)

(402

)

Balance at June 30, 2018

 

14,671

 

108

 

422

 

15,201

 

Cost

 

18,292

 

223

 

4,056

 

22,571

 

Accumulated amortization

 

(3,621

)

(115

)

(3,634

)

(7,370

)

Balance at June 30, 2018

 

14,671

 

108

 

422

 

15,201

 

 

 

 

Parent company

 

 

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2016

 

10,278

 

118

 

918

 

11,314

 

Additions

 

1,585

 

 

57

 

1,642

 

Disposals

 

(7

)

 

 

(7

)

Amortization

 

(175

)

(4

)

(204

)

(383

)

Balance at June 30, 2017

 

11,681

 

114

 

771

 

12,566

 

Cost

 

15,178

 

223

 

4,098

 

19,499

 

Accumulated amortization

 

(3,497

)

(109

)

(3,327

)

(6,933

)

Balance at June 30, 2017

 

11,681

 

114

 

771

 

12,566

 

 

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c)         Property, plant and equipment

 

 

 

Parent company

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2017

 

1,739

 

25,315

 

27,204

 

9,716

 

5,367

 

18,205

 

15,432

 

102,978

 

Additions (i)

 

 

 

 

 

 

 

1,174

 

1,174

 

Disposals

 

 

(1

)

(125

)

(32

)

 

(28

)

(15

)

(201

)

Assets retirement obligation

 

 

 

 

 

30

 

 

 

30

 

Depreciation, amortization and depletion

 

 

(406

)

(602

)

(631

)

(139

)

(868

)

 

(2,646

)

Transfers

 

22

 

1,143

 

3,370

 

1,280

 

622

 

2,110

 

(8,547

)

 

Balance at June 30, 2018

 

1,761

 

26,051

 

29,847

 

10,333

 

5,880

 

19,419

 

8,044

 

101,335

 

Cost

 

1,761

 

31,634

 

36,991

 

17,604

 

7,770

 

29,690

 

8,044

 

133,494

 

Accumulated depreciation

 

 

(5,583

)

(7,144

)

(7,271

)

(1,890

)

(10,271

)

 

(32,159

)

Balance at June 30, 2018

 

1,761

 

26,051

 

29,847

 

10,333

 

5,880

 

19,419

 

8,044

 

101,335

 

 

 

 

Parent company

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2016

 

1,684

 

20,945

 

20,416

 

8,479

 

4,122

 

16,499

 

29,911

 

102,056

 

Additions (i)

 

 

 

 

 

 

 

2,692

 

2,692

 

Disposals

 

(1

)

 

(21

)

(16

)

 

(6

)

(31

)

(75

)

Assets retirement obligation

 

 

 

 

 

14

 

 

 

14

 

Depreciation, amortization and depletion

 

 

(364

)

(531

)

(572

)

(135

)

(767

)

 

(2,369

)

Transfers

 

49

 

3,188

 

4,390

 

1,313

 

1,483

 

2,011

 

(12,434

)

 

Balance at June 30, 2017

 

1,732

 

23,769

 

24,254

 

9,204

 

5,484

 

17,737

 

20,138

 

102,318

 

Cost

 

1,732

 

27,977

 

31,063

 

15,478

 

7,073

 

26,617

 

20,138

 

130,078

 

Accumulated depreciation

 

 

(4,208

)

(6,809

)

(6,274

)

(1,589

)

(8,880

)

 

(27,760

)

Balance at June 30, 2017

 

1,732

 

23,769

 

24,254

 

9,204

 

5,484

 

17,737

 

20,138

 

102,318

 

 


(i) Includes capitalized borrowing costs.

 

d)        Loans and borrowings

 

 

 

Parent company

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

December 31, 2017

 

Debt contracts in the international markets

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

US$

 

2,037

 

708

 

8,474

 

8,410

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

US$

 

 

 

2,007

 

4,962

 

EUR

 

 

 

3,377

 

2,977

 

Accrued charges

 

207

 

298

 

 

 

 

 

2,244

 

1,006

 

13,858

 

16,349

 

Debt contracts in Brazil

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

R$, indexed to TJLP, TR, IPCA, IGP-M and CDI

 

1,185

 

1,214

 

8,622

 

9,781

 

Basket of currencies and US$ indexed to LIBOR

 

1,186

 

1,121

 

2,196

 

2,341

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

R$

 

190

 

190

 

400

 

495

 

Accrued charges

 

850

 

847

 

 

 

 

 

3,411

 

3,372

 

11,218

 

12,617

 

 

 

5,655

 

4,378

 

25,076

 

28,966

 

 

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

 

 

 

Parent company

 

 

 

Debt principal

 

2018

 

1,567

 

2019

 

4,170

 

2020

 

5,491

 

2021

 

3,982

 

Between 2022 and 2026

 

12,073

 

2027 onwards

 

2,391

 

 

 

29,674

 

 

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e)         Provisions

 

 

 

Parent company

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

June 30, 2018

 

December 31, 2017

 

June 30, 2018

 

December 31, 2017

 

Payroll, related charges and other remunerations

 

1,747

 

2,541

 

 

 

Environment Restoration

 

61

 

80

 

154

 

106

 

Asset retirement obligations

 

199

 

210

 

1,959

 

1,793

 

Provisions for litigation

 

 

 

4,463

 

4,219

 

Employee postretirement obligations

 

196

 

73

 

1,222

 

782

 

Provisions

 

2,203

 

2,904

 

7,798

 

6,900

 

 

f)          Provisions for litigation

 

 

 

Parent company

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at December 31, 2017

 

2,117

 

308

 

1,770

 

24

 

4,219

 

Additions (Reversals)

 

4

 

32

 

169

 

(10

)

195

 

Payments

 

(5

)

(7

)

(114

)

 

(126

)

Additions of disposals of subsidiaries

 

56

 

3

 

59

 

1

 

119

 

Indexation and interest

 

43

 

26

 

(14

)

1

 

56

 

Balance at June 30, 2018

 

2,215

 

362

 

1,870

 

16

 

4,463

 

 

 

 

Parent company

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental
litigation

 

Total of litigation
provision

 

Balance at December 31, 2016

 

53

 

247

 

1,621

 

23

 

1,944

 

Additions (Reversals)

 

1

 

(28

)

139

 

5

 

117

 

Payments

 

(6

)

(19

)

(148

)

(1

)

(174

)

Indexation and interest

 

3

 

31

 

35

 

(5

)

64

 

Balance at June 30, 2017

 

51

 

231

 

1,647

 

22

 

1,951

 

 

g)        Contingent liabilities

 

 

 

Parent company

 

 

 

June 30, 2018

 

December 31, 2017

 

Tax litigation

 

30,534

 

26,510

 

Civil litigation

 

5,123

 

3,957

 

Labor litigation

 

6,394

 

6,118

 

Environmental litigation

 

7,423

 

7,058

 

Total

 

49,474

 

43,643

 

 

h)        Income taxes

 

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

 

 

 

Parent company

 

 

 

Six-month period ended June 30,

 

 

 

2018

 

2017

 

Income before income taxes

 

3,558

 

10,586

 

Income taxes at statutory rates - 34%

 

(1,210

)

(3,599

)

Adjustments that affect the basis of taxes:

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

1,588

 

793

 

Tax incentives

 

436

 

524

 

Equity results

 

1,366

 

598

 

Others

 

(10

)

(293

)

Income taxes

 

2,170

 

(1,977

)

 

47



Table of Contents

 

 

 

27.                              Additional information about derivatives financial instruments

 

a) Sensitivity analysis of derivative financial instruments.

 

The following tables present the potential value of the instruments given hypothetical stress scenarios for the main market risk factors that impact the derivatives positions. The scenarios were defined as follows:

 

·        Probable: the probable scenario was based on the estimated risk variables that were used on pricing the derivative instruments as at June 30, 2018

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

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

 

Instrument

 

Instrument’s main risk events

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

CDI vs. US$ fixed rate swap

 

R$depreciation

 

(211

)

(707

)

(1,203

)

 

 

US$interest rate inside Brazil decrease

 

(211

)

(232

)

(254

)

 

 

Brazilian interest rate increase

 

(211

)

(211

)

(211

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ fixed rate swap

 

R$depreciation

 

(1,642

)

(2,715

)

(3,788

)

 

 

US$interest rate inside Brazil decrease

 

(1,642

)

(1,696

)

(1,752

)

 

 

Brazilian interest rate increase

 

(1,642

)

(1,698

)

(1,752

)

 

 

TJLP interest rate decrease

 

(1,642

)

(1,689

)

(1,738

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ floating rate swap

 

R$depreciation

 

(223

)

(330

)

(436

)

 

 

US$interest rate inside Brazil decrease

 

(223

)

(229

)

(236

)

 

 

Brazilian interest rate increase

 

(223

)

(228

)

(232

)

 

 

TJLP interest rate decrease

 

(223

)

(227

)

(231

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

R$depreciation

 

(98

)

(388

)

(677

)

 

 

US$interest rate inside Brazil decrease

 

(98

)

(145

)

(198

)

 

 

Brazilian interest rate increase

 

(98

)

(176

)

(245

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. US$ fixed rate swap

 

R$depreciation

 

(325

)

(752

)

(1,178

)

 

 

US$interest rate inside Brazil decrease

 

(325

)

(347

)

(370

)

 

 

Brazilian interest rate increase

 

(325

)

(367

)

(407

)

 

 

IPCA index decrease

 

(325

)

(348

)

(371

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. CDI swap

 

Brazilian interest rate increase

 

276

 

182

 

96

 

 

 

IPCA index decrease

 

276

 

227

 

179

 

Protected item: R$ denominated debt linked to IPCA

 

IPCA index decrease

 

n.a.

 

(227

)

(179

)

 

 

 

 

 

 

 

 

 

 

EUR fixed rate vs. US$ fixed rate swap

 

EUR depreciation

 

75

 

(582

)

(1,240

)

 

 

Euribor increase

 

75

 

49

 

24

 

 

 

US$Libor decrease

 

75

 

1

 

(79

)

Protected item: EUR denominated debt

 

EUR depreciation

 

n.a.

 

582

 

1,240

 

 

48



Table of Contents

 

 

 

Instrument

 

Instrument’s main risk events

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil protection

 

 

 

 

 

 

 

 

 

Options

 

Bunker Oil price decrease

 

251

 

(102

)

(721

)

Protected item: Part of costs linked to bunker oil prices

 

Bunker Oil price decrease

 

n.a.

 

102

 

721

 

 

 

 

 

 

 

 

 

 

 

Maritime Freight protection

 

 

 

 

 

 

 

 

 

Forwards

 

Freight price decrease

 

0

 

(1

)

(3

)

Protected item: Part of costs linked to maritime freight prices

 

Freight price decrease

 

n.a.

 

1

 

3

 

 

 

 

 

 

 

 

 

 

 

Nickel sales fixed price protection

 

 

 

 

 

 

 

 

 

Forwards

 

Nickel price decrease

 

67

 

(93

)

(253

)

Protected item: Part of nickel revenues with fixed prices

 

Nickel price fluctuation

 

n.a.

 

93

 

253

 

 

 

 

 

 

 

 

 

 

 

Purchase protection program

 

 

 

 

 

 

 

 

 

Nickel forwards

 

Nickel price increase

 

(0

)

(3

)

(5

)

Protected item: Part of costs linked to nickel prices

 

Nickel price increase

 

n.a.

 

3

 

5

 

 

 

 

 

 

 

 

 

 

 

Copper forwards

 

Copper price increase

 

0.1

 

(0.3

)

(0.6

)

Protected item: Part of costs linked to copper prices

 

Copper price increase

 

n.a.

 

0.3

 

0.6

 

 

 

 

 

 

 

 

 

 

 

WPM warrants

 

WPM stock price decrease

 

93

 

39

 

8

 

 

 

 

 

 

 

 

 

 

 

Conversion options - VLI

 

VLI stock value increase

 

(208

)

(343

)

(517

)

 

 

 

 

 

 

 

 

 

 

Options - MBR

 

MBR stock value decrease

 

839

 

554

 

313

 

 

Instrument

 

Main risks

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives - Raw material purchase (nickel)

 

Nickel price increase

 

(14

)

(81

)

(148

)

Embedded derivatives - Raw material purchase (copper)

 

Copper price increase

 

(1

)

(14

)

(28

)

Embedded derivatives - Gas purchase

 

Pellet price increase

 

(6

)

(14

)

(27

)

Embedded derivatives - Guaranteed minimum return (VLI)

 

VLI stock value decrease

 

(399

)

(857

)

(1,618

)

 

b)                           Financial counterparties’ ratings

 

The transactions of derivative instruments, cash and cash equivalents as well as investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies.

 

The table below presents the ratings published by agencies Moody’s and S&P regarding the main financial institutions that we had outstanding positions as of June 30, 2018.

 

49



Table of Contents

 

 

 

Long term ratings by counterparty

 

Moody’s

 

S&P

ANZ Australia and New Zealand Banking

 

Aa3

 

AA-

Banco ABC

 

Ba3

 

BB-

Banco Bradesco

 

Ba3

 

BB-

Banco do Brasil

 

Ba3

 

BB-

Banco de Credito del Peru

 

Baa1

 

BBB+

Banco do Nordeste

 

Ba3

 

BB-

Banco Safra

 

Ba3

 

BB-

Banco Santander

 

A2

 

A

Banco Votorantim

 

Ba3

 

BB-

Bank of America

 

A3

 

A-

Bank of China

 

A1

 

A

Bank of Mandiri

 

Baa2

 

BB+

Bank of Nova Scotia

 

A1

 

A+

Bank Rakyat

 

Baa2

 

BB+

Bank of Tokyo Mitsubishi UFJ

 

A1

 

A-

Banpará

 

 

BB-

Barclays

 

Baa3

 

BBB

BBVA

 

A3

 

A-

BNP Paribas

 

Aa3

 

A

BTG Pactual

 

Ba3

 

BB-

Caixa Economica Federal

 

Ba3

 

BB-

Canadian Imperial Bank

 

A1

 

A+

China Construction Bank

 

A1

 

A

CIMB Bank

 

A3

 

A-

 

Long term ratings by counterparty

 

Moody’s

 

S&P

Citigroup

 

Baa1

 

BBB+

Credit Agricole

 

A1

 

A

Credit Suisse

 

Baa2

 

BBB+

Deutsche Bank

 

Baa2

 

BBB+

Goldman Sachs

 

A3

 

BBB+

HSBC

 

A2

 

A

Intesa Sanpaolo Spa

 

Baa1

 

BBB

Itaú Unibanco

 

Ba3

 

BB

JP Morgan Chase & Co

 

A3

 

A-

Macquarie Group Ltd

 

A3

 

BBB

Mega Int. Commercial Bank

 

A1

 

A

Mizuho Financial

 

A1

 

A-

Morgan Stanley

 

A3

 

BBB+

National Australia Bank NAB

 

Aa3

 

AA-

National Bank of Oman

 

Baa3

 

Natixis

 

A1

 

A

Rabobank

 

Aa3

 

A+

Royal Bank of Canada

 

A1

 

AA-

Societe Generale

 

A1

 

A

Standard Bank Group

 

Ba1

 

Standard Chartered

 

A2

 

BBB+

Sumitomo Mitsui Financial

 

A1

 

A-

UBS

 

Aa3

 

A-

Unicredit

 

Baa1

 

BBB

 

c)                            Market curves

 

The curves used on the pricing of derivatives instruments were developed based on data from B3, Central Bank of Brazil, London Metals Exchange and Bloomberg.

 

(i)       Products

 

Nickel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

14,910

 

DEC18

 

14,970

 

JUN19

 

15,064

 

JUL18

 

14,851

 

JAN19

 

14,988

 

JUN20

 

15,217

 

AUG18

 

14,879

 

FEB19

 

15,005

 

JUN21

 

15,339

 

SEP18

 

14,903

 

MAR19

 

15,023

 

JUN22

 

15,444

 

OCT18

 

14,928

 

APR19

 

15,039

 

 

 

 

 

NOV18

 

14,949

 

MAY19

 

15,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

SPOT

 

2.95

 

DEC18

 

3.01

 

JUN19

 

3.03

 

JUL18

 

3.01

 

JAN19

 

3.02

 

JUN20

 

3.04

 

AUG18

 

3.01

 

FEB19

 

3.02

 

JUN21

 

3.05

 

SEP18

 

3.01

 

MAR19

 

3.02

 

JUN22

 

3.05

 

OCT18

 

3.01

 

APR19

 

3.02

 

 

 

 

 

NOV18

 

3.01

 

MAY19

 

3.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

461

 

DEC18

 

444

 

JUN19

 

422

 

JUL18

 

466

 

JAN19

 

441

 

JUN20

 

315

 

AUG18

 

466

 

FEB19

 

438

 

JUN21

 

289

 

SEP18

 

458

 

MAR19

 

434

 

JUN22

 

248

 

OCT18

 

452

 

APR19

 

431

 

 

 

 

 

NOV18

 

448

 

MAY19

 

427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maritime Freight (Capesize 5TC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Price (US$/day)

 

Maturity

 

Price (US$/day)

 

Maturity

 

Price (US$/day)

 

SPOT

 

8,339

 

DEC18

 

18,050

 

JUN19

 

13,970

 

JUL18

 

10,920

 

JAN19

 

21,150

 

Cal 2019

 

16,850

 

AUG18

 

14,020

 

FEB19

 

21,150

 

Cal 2020

 

16,270

 

SEP18

 

15,640

 

MAR19

 

21,150

 

Cal 2021

 

15,260

 

OCT18

 

16,350

 

APR19

 

13,970

 

Cal 2022

 

15,240

 

NOV18

 

17,020

 

MAY19

 

13,970

 

 

 

 

 

 

50



Table of Contents

 

 

(ii)   Foreign exchange and interest rates

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

08/01/18

 

4.25

 

06/03/19

 

4.33

 

10/01/21

 

4.88

 

09/03/18

 

3.66

 

07/01/19

 

4.38

 

01/03/22

 

4.90

 

10/01/18

 

3.63

 

10/01/19

 

4.57

 

04/01/22

 

4.95

 

11/01/18

 

3.70

 

01/02/20

 

4.67

 

07/01/22

 

4.97

 

12/03/18

 

3.66

 

04/01/20

 

4.70

 

10/03/22

 

5.03

 

01/02/19

 

3.81

 

07/01/20

 

4.73

 

01/02/23

 

5.03

 

02/01/19

 

3.92

 

10/01/20

 

4.76

 

04/03/23

 

5.08

 

03/01/19

 

4.08

 

01/04/21

 

4.80

 

07/03/23

 

5.12

 

04/01/19

 

4.08

 

04/01/21

 

4.84

 

01/02/24

 

5.22

 

05/02/19

 

4.20

 

07/01/21

 

4.87

 

07/01/24

 

5.33

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

2.10

 

6M

 

2.52

 

11M

 

2.60

 

2M

 

2.18

 

7M

 

2.54

 

12M

 

2.61

 

3M

 

2.33

 

8M

 

2.56

 

2Y

 

2.85

 

4M

 

2.42

 

9M

 

2.58

 

3Y

 

2.97

 

5M

 

2.48

 

10M

 

2.59

 

4Y

 

3.04

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

08/01/18

 

6.60

 

06/03/19

 

6.60

 

10/01/21

 

6.60

 

09/03/18

 

6.60

 

07/01/19

 

6.60

 

01/03/22

 

6.60

 

10/01/18

 

6.60

 

10/01/19

 

6.60

 

04/01/22

 

6.60

 

11/01/18

 

6.60

 

01/02/20

 

6.60

 

07/01/22

 

6.60

 

12/03/18

 

6.60

 

04/01/20

 

6.60

 

10/03/22

 

6.60

 

01/02/19

 

6.60

 

07/01/20

 

6.60

 

01/02/23

 

6.60

 

02/01/19

 

6.60

 

10/01/20

 

6.60

 

04/03/23

 

6.60

 

03/01/19

 

6.60

 

01/04/21

 

6.60

 

07/03/23

 

6.60

 

04/01/19

 

6.60

 

04/01/21

 

6.60

 

01/02/24

 

6.60

 

05/02/19

 

6.60

 

07/01/21

 

6.60

 

07/01/24

 

6.60

 

 

 

 

 

 

 

 

 

 

 

 

 

BRL Interest Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

08/01/18

 

6.40

 

06/03/19

 

7.50

 

10/01/21

 

10.00

 

09/03/18

 

6.53

 

07/01/19

 

7.60

 

01/03/22

 

10.18

 

10/01/18

 

6.51

 

10/01/19

 

7.99

 

04/01/22

 

10.35

 

11/01/18

 

6.58

 

01/02/20

 

8.32

 

07/01/22

 

10.53

 

12/03/18

 

6.70

 

04/01/20

 

8.58

 

10/03/22

 

10.68

 

01/02/19

 

6.83

 

07/01/20

 

8.82

 

01/02/23

 

10.80

 

02/01/19

 

6.92

 

10/01/20

 

9.10

 

04/03/23

 

10.92

 

03/01/19

 

7.07

 

01/04/21

 

9.31

 

07/03/23

 

11.00

 

04/01/19

 

7.23

 

04/01/21

 

9.52

 

01/02/24

 

11.21

 

05/02/19

 

7.37

 

07/01/21

 

9.77

 

07/01/24

 

11.39

 

 

 

 

 

 

 

 

 

 

 

 

 

Implicit Inflation (IPCA)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

08/01/18

 

3.65

 

06/03/19

 

4.72

 

10/01/21

 

4.66

 

09/03/18

 

3.77

 

07/01/19

 

4.82

 

01/03/22

 

4.73

 

10/01/18

 

3.75

 

10/01/19

 

4.61

 

04/01/22

 

4.81

 

11/01/18

 

3.83

 

01/02/20

 

4.54

 

07/01/22

 

4.91

 

12/03/18

 

3.94

 

04/01/20

 

4.43

 

10/03/22

 

4.99

 

01/02/19

 

4.07

 

07/01/20

 

4.40

 

01/02/23

 

5.05

 

02/01/19

 

4.15

 

10/01/20

 

4.41

 

04/03/23

 

5.12

 

03/01/19

 

4.30

 

01/04/21

 

4.42

 

07/03/23

 

5.16

 

04/01/19

 

4.45

 

04/01/21

 

4.46

 

01/02/24

 

5.29

 

05/02/19

 

4.60

 

07/01/21

 

4.56

 

07/01/24

 

5.41

 

 

 

 

 

 

 

 

 

 

 

 

 

EUR Interest Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

-0.39

 

6M

 

-0.29

 

11M

 

-0.25

 

2M

 

-0.37

 

7M

 

-0.28

 

12M

 

-0.25

 

3M

 

-0.36

 

8M

 

-0.27

 

2Y

 

-0.17

 

4M

 

-0.32

 

9M

 

-0.26

 

3Y

 

-0.04

 

5M

 

-0.30

 

10M

 

-0.26

 

4Y

 

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD Interest Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

1.67

 

6M

 

1.94

 

11M

 

1.10

 

2M

 

1.71

 

7M

 

1.67

 

12M

 

1.02

 

3M

 

1.77

 

8M

 

1.49

 

2Y

 

2.30

 

4M

 

1.86

 

9M

 

1.34

 

3Y

 

2.44

 

5M

 

1.91

 

10M

 

1.21

 

4Y

 

2.54

 

 

 

 

 

 

 

 

 

 

 

 

 

Currencies - Ending rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD/US$

 

0.7610

 

US$/BRL

 

3.8558

 

EUR/US$

 

1.1583

 

 

51



Table of Contents

 

Signatures

 

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

 

 

Vale S.A.

 

(Registrant)

 

 

 

By:

/s/ André Figueiredo

Date: July 25, 2018

 

Director of Investor Relations