Vale S.A. Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; filed March 23, 2021. The filing is an annual report rather than a standalone Q4 filing, and does not provide a separate quarterly Q4 presentation. Financial statements are prepared under IFRS and presented in U.S. dollars.
Business context
Vale is a diversified mining and logistics company and one of the world's largest iron ore and nickel producers. It also produces pellets, manganese, ferroalloys, copper, coal, cobalt, precious metals and related logistics and energy services. Ferrous minerals generated 80.2% of 2020 net operating revenue, base metals 17.9% and coal 1.2%. China represented 57.8% of consolidated revenue.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net operating revenue | US$40.018bn | US$37.570bn | +6.5% |
| Operating income | US$10.843bn | US$1.319bn | +US$9.524bn |
| Operating margin | 27.1% | 3.5% | +23.6 pts |
| Net income attributable to Vale stockholders | US$4.881bn | Loss of US$1.683bn | Turnaround |
| Net margin attributable to stockholders | 12.2% | (4.5%) | +16.7 pts |
| Adjusted EBITDA | US$16.588bn | US$10.585bn | +56.7% |
| Net cash from operating activities | US$14.322bn | US$12.110bn | +18.3% |
| Capital expenditures | US$4.430bn | US$3.704bn | +19.6% |
| Cash and cash equivalents | US$13.487bn | US$7.350bn | +83.5% |
| Total debt | US$13.360bn | US$13.056bn | +2.3% |
| Net debt/(net cash) | Net cash of US$898m | Net debt of US$4.880bn | Improved US$5.778bn |
Adjusted EBITDA margin was approximately 41.5%. Gross profit was US$20.979 billion, or approximately 52.4% of revenue. The filing states that the short-term debt and current portion of long-term debt was US$887 million as of December 31, 2020.
Revenue and operating drivers
- Iron ore revenue increased 16.9% to US$27.285 billion, primarily from a 23.3% increase in average realized price to US$107.42 per metric ton. Iron ore fines sales volumes declined 5.2% to 254.0 million metric tons.
- Pellet revenue declined 28.7% to US$4.242 billion; pellet sales volumes declined 27.8% to 31.2 million metric tons.
- Base metals revenue increased 16.4% to US$7.170 billion, supported by higher nickel, copper byproduct, precious metals and copper prices.
- Coal revenue declined 53.7% to US$473 million, and the coal segment reported a US$931 million Adjusted EBITDA loss.
- Total iron ore production was 300.4 million metric tons, broadly flat with 302.0 million metric tons in 2019, while pellet production declined to 29.7 million metric tons from 41.8 million metric tons.
Material changes versus the prior comparable period
- Profitability recovered sharply from the 2019 loss, mainly because of higher iron ore prices, lower impairment charges and favorable foreign-exchange effects on operating costs.
- Cost of goods sold declined 10.1% to US$19.039 billion, despite higher third-party iron ore purchases, maintenance and royalties. Selling and administrative expense increased 13.8% to US$554 million.
- Brumadinho-related expenses declined to US$5.257 billion from US$7.402 billion, but remained a material charge. Total Brumadinho provisions reached US$6.864 billion at year-end.
- Financial expense increased to US$4.811 billion from US$3.413 billion, reflecting US$523 million of net foreign-exchange losses and US$1.210 billion of derivative losses, compared with gains in 2019.
- Iron ore production in the Southeastern System fell to 57.3 million metric tons from 73.1 million, while the Southern System increased to 48.4 million metric tons from 37.8 million. Northern System production increased to 192.3 million metric tons from 188.7 million.
- Vale restored shareholder remuneration after suspending the policy following Brumadinho. It paid US$3.350 billion during 2020 and approved an additional US$3.972 billion for payment in March 2021.
- Vale repaid the US$5 billion drawn under revolving credit lines during the early COVID-19 period, issued US$1.5 billion of 3.75% notes due 2030 and remained in compliance with debt covenants.
Guidance, outlook, risks and unusual items
Outlook and capital allocation
- 2021 capital expenditure guidance is approximately US$5.8 billion, including US$4.8 billion for sustaining and replacement projects and US$1.0 billion for project execution, a 31% increase over 2020.
- Management targets iron ore run-rate capacity of 400 million metric tons per year by the end of 2022, subject to operational, licensing, tailings and execution risks.
- Major projects include Serra Sul 120, the Northern System 240 Mt Program, Capanema, Salobo III, the Voisey's Bay underground extension and the NS-04 dry magnetic concentration project.
- Management expects additional volatility in iron ore prices in 2021. The filing anticipates a 2021 nickel market surplus and a copper market deficit.
- Vale targets a 33% reduction in absolute Scope 1 and 2 emissions by 2030, carbon neutrality by 2050 and a 15% reduction in Scope 3 net emissions by 2035.
Material contingencies and unusual items
- The February 2021 Global Settlement for Brumadinho has an estimated economic value of R$37.7 billion. Vale recognized a US$3.872 billion provision in 2020. Environmental obligations are not capped and future provisions may change materially.
- Vale recognized US$2.289 billion for decharacterization of upstream structures and spent US$293 million on this work in 2020. At year-end, only 72 of 104 geotechnical structures had current stability statements; 32 did not.
- Samarco-related liabilities increased to US$2.074 billion. Vale contributed US$560 million in 2020 and expects continued funding of Fundação Renova and Samarco obligations.
- VNC-related impairment and provisions totaled US$882 million. Closing of the proposed divestment was expected in 2021.
- Possible-loss contingent liabilities totaled US$9.729 billion, including US$6.911 billion of tax claims. Litigation provisions totaled US$1.091 billion.
- COVID-19 caused temporary suspensions and productivity effects but did not have a significant overall impact on 2020 operations. A prolonged or intensified pandemic could reduce production, sales, cash generation and liquidity.
- Vale agreed to extend its EFVM and EFC railway concessions to 2057 and recognized commitments with a present value of approximately US$2.312 billion.
Most important facts for an investor to verify
- Whether Brumadinho remediation, dam decharacterization and individual claims remain within recorded provisions and the stated cash-outflow schedule.
- The status, cost and production impact of dams without stability statements, operating suspensions and required licenses.
- Actual 2021 iron ore volumes, realized prices, production recovery and progress toward the 400 million metric ton annual capacity target.
- Execution of the US$5.8 billion 2021 capital program and the timing, cost and ramp-up of major projects.
- Coal divestment plans, the Mitsui/Nacala transaction and whether the coal segment will be classified as discontinued operations.
- Future funding requirements for Samarco, Fundação Renova and the Global Settlement, including potential additional provisions.
- Exposure to China, iron ore prices, foreign-exchange movements, derivative losses and currency-related cash-flow volatility.
- The status and potential financial impact of tax claims, Brumadinho securities litigation, indigenous-community proceedings and other material legal actions.
- Reconciliation of reported net cash with broader obligations, including leases, REFIS, participative debentures, guarantees and remediation commitments.