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

 

April 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

March 31, 2018

 

 

IFRS in US$

 



Table of Contents

 

 

Vale S.A. Interim Financial Statements

Contents

 

 

Page

Report of independent registered public accounting firm

3

Consolidated Income Statement

4

Consolidated Statement of Comprehensive Income

5

Consolidated Statement of Cash Flows

6

Consolidated Statement of Financial Position

7

Consolidated Statement of Changes in Equity

8

Selected Notes to the Interim Financial Statements

9

1. Corporate information

9

2. Basis for preparation of the interim financial statements

9

3. Information by business segment and by geographic area

11

4. Special events occurred during the period

14

5. Costs and expenses by nature

14

6. Financial results

15

7. Income taxes

15

8. Basic and diluted earnings (loss) per share

16

9. Accounts receivable

16

10. Inventories

16

11. Other financial assets and liabilities

17

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

17

13. Investments in associates and joint ventures

18

14. Intangibles

21

15. Property, plant and equipment

21

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

22

17. Liabilities related to associates and joint ventures

24

18. Financial instruments classification

24

19. Fair value estimate

25

20. Derivative financial instruments

26

21. Provisions

30

22. Litigation

31

23. Employee postretirement obligations

34

24. Stockholders’ equity

35

25. Related parties

35

26. Additional information about derivatives financial instruments

36

 

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 of independent registered public accounting firm

 

To the Stockholders and Board of Directors of

Vale S.A.

Rio de Janeiro - RJ

 

Results of review of interim financial information

 

We have reviewed the accompanying condensed consolidated statement of financial position of Vale S.A. and subsidiaries (“the Company”)as of March 31, 2018, the related condensed consolidated statements of income and comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2018 and 2017, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2017, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

 

Basis for review results

 

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

KPMG Auditores Independentes

 

 

 

 

 

Rio de Janeiro, Brazil

 

 

 

April 25, 2018

 

 

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

 

 

Consolidated Income Statement

In millions of United States dollars, except earnings per share data

 

 

 

 

 

Three-month period ended March 31,

 

 

 

Notes

 

2018

 

2017

 

Continuing operations

 

 

 

 

 

 

 

Net operating revenue

 

3(c)

 

8,603

 

8,515

 

Cost of goods sold and services rendered

 

5(a)

 

(5,224

)

(4,734

)

Gross profit

 

 

 

3,379

 

3,781

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Selling and administrative expenses

 

5(b)

 

(124

)

(124

)

Research and evaluation expenses

 

 

 

(69

)

(65

)

Pre operating and operational stoppage

 

 

 

(78

)

(115

)

Other operating expenses, net

 

5(c)

 

(125

)

(77

)

 

 

 

 

(396

)

(381

)

Impairment and other results on non-current assets

 

4

 

(18

)

512

 

Operating income

 

 

 

2,965

 

3,912

 

 

 

 

 

 

 

 

 

Financial income

 

6

 

237

 

379

 

Financial expenses

 

6

 

(676

)

(1,150

)

Other financial items

 

6

 

(185

)

158

 

Equity results in associates and joint ventures

 

13

 

85

 

73

 

Impairment and other results in associates and joint ventures

 

17

 

(14

)

(61

)

Income before income taxes

 

 

 

2,412

 

3,311

 

 

 

 

 

 

 

 

 

Income taxes

 

7

 

 

 

 

 

Current tax

 

 

 

(93

)

(501

)

Deferred tax

 

 

 

(628

)

(222

)

 

 

 

 

(721

)

(723

)

 

 

 

 

 

 

 

 

Net income from continuing operations

 

 

 

1,691

 

2,588

 

Net income attributable to noncontrolling interests

 

 

 

19

 

15

 

Net income from continuing operations attributable to Vale’s stockholders

 

 

 

1,672

 

2,573

 

 

 

 

 

 

 

 

 

Discontinued operations

 

12

 

 

 

 

 

Loss from discontinued operations

 

 

 

(82

)

(82

)

Net income attributable to noncontrolling interests

 

 

 

 

1

 

Loss from discontinued operations attributable to Vale’s stockholders

 

 

 

(82

)

(83

)

 

 

 

 

 

 

 

 

Net income

 

 

 

1,609

 

2,506

 

Net income attributable to noncontrolling interests

 

 

 

19

 

16

 

Net income attributable to Vale’s stockholders

 

 

 

1,590

 

2,490

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Vale’s stockholders:

 

 

 

 

 

 

 

Basic and diluted earnings per share (restated):

 

8

 

 

 

 

 

Common share (US$)

 

 

 

0.30

 

0.48

 

 

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

 

4



Table of Contents

 

 

Consolidated Statement of Comprehensive Income

In millions of United States dollars

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Net income

 

1,609

 

2,506

 

Other comprehensive income:

 

 

 

 

 

Items that will not be reclassified subsequently to the income statement

 

 

 

 

 

Translation adjustments

 

(230

)

1,114

 

Retirement benefit obligations

 

53

 

(23

)

Fair value adjustment to investment in equity securities

 

(35

)

 

Transfer to retained earnings

 

(20

)

 

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

 

(232

)

1,091

 

 

 

 

 

 

 

Items that may be reclassified subsequently to the income statement

 

 

 

 

 

Translation adjustments

 

(11

)

(617

)

Net investments hedge

 

(27

)

157

 

Transfer of realized results to net income

 

(78

)

 

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

 

(116

)

(460

)

Total comprehensive income

 

1,261

 

3,137

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

17

 

37

 

Comprehensive income attributable to Vale’s stockholders

 

1,244

 

3,100

 

From continuing operations

 

1,239

 

3,109

 

From discontinued operations

 

5

 

(9

)

 

 

1,244

 

3,100

 

 

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.

 

5



Table of Contents

 

 

Consolidated Statement of Cash Flows

In millions of United States dollars

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Cash flow from operating activities:

 

 

 

 

 

Income before income taxes from continuing operations

 

2,412

 

3,311

 

Continuing operations adjustments for:

 

 

 

 

 

Equity results in associates and joint ventures

 

(85

)

(73

)

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

 

32

 

(451

)

Depreciation, amortization and depletion

 

873

 

908

 

Financial results, net

 

624

 

613

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

17

 

298

 

Inventories

 

56

 

(221

)

Suppliers and contractors

 

(340

)

82

 

Provision - Payroll, related charges and others remunerations

 

(541

)

(242

)

Other assets and liabilities, net

 

(105

)

(169

)

 

 

2,943

 

4,056

 

Interest on loans and borrowings paid

 

(381

)

(515

)

Derivatives paid, net

 

(25

)

(107

)

Income taxes

 

(240

)

(368

)

Income taxes - Settlement program

 

(125

)

(121

)

Net cash provided by operating activities from continuing operations

 

2,172

 

2,945

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Financial investments redeemed (invested)

 

(16

)

(53

)

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

 

2,640

 

(144

)

Additions to property, plant and equipment, intangibles and investments

 

(907

)

(1,116

)

Proceeds from disposal of assets and investments (note 12)

 

1,101

 

515

 

Dividends and interest on capital received from associates and joint ventures

 

10

 

 

Others investments activities

 

15

 

(2

)

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

 

2,843

 

(800

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

Additions

 

 

1,150

 

Repayments

 

(2,277

)

(1,118

)

Transactions with stockholders:

 

 

 

 

 

Dividends and interest on capital paid to stockholders

 

(1,437

)

 

Dividends and interest on capital paid to noncontrolling interest

 

(91

)

(3

)

Transactions with noncontrolling stockholders

 

(17

)

255

 

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

 

(3,822

)

284

 

 

 

 

 

 

 

Net cash used in discontinued operations (note 12)

 

(44

)

(5

)

 

 

 

 

 

 

Increase in cash and cash equivalents

 

1,149

 

2,424

 

Cash and cash equivalents in the beginning of the period

 

4,328

 

4,262

 

Effect of exchange rate changes on cash and cash equivalents

 

(6

)

44

 

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

 

(103

)

(14

)

Cash and cash equivalents at end of the period

 

5,368

 

6,716

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

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

 

60

 

103

 

 

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

 

6



Table of Contents

 

 

Consolidated Statement of Financial Position

In millions of United States dollars

 

 

 

Notes

 

March 31, 2018

 

December 31,
2017

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

16

 

5,368

 

4,328

 

Accounts receivable

 

9

 

2,689

 

2,600

 

Other financial assets

 

11

 

376

 

2,022

 

Inventories

 

10

 

3,967

 

3,926

 

Prepaid income taxes

 

 

 

722

 

781

 

Recoverable taxes

 

 

 

1,055

 

1,172

 

Others

 

 

 

602

 

538

 

 

 

 

 

14,779

 

15,367

 

 

 

 

 

 

 

 

 

Non-current assets held for sale

 

12

 

460

 

3,587

 

 

 

 

 

15,239

 

18,954

 

Non-current assets

 

 

 

 

 

 

 

Judicial deposits

 

22(c)

 

1,993

 

1,986

 

Other financial assets

 

11

 

3,047

 

3,232

 

Prepaid income taxes

 

 

 

587

 

530

 

Recoverable taxes

 

 

 

667

 

638

 

Deferred income taxes

 

7(a)

 

6,106

 

6,638

 

Others

 

 

 

282

 

267

 

 

 

 

 

12,682

 

13,291

 

 

 

 

 

 

 

 

 

Investments in associates and joint ventures

 

13

 

3,722

 

3,568

 

Intangibles

 

14

 

8,592

 

8,493

 

Property, plant and equipment

 

15

 

54,149

 

54,878

 

 

 

 

 

79,145

 

80,230

 

Total assets

 

 

 

94,384

 

99,184

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Suppliers and contractors

 

 

 

3,598

 

4,041

 

Loans and borrowings

 

16

 

1,966

 

1,703

 

Other financial liabilities

 

11

 

1,008

 

986

 

Taxes payable

 

7(c)

 

703

 

697

 

Provision for income taxes

 

 

 

227

 

355

 

Liabilities related to associates and joint ventures

 

17

 

369

 

326

 

Provisions

 

21

 

868

 

1,394

 

Dividends and interest on capital

 

 

 

 

1,441

 

Others

 

 

 

1,038

 

992

 

 

 

 

 

9,777

 

11,935

 

Liabilities associated with non-current assets held for sale

 

12

 

213

 

1,179

 

 

 

 

 

9,990

 

13,114

 

Non-current liabilities

 

 

 

 

 

 

 

Loans and borrowings

 

16

 

18,310

 

20,786

 

Other financial liabilities

 

11

 

2,901

 

2,894

 

Taxes payable

 

7(c)

 

4,796

 

4,890

 

Deferred income taxes

 

7(a)

 

1,704

 

1,719

 

Provisions

 

21

 

6,984

 

7,027

 

Liabilities related to associates and joint ventures

 

17

 

633

 

670

 

Deferred revenue - Gold stream

 

 

 

1,793

 

1,849

 

Others

 

 

 

1,466

 

1,463

 

 

 

 

 

38,587

 

41,298

 

Total liabilities

 

 

 

48,577

 

54,412

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

24

 

 

 

 

 

Equity attributable to Vale’s stockholders

 

 

 

44,702

 

43,458

 

Equity attributable to noncontrolling interests

 

 

 

1,105

 

1,314

 

Total stockholders’ equity

 

 

 

45,807

 

44,772

 

Total liabilities and stockholders’ equity

 

 

 

94,384

 

99,184

 

 

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

 

7



Table of Contents

 

 

Consolidated Statement of Changes in Equity

In millions of United States dollars

 

 

 

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

 

61,614

 

(152

)

1,139

 

(954

)

7,419

 

(1,477

)

(1,183

)

(22,948

)

 

43,458

 

1,314

 

44,772

 

Net income

 

 

 

 

 

 

 

 

 

1,590

 

1,590

 

19

 

1,609

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

 

53

 

 

(20

)

33

 

 

33

 

Net investments hedge (note 20c)

 

 

 

 

 

 

 

 

(27

)

 

(27

)

 

(27

)

Fair value adjustment to investment in equity securities

 

 

 

 

 

 

 

(35

)

 

 

(35

)

 

(35

)

Translation adjustments

 

 

 

 

 

(35

)

 

 

(282

)

 

(317

)

(2

)

(319

)

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

(1

)

Acquisitions and disposal of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(225

)

(225

)

Balance at March 31, 2018

 

61,614

 

(152

)

1,139

 

(954

)

7,384

 

(1,477

)

(1,165

)

(23,257

)

1,570

 

44,702

 

1,105

 

45,807

 

 

 

 

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

 

61,614

 

(152

)

 

(699

)

4,203

 

(1,477

)

(1,147

)

(23,300

)

 

39,042

 

1,982

 

41,024

 

Net income

 

 

 

 

 

 

 

 

 

2,490

 

2,490

 

16

 

2,506

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

 

 

 

 

(23

)

 

 

(23

)

 

(23

)

Net investments hedge (note 20c)

 

 

 

 

 

 

 

 

174

 

 

174

 

 

174

 

Translation adjustments

 

 

 

 

 

120

 

 

(18

)

356

 

1

 

459

 

21

 

480

 

Transactions with stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(2

)

(2

)

Acquisitions and disposal of noncontrolling interest

 

 

 

 

(105

)

 

 

 

 

 

(105

)

(508

)

(613

)

Capitalization of noncontrolling interest advances

 

 

 

 

 

 

 

 

 

 

 

25

 

25

 

Balance at March 31, 2017

 

61,614

 

(152

)

 

(804

)

4,323

 

(1,477

)

(1,188

)

(22,770

)

2,491

 

42,037

 

1,534

 

43,571

 

 

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

 

8



Table of Contents

 

 

Selected Notes to the Interim Financial Statements

Expressed in millions of United States dollar, 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 interim financial statements of the Company (“interim financial statements”) have been prepared and are being presented in accordance with IAS 34 Interim Financial Reporting of the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

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 and IFRS 15 — Revenue from contracts with customers, which are described in note 2(c). 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$”). For presentation purposes, these interim financial statements are presented in United States dollars (“US$”) as the Company believes that this is the relevant currency used by international investors.

 

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

 

 

 

 

 

 

 

Average rate

 

 

 

Closing rate

 

Three-month period ended

 

 

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2017

 

US Dollar (“US$”)

 

3.3238

 

3.3080

 

3.2433

 

3.1451

 

Canadian dollar (“CAD”)

 

2.5778

 

2.6344

 

2.5649

 

2.3760

 

Australian dollar (“AUD”)

 

2.5497

 

2.5849

 

2.5505

 

2.3824

 

Euro (“EUR” or “€”)

 

4.0850

 

3.9693

 

3.9866

 

3.3510

 

 

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

 

c)  Changes in significant accounting policies

 

(i)  IFRS 9 Financial instrument — The Company has adopted IFRS 9 Financial Instruments starting January 1, 2018. This  standard  addresses  the  classification  and  measurement  of  financial  assets  and  liabilities,  new impairment model and new rules for hedge accounting. The main changes are described below:

 

·  Classification and measurement - Under IFRS 9, the Company’s financial assets are initially measured at fair value (plus transaction costs if is not measured at fair value through profit or loss).

 

The investments in debt financial instruments are subsequently measured at fair value through profit or loss (“FVTPL”), amortized cost, or fair value through other comprehensive income (“FVOCI”). The classification is based on two conditions:  the Company´s business model in which the asset is held; and whether the contractual terms give rise on specified dates to cash flows that are ‘solely payments of principal and interest’ on the principal amount outstanding (“SPPI”).

 

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The FVOCI category only includes equity instruments, which is not held for trading and the Company has irrevocably elected to designate upon initial recognition. The gains or losses from equity instruments at FVOCI are not recycled to income statement on derecognition and these financial assets are not subject to an impairment assessment under IFRS 9.

 

The Company has assessed its business models as of the date of IFRS 9 initial application, 1 January 2018, and no significant impact were identified in the financial statements.

 

· Impairment - IFRS 9 has replaced the IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach.

 

For accounts receivables, the Company has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the economic environment and by any financial guarantees related to these accounts receivables.

 

For other financial assets, the ECL is based on the 12-month ECL. The 12-month ECL is the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL.

 

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment including forward-looking information.

 

At each reporting date, the Company assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

 

There is no significant impact on its financial statements resulting from this new impairment approach given Vale’s credit rating and risk management policies in place.

 

· Hedge accounting - The Company has elected to adopt the new general hedge accounting model in IFRS 9. The changes introduced by IFRS 9 relating to hedge accounting currently have no impact, as the Company does not currently apply cash flow or fair value hedge accounting.  The Company  currently  applies  the  net  investment  hedge for  which  there  are  no  changes introduced by this new standard.

 

(ii) IFRS 15 Revenue from contracts with customers - The Company has adopted IFRS 15 Revenue from contracts with customers starting January 1, 2018. IFRS 15 establishes a comprehensive framework for revenue recognition and replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Company has adopted IFRS 15 using the modified retrospective method. Accordingly, the information presented for 2017 has not been restated.

 

· Sales of commodities - IFRS 15 introduced the five-step model for revenue recognition from contracts with customers. The new standard is based on the core principle that revenue is recognized when the control of a good or service transfers to a customer of an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

There is no significant impact on the timing of commodities revenue recognition under IFRS 15, since usually the transfer of risks and rewards and the transfer of control under the sales contracts are at the same point in time.

 

The disaggregated revenue information is disclosed in note 3.

 

· Shipping services - A proportion of Vale’s sales are under Cost and Freight (“CFR”) or Cost, Insurance and Freight (“CIF”) Incoterms, in which the Company is responsible for providing shipping services after the date that Vale transfers control of the goods to the customers. According to the previous standard (IAS 18), the revenue from shipping services was recognized upon loading, as well as the related costs, and was not considered a separate service.

 

Under IFRS 15, the provision of shipping services for CFR and CIF contracts should be considered as a separate performance obligation in which a proportion of the transaction price would be allocated and recognized over time as the shipping services are provided. The impact on the timing of revenue recognition of the proportion allocated to the shipping service is not significant to the Company’s quarter-end results ended March 31, 2018. Therefore, such revenue has not been presented separately in these interim financial statements.

 

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· Provisionally priced commodities sales - Under IFRS 9 and 15, the treatment of the provisional pricing mechanisms embedded within the provisionally priced commodities sales remains unmodified.  Therefore, these revenues are recognized based on the estimated fair value of the total consideration receivable, and the provisionally priced sales mechanism embedded within these sale arrangements has the character of a derivative.

 

The Company is mostly exposed to the fluctuations in the iron ore and copper price.

 

The selling price of these products can be measured reliably at each period, since the price is quoted on an active market. The fair value of the sales price adjustment, in the amount of US$162 in the period ended March 31, 2018, were recognized as operational revenue in the income statement.

 

d)  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. The other new standards effective from January 1, 2018 do not have a material effect on the Company’s interim financial statements.

 

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 EBITDA

 

Management uses adjusted EBITDA to assess each segment’s contribution to the Company’s performance and to support the decision making process.  Adjusted 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.

 

 

 

Three-month period ended March 31, 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
EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

4,703

 

(2,078

)

(13

)

(20

)

(35

)

 

2,557

 

Iron ore Pellets

 

1,585

 

(813

)

(1

)

(5

)

(3

)

 

763

 

Ferroalloys and manganese

 

124

 

(74

)

(1

)

 

 

 

49

 

Other ferrous products and services

 

115

 

(73

)

(3

)

 

 

 

39

 

 

 

6,527

 

(3,038

)

(18

)

(25

)

(38

)

 

3,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

380

 

(335

)

2

 

(3

)

 

60

 

104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

1,132

 

(705

)

(15

)

(9

)

(8

)

 

395

 

Copper

 

502

 

(248

)

(1

)

(4

)

 

 

249

 

 

 

1,634

 

(953

)

(16

)

(13

)

(8

)

 

644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

62

 

(70

)

(153

)

(28

)

(6

)

10

 

(185

)

Total of continuing operations

 

8,603

 

(4,396

)

(185

)

(69

)

(52

)

70

 

3,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

89

 

(84

)

(1

)

 

 

 

4

 

Total

 

8,692

 

(4,480

)

(186

)

(69

)

(52

)

70

 

3,975

 

 


(i) Adjusted for the special events occurred in the period.

 

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Table of Contents

 

 

 

 

Three-month period ended March 31, 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

 

Adjusted EBITDA

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron ore

 

4,826

 

(1,677

)

69

 

(16

)

(41

)

3,161

 

Iron ore Pellets

 

1,459

 

(652

)

 

(3

)

(1

)

803

 

Ferroalloys and manganese

 

86

 

(44

)

(1

)

 

(3

)

38

 

Other ferrous products and services

 

126

 

(76

)

(3

)

(1

)

 

46

 

 

 

6,497

 

(2,449

)

65

 

(20

)

(45

)

4,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

324

 

(248

)

(4

)

(3

)

 

69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel and other products

 

1,132

 

(862

)

(14

)

(9

)

(38

)

209

 

Copper

 

465

 

(230

)

 

(2

)

 

233

 

 

 

1,597

 

(1,092

)

(14

)

(11

)

(38

)

442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

97

 

(99

)

(217

)

(31

)

(1

)

(251

)

Total of continuing operations

 

8,515

 

(3,888

)

(170

)

(65

)

(84

)

4,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Fertilizers)

 

370

 

(339

)

(15

)

(2

)

(11

)

3

 

Total

 

8,885

 

(4,227

)

(185

)

(67

)

(95

)

4,311

 

 

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

 

From Continuing operations

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Adjusted EBITDA from continuing operations

 

3,971

 

4,308

 

Depreciation, depletion and amortization

 

(873

)

(908

)

Dividends received and interest from associates and joint ventures

 

(70

)

 

Special events (note 4)

 

(63

)

512

 

Operating income

 

2,965

 

3,912

 

Financial results, net

 

(624

)

(613

)

Equity results in associates and joint ventures

 

85

 

73

 

Impairment and other results in associates and joint ventures

 

(14

)

(61

)

Income taxes

 

(721

)

(723

)

Net income from continuing operations

 

1,691

 

2,588

 

Net income attributable to noncontrolling interests

 

19

 

15

 

Net income attributable to Vale’s stockholders

 

1,672

 

2,573

 

 

From Discontinued operations

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Adjusted EBITDA from discontinued operations

 

4

 

3

 

Impairment of non-current assets

 

(113

)

(111

)

Operating loss

 

(109

)

(108

)

Financial results, net

 

(4

)

(4

)

Income taxes

 

31

 

30

 

Loss from discontinued operations

 

(82

)

(82

)

Net income attributable to noncontrolling interests

 

 

1

 

Loss attributable to Vale’s stockholders

 

(82

)

(83

)

 

b)        Assets by segment

 

 

 

March 31, 2018

 

Three-month period ended March 31, 2018

 

 

 

Product inventory

 

Investments in
associates and joint
ventures

 

Property, plant and
equipment and
intangible (i)

 

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

 

Depreciation,
depletion and
amortization (iii)

 

Ferrous minerals

 

1,723

 

1,988

 

36,078

 

654

 

432

 

Coal

 

70

 

336

 

1,683

 

33

 

65

 

Base metals

 

1,146

 

14

 

23,136

 

197

 

350

 

Others

 

16

 

1,384

 

1,844

 

6

 

26

 

Total

 

2,955

 

3,722

 

62,741

 

890

 

873

 

 

12



Table of Contents

 

 

 

 

December 31, 2017

 

Three-month period ended March 31, 2017

 

 

 

Product inventory

 

Investments in
associates and joint
ventures

 

Property, plant and
equipment and
intangible (i)

 

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

 

Depreciation,
depletion and
amortization (iii)

 

Ferrous minerals

 

1,770

 

1,922

 

36,103

 

830

 

417

 

Coal

 

82

 

317

 

1,719

 

56

 

105

 

Base metals

 

1,009

 

13

 

23,603

 

211

 

381

 

Others

 

6

 

1,316

 

1,946

 

10

 

5

 

Total

 

2,867

 

3,568

 

63,371

 

1,107

 

908

 

 


(i) Goodwill is allocated mainly to ferrous minerals and base metals segments in the amount of US$2,146 and US$1,906 in March 31, 2018 and US$2,157 and US$1,953 in December 31, 2017, respectively.

(ii) Includes only cash outflows.

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

 

In September 2017, the Federal Court granted an injunction suspending certain of nickel mining operations at Onça Puma (base metals segment). The Company has appealed this decision to seek a suspension of this injunction, but it is not possible to antecipate when Onça Puma activities will resume. The Company has assessed the impairment risk related to this specific cash-generating unit and concluded that no loss should be recognized in the income statement for the period ended March 31, 2018.

 

c)         Net operating revenue by geographic area

 

 

 

Three-month period ended March 31, 2018

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

219

 

 

157

 

 

376

 

United States of America

 

82

 

 

244

 

8

 

334

 

Germany

 

325

 

 

71

 

 

396

 

Europe, except Germany

 

471

 

102

 

499

 

 

1,072

 

Middle East/Africa/Oceania

 

593

 

43

 

4

 

 

640

 

Japan

 

457

 

33

 

115

 

 

605

 

China

 

3,386

 

 

208

 

 

3,594

 

Asia, except Japan and China

 

346

 

150

 

249

 

 

745

 

Brazil

 

648

 

52

 

87

 

54

 

841

 

Net operating revenue

 

6,527

 

380

 

1,634

 

62

 

8,603

 

 

 

 

Three-month period ended March 31, 2017

 

 

 

Ferrous
minerals

 

Coal

 

Base metals

 

Others

 

Total

 

Americas, except United States and Brazil

 

142

 

 

304

 

 

446

 

United States of America

 

53

 

 

186

 

45

 

284

 

Germany

 

309

 

 

52

 

16

 

377

 

Europe, except Germany

 

581

 

89

 

453

 

 

1,123

 

Middle East/Africa/Oceania

 

427

 

51

 

3

 

 

481

 

Japan

 

390

 

33

 

88

 

 

511

 

China

 

3,658

 

 

160

 

 

3,818

 

Asia, except Japan and China

 

255

 

101

 

311

 

 

667

 

Brazil

 

682

 

50

 

40

 

36

 

808

 

Net operating revenue

 

6,497

 

324

 

1,597

 

97

 

8,515

 

 

Provisionally priced commodities sales - As at March 31, 2018, there were 29 million metric tons of iron ore (2017: 33 million metric tons) and 73 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 second 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 US$183 and copper net income by US$58.

 

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Table of Contents

 

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 March 31,

 

 

 

2018

 

2017

 

Disposals of assets

 

(18

)

(3

)

Provision for litigation

 

(45

)

 

Nacala Logistic Corridor

 

 

515

 

Total

 

(63

)

512

 

 

Disposals of assets -  The Company recognized a loss of US$18 in the income statement during the period ended March 31, 2018 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 period ended March 31, 2018, the Company’s assessment of the likelihood of loss for various labor litigations have been updated and a net impact of US$45 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 US$515.

 

5.                            Costs and expenses by nature

 

a)        Cost of goods sold and services rendered

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Personnel

 

553

 

547

 

Materials and services

 

884

 

782

 

Fuel oil and gas

 

353

 

309

 

Maintenance

 

737

 

723

 

Energy

 

238

 

215

 

Acquisition of products

 

123

 

164

 

Depreciation and depletion

 

828

 

846

 

Freight

 

901

 

659

 

Others

 

607

 

489

 

Total

 

5,224

 

4,734

 

 

 

 

 

 

 

Cost of goods sold

 

5,077

 

4,595

 

Cost of services rendered

 

147

 

139

 

Total

 

5,224

 

4,734

 

 

b)        Selling and administrative expenses

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Personnel

 

62

 

54

 

Services

 

19

 

12

 

Depreciation and amortization

 

19

 

29

 

Others

 

24

 

29

 

Total

 

124

 

124

 

 

c)         Other operating expenses, net

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Provision for litigation

 

45

 

12

 

Profit sharing program

 

47

 

39

 

Others

 

33

 

26

 

Total

 

125

 

77

 

 

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Table of Contents

 

 

6.                          Financial result

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Financial income

 

 

 

 

 

Short-term investments

 

25

 

36

 

Derivative financial instruments

 

119

 

315

 

Others

 

93

 

28

 

 

 

237

 

379

 

Financial expenses

 

 

 

 

 

Loans and borrowings gross interest

 

(336

)

(452

)

Capitalized loans and borrowing costs

 

60

 

103

 

Derivative financial instruments

 

(29

)

(106

)

Participative stockholders’ debentures

 

(183

)

(412

)

Expenses of REFIS

 

(58

)

(126

)

Others

 

(130

)

(157

)

 

 

(676

)

(1,150

)

Other financial items

 

 

 

 

 

Net foreign exchange gain (losses) on loans and borrowings

 

(117

)

499

 

Other net foreign exchange gains (losses)

 

53

 

(264

)

Net indexation losses

 

(121

)

(77

)

 

 

(185

)

158

 

Financial results, net

 

(624

)

(613

)

 

7.                          Income taxes

 

a) Deferred income tax assets and liabilities

 

Changes in deferred tax are as follows:

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at December 31, 2017

 

6,638

 

1,719

 

4,919

 

Effect in income statement

 

(628

)

 

(628

)

Transfers between asset and liabilities

 

8

 

8

 

 

Translation adjustment

 

(24

)

(32

)

8

 

Other comprehensive income

 

86

 

9

 

77

 

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

31

 

 

31

 

Transfer to net assets held for sale

 

(5

)

 

 

(5

)

Balance at March 31, 2018

 

6,106

 

1,704

 

4,402

 

 

 

 

Assets

 

Liabilities

 

Total

 

Balance at December 31, 2016

 

7,343

 

1,700

 

5,643

 

Effect in income statement

 

(251

)

(29

)

(222

)

Translation adjustment

 

139

 

10

 

129

 

Other comprehensive income

 

(104

)

(4

)

(100

)

Effect of discontinued operations

 

 

 

 

 

 

 

Effect in income statement

 

30

 

 

30

 

Transfer to net assets held for sale

 

(30

)

 

 

(30

)

Balance at March 31, 2017

 

7,127

 

1,677

 

5,450

 

 

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:

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Income before income taxes

 

2,412

 

3,311

 

Income taxes at statutory rates - 34%

 

(820

)

(1,126

)

Adjustments that affect the basis of taxes:

 

 

 

 

 

Income tax benefit from interest on stockholders’ equity

 

67

 

126

 

Tax incentives

 

27

 

178

 

Equity results

 

29

 

25

 

Unrecognized tax losses of the period

 

(147

)

(176

)

Gain on sale of subsidiaries (note 4)

 

 

175

 

Others

 

123

 

75

 

Income taxes

 

(721

)

(723

)

 

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Income tax expense is recognized at an amount determined by the estimated tax rate, 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 March 31, 2018, the balance of US$5,284 (US$488 as current and US$4,796 as non-current) is due in 127 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 March 31,

 

 

 

2018

 

2017 (i)

 

Net income attributable to Vale’s stockholders:

 

 

 

 

 

Net income from continuing operations

 

1,672

 

2,573

 

Loss from discontinued operations

 

(82

)

(83

)

Net income

 

1,590

 

2,490

 

 

 

 

 

 

 

Thousands of shares

 

 

 

 

 

Weighted average number of shares outstanding - common shares

 

5,197,432

 

5,197,432

 

 

 

 

 

 

 

Basic and diluted earnings per share from continuing operations :

 

 

 

 

 

Common share (US$)

 

0.32

 

0.50

 

Basic and diluted loss per share from discontinued operations :

 

 

 

 

 

Common share (US$)

 

(0.02

)

(0.02

)

Basic and diluted earnings per share:

 

 

 

 

 

Common share (US$)

 

0.30

 

0.48

 

 


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

 

The Company does not have potential outstanding shares with dilutive effect on the earnings (loss) per share.

 

9.                  Accounts receivable

 

 

 

March 31, 2018

 

December 31, 2017

 

Accounts receivable

 

2,784

 

2,660

 

Impairment of accounts receivable

 

(95

)

(60

)

 

 

2,689

 

2,600

 

 

 

 

 

 

 

Accounts receivable related to the steel sector - %

 

77.80

%

82.90

%

 

There are no significant amounts recognized in the income statement related to impairment of accounts receivables for the three-month period ended March 31, 2018 and 2017.

 

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

 

10.           Inventories

 

 

 

March 31, 2018

 

December 31, 2017

 

Product inventory

 

2,218

 

2,219

 

Work in progress

 

737

 

648

 

Consumable inventory

 

1,012

 

1,059

 

Total

 

3,967

 

3,926

 

 

There are no significant amounts recognized in income statement related as a provision in respect of the net realizable value of product inventory for the three-month period ended on March 31, 2018 (reversal of US$37 for the three-month period ended March 31, 2017).

 

Product inventory by segments is presented in note 3(b).

 

16


 


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11.                               Other financial assets and liabilities

 

 

 

Current

 

Non-Current

 

 

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

December 31, 2017

 

Other financial assets

 

 

 

 

 

 

 

 

 

Financial investments

 

7

 

18

 

 

 

Loans

 

 

 

150

 

151

 

Derivative financial instruments (note 20)

 

74

 

106

 

487

 

453

 

Investments in equity securities (note 12)

 

 

 

830

 

 

Related parties - Loans (note 25)

 

295

 

1,898

 

1,580

 

2,628

 

 

 

376

 

2,022

 

3,047

 

3,232

 

Other financial liabilities

 

 

 

 

 

 

 

 

 

Derivative financial instruments (note 20)

 

159

 

104

 

521

 

686

 

Related parties - Loans (note 25)

 

849

 

882

 

975

 

975

 

Participative stockholders’ debentures

 

 

 

1,405

 

1,233

 

 

 

1,008

 

986

 

2,901

 

2,894

 

 

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

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Fertilizers

 

Fertilizers

 

Assets

 

 

 

 

 

Accounts receivable

 

27

 

90

 

Inventories

 

86

 

460

 

Other current assets

 

17

 

110

 

Investments in associates and joint ventures

 

 

83

 

Property, plant and equipment and Intangible

 

322

 

2,149

 

Other non-current assets

 

8

 

695

 

Total assets

 

460

 

3,587

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Suppliers and contractors

 

69

 

324

 

Other current liabilities

 

29

 

215

 

Other non-current liabilities

 

115

 

640

 

Total liabilities

 

213

 

1,179

 

Net non-current assets held for sale

 

247

 

2,408

 

 

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 US$1,080 in cash and 34.2 million common shares, corresponding to 8.9% of Mosaic’s equity after the issuance of these shares (US$899, based on the Mosaic’s quotation at closing date of the transaction) and a loss of US$55 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-month period ended March 31, 2018 a loss of US$35 was recognized 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. The agreed consideration is US$255 to be paid in cash. The Company expects to complete the transaction by the end of 2018, subject to compliance with usual precedent conditions, including approval by the Brazilian anti-trust authority (“CADE”) and other authorities.

 

These assets were adjusted to reflect their fair value less cost to sell and a loss of US$58 was recognized for the three-month period ended March 31, 2018, in the income statement from discontinued operations.

 

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The results and cash flows of discontinued operations of the Fertilizer segment for the three-month period ended March 31, 2018 and 2017 are presented as follows:

 

Income statement

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Discontinued operations

 

 

 

 

 

Net operating revenue

 

89

 

370

 

Cost of goods sold and services rendered

 

(84

)

(339

)

Operating expenses

 

(1

)

(28

)

Impairment of non-current assets

 

(113

)

(111

)

Operating loss

 

(109

)

(108

)

Financial Results, net

 

(4

)

(4

)

Loss before income taxes

 

(113

)

(112

)

Income taxes

 

31

 

30

 

Loss from discontinued operations

 

(82

)

(82

)

Net income attributable to noncontrolling interests

 

 

1

 

Loss attributable to Vale’s stockholders

 

(82

)

(83

)

 

Statement of cash flow

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

Discontinued operations

 

 

 

 

 

Cash flow from operating activities

 

 

 

 

 

Loss before income taxes

 

(113

)

(112

)

Adjustments:

 

 

 

 

 

Impairment of non-current assets

 

113

 

111

 

Increase (decrease) in assets and liabilities

 

(35

)

93

 

Net cash provided by operating activities

 

(35

)

92

 

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

Additions to property, plant and equipment

 

(9

)

(63

)

Net cash used in investing activities

 

(9

)

(63

)

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

Loans and borrowings

 

 

 

 

 

Repayments

 

 

(34

)

Net cash used in financing activities

 

 

(34

)

Net cash used in discontinued operations

 

(44

)

(5

)

 

13.                     Investments in associates and joint ventures

 

a) Changes during the period

 

Changes in investments in associates and joint ventures as follows:

 

 

 

Associates

 

Joint ventures

 

Total

 

Balance at December 31, 2017

 

1,441

 

2,127

 

3,568

 

Additions

 

 

17

 

17

 

Translation adjustment

 

8

 

(12

)

(4

)

Equity results in income statement

 

(3

)

88

 

85

 

Dividends declared

 

 

(27

)

(27

)

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

 

87

 

(4

)

83

 

Balance at March 31, 2018

 

1,533

 

2,189

 

3,722

 

 


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

 

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Associates

 

Joint ventures

 

Total

 

Balance at December 31, 2016

 

1,437

 

2,259

 

3,696

 

Additions

 

 

31

 

31

 

Translation adjustment

 

33

 

58

 

91

 

Equity results in income statement

 

(5

)

78

 

73

 

Dividends declared

 

(8

)

 

(8

)

Balance at March 31, 2017

 

1,457

 

2,426

 

3,883

 

 

b) Guarantees provided

 

As of March 31, 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 US$380 and US$1,473, respectively.

 

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

 

19


 

 


Table of Contents

 

 

Investments in associates and joint ventures (continued)

 

 

 

 

 

 

 

Investments in associates and joint
ventures

 

Equity results in the income
statement

 

Dividends received

 

 

 

 

 

 

 

 

 

December 31,

 

Three-month period ended March
31,

 

Three-month period ended March
31,

 

Associates and joint ventures

 

% ownership

 

% voting capital

 

March 31, 2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

Ferrous minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Baovale Mineração S.A.

 

50.00

 

50.00

 

28

 

26

 

2

 

2

 

 

 

Companhia Coreano-Brasileira de Pelotização

 

50.00

 

50.00

 

104

 

89

 

15

 

12

 

 

 

Companhia Hispano-Brasileira de Pelotização (i)

 

50.89

 

51.00

 

95

 

82

 

15

 

11

 

 

 

Companhia Ítalo-Brasileira de Pelotização (i)

 

50.90

 

51.00

 

95

 

80

 

16

 

7

 

 

 

Companhia Nipo-Brasileira de Pelotização (i)

 

51.00

 

51.11

 

166

 

137

 

30

 

22

 

 

 

MRS Logística S.A.

 

48.16

 

46.75

 

526

 

517

 

12

 

16

 

 

 

VLI S.A.

 

37.60

 

37.60

 

950

 

968

 

(13

)

(13

)

 

 

Zhuhai YPM Pellet Co.

 

25.00

 

25.00

 

24

 

23

 

 

 

 

 

 

 

 

 

 

 

1,988

 

1,922

 

77

 

57

 

 

 

Coal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Henan Longyu Energy Resources Co., Ltd.

 

25.00

 

25.00

 

336

 

317

 

4

 

10

 

 

 

 

 

 

 

 

 

336

 

317

 

4

 

10

 

 

 

Base metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Korea Nickel Corp.

 

25.00

 

25.00

 

14

 

13

 

1

 

1

 

 

 

 

 

 

 

 

 

14

 

13

 

1

 

1

 

 

 

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aliança Geração de Energia S.A. (i)

 

55.00

 

55.00

 

561

 

571

 

19

 

7

 

10

 

 

Aliança Norte Energia Participações S.A. (i)

 

51.00

 

51.00

 

173

 

160

 

7

 

3

 

 

 

California Steel Industries, Inc.

 

50.00

 

50.00

 

221

 

200

 

21

 

9

 

 

 

Companhia Siderúrgica do Pecém

 

50.00

 

50.00

 

219

 

262

 

(42

)

(10

)

 

 

Mineração Rio do Norte S.A.

 

40.00

 

40.00

 

103

 

101

 

3

 

(1

)

 

 

Others

 

 

 

 

 

107

 

22

 

(5

)

(3

)

 

 

 

 

 

 

 

 

1,384

 

1,316

 

3

 

5

 

10

 

 

Total

 

 

 

 

 

3,722

 

3,568

 

85

 

73

 

10

 

 

 


(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.

 

20



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14.                               Intangibles

 

Changes in intangibles are as follows:

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2017

 

4,110

 

4,002

 

152

 

229

 

8,493

 

Additions

 

 

256

 

 

1

 

257

 

Disposals

 

 

(7

)

 

 

(7

)

Amortization

 

 

(33

)

(3

)

(31

)

(67

)

Translation adjustment

 

(58

)

(25

)

(1

)

 

(84

)

Balance at March 31, 2018

 

4,052

 

4,193

 

148

 

199

 

8,592

 

Cost

 

4,052

 

5,275

 

231

 

1,549

 

11,107

 

Accumulated amortization

 

 

(1,082

)

(83

)

(1,350

)

(2,515

)

Balance at March 31, 2018

 

4,052

 

4,193

 

148

 

199

 

8,592

 

 

 

 

Goodwill

 

Concessions

 

Right of use

 

Software

 

Total

 

Balance at December 31, 2016

 

3,081

 

3,301

 

147

 

342

 

6,871

 

Additions

 

 

365

 

 

8

 

373

 

Disposals

 

 

(1

)

 

 

(1

)

Amortization

 

 

(49

)

 

(37

)

(86

)

Translation adjustment

 

50

 

86

 

2

 

11

 

149

 

Balance at March 31, 2017

 

3,131

 

3,702

 

149

 

324

 

7,306

 

Cost

 

3,131

 

4,938

 

226

 

1,594

 

9,889

 

Accumulated amortization

 

 

(1,236

)

(77

)

(1,270

)

(2,583

)

Balance at March 31, 2017

 

3,131

 

3,702

 

149

 

324

 

7,306

 

 

15.                     Property, plant and equipment

 

Changes in property, plant and equipment are as follows:

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2017

 

718

 

12,100

 

11,786

 

6,893

 

9,069

 

8,193

 

6,119

 

54,878

 

Additions (i)

 

 

 

 

 

 

 

519

 

519

 

Disposals

 

 

(36

)

(15

)

(2

)

(4

)

(1

)

(3

)

(61

)

Assets retirement obligation

 

 

 

 

 

38

 

 

 

38

 

Depreciation, amortization and depletion

 

 

(156

)

(184

)

(235

)

(140

)

(189

)

 

(904

)

Translation adjustment

 

(4

)

(69

)

(80

)

(28

)

(152

)

(62

)

74

 

(321

)

Transfers

 

4

 

(1

)

363

 

181

 

201

 

213

 

(961

)

 

Balance at March 31, 2018

 

718

 

11,838

 

11,870

 

6,809

 

9,012

 

8,154

 

5,748

 

54,149

 

Cost

 

718

 

18,947

 

18,436

 

12,922

 

17,375

 

12,503

 

5,748

 

86,649

 

Accumulated depreciation

 

 

(7,109

)

(6,566

)

(6,113

)

(8,363

)

(4,349

)

 

(32,500

)

Balance at March 31, 2018

 

718

 

11,838

 

11,870

 

6,809

 

9,012

 

8,154

 

5,748

 

54,149

 

 

 

 

Land

 

Building

 

Facilities

 

Equipment

 

Mineral
properties

 

Others

 

Constructions
in progress

 

Total

 

Balance at December 31, 2016

 

724

 

10,674

 

9,471

 

6,794

 

8,380

 

7,515

 

11,861

 

55,419

 

Additions (i)

 

 

 

 

 

 

 

503

 

503

 

Disposals

 

 

 

(6

)

(3

)

 

(2

)

(5

)

(16

)

Assets retirement obligation

 

 

 

 

 

36

 

 

 

36

 

Depreciation, amortization and depletion

 

 

(147

)

(167

)

(193

)

(153

)

(173

)

 

(833

)

Translation adjustment

 

17

 

229

 

194

 

97

 

109

 

195

 

323

 

1,164

 

Transfers

 

14

 

831

 

1,432

 

273

 

639

 

771

 

(3,960

)

 

Balance at March 31, 2017

 

755

 

11,587

 

10,924

 

6,968

 

9,011

 

8,306

 

8,722

 

56,273

 

Cost

 

755

 

17,746

 

17,413

 

12,424

 

16,803

 

12,310

 

8,722

 

86,173

 

Accumulated depreciation

 

 

(6,159

)

(6,489

)

(5,456

)

(7,792

)

(4,004

)

 

(29,900

)

Balance at March 31, 2017

 

755

 

11,587

 

10,924

 

6,968

 

9,011

 

8,306

 

8,722

 

56,273

 

 


(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.

 

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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, being able to generate value to its stockholders, through the payment of dividends and capital gain.

 

 

 

March 31, 2018

 

December 31, 2017

 

Debt contracts in the international markets

 

15,337

 

17,288

 

Debt contracts in Brazil

 

4,939

 

5,201

 

Total of loans and borrowings

 

20,276

 

22,489

 

 

 

 

 

 

 

(-) Cash and cash equivalents

 

5,368

 

4,328

 

(-) Financial investments

 

7

 

18

 

Net debt

 

14,901

 

18,143

 

 

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

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

December 31, 2017

 

Debt contracts in the international markets

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

US$

 

622

 

310

 

2,306

 

2,764

 

EUR

 

 

 

246

 

240

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

US$

 

5

 

 

10,839

 

12,588

 

EUR

 

 

 

922

 

900

 

Other currencies

 

25

 

17

 

181

 

206

 

Accrued charges

 

191

 

263

 

 

 

 

 

843

 

590

 

14,494

 

16,698

 

Debt contracts in Brazil

 

 

 

 

 

 

 

 

 

Floating rates in:

 

 

 

 

 

 

 

 

 

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

 

448

 

447

 

3,037

 

3,195

 

Basket of currencies and US$ indexed to LIBOR

 

339

 

339

 

623

 

708

 

Fixed rates in:

 

 

 

 

 

 

 

 

 

R$

 

67

 

68

 

156

 

173

 

Accrued charges

 

269

 

259

 

 

12

 

 

 

1,123

 

1,113

 

3,816

 

4,088

 

 

 

1,966

 

1,703

 

18,310

 

20,786

 

 

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

 

 

 

Principal

 

 

 

 

 

Bank loans

 

Capital markets

 

Development
agencies

 

Total

 

Estimated future
interest payments (i)

 

2018

 

32

 

 

707

 

739

 

1,219

 

2019

 

789

 

 

907

 

1,696

 

1,095

 

2020

 

803

 

830

 

889

 

2,522

 

1,026

 

2021

 

413

 

383

 

861

 

1,657

 

904

 

Between 2022 and 2025

 

652

 

4,888

 

991

 

6,531

 

3,336

 

2026 onwards

 

88

 

6,471

 

112

 

6,671

 

5,319

 

 

 

2,777

 

12,572

 

4,467

 

19,816

 

12,899

 

 


(i) Estimated future payments of interest, calculated based on interest rate curves and foreign exchange rates applicable as at March 31, 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.

 

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At March 31, 2018, the average annual interest rates by currency are as follows:

 

Loans and borrowings

 

Average interest rate (i)

 

Total debt

 

US$

 

5.60

%

14,921

 

R$ (ii)

 

8.13

%

3,970

 

EUR (iii)

 

3.33

%

1,176

 

Other currencies

 

3.31

%

209

 

 

 

 

 

20,276

 

 


(i)        In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable at March 31, 2018.

 

(ii)     R$ denominated debt that bears interest at IPCA, CDI, TR or TJLP, plus spread. For a total of US$1,917 the Company entered into derivative transactions to mitigate the exposure to the cash flow variations of the floating rate debt denominated in R$, resulting in an average cost of 2.08% 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 4.29% per year in US$.

 

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

 

 

 

 

 

Cash flow

 

Non-cash changes

 

 

 

 

 

December 31,
2017

 

Additions

 

Repayments

 

Interest
paid

 

Transferences

 

Effect of
exchange rate

 

Interest
accretion

 

March 31, 2018

 

Loans and borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

1,703

 

 

(2,277

)

(381

)

2,490

 

 

431

 

1,966

 

Non-current

 

20,786

 

 

 

 

(2,490

)

14

 

 

18,310

 

Total

 

22,489

 

 

(2,277

)

(381

)

 

14

 

431

 

20,276

 

 

iii)   Credit and financing lines

 

 

 

Contractual

 

 

 

Period of the

 

 

 

Available amount

 

Type

 

currency

 

Date of agreement

 

agreement

 

Total amount

 

March 31, 2018

 

Credit lines

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facilities

 

US$

 

May 2015

 

5 years

 

3,000

 

3,000

 

Revolving credit facilities

 

US$

 

June 2017

 

5 years

 

2,000

 

2,000

 

Financing lines

 

 

 

 

 

 

 

 

 

 

 

BNDES - CLN 150

 

R$

 

September 2012

 

10 years

 

1,168

 

 

BNDES - S11D e S11D Logística

 

R$

 

May 2014

 

10 years

 

1,854

 

303

 

 

iv) Funding (Repayments)

 

In March 2018, the Company conducted a cash tender offer for Vale Overseas’ 5.875% guaranteed notes due 2021 and 4.375% guaranteed notes due 2022 and repurchased in a cash tender offer a total of US$969 in aggregate principal amount of its 2021 Notes and repurchased US$781 in aggregate principal amount of its 2022 Notes.

 

On April 17, 2018 (event subsequent), the Company redeemed all of Vale Overseas’ 4.625% guaranteed notes due 2020 totaling US$499.

 

v) Guarantees

 

As at March 31, 2018 and December 31, 2017, loans and borrowings are secured by property, plant and equipment in the amount of US$279 and US$275, 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 and interest coverage. The Company has not identified any instances of noncompliance as at March 31, 2018 and December 31, 2017.

 

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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 three-month period ended March 31, 2018 and 2017 are as follows:

 

 

 

2018

 

2017

 

Balance at January 01,

 

996

 

1,077

 

Payments

 

(59

)

(83

)

Interest accretion

 

70

 

47

 

Translation adjustment

 

(5

)

30

 

Balance at March 31,

 

1,002

 

1,071

 

 

 

 

 

 

 

Current liabilities

 

369

 

284

 

Non-current liabilities

 

633

 

787

 

Liabilities

 

1,002

 

1,071

 

 

In addition to the provision above, Vale S.A. made available in the three-month period ended March 31, 2018 the amount of US$14, 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 the second quarter of 2018 up to US$34 to Samarco to support its 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.

 

18.                     Financial instruments classification

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

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

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

5,368

 

 

 

5,368

 

4,328

 

 

4,328

 

Financial investments

 

7

 

 

 

7

 

18

 

 

18

 

Derivative financial instruments

 

 

 

74

 

74

 

 

106

 

106

 

Accounts receivable

 

2,793

 

 

(104

)

2,689

 

2,418

 

182

 

2,600

 

Related parties

 

295

 

 

 

295

 

1,898

 

 

1,898

 

 

 

8,463

 

 

(30

)

8,433

 

8,662

 

288

 

8,950

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

487

 

487

 

 

453

 

453

 

Investments in equity securities

 

 

830

 

 

830

 

 

 

 

Loans

 

150

 

 

 

150

 

151

 

 

151

 

Related parties

 

1,580

 

 

 

1,580

 

2,628

 

 

2,628

 

 

 

1,730

 

830

 

487

 

3,047

 

2,779

 

453

 

3,232

 

Total of financial assets

 

10,193

 

830

 

457

 

11,480

 

11,441

 

741

 

12,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suppliers and contractors

 

3,598

 

 

 

3,598

 

4,041

 

 

4,041

 

Derivative financial instruments

 

 

 

159

 

159

 

 

104

 

104

 

Loans and borrowings

 

1,966

 

 

 

1,966

 

1,703

 

 

1,703

 

Related parties

 

849

 

 

 

849

 

882

 

 

882

 

 

 

6,413

 

 

159

 

6,572

 

6,626

 

104

 

6,730

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

521

 

521

 

 

686

 

686

 

Loans and borrowings

 

18,310

 

 

 

18,310

 

20,786

 

 

20,786

 

Related parties

 

975

 

 

 

975

 

975

 

 

975

 

Participative stockholders’ debentures

 

 

 

1,405

 

1,405

 

 

1,233

 

1,233

 

 

 

19,285

 

 

1,926

 

21,211

 

21,761

 

1,919

 

23,680

 

Total of financial liabilities

 

25,698

 

 

2,085

 

27,783

 

28,387

 

2,023

 

30,410

 

 

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Table of Contents

 

 

19.                     Fair value estimate

 

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

 

 

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

299

 

262

 

561

 

289

 

270

 

559

 

Investments in equity securities

 

830

 

 

 

830

 

 

 

 

Total

 

830

 

299

 

262

 

1,391

 

289

 

270

 

559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

476

 

204

 

680

 

581

 

209

 

790

 

Participative stockholders’ debentures

 

 

1,405

 

 

1,405

 

1,233

 

 

1,233

 

Total

 

 

1,881

 

204

 

2,085

 

1,814

 

209

 

2,023

 

 

The Company changed its accounting estimate on the calculation of the participative stockholders’ debentures from January 1, 2018. The Company has replaced the assumption of spot price at the reporting date used on the calculation 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 three-month period ended in March 31, 2018.

 

The following table presents the changes in Level 3 assets and liabilities for the three-month period ended in March 31, 2018:

 

 

 

Derivative financial instruments

 

 

 

Financial assets

 

Financial liabilities

 

Balance at December 31, 2017

 

270

 

209

 

Gain and losses recognized in income statement

 

(8

)

(5

)

Balance at March 31, 2018

 

262

 

204

 

 

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.

 

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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:

 

Financial liabilities

 

Balance

 

Fair value

 

Level 1

 

Level 2

 

March 31, 2018

 

 

 

 

 

 

 

 

 

Debt principal

 

19,816

 

20,818

 

13,084

 

7,734

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Debt principal

 

21,955

 

23,088

 

14,935

 

8,153

 

 

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.

 

20.                     Derivative financial instruments

 

a)        Derivatives effects on statement of financial position

 

 

 

Assets

 

 

 

March 31, 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

 

22

 

 

38

 

 

IPCA swap

 

8

 

95

 

9

 

82

 

Eurobonds swap

 

 

57

 

 

27

 

Pré-dolar swap

 

22

 

46

 

22

 

32

 

 

 

52

 

198

 

69

 

141

 

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

16

 

1

 

22

 

3

 

Bunker oil

 

6

 

 

15

 

 

 

 

22

 

1

 

37

 

3

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

288

 

 

309

 

 

 

 

288

 

 

309

 

Total

 

74

 

487

 

106

 

453

 

 

 

 

Liabilities

 

 

 

March 31, 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

 

133

 

279

 

95

 

410

 

IPCA swap

 

18

 

16

 

 

 

41

 

Eurobonds swap

 

3

 

 

4

 

 

Pré-dolar swap

 

5

 

20

 

5

 

24

 

 

 

159

 

315

 

104

 

475

 

 

 

 

 

 

 

 

 

 

 

Others

 

 

206

 

 

211

 

 

 

 

206

 

 

211

 

Total

 

159

 

521

 

104

 

686

 

 

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Table of Contents

 

 

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

 

 

 

Three-month period ended March 31,

 

 

 

Gain (loss) recognized in the income
statement

 

Financial settlement inflows
(outflows)

 

 

 

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

 

35

 

181

 

(46

)

(44

)

IPCA swap

 

19

 

24

 

 

 

Eurobonds swap

 

31

 

(27

)

 

(39

)

Euro forward

 

 

46

 

 

 

Pré-dolar swap

 

19

 

23

 

 

 

 

 

104

 

247

 

(46

)

(83

)

Commodities price risk

 

 

 

 

 

 

 

 

 

Nickel

 

4

 

 

12

 

(1

)

Bunker oil

 

 

(72

)

9

 

(23

)

 

 

4

 

(72

)

21

 

(24

)

 

 

 

 

 

 

 

 

 

 

Others

 

(18

)

34

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

90

 

209

 

(25

)

(107

)

 

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 March 31, 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 US$5,103 and EUR750. The foreign exchange gain of US$41 (US$27, net of taxes), was recognized in the “Cumulative translation adjustments” in stockholders’ equity for the three month period ended March 31, 2018. This hedge was highly effective throughout the period ended March 31, 2018.

 

Additional information about derivatives financial instruments

In millions of United States dollars, 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 statistical 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 March 31, 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.

 

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Table of Contents

 

 

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.

 

 

 

Notional

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value by year

 

Flow

 

March 31, 2018

 

December 31, 2017

 

Index

 

Average rate

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

2019

 

2020+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CDI vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

0

 

(33

)

(22

)

6

 

19

 

5

 

(24

)

Receivable

 

R$

2,000

 

R$

3,540

 

CDI

 

99.47

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

612

 

US$

1,104

 

Fix

 

3.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(336

)

(380

)

(26

)

31

 

(51

)

(234

)

(51

)

Receivable

 

R$

2,767

 

R$

2,982

 

TJLP +

 

1.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

1,243

 

US$

1,323

 

Fix

 

1.53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ floating rate swap

 

 

 

 

 

 

 

 

 

(52

)

(54

)

(0

)

3

 

(4

)

(48

)

 

Receivable

 

R$

214

 

R$

216

 

TJLP +

 

0.87

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

122

 

US$

123

 

Libor +

 

-1.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

43

 

25

 

(1

)

25

 

19

 

14

 

10

 

Receivable

 

R$

1,138

 

R$

1,158

 

Fix

 

7.96

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

377

 

US$

385

 

Fix

 

-0.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

(29

)

(35

)

7

 

7

 

 

(13

)

(16

)

Receivable

 

R$

1,000

 

R$

1,000

 

IPCA +

 

6.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payable

 

US$

434

 

US$

434

 

Fix

 

3.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. CDI swap

 

 

 

 

 

 

 

 

 

97

 

85

 

 

0.3

 

3

 

5

 

89

 

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

 

March 31, 2018

 

December 31, 2017

 

Index

 

Average rate

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

2019

 

2020+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EUR fixed rate vs. US$ fixed rate swap

 

 

 

 

 

 

 

 

 

54

 

23

 

(4

)

6

 

 

(3

)

57

 

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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

1,405,000

 

 

B

 

408

 

6

 

 

9

 

3

 

6

 

Put options

 

1,405,000

 

 

S

 

280

 

(0

)

 

 

0

 

(0

)

Total

 

 

 

 

 

 

 

 

 

6

 

 

9

 

3

 

6

 

 

(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.

 

28



Table of Contents

 

 

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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2017

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price sales protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

8,331

 

9,621

 

B

 

11,283

 

17

 

23

 

12

 

3

 

13

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw material purchase protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

176

 

292

 

S

 

12,977

 

(0.1

)

(0.3

)

(0.4

)

0.1

 

(0.1

)

 

Copper forwards

 

55

 

79

 

S

 

7,014

 

0.0

 

(0.0

)

(0.0

)

0.0

 

0.0

 

 

Total

 

 

 

 

 

 

 

 

 

(0.0

)

(0.4

)

(0.4

)

0.1

 

(0.0

)

 

 

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 deposited at Singapore Exchange as initial margin.

 

 

 

Notional (days)

 

 

 

 

 

Fair value

 

Financial Settlement
Inflows (Outflows)

 

Value at Risk

 

Fair value
by year

 

Flow

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/day)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Freight forwards

 

120

 

0

 

C

 

16,413

 

 (0.3

)

 

0

 

0.1

 

(0.3

)

 

d)                           Wheaton Precious Metals Corp. warrants

 

The Company owns warrants of Wheaton Precious Metals Corp. (WPM), a Canadian company and traded on the Toronto Stock Exchange and New York Stock Exchange. These warrants configure American call options and were received as part of the payment regarding the sale of part of the gold payable flows produced as a sub product from the 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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/share)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

10,000,000

 

10,000,000

 

B

 

44

 

26

 

38

 

 

3

 

26

 

 

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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/share)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion       options

 

140,239

 

140,239

 

S

 

8,545

 

 (53

)

  (57

)

 

3

 

  (53

)

 

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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. The Company has the right to buy back this non-controlling interest in the subsidiary. Moreover, under certain restricted 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. In 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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/share)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

2,139

 

2,139

 

B/S

 

1.6

 

239

 

251

 

 

14

 

239

 

 

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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nickel forwards

 

4,047

 

2,627

 

S

 

13,360

 

(0

)

1

 

 

 

2

 

(0

)

Copper forwards

 

2,471

 

2,718

 

S

 

6,986

 

0

 

0

 

 

 

0

 

0

 

Total

 

 

 

 

 

 

 

 

 

0

 

1

 

 

2

 

0

 

 

The Company has a natural gas purchase agreement in containing 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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(US$/ton)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2018

 

2019+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options

 

746,667

 

746,667

 

S

 

233

 

(3

)

(2

)

 

2

 

(0

)

(3

)

 

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

 

March 31, 2018

 

December 31, 2017

 

Bought /
Sold

 

Average strike
(R$/share)

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

March 31, 2018

 

2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put option

 

1,105,070,863

 

1,105,070,863

 

S

 

3.86

 

(128

)

(133

)

 

10

 

(128

)

 

For sensitivity analysis of derivative financial instruments, Financial counterparties’ ratings and market curves please see note 26.

 

21.                            Provisions

 

 

 

Current liabilities

 

Non-current liabilities

 

 

 

March 31, 2018

 

December 31, 2017

 

March 31, 2018

 

December 31, 2017

 

Payroll, related charges and other remunerations (i)

 

563

 

1,101

 

 

 

Onerous contracts

 

91

 

102

 

351

 

364

 

Environment Restoration

 

27

 

30

 

83

 

79

 

Asset retirement obligations

 

83

 

87

 

3,097

 

3,081

 

Provisions for litigation (note 22)

 

 

 

1,522

 

1,473

 

Employee postretirement obligations (note 23)

 

104

 

74

 

1,931

 

2,030

 

Provisions

 

868

 

1,394

 

6,984

 

7,027

 

 


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

 

30



Table of Contents

 

 

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:

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation provision

 

Balance at December 31, 2017

 

750

 

131

 

582

 

10

 

1,473

 

Additions/Reversals

 

 

3

 

42

 

 

45

 

Payments

 

 

 

(18

)

 

(18

)

Additions - discontinued operations

 

29

 

1

 

13

 

 

43

 

Indexation and interest

 

6

 

1

 

(21

)

1

 

(13

)

Translation adjustment

 

(4

)

(2

)

(2

)

 

(8

)

Balance at March 31, 2018

 

781

 

134

 

596

 

11

 

1,522

 

 

 

 

Tax litigation

 

Civil litigation

 

Labor litigation

 

Environmental litigation

 

Total of litigation provision

 

Balance at December 31, 2016

 

214

 

84

 

534

 

7

 

839

 

Additions/Reversals

 

 

(7

)

18

 

1

 

12

 

Payments

 

1

 

(6

)

(19

)

 

(24

)

Indexation and interest

 

8

 

7

 

11

 

(2

)

24

 

Translation adjustment

 

2

 

3

 

16

 

 

21

 

Balance at March 31, 2017

 

225

 

81

 

560

 

6

 

872

 

 

b)        Contingent liabilities

 

Contingent liabilities of 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 are as follows:

 

 

 

March 31, 2018

 

December 31, 2017

 

Tax litigation

 

9,869

 

8,840

 

Civil litigation

 

1,665

 

1,623

 

Labor litigation

 

1,938

 

1,952

 

Environmental litigation

 

2,232

 

2,190

 

Total

 

15,704

 

14,605

 

 

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, ICMS, CFEM, ISS and the application interest and inflation adjustments to the disputed amounts.

 

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.

 

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.

 

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Table of Contents

 

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.

 

 

 

March 31, 2018

 

December 31, 2017

 

Tax litigation

 

1,195

 

1,201

 

Civil litigation

 

58

 

60

 

Labor litigation

 

726

 

712

 

Environmental litigation

 

14

 

13

 

Total

 

1,993

 

1,986

 

 

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 US$6.1 billion (R$20.2 billion).

 

The Framework Agreement signed in March 2016, was ratified by the Federal Regional 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 claim, 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 US$361 (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.

 

(ii) Public civil action filed by Federal Prosecution Office

 

On May 3, 2016, the Federal Prosecution Office (MPF) filed a public civil lawsuit against Samarco and its shareholders and presented several demands, 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 US$47 billion (R$155 billion).

 

In January 2017 Samarco, Vale S.A. and BHPB (together the “Companies”) 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 lawsuits in the amounts of US$6.1 billion (R$20.2 billion) and US$47 billion (R$155 billion), mentioned above, which are currently suspended.

 

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 US$662 (R$2.2 billion), of which (i) US$30 (R$100 million) in financial investments; (ii) US$391 (R$1.3 billion) in insurance bonds; and (iii) US$241 (R$800 million) 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 US$361 (R$1.2 billion) in relation to the US$6.1 billion (R$20.2 billion) public civil action and US$2.3 billion (R$7.7 billion) related US$47 billion (R$155 billion), mentioned above, which are currently suspended.

 

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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 US$60 (R$200 million). 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.

 

Alongside, the parties, together with the plaintiffs of the US$6.1 billion (R$20.2 billion) public civil lawsuit, the State Prosecutors and the Public Defenders, are conducting the discussions regarding the Final Agreement.

 

(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.

 

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. A new schedule was proposed by the parties to the Judge. A decision regarding such new proposed schedule is expected by the parties.

 

Vale S.A. continues to contest this lawsuit.

 

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(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 it was published a decision by means of the Federal Lower Court of Ponte Nova established the resume of the criminal lawsuit and determined the beginning of the Discovery phase. Nevertheless, there has not been any decisions scheduling any hearings since then.

 

(v) Other lawsuits

 

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

 

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 US$158 (R$524 million) 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.

 

23.                               Employee postretirement obligations

 

Reconciliation of net liabilities recognized in the statement of financial position

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Other benefits

 

Overfunded
pension plans

 

Underfunded
pension plans

 

Other benefits

 

Amount recognized in the statement of financial position

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of actuarial liabilities

 

(3,358

)

(4,328

)

(1,370

)

(3,397

)

(4,470

)

(1,410

)

Fair value of assets

 

4,942

 

3,663

 

 

4,828

 

3,776

 

 

Effect of the asset ceiling

 

(1,584

)

 

 

(1,431

)

 

 

Liabilities

 

 

(665

)

(1,370

)

 

(694

)

(1,410

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

(46

)

(58

)

 

(16

)

(58

)

Non-current liabilities

 

 

(619

)

(1,312

)

 

(678

)

(1,352

)

Liabilities

 

 

(665

)

(1,370

)

 

(694

)

(1,410

)

 

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24.                     Stockholders’ equity

 

a)        Share capital

 

As at March 31, 2018, the share capital was US$61,614 corresponding to 5,284,474,782 shares issued and fully paid without par value.

 

 

 

March 31, 2018

 

 

 

ON

 

PNE

 

Total

 

Stockholders

 

 

 

 

 

 

 

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

 

Brazilian Government (Golden Share)

 

 

12

 

12

 

Foreign investors - ADRs

 

1,256,064,074

 

 

1,256,064,074

 

Foreign institutional investors in local market

 

1,161,021,106

 

 

1,161,021,106

 

FMP - FGTS

 

60,235,237

 

 

60,235,237

 

PIBB - Fund

 

2,764,928

 

 

2,764,928

 

Institutional investors

 

276,918,019

 

 

276,918,019

 

Retail investors in Brazil

 

311,175,229

 

 

311,175,229

 

Shares outstanding

 

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)

 

61,614

 

 

61,614

 

 

 

 

 

 

 

 

 

Total authorized shares

 

7,000,000,000

 

 

7,000,000,000

 

 

b) Remuneration to the Company’s stockholders

 

On March 15, 2018, the Company paid to stockholders the minimum mandatory remuneration for the year ended December 31, 2017 based on the interest on capital in the gross amount of US$1,437 (R$4,721 million).

 

25.                   Related parties

 

The Company’s related parties are predominantly 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 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

 

 

 

Three-month period ended March 31,

 

 

 

2018

 

2017

 

 

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Total

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Total

 

Net operating revenue

 

104

 

78

 

48

 

230

 

130

 

82

 

30

 

242

 

Cost and operating expenses

 

(504

)

(21

)

 

(525

)

(330

)

(9

)

(5

)

(344

)

Financial result

 

40

 

 

(53

)

(13

)

(12

)

(9

)

(85

)

(106

)

 

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.

 

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b)        Outstanding balances with related parties

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Joint
Ventures

 

Associates

 

Major
stockholders

 

Others

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

646

 

 

646

 

 

 

817

 

 

817

 

Accounts receivable

 

92

 

162

 

3

 

17

 

274

 

73

 

38

 

3

 

17

 

131

 

Dividends receivable

 

127

 

14

 

 

 

141

 

112

 

14

 

 

 

126

 

Loans

 

1,875

 

 

 

 

1,875

 

4,526

 

 

 

 

4,526

 

Derivatives financial instruments

 

 

 

269

 

 

269

 

 

 

284

 

 

284

 

Other assets

 

17

 

 

 

 

17

 

17

 

 

 

 

17

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplier and contractors

 

252

 

39

 

86

 

16

 

393

 

192

 

20

 

201

 

15

 

428

 

Loans

 

562

 

1,262

 

4,256

 

 

6,080

 

612

 

1,245

 

4,508

 

 

6,365

 

Derivatives financial instruments

 

 

 

89

 

 

89

 

 

 

109

 

 

109

 

Other liabilities

 

 

103

 

 

 

103

 

 

 

16

 

 

16

 

 

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 US$2,572. The outstanding receivable of US$1,875 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 US$40 as at March 31, 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 US$1,182 (US$1,166 as at December 31, 2017), which carries interest at 6.54% p.a.

 

26.                     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 March 31, 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

 

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

 

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Instrument

 

Instrument’s main risk events

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

CDI vs. US$ fixed rate swap

 

R$depreciation

 

0

 

(113

)

(226

)

 

 

US$interest rate inside Brazil decrease

 

0

 

(5

)

(10

)

 

 

Brazilian interest rate increase

 

0

 

1

 

1

 

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ fixed rate swap

 

R$depreciation

 

(338

)

(637

)

(935

)

 

 

US$interest rate inside Brazil decrease

 

(338

)

(351

)

(365

)

 

 

Brazilian interest rate increase

 

(338

)

(356

)

(373

)

 

 

TJLP interest rate decrease

 

(338

)

(356

)

(374

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

TJLP vs. US$ floating rate swap

 

R$depreciation

 

(52

)

(81

)

(111

)

 

 

US$interest rate inside Brazil decrease

 

(52

)

(53

)

(55

)

 

 

Brazilian interest rate increase

 

(52

)

(53

)

(55

)

 

 

TJLP interest rate decrease

 

(52

)

(53

)

(55

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ fixed rate vs. US$ fixed rate swap

 

R$depreciation

 

43

 

(35

)

(114

)

 

 

US$interest rate inside Brazil decrease

 

43

 

31

 

18

 

 

 

Brazilian interest rate increase

 

43

 

19

 

(3

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. US$ fixed rate swap

 

R$depreciation

 

(30

)

(141

)

(252

)

 

 

US$interest rate inside Brazil decrease

 

(30

)

(35

)

(40

)

 

 

Brazilian interest rate increase

 

(30

)

(42

)

(54

)

 

 

IPCA index decrease

 

(30

)

(37

)

(45

)

Protected item: R$ denominated debt

 

R$depreciation

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA vs. CDI swap

 

Brazilian interest rate increase

 

97

 

70

 

45

 

 

 

IPCA index decrease

 

97

 

82

 

66

 

Protected item: R$ denominated debt linked to IPCA

 

IPCA index decrease

 

n.a.

 

(82

)

(66

)

 

 

 

 

 

 

 

 

 

 

EUR fixed rate vs. US$ fixed rate swap

 

EUR depreciation

 

55

 

(125

)

(305

)

 

 

Euribor increase

 

55

 

47

 

39

 

 

 

US$Libor decrease

 

55

 

36

 

15

 

Protected item: EUR denominated debt

 

EUR depreciation

 

n.a.

 

125

 

305

 

 

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Table of Contents

 

 

Instrument

 

Instrument’s main risk events

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

Bunker Oil protection

 

 

 

 

 

 

 

 

 

Forwards and options

 

Bunker Oil price decrease

 

6

 

(20

)

(135

)

Protected item: Part of costs linked to bunker oil prices

 

Bunker Oil price decrease

 

n.a.

 

20

 

135

 

 

 

 

 

 

 

 

 

 

 

Maritime Freight protection

 

 

 

 

 

 

 

 

 

Forwards

 

Freight price decrease

 

(0.3

)

(0.8

)

(1.2

)

Protected item: Part of costs linked to maritime freight prices

 

Freight price decrease

 

n.a.

 

0.8

 

1.2

 

 

 

 

 

 

 

 

 

 

 

Nickel sales fixed price protection

 

 

 

 

 

 

 

 

 

Forwards

 

Nickel price decrease

 

17

 

(11

)

(38

)

Protected item: Part of nickel revenues with fixed prices

 

Nickel price fluctuation

 

n.a.

 

11

 

38

 

 

 

 

 

 

 

 

 

 

 

Purchase protection program

 

 

 

 

 

 

 

 

 

Nickel forwards

 

Nickel price increase

 

(0

)

(1

)

(1

)

Protected item: Part of costs linked to nickel prices

 

Nickel price increase

 

n.a.

 

1

 

1

 

 

 

 

 

 

 

 

 

 

 

Copper forwards

 

Copper price increase

 

0.0

 

(0.1

)

(0.2

)

Protected item: Part of costs linked to copper prices

 

Copper price increase

 

n.a.

 

0.1

 

0.2

 

 

 

 

 

 

 

 

 

 

 

WPM warrants

 

WPM stock price decrease

 

26

 

12

 

3

 

 

 

 

 

 

 

 

 

 

 

Conversion options - VLI

 

VLI stock value increase

 

(53

)

(85

)

(129

)

 

 

 

 

 

 

 

 

 

 

Options - MBR

 

MBR stock value decrease

 

239

 

154

 

90

 

 

 

 

 

 

 

 

 

 

 

Equity securities The Mosaic Company

 

The Mosaic Company stock value decrease

 

830

 

622

 

415

 

 

Instrument

 

Main risks

 

Probable

 

Scenario I

 

Scenario II

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives - Raw material purchase (nickel)

 

Nickel price increase

 

(0

)

(14

)

(27

)

Embedded derivatives - Raw material purchase (copper)

 

Copper price increase

 

0

 

(4

)

(8

)

Embedded derivatives - Gas purchase

 

Pellet price increase

 

(3

)

(6

)

(11

)

Embedded derivatives - Guaranteed minimum return (VLI)

 

VLI stock value decrease

 

(128

)

(262

)

(482

)

 

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 in foreign currency published by agencies Moody’s and S&P regarding the main financial institutions that we had outstanding positions as of March 31, 2018.

 

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Table of Contents

 

 

Long term ratings by counterparty

 

Moody’s

 

S&P

 

ANZ Australia and New Zealand Banking

 

Aa3

 

AA-

 

Banco ABC

 

Ba2

 

BB-

 

Banco Bradesco

 

Ba2

 

BB-

 

Banco do Brasil

 

Ba2

 

BB-

 

Banco de Credito del Peru

 

Baa1

 

BBB+

 

Banco do Nordeste

 

Ba2

 

BB-

 

Banco Safra

 

Ba2

 

BB-

 

Banco Santander

 

A3

 

A-

 

Banco Votorantim

 

Ba2

 

BB-

 

Bank of America

 

A3

 

A-

 

Bank of China

 

A1

 

A

 

Bank of Mandiri

 

Baa3

 

BB+

 

Bank of Nova Scotia

 

A1

 

A+

 

Bank Rakyat

 

Baa3

 

BB+

 

Bank of Tokyo Mitsubishi UFJ

 

A1

 

A-

 

Banpará

 

 

BB-

 

Barclays

 

Baa2

 

BBB

 

BBVA

 

Baa1

 

BBB+

 

BNP Paribas

 

Aa3

 

A

 

BTG Pactual

 

Ba2

 

BB-

 

Caixa Economica Federal

 

Ba2

 

BB-

 

Canadian Imperial Bank

 

A1

 

A+

 

China Construction Bank

 

A1

 

A

 

CIMB Bank

 

A3

 

A-

 

Citigroup

 

Baa1

 

BBB+

 

Credit Agricole

 

A1

 

A

 

Credit Suisse

 

Baa2

 

BBB+

 

Deutsche Bank

 

Baa2

 

A-

 

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

 

 

Rabobank

 

Aa3

 

A+

 

Royal Bank of Canada

 

A1

 

AA-

 

Societe Generale

 

A2

 

A

 

Standard Bank Group

 

Ba1

 

 

Standard Chartered

 

A2

 

BBB+

 

Sumitomo Mitsui Financial

 

A1

 

A-

 

UBS

 

A1

 

A-

 

Unicredit

 

Baa1

 

BBB

 

 

c)                            Market curves

 

(i)       Products

 

Nickel

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

13,245

 

SEP18

 

13,355

 

MAR19

 

13,456

 

APR18

 

13,266

 

OCT18

 

13,374

 

MAR20

 

13,622

 

MAY18

 

13,283

 

NOV18

 

13,390

 

MAR21

 

13,768

 

JUN18

 

13,303

 

DEC18

 

13,406

 

MAR22

 

13,906

 

JUL18

 

13,321

 

JAN19

 

13,424

 

 

 

 

 

AUG18

 

13,339

 

FEB19

 

13,440

 

 

 

 

 

 

Copper

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

Maturity

 

Price (US$/lb)

 

SPOT

 

3.03

 

SEP18

 

3.06

 

MAR19

 

3.09

 

APR18

 

3.04

 

OCT18

 

3.07

 

MAR20

 

3.11

 

MAY18

 

3.04

 

NOV18

 

3.07

 

MAR21

 

3.12

 

JUN18

 

3.05

 

DEC18

 

3.08

 

MAR22

 

3.12

 

JUL18

 

3.05

 

JAN19

 

3.08

 

 

 

 

 

AUG18

 

3.06

 

FEB19

 

3.08

 

 

 

 

 

 

Bunker Oil

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

Maturity

 

Price (US$/ton)

 

SPOT

 

366

 

SEP18

 

364

 

MAR19

 

350

 

APR18

 

367

 

OCT18

 

362

 

MAR20

 

260

 

MAY18

 

368

 

NOV18

 

361

 

MAR21

 

245

 

JUN18

 

368

 

DEC18

 

359

 

MAR22

 

215

 

JUL18

 

367

 

JAN19

 

356

 

 

 

 

 

AUG18

 

365

 

FEB19

 

353

 

 

 

 

 

 

Maritime Freight (Capesize 5TC)

 

Maturity

 

Price (US$/day)

 

Maturity

 

Price (US$/day)

 

Maturity

 

Price (US$/day)

 

SPOT

 

8,339

 

SEP18

 

18,050

 

MAR19

 

13,970

 

APR18

 

10,920

 

OCT18

 

21,150

 

Cal 2019

 

16,850

 

MAY18

 

14,020

 

NOV18

 

21,150

 

Cal 2020

 

16,270

 

JUN18

 

15,640

 

DEC18

 

21,150

 

Cal 2021

 

15,260

 

JUL18

 

16,350

 

JAN19

 

13,970

 

Cal 2022

 

15,240

 

AUG18

 

17,020

 

FEB19

 

13,970

 

 

 

 

 

 

39



Table of Contents

 

 

(ii)   Foreign exchange and interest rates

 

US$-Brazil Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

05/02/18

 

3.27

 

03/01/19

 

3.18

 

07/01/21

 

3.85

 

06/01/18

 

3.10

 

04/01/19

 

3.19

 

10/01/21

 

3.90

 

07/02/18

 

2.95

 

07/01/19

 

3.30

 

01/03/22

 

3.95

 

08/01/18

 

2.95

 

10/01/19

 

3.40

 

04/01/22

 

4.00

 

09/03/18

 

2.91

 

01/02/20

 

3.52

 

07/01/22

 

4.03

 

10/01/18

 

2.97

 

04/01/20

 

3.61

 

10/03/22

 

4.04

 

11/01/18

 

3.04

 

07/01/20

 

3.69

 

01/02/23

 

4.09

 

12/03/18

 

3.03

 

10/01/20

 

3.77

 

07/03/23

 

4.18

 

01/02/19

 

3.11

 

01/04/21

 

3.81

 

01/02/24

 

4.28

 

02/01/19

 

3.16

 

04/01/21

 

3.81

 

07/01/24

 

4.33

 

 

US$ Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

1.88

 

6M

 

2.39

 

11M

 

2.43

 

2M

 

2.03

 

7M

 

2.41

 

12M

 

2.43

 

3M

 

2.31

 

8M

 

2.41

 

2Y

 

2.63

 

4M

 

2.35

 

9M

 

2.42

 

3Y

 

2.76

 

5M

 

2.38

 

10M

 

2.43

 

4Y

 

2.82

 

 

TJLP

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

05/02/18

 

6.75

 

03/01/19

 

6.75

 

07/01/21

 

6.75

 

06/01/18

 

6.75

 

04/01/19

 

6.75

 

10/01/21

 

6.75

 

07/02/18

 

6.75

 

07/01/19

 

6.75

 

01/03/22

 

6.75

 

08/01/18

 

6.75

 

10/01/19

 

6.75

 

04/01/22

 

6.75

 

09/03/18

 

6.75

 

01/02/20

 

6.75

 

07/01/22

 

6.75

 

10/01/18

 

6.75

 

04/01/20

 

6.75

 

10/03/22

 

6.75

 

11/01/18

 

6.75

 

07/01/20

 

6.75

 

01/02/23

 

6.75

 

12/03/18

 

6.75

 

10/01/20

 

6.75

 

07/03/23

 

6.75

 

01/02/19

 

6.75

 

01/04/21

 

6.75

 

01/02/24

 

6.75

 

02/01/19

 

6.75

 

04/01/21

 

6.75

 

07/01/24

 

6.75

 

 

 

BRL Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

05/02/18

 

6.39

 

03/01/19

 

6.27

 

07/01/21

 

8.29

 

06/01/18

 

6.35

 

04/01/19

 

6.30

 

10/01/21

 

8.46

 

07/02/18

 

6.30

 

07/01/19

 

6.48

 

01/03/22

 

8.58

 

08/01/18

 

6.25

 

10/01/19

 

6.75

 

04/01/22

 

8.70

 

09/03/18

 

6.22

 

01/02/20

 

7.03

 

07/01/22

 

8.80

 

10/01/18

 

6.22

 

04/01/20

 

7.29

 

10/03/22

 

8.90

 

11/01/18

 

6.21

 

07/01/20

 

7.53

 

01/02/23

 

8.96

 

12/03/18

 

6.21

 

10/01/20

 

7.78

 

07/03/23

 

9.12

 

01/02/19

 

6.22

 

01/04/21

 

7.96

 

01/02/24

 

9.25

 

02/01/19

 

6.24

 

04/01/21

 

8.14

 

07/01/24

 

9.36

 

 

Implicit Inflation (IPCA)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

05/02/18

 

4.26

 

03/01/19

 

4.13

 

07/01/21

 

4.43

 

06/01/18

 

4.21

 

04/01/19

 

4.16

 

10/01/21

 

4.48

 

07/02/18

 

4.16

 

07/01/19

 

4.10

 

01/03/22

 

4.50

 

08/01/18

 

4.12

 

10/01/19

 

4.19

 

04/01/22

 

4.52

 

09/03/18

 

4.09

 

01/02/20

 

4.20

 

07/01/22

 

4.55

 

10/01/18

 

4.09

 

04/01/20

 

4.26

 

10/03/22

 

4.57

 

11/01/18

 

4.07

 

07/01/20

 

4.29

 

01/02/23

 

4.56

 

12/03/18

 

4.07

 

10/01/20

 

4.35

 

07/03/23

 

4.60

 

01/02/19

 

4.09

 

01/04/21

 

4.36

 

01/02/24

 

4.63

 

02/01/19

 

4.11

 

04/01/21

 

4.41

 

07/01/24

 

4.65

 

 

40



Table of Contents

 

 

EUR Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

-0.41

 

6M

 

-0.30

 

11M

 

-0.27

 

2M

 

-0.38

 

7M

 

-0.29

 

12M

 

-0.26

 

3M

 

-0.37

 

8M

 

-0.28

 

2Y

 

-0.16

 

4M

 

-0.33

 

9M

 

-0.27

 

3Y

 

0.02

 

5M

 

-0.31

 

10M

 

-0.27

 

4Y

 

0.21

 

 

CAD Interest Rate

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

Maturity

 

Rate (% p.a.)

 

1M

 

1.63

 

6M

 

1.89

 

11M

 

1.07

 

2M

 

1.68

 

7M

 

1.64

 

12M

 

0.98

 

3M

 

1.73

 

8M

 

1.44

 

2Y

 

2.19

 

4M

 

1.81

 

9M

 

1.28

 

3Y

 

2.35

 

5M

 

1.86

 

10M

 

1.16

 

4Y

 

2.45

 

 

Currencies - Ending rates

 

CAD/US$

 

0.7752

 

US$/BRL

 

3.3238

 

EUR/US$

 

1.2291

 

 

41



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: April 25, 2018

 

Director of Investor Relations