Vale's Q3 2025: Contradictions Emerge on Dividend Strategy, Copper Growth, and Pellet Demand

Guidance:

• Iron ore full-year C1 cost guidance of $20.5–$22/ton (Q4 C1 expected to increase YOY but full-year range maintained).
• Nickel all-in cost guidance revised to $13,000–$14,000/ton for 2025.
• Copper all-in cost guidance revised to $1,000–$1,500/ton for 2025.
• Full-year CapEx guidance of $5.4–$5.7 billion.
• Expanded net debt target range maintained at $10–$20 billion; expect Q4 free cash flow to bring expanded net debt at least to the midpoint.

Business Commentary:

* Operational Performance and Cost Reduction: - Vale's iron ore production reached 94 million tons in Q3, marking a 4% year-on-year increase and the highest quarterly output since 2018. - Nickel production remained flat year-on-year, but with an increase in own production, thanks to the ramp-up of the Voisey's Bay underground project. - The company significantly reduced its nickel all-in costs by 32% year-on-year, reaching $12,300 per ton. - The improvement in operational metrics was driven by a strategic focus on cost efficiency, increased production capacity, and the ramp-up of new projects.

• Product Portfolio and Pricing:
• Iron ore fines premium increased by nearly $2 per ton quarter-on-quarter, reflecting successful portfolio strategy adjustments.

• This increase in premiums was due to a focus on optimizing product mix and concentration strategies.

• Financial Performance and Cash Flow:

• Pro forma EBITDA reached $4.4 billion in Q3, a 17% increase year-on-year and 28% higher than the previous quarter.
• The company reported recurring free cash flow of $1.6 billion in Q3, a 1 billion dollar year-on-year increase.

• These improvements were supported by robust sales, lower all-in costs, and favorable pricing conditions.

• Safety and Regulatory Compliance:

• Vale fulfilled its public commitment by removing the last dam from emergency Level 3, with the Forquilha III dam status lowered to Level 2.
• The company successfully implemented the Global Industry Standard on Tailings Management, ensuring non-repetition and enhancing safety and operational excellence.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described the quarter as delivering "solid operational and cost performance," highlighted record or best-in-years production (iron ore 94 Mt, copper best Q3 since 2019), pro forma EBITDA of $4.4B (+17% YOY), recurring FCF of $1.6B and total FCF of $2.6B, and said they are "on track to deliver all of our guidances."

Q&A:

• Question from Rodolfo De Angele (JPMorgan Chase & Co, Research Division): Can you provide more color on the portfolio strategy progress and potential going forward? Also, given the strong free cash flow this quarter, how should investors think about dividends as part of capital allocation?
  Response: Portfolio optimization (blending, concentrates, new mid‑grade products) is already yielding meaningful premiums and will be expanded; on capital allocation, management said stability and cash generation make extraordinary dividends likely in coming months though no decision yet.

• Question from Rafael Barcellos (Banco Bradesco BBI S.A., Research Division): Any plans to revise the participating debentures offer structure and implications for dividends? Also, can Vale accelerate copper growth initiatives?
  Response: The debenture offer is concluding with no planned changes and was priced with a premium; it has minimal impact on dividend strategy. Copper growth will be pursued (Pará/Bacaba prioritized), drilling has been tripled and more detail will be provided at Vale Day.

• Question from Leonardo Correa (Banco BTG Pactual S.A., Research Division): Where are you on the S‑curve of commercial optimization and could proposed dividend tax changes in Brazil alter your extraordinary dividend calculus?
  Response: Commercial optimization is early but progressing—actions include new blending/concentration capacity, logistics and recovery improvements with upside dependent on competitors and market; dividend tax risk is being monitored but immediate impact is limited because Vale can use interest on capital to distribute value.

• Question from Carlos de Alba (Morgan Stanley, Research Division): Timing and sequencing for pursuing copper growth projects and how have Base Metals cash costs performed excluding byproduct credits?
  Response: Management will provide sequencing and project detail at Vale Day; life‑of‑business planning has been redesigned, the business is self‑funded and drilling has ramped up. Cost improvements are driven by operational reliability and fixed‑cost dilution across assets, not solely by byproduct credits.

• Question from Caio Ribeiro (BofA Securities, Research Division): Will you consider revising the expanded net debt range? What triggers would bring pellets capacity back and update on briquettes development?
  Response: No near‑term change to the expanded net debt range is planned; the metric remains appropriate while reparations decline. Pellet demand is weak near‑term with expected recovery in 2026–27; briquette trials are underway (industrial trials end of this year/early next) and management is confident about large‑scale applicability.

• Question from Daniel Sasson (Itaú Corretora de Valores S.A., Research Division): How is Samarco's ramp‑up (second concentrator) progressing and could provisions for reparations be reversed? Any update on the U.K. legal case?
  Response: Samarco is ramping (second concentrator ~15 Mt; potential to reach ~28 Mt), operationally strategic but too early to assume provision reversals. The U.K. case is ongoing with a potential phase decision in November; many claimants switched to the Brazil agreement and part of liabilities have been addressed.

• Question from Caio Greiner (UBS Investment Bank, Research Division): How are talks with China Mineral Resources Group progressing and how does Vale internally view expanded net debt versus other obligations?
  Response: Discussions with CMRG are ongoing and aimed at win‑win long‑term solutions given deep historical ties. Expanded net debt is Vale's internal capital‑structure metric (incorporating reparations); perpetual debenture mechanics explained and the company may review the concept as reparations decline.

• Question from Marcio Farid Filho (Goldman Sachs Group, Inc., Research Division): How should investors think about benchmark grade shifts (62%→61%) and product specs (P, Al) and can Vale accelerate scale (including M&A) to regain market positioning?
  Response: Benchmark migration to ~61% is being discussed with PRAs but Vale's products are higher‑grade and will be normalized; firm is engaging on including other specs (P, FeS). Management prefers organic, capital‑efficient growth leveraging Vale's endowment and is focused on disciplined value‑accretive project execution rather than rushed M&A.

Contradiction Point 1

Dividend Strategy and Taxation

It involves Vale's dividend strategy and the impact of potential tax changes on dividends, which are crucial for investor expectations and financial planning.

What are the key details of your portfolio strategy and its potential? How should we assess your dividend strategy in light of strong performance and investor inquiries? - Rodolfo R. De Angele (JPMorgan Chase & Co.)

2025Q3: Most of Vale's minimum dividend policy can be paid using interest on capital, minimizing the impact of potential tax changes. - Marcelo Bacci(CFO)

Are there plans to revise the participating debentures' offering structure? Could changes in Brazil's dividend taxation impact Vale's dividend policy? - Rafael Barcelos

2025Q3: Changes in dividend tax regulation in Brazil do not significantly affect our strategy regarding extraordinary dividends, as most can be paid using interest on capital. - Marcelo Bacci(CFO)

Contradiction Point 2

Copper Growth Initiatives

It reflects differing levels of optimism and prioritization of Vale's copper growth initiatives, which are critical for future revenue and market positioning.

What is Vale's strategy for optimizing its portfolio and where is it in the S-curve of optimization? How might changes in Brazilian tax regulations on dividends affect its dividend strategy? - Leonardo Correa (Banco BTG Pactual S.A.)

2025Q3: Vale is actively optimizing its portfolio by enhancing logistics, concentration capacities, and product allocation. The strategy seeks to maximize value as market demands evolve and competitors adjust their strategies. - Rogério Nogueira(CPO)

Are there plans to revise the participating debenture structure? How would changes to Brazil's dividend taxation impact Vale's dividends? - Rafael Barcelos

2025Q3: We are excited about the development in Carajás. We are accelerating our R&D spend and drilling in the region. We are optimistic about the opportunities for growth. - Gustavo Pimenta(CEO)

Contradiction Point 3

Pellet Demand and Market Dynamics

It involves differing perspectives on pellet demand and market conditions, which are important for pricing and market positioning.

Is Vale considering adjusting its expanded net debt range amid current conditions? What indicators signal readiness to restore pellet capacity, and what is the current status of briquette development? - Caio Ribeiro (BofA Securities)

2025Q3: We are seeing that this product is getting more and more demand from the market. - Rogério Nogueira(CMO)

Can you explain the recent decline in pellet premiums and the impact of China's anti-involution policies? Also, are there plans to renegotiate existing gold streaming agreements? - Daniel Sasson (Itaú BBA)

2025Q2: However, we are interpreting that the outlook for pellet premiums is for a recovery in the second half of 2025. - Rogério Tavares Nogueira(CMO)

Contradiction Point 4

Extraordinary Dividends and Cash Flow Management

It highlights inconsistencies in the company's approach to extraordinary dividends and its relationship with cash flow generation, which is crucial for investor expectations and shareholder returns.

How should we think about dividends as part of the capital allocation strategy given Vale's strong performance? - Rodolfo De Angele (JPMorgan Chase & Co.)

2025Q3: We also believe that with the solid market conditions and strong cash flow we have, this creates opportunities for extraordinary dividends in the coming quarters. - Marcelo Bacci(CFO)

Is there room for extraordinary dividends due to the Aliança Energia deal? - Caio Ribeiro (Bank of America)

2025Q1: We will not be discussing extraordinary dividends, given the current macro uncertainties we are facing, particularly regarding our cash flow outlook. - Marcelo Bacci(CFO)

Contradiction Point 5

Optimization and Strategy for Iron Ore Portfolio

It highlights differing approaches to portfolio optimization, which can impact the company's competitive positioning and market strategy.

Can you elaborate on how you expect this strategy to progress? - Rodolfo De Angele (JPMorgan Chase & Co.)

2025Q3: Vale is proactively optimizing its portfolio, focusing on products with high market demand and Value in Use, VIU, and that means indeed that we have decided to allocate more to the mid-grade from Carajás. - Rogério Nogueira(CSO)

Would Vale consider increasing exposure to Brazilian iron ore deposits given current market conditions? - Carlos de Alba (Morgan Stanley)

2025Q1: Our focus is on maximizing our unique mineral endowment, launching new initiatives like the Carajás initiative for copper and northern range optimization. - Gustavo Pimenta(CEO)