Vale S.A 6-K, filed Oct 28, 2022
Vale S.A. (VALE)
About this 6-K
Vale S.A filed this 6-K on October 28, 2022.
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
October 2022
Vale S.A.
Praia de Botafogo nº 186, 18º andar,
Botafogo
22250-145 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 ¨
(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 ¨ 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 ¨ 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 ¨ No x
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82- .)
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Interim Financial Statements
Contents
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Report of Independent Registered Public Accounting Firm
To the stockholders and Board of Directors of
Vale S.A.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Vale S.A. and its subsidiaries (the “Company”) as of September 30, 2022, and the related consolidated income statement, statement of comprehensive income and cash flows for the three and nine-month periods ended September 30, 2022 and 2021, and the consolidated statement of changes in equity for the nine-month periods ended September 30, 2022 and 2021, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with IAS 34 - Interim Financial Reporting, 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), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated income statement and statement of comprehensive income, changes in equity and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 review in accordance with the standards of the PCAOB. A review of interim financial statements 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.
/s/ PricewaterhouseCoopers Auditores Independentes Ltda.
Rio de Janeiro, RJ, Brazil
October 27, 2022
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In millions of United States dollars, except earnings per share data |
|
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||||
| Notes | 2022 | 2021 | 2022 | 2021 | ||||||
| Continuing operations | ||||||||||
| Net operating revenue | 4(d) | 9,929 | 12,330 | 31,898 | 41,397 | |||||
| Cost of goods sold and services rendered | 5(a) | (6,301) | (5,472) | (16,873) | (15,235) | |||||
| Gross profit | 3,628 | 6,858 | 15,025 | 26,162 | ||||||
| Operating expenses | ||||||||||
| Selling and administrative | 5(b) | (119) | (114) | (367) | (350) | |||||
| Research and development | (170) | (135) | (442) | (372) | ||||||
| Pre-operating and operational stoppage | 23 | (89) | (165) | (354) | (501) | |||||
| Brumadinho event and de-characterization of dams | 21 and 23 | (336) | (161) | (776) | (461) | |||||
| Other operating expenses, net | 5(c) | (51) | (31) | (322) | (121) | |||||
| (765) | (606) | (2,261) | (1,805) | |||||||
| Impairment reversal (impairment and disposals) of non-current assets, net | 14 and 16 | (40) | (63) | 950 | (221) | |||||
| Operating income | 2,823 | 6,189 | 13,714 | 24,136 | ||||||
| Financial income | 6 | 141 | 90 | 428 | 224 | |||||
| Financial expenses | 6 | (221) | (240) | (888) | (851) | |||||
| Other financial items, net | 6 | 2,427 | (200) | 3,386 | 588 | |||||
| Equity results and other results in associates and joint ventures | 13, 14 and 22 | 78 | 128 | 233 | (316) | |||||
| Income before income taxes | 5,248 | 5,967 | 16,873 | 23,781 | ||||||
| Income taxes | 7 | |||||||||
| Current tax | (514) | (2,464) | (1,948) | (5,180) | ||||||
| Deferred tax | (290) | 2,003 | (1,858) | 836 | ||||||
| (804) | (461) | (3,806) | (4,344) | |||||||
| Net income from continuing operations | 4,444 | 5,506 | 13,067 | 19,437 | ||||||
| Net income (loss) attributable to noncontrolling interests | (11) | 29 | 63 | 53 | ||||||
| Net income from continuing operations attributable to Vale's stockholders | 4,455 | 5,477 | 13,004 | 19,384 | ||||||
| Discontinued operations | 14 | |||||||||
| Net income (loss) from discontinued operations | - | (1,548) | 2,060 | (2,465) | ||||||
| Net income (loss) attributable to noncontrolling interests | - | 43 | - | (99) | ||||||
| Net income (loss) from discontinued operations attributable to Vale's stockholders | - | (1,591) | 2,060 | (2,366) | ||||||
| Net income | 4,444 | 3,958 | 15,127 | 16,972 | ||||||
| Net income (loss) attributable to noncontrolling interests | (11) | 72 | 63 | (46) | ||||||
| Net income attributable to Vale's stockholders | 4,455 | 3,886 | 15,064 | 17,018 | ||||||
| Basic and diluted earnings per share attributable to Vale's stockholders: | 8 | |||||||||
| Common share (US$) | 0.98 | 0.76 | 3.22 | 3.36 | ||||||
As described in note 14, the coal segment is presented in these interim financial statements as discontinued operation. Therefore, comparative financial information for the nine-month period ended September 30, 2021 has been restated to reflect the sale of the coal operation.
The accompanying notes are an integral part of these interim financial statements.
| 4 |
Consolidated Statement of Comprehensive Income In millions of United States dollars |
|
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income | 4,444 | 3,958 | 15,127 | 16,972 | ||||
| Other comprehensive income: | ||||||||
| Items that will not be reclassified to income statement | ||||||||
| Translation adjustments | (1,282) | (3,249) | 1,046 | (1,364) | ||||
| Employee post-retirement obligations (note 26) | 8 | 95 | 151 | 411 | ||||
| Fair value adjustment to investment in equity securities (i) | - | 150 | - | 343 | ||||
| (1,274) | (3,004) | 1,197 | (610) | |||||
| Items that may be reclassified to income statement | ||||||||
| Translation adjustments | (187) | 1,380 | (1,236) | 624 | ||||
| Net investment hedge (note 17) | (47) | (127) | 27 | (85) | ||||
| Cash flow hedge (note 17) | 40 | 10 | 48 | (16) | ||||
| Reclassification of cumulative translation adjustment to income statement (notes 13 and 14) | (1,608) | (10) | (4,830) | (1,552) | ||||
| (1,802) | 1,253 | (5,991) | (1,029) | |||||
| Total comprehensive income | 1,368 | 2,207 | 10,333 | 15,333 | ||||
| Comprehensive income (loss) attributable to noncontrolling interests | (10) | 69 | 58 | (47) | ||||
| Comprehensive income attributable to Vale's stockholders | 1,378 | 2,138 | 10,275 | 15,380 | ||||
(i) Fair value adjustment to shares received as part of the consideration for the sale of Vale’s fertilizer business to The Mosaic Company. In November 2021, the Company sold all shares for US$1,259 in a block trade.
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 |
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Consolidated Statement of Cash Flows In millions of United States dollars |
|
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Cash flows from operations (a) | 4,591 | 10,324 | 15,860 | 29,186 | ||||
| Interest on loans and borrowings paid (note 20) | (194) | (173) | (650) | (599) | ||||
| Cash received (paid) on settlement of derivatives, net (note 17) | 100 | 22 | (18) | (117) | ||||
| Payments related to Brumadinho event (note 21) | (423) | (93) | (806) | (384) | ||||
| Payments related to de-characterization of dams (note 23) | (95) | (93) | (247) | (254) | ||||
| Interest on participative stockholders' debentures paid (note 19) | - | - | (235) | (193) | ||||
| Income taxes (including settlement program) (note 7) | (582) | (991) | (4,372) | (3,434) | ||||
| Net cash generated from operating activities from continuing operations | 3,397 | 8,996 | 9,532 | 24,205 | ||||
| Net cash generated (used) in operating activities from discontinued operations (note 14) | - | 55 | 41 | (406) | ||||
| Net cash generated from operating activities | 3,397 | 9,051 | 9,573 | 23,799 | ||||
| Cash flow from investing activities: | ||||||||
| Capital expenditures (note 4b) | (1,230) | (1,199) | (3,659) | (3,282) | ||||
| Proceeds from sale of Midwestern System, net of cash (note 14) | 140 | - | 140 | - | ||||
| Disbursement on VNC sale (note 14) | - | - | - | (555) | ||||
| Proceeds from sale of CSI (note 14) | - | - | 437 | - | ||||
| Dividends received from associates and joint ventures (note 13) | 28 | 5 | 164 | 48 | ||||
| Short-term investment | 118 | 424 | 221 | 251 | ||||
| Other investing activities, net | (70) | 18 | (22) | (308) | ||||
| Net cash used in investing activities from continuing operations | (1,014) | (752) | (2,719) | (3,846) | ||||
| Net cash used in investing activities from discontinued operations (note 14) | - | (49) | (103) | (2,388) | ||||
| Net cash used in investing activities | (1,014) | (801) | (2,822) | (6,234) | ||||
| Cash flow from financing activities: | ||||||||
| Loans and borrowings from third parties (note 20) | 150 | - | 775 | 300 | ||||
| Payments of loans and borrowings from third parties (note 20) | (448) | (111) | (2,276) | (1,523) | ||||
| Payments of leasing (note 20) | (48) | (55) | (146) | (152) | ||||
| Dividends and interest on capital paid to stockholders (note 27c) | (3,123) | (7,391) | (6,603) | (13,483) | ||||
| Dividends and interest on capital paid to noncontrolling interest | (3) | (3) | (10) | (9) | ||||
| Share buyback program (note 27d) | (686) | (2,841) | (5,070) | (4,845) | ||||
| Net cash used in financing activities from continuing operations | (4,158) | (10,401) | (13,330) | (19,712) | ||||
| Net cash used in financing activities from discontinued operations (note 14) | - | (3) | (11) | (10) | ||||
| Net cash used in financing activities | (4,158) | (10,404) | (13,341) | (19,722) | ||||
| Increase (reduction) in cash and cash equivalents | (1,775) | (2,154) | (6,590) | (2,157) | ||||
| Cash and cash equivalents at the beginning of the period | 7,185 | 13,649 | 11,721 | 13,487 | ||||
| Effect of exchange rate changes on cash and cash equivalents | (228) | (638) | 62 | (473) | ||||
| Cash and cash equivalents from subsidiaries sold, net (note 14) | - | - | (11) | - | ||||
| Cash and cash equivalents at end of the period | 5,182 | 10,857 | 5,182 | 10,857 | ||||
| Cash flow from operating activities: | ||||||||
| Income before taxation | 5,248 | 5,967 | 16,873 | 23,781 | ||||
| Adjusted for: | ||||||||
| Equity results and other results in associates and joint ventures (note 13) | (78) | (128) | (233) | 316 | ||||
| Impairment and disposals (impairment reversal) of non-current assets, net (note 14) | 40 | 63 | (950) | 221 | ||||
| Provisions for Brumadinho (note 21) | 141 | - | 267 | - | ||||
| Provision for de-characterization of dams (note 23) | 35 | - | 72 | - | ||||
| Depreciation, depletion and amortization | 775 | 649 | 2,271 | 2,212 | ||||
| Financial results, net (note 6) | (2,347) | 350 | (2,926) | 39 | ||||
| Changes in assets and liabilities: | - | - | - | - | ||||
| Accounts receivable (note 9) | 3 | 3,870 | 1,782 | 4,171 | ||||
| Inventories (note 10) | (287) | (588) | (896) | (926) | ||||
| Suppliers and contractors (note 11) (i) | 1,169 | 322 | 929 | 354 | ||||
| Payroll and other compensation | 158 | 61 | (97) | (143) | ||||
| Other assets and liabilities, net | (266) | (242) | (1,232) | (839) | ||||
| Cash flows generated from operations (a) | 4,591 | 10,324 | 15,860 | 29,186 | ||||
| Non-cash transactions: | ||||||||
| Additions to property, plant and equipment - capitalized loans and borrowing costs | 9 | 14 | 40 | 44 | ||||
(i) Includes variable lease payments.
The accompanying notes are an integral part of these interim financial statements.
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|
In millions of United States dollars |
|
| Notes | September 30, 2022 | December 31, 2021 | ||||
| Assets | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 20 | 5,182 | 11,721 | |||
| Short-term investments | 20 | 42 | 184 | |||
| Accounts receivable | 9 | 2,150 | 3,914 | |||
| Other financial assets | 12 | 152 | 111 | |||
| Inventories | 10 | 5,268 | 4,377 | |||
| Recoverable taxes | 7(e) | 858 | 862 | |||
| Other | 270 | 215 | ||||
| 13,922 | 21,384 | |||||
| Non-current assets held for sale | - | 976 | ||||
| 13,922 | 22,360 | |||||
| Non-current assets | ||||||
| Judicial deposits | 25(c) | 1,289 | 1,220 | |||
| Other financial assets | 12 | 236 | 143 | |||
| Recoverable taxes | 7(e) | 1,114 | 935 | |||
| Deferred income taxes | 7(a) | 9,825 | 11,441 | |||
| Other | 890 | 650 | ||||
| 13,354 | 14,389 | |||||
| Investments in associates and joint ventures | 13 | 1,795 | 1,751 | |||
| Intangible | 15 | 9,344 | 9,011 | |||
| Property, plant and equipment | 16 | 42,196 | 41,931 | |||
| 66,689 | 67,082 | |||||
| Total assets | 80,611 | 89,442 |
| Liabilities | ||||||
| Current liabilities | ||||||
| Suppliers and contractors | 11 | 4,735 | 3,475 | |||
| Loans, borrowings, and leases | 20 | 447 | 1,204 | |||
| Other financial liabilities | 12 | 1,466 | 1,962 | |||
| Taxes payable | 7(e) | 303 | 2,177 | |||
| Settlement program ("REFIS") | 7(c) | 351 | 324 | |||
| Liabilities related to associates and joint ventures | 22 | 2,027 | 1,785 | |||
| Provisions | 24 | 929 | 1,045 | |||
| Liabilities related to Brumadinho | 21 | 1,318 | 1,156 | |||
| De-characterization of dams and asset retirement obligations | 23 | 700 | 621 | |||
| Other | 718 | 1,094 | ||||
| 12,994 | 14,843 | |||||
| Liabilities associated with non-current assets held for sale | - | 355 | ||||
| 12,994 | 15,198 | |||||
| Non-current liabilities | ||||||
| Loans, borrowings, and leases | 20 | 11,757 | 12,578 | |||
| Participative stockholders' debentures | 19 | 2,659 | 3,419 | |||
| Other financial liabilities | 12 | 1,948 | 2,571 | |||
| Settlement program ("REFIS") | 7(c) | 1,861 | 1,964 | |||
| Deferred income taxes | 7(a) | 1,608 | 1,881 | |||
| Provisions | 24 | 2,349 | 3,419 | |||
| Liabilities related to Brumadinho | 21 | 1,913 | 2,381 | |||
| De-characterization of dams and asset retirement obligations | 23 | 5,926 | 7,482 | |||
| Liabilities related to associates and joint ventures | 22 | 1,117 | 1,327 | |||
| Streaming transactions | 1,629 | 1,779 | ||||
| Other | 178 | 137 | ||||
| 32,945 | 38,938 | |||||
| Total liabilities | 45,939 | 54,136 | ||||
| Stockholders' equity | 27 | |||||
| Equity attributable to Vale's stockholders | 33,202 | 34,472 | ||||
| Equity attributable to noncontrolling interests | 1,470 | 834 | ||||
| Total stockholders' equity | 34,672 | 35,306 | ||||
| Total liabilities and stockholders' equity | 80,611 | 89,442 |
The accompanying notes are an integral part of these interim financial statements.
| 7 |
|
Consolidated Statement of Changes in Equity In millions of United States dollars |
|
| Share capital | Capital reserve | Profit reserves | Treasury stocks | Other reserves | Cumulative translation adjustments | Retained earnings | Equity attributable to Vale’s stockholders | Equity attributable to noncontrolling interests | Total stockholders' equity | |||||||||
| Balance at December 31, 2021 | 61,614 | 1,139 | 15,702 | (5,579) | (1,960) | (36,444) | - | 34,472 | 834 | 35,306 | ||||||||
| Net income | - | - | - | - | - | - | 15,064 | 15,064 | 63 | 15,127 | ||||||||
| Other comprehensive income | - | - | 1,021 | - | 191 | (6,001) | - | (4,789) | (5) | (4,794) | ||||||||
| Dividends and interest on capital of Vale's stockholders (note 27c) | - | - | (3,500) | - | - | - | (3,000) | (6,500) | - | (6,500) | ||||||||
| Dividends of noncontrolling interests | - | - | - | - | - | - | - | - | (6) | (6) | ||||||||
| Derecognition of noncontrolling interests | - | - | - | - | - | - | - | - | 584 | 584 | ||||||||
| Share buyback (note 27d) | - | - | - | (5,070) | - | - | - | (5,070) | - | (5,070) | ||||||||
| Share-based payment | - | - | - | - | 6 | - | - | 6 | - | 6 | ||||||||
| Treasury shares used and cancelled (note 27b) | - | - | (6,616) | 6,635 | - | - | - | 19 | - | 19 | ||||||||
| Balance at September 30, 2022 | 61,614 | 1,139 | 6,607 | (4,014) | (1,763) | (42,445) | 12,064 | 33,202 | 1,470 | 34,672 | ||||||||
| Share capital | Capital reserve | Profit reserves | Treasury stocks | Other reserves | Cumulative translation adjustments | Retained earnings | Equity attributable to Vale’s stockholders | Equity attributable to noncontrolling interests | Total stockholders' equity | |||||||||
| Balance at December 31, 2020 | 61,614 | 1,139 | 7,042 | (2,441) | (2,056) | (29,554) | - | 35,744 | (923) | 34,821 | ||||||||
| Net income (loss) | - | - | - | - | - | - | 17,018 | 17,018 | (46) | 16,972 | ||||||||
| Other comprehensive income | - | - | (211) | - | 760 | (2,187) | - | (1,638) | (1) | (1,639) | ||||||||
| Dividends and interest on capital of Vale's stockholders (note 27c) | - | - | (4,319) | - | - | - | (8,368) | (12,687) | - | (12,687) | ||||||||
| Dividends of noncontrolling interests | - | - | - | - | - | - | - | - | (24) | (24) | ||||||||
| Acquisitions and derecognition of noncontrolling interests | - | - | - | - | (331) | - | - | (331) | 1,761 | 1,430 | ||||||||
| Share buyback (note 27d) | - | - | - | (4,845) | - | - | (4,845) | - | (4,845) | |||||||||
| Share-based payment | - | - | - | - | 54 | - | - | 54 | - | 54 | ||||||||
| Treasury shares used and cancelled (note 27b) | - | - | (2,401) | 2,408 | - | - | - | 7 | - | 7 | ||||||||
| Balance at September 30, 2021 | 61,614 | 1,139 | 111 | (4,878) | (1,573) | (31,741) | 8,650 | 33,322 | 767 | 34,089 |
The accompanying notes are an integral part of these interim financial statements.
| 8 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
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) and Madrid – LATIBEX (XVALO).
Vale S.A. and its subsidiaries (“Vale” or the “Company”) are global producers of: (i) iron ore and iron ore pellets, which are key raw materials for steelmaking, (ii) nickel, that is used to produce stainless steel, electric vehicles and metal alloys employed in the production process of several products, (iii) copper, used in the construction sector to produce pipes and electrical wires, and (iv) platinum, gold, silver, and cobalt as by-products of nickel and copper. Most of the Company’s products are sold to international markets by Vale International S.A. (“VISA”), a trading company located in Switzerland.
Vale also operates a railroad and port logistics system in Brazil to outflow its production and Vale has equity investments and assets with the objective of reducing energy costs, minimizing the risk of shortages and meeting its energy consumption needs through renewable sources.
In the second quarter of 2022, the Company concluded the sale of the thermal and metallurgical coal operations, as presented in note 14. Therefore, the results from coal operation until closing are presented in these interim financial statements as “discontinued operations”.
2. Basis of preparation of interim financial statements
The 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”). All relevant information for the interim financial statements, and only this information, are presented and consistent to those used by the Company's Management.
The interim financial statements have been prepared to update users on the relevant events and transactions that occurred in the period and must be analyzed together with the financial statements for the year ended December 31, 2021. Accounting policies, accounting estimates and judgments, management of risk and measurement methods are the same as those adopted in the preparation of the latest annual financial statements.
These interim financial statements were authorized for issue by the Company’s Board of Directors in a meeting held on October 27, 2022.
a) Functional currency and presentation currency
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”), in the case of the Parent Company is the Brazilian real (“R$”). For presentation purposes, these financial statements are presented in United States dollar (“US$”) as the Company believes that this is how international investors analyze the financial statements.
The main exchange rates used by the Company to translate its foreign operations are as follows:
| Average rate | ||||||||||||
| Closing rate | Three-month period ended September 30, | Nine-month period ended September 30, | ||||||||||
| September 30, 2022 | December 31, 2021 | 2022 | 2021 | 2022 | 2021 | |||||||
| US Dollar ("US$") | 5.4066 | 5.5805 | 5.2462 | 5.2286 | 5.1360 | 5.3317 | ||||||
| Canadian dollar ("CAD") | 3.9318 | 4.3882 | 4.0189 | 4.1517 | 4.0024 | 4.2624 | ||||||
| Euro ("EUR") | 5.2904 | 6.3210 | 5.2838 | 6.1623 | 5.4629 | 6.3769 | ||||||
| 9 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
b) Russia-Ukraine conflict
The Company’s business is subject to external risk factors related to our global operations and the global profile of our client portfolio and supply chains. Global markets are experiencing volatility and disruption following the escalation of geopolitical tensions in connection with the military conflict between Russia and Ukraine.
The resulting economic sanctions imposed by the United States, Canada, the European Union, the UK and other countries as a direct consequence of this conflict may continue to significantly impact supply chains, lead to market disruptions including significant volatility in commodities’ prices and bring heightened near-term uncertainty to the global financial system, including through instability of credit and of capital markets.
At this time, the effects of the Russia-Ukraine conflict have not caused significant impacts on the Company’s operations nor on the fair value of its assets and liabilities. However, escalation of the Russia-Ukraine conflict may adversely affect the Company’s business, such as disruption of international trade flows, extreme market pricing volatility, with particular impact on the energy sector, industrial and agricultural supply chains, shipping, and regulatory and contractual uncertainty, and increased geopolitical tensions around the world.
3. Significant events of the current period
Balance Sheet, Cash Flows and Income Statement were particularly affected by the following events and transactions during the three-month period ended September 30, 2022:
Capital reduction in a foreign subsidiary (notes 6 and 13). In August 2022, the Company approved the capital reduction of VISA in the amount of US$1,500, which has generated a gain of US$1,543, recorded under “Other financial items, net”, due to the reclassification of the cumulative translation adjustments from stockholders’ equity to the income statement.
Sale of Midwestern System assets (note 14). In July 2022, the Company concluded the sale of the Midwestern System to J&F Mineração Ltda. (“J&F”) and received US$153, in addition to transferring to J&F the obligations related to the take-or-pay logistics contracts. These assets were classified as held for sale and a gain of US$1,121 was recorded in the nine-month period ended September 30, 2022, due to the reversal of the impairment of property, plant and equipment and the remeasurement of the onerous contract liability. In addition, the Company recognized a gain of US$37 due to the reclassification of the cumulative translation adjustments from stockholders’ equity to the income statement.
Sale of Companhia Siderúrgica do Pecém (“CSP”) (note 14). In July 2022, the Company and the other shareholders of CSP signed a binding agreement with ArcelorMittal for the sale of CSP for approximately US$2,132, which will be received at the closing of the transaction and it will be fully used for the early settlement of CSP's net debt in the amount of approximately US$2,300. The Company does not expect any material impact at closing, which is expected to occur in the first quarter 2023, subject to customary regulatory approvals.
Share buyback (note 27d). During the three-month period ended September 30, 2022, the Company repurchased 48,670,681 common shares and their respective ADRs, corresponding to US$686, of which US$358 were acquired through wholly owned subsidiaries and US$328 by the Parent Company.
Cancellation of common shares held in treasury (note 27b). In July 2022, the Company approved the cancellation of 220,150,800 common shares held in treasury. The effect of US$3,786 was recorded in shareholders' equity as “Treasury shares used and cancelled”.
Stockholder’s remuneration (note 27c). In July 2022, the Company approved the remuneration to its shareholders in the amount of US$3,000, which was fully paid in September 2022.
| 10 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
4. Information by business segment and geographic area
The Company operates the following reportable segments: Ferrous Minerals, Base Metals and Coal (presented as discontinued operations). The segments are aligned with products and reflect the structure used by Management to evaluate the Company’s performance. The responsible bodies for making operational decisions, allocating resources and evaluating performance are the Executive Boards and Board of Directors. Accordingly, the performance of the operating segments is assessed based on a measure of adjusted EBITDA, among other measures.
The Company allocates to “Other” the revenues and cost of other products, services, research and development, investments in joint ventures and associates of other business and unallocated corporate expenses. Costs related to the Brumadinho event are allocated to "Other" as well.
In 2022, the Company has allocated the financial information of the Midwestern System to “Other” as this operation is no longer analyzed by the chief operating decision maker as part of to the performance of the Ferrous Minerals business segment due to the binding agreement to sell this operation. The comparative information was reclassified to reflect the revision in the allocation criteria.
a) Adjusted EBITDA
The definition of Adjusted EBITDA for the Company is the operating income or loss plus dividends received and interest from associates and joint ventures, and excluding the amounts charged as (i) depreciation, depletion and amortization and (ii) impairment reversal (impairment and disposals) of non-current assets, net.
| Three-month period ended September 30, 2022 | ||||||||||||||
| Net operating revenue | Cost of goods sold and services rendered | Sales, administrative and other operating expenses | Research and development | Pre operating and operational stoppage | Dividends received and interest from associates and joint ventures | Adjusted EBITDA | ||||||||
| Ferrous minerals | ||||||||||||||
| Iron ore | 6,053 | (3,095) | (44) | (46) | (63) | 1 | 2,806 | |||||||
| Iron ore pellets | 1,656 | (714) | (7) | (1) | (5) | 4 | 933 | |||||||
| Other ferrous products and services | 118 | (82) | 4 | (2) | (4) | - | 34 | |||||||
| 7,827 | (3,891) | (47) | (49) | (72) | 5 | 3,773 | ||||||||
| Base metals | ||||||||||||||
| Nickel and other products | 1,563 | (1,325) | 2 | (31) | - | - | 209 | |||||||
| Copper | 479 | (275) | (8) | (38) | (3) | - | 155 | |||||||
| 2,042 | (1,600) | (6) | (69) | (3) | - | 364 | ||||||||
| Brumadinho event and de-characterization of dams | - | - | (336) | - | - | - | (336) | |||||||
| Other | 60 | (58) | (108) | (52) | - | 23 | (135) | |||||||
| Total | 9,929 | (5,549) | (497) | (170) | (75) | 28 | 3,666 | |||||||
| Three-month period ended September 30, 2021 | ||||||||||||||
| Net operating revenue | Cost of goods sold and services rendered | Sales, administrative and other operating expenses | Research and development | Pre operating and operational stoppage | Dividends received and interest from associates and joint ventures | Adjusted EBITDA | ||||||||
| Ferrous minerals | ||||||||||||||
| Iron ore | 8,418 | (2,993) | (31) | (53) | (61) | - | 5,280 | |||||||
| Iron ore pellets | 2,009 | (612) | (2) | (1) | (10) | - | 1,384 | |||||||
| Other ferrous products and services | 139 | (109) | 1 | (1) | (4) | - | 26 | |||||||
| 10,566 | (3,714) | (32) | (55) | (75) | - | 6,690 | ||||||||
| Base metals | ||||||||||||||
| Nickel and other products | 896 | (782) | 57 | (20) | (52) | - | 99 | |||||||
| Copper | 678 | (242) | (6) | (23) | (1) | - | 406 | |||||||
| 1,574 | (1,024) | 51 | (43) | (53) | - | 505 | ||||||||
| Brumadinho event and de-characterization of dams | - | - | (161) | - | - | - | (161) | |||||||
| COVID-19 | - | - | (10) | - | - | - | (10) | |||||||
| Other (i) | 190 | (131) | (144) | (37) | (1) | 5 | (118) | |||||||
| Total of continuing operations | 12,330 | (4,869) | (296) | (135) | (129) | 5 | 6,906 | |||||||
| Discontinued operations - Coal | 352 | (314) | (5) | (1) | - | - | 32 | |||||||
| Total | 12,682 | (5,183) | (301) | (136) | (129) | 5 | 6,938 | |||||||
| 11 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
(i) Includes the reclassification of the EBITDA of Midwestern System in the amount of US$40.
| Nine-month period ended September 30, 2022 | ||||||||||||||
| Net operating revenue | Cost of goods sold and services rendered | Sales, administrative and other operating expenses | Research and development | Pre operating and operational stoppage | Dividends received and interest from associates and joint ventures | Adjusted EBITDA | ||||||||
| Ferrous minerals | ||||||||||||||
| Iron ore | 20,421 | (8,185) | (147) | (125) | (250) | 1 | 11,715 | |||||||
| Iron ore pellets | 4,800 | (1,947) | - | (2) | (16) | 75 | 2,910 | |||||||
| Other ferrous products and services | 365 | (253) | 2 | (4) | (13) | - | 97 | |||||||
| 25,586 | (10,385) | (145) | (131) | (279) | 76 | 14,722 | ||||||||
| Base metals | ||||||||||||||
| Nickel and other products | 4,568 | (3,163) | (18) | (73) | - | - | 1,314 | |||||||
| Copper | 1,281 | (770) | (5) | (94) | (8) | - | 404 | |||||||
| 5,849 | (3,933) | (23) | (167) | (8) | - | 1,718 | ||||||||
| Brumadinho event and de-characterization of dams | - | - | (776) | - | - | - | (776) | |||||||
| Other (i) | 463 | (381) | (489) | (144) | (2) | 23 | (530) | |||||||
| Total of continuing operations | 31,898 | (14,699) | (1,433) | (442) | (289) | 99 | 15,134 | |||||||
| Discontinued operations - Coal | 448 | (264) | (12) | (1) | - | - | 171 | |||||||
| Total | 32,346 | (14,963) | (1,445) | (443) | (289) | 99 | 15,305 | |||||||
(i) Includes the reclassification of the EBITDA of Midwestern System in the amount of US$77.
| Nine-month period ended September 30, 2021 | ||||||||||||||
| Net operating revenue | Cost of goods sold and services rendered | Sales, administrative and other operating expenses | Research and development | Pre operating and operational stoppage | Dividends received and interest from associates and joint ventures | Adjusted EBITDA | ||||||||
| Ferrous minerals | ||||||||||||||
| Iron ore | 29,559 | (7,764) | (114) | (129) | (226) | - | 21,326 | |||||||
| Iron ore pellets | 5,164 | (1,515) | 29 | (2) | (36) | 22 | 3,662 | |||||||
| Other ferrous products and services | 432 | (308) | 2 | (2) | (12) | - | 112 | |||||||
| 35,155 | (9,587) | (83) | (133) | (274) | 22 | 25,100 | ||||||||
| Base metals | ||||||||||||||
| Nickel and other products | 3,822 | (2,512) | 22 | (49) | (112) | - | 1,171 | |||||||
| Copper | 1,920 | (637) | (7) | (62) | (3) | - | 1,211 | |||||||
| 5,742 | (3,149) | 15 | (111) | (115) | - | 2,382 | ||||||||
| Brumadinho event and de-characterization of dams | - | - | (461) | - | - | - | (461) | |||||||
| COVID-19 | - | - | (28) | - | - | - | (28) | |||||||
| Other (i) | 500 | (425) | (346) | (128) | (3) | 26 | (376) | |||||||
| Total of continuing operations | 41,397 | (13,161) | (903) | (372) | (392) | 48 | 26,617 | |||||||
| Discontinued operations - Coal | 605 | (966) | (3) | (5) | - | 78 | (291) | |||||||
| Total | 42,002 | (14,127) | (906) | (377) | (392) | 126 | 26,326 | |||||||
(i) Includes the reclassification of the EBITDA of Midwestern System in the amount of US$120.
| 12 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
Adjusted EBITDA is reconciled to net income as follows:
Continuing operations
|
Three-month period ended September 30, |
Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income from continuing operations attributable to Vale's stockholders | 4,455 | 5,477 | 13,004 | 19,384 | ||||
| Net income (loss) attributable to noncontrolling interests | (11) | 29 | 63 | 53 | ||||
| Net income | 4,444 | 5,506 | 13,067 | 19,437 | ||||
| Depreciation, depletion and amortization | 775 | 649 | 2,271 | 2,212 | ||||
| Income taxes | 804 | 461 | 3,806 | 4,344 | ||||
| Financial results | (2,347) | 350 | (2,926) | 39 | ||||
| Equity results and other results in associates and joint ventures | (78) | (128) | (233) | 316 | ||||
| Dividends received from associates and joint ventures | 28 | 5 | 99 | 48 | ||||
| Impairment and disposals (impairment reversal) of non-current assets, net | 40 | 63 | (950) | 221 | ||||
| Adjusted EBITDA from continuing operations | 3,666 | 6,906 | 15,134 | 26,617 | ||||
Discontinued operations (Coal)
| Three-month period ended September 30, |
Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income (loss) from discontinued operations attributable to Vale's stockholders | - | (1,591) | 2,060 | (2,366) | ||||
| Net income (loss) attributable to noncontrolling interests | - | 43 | - | (99) | ||||
| Net income (loss) | - | (1,548) | 2,060 | (2,465) | ||||
| Depreciation, depletion and amortization | - | 51 | - | 68 | ||||
| Income taxes | - | (821) | 2 | (821) | ||||
| Financial results | - | 23 | (3,065) | (363) | ||||
| Derecognition of noncontrolling interest | - | - | 585 | - | ||||
| Equity results in associates and joint ventures | - | - | - | 26 | ||||
| Dividends received and interest from associates and joint ventures (i) | - | - | - | 78 | ||||
| Impairment of non-current assets, net | - | 2,327 | 589 | 3,186 | ||||
| Adjusted EBITDA from discontinued operations | - | 32 | 171 | (291) | ||||
(i) Includes the remuneration of the financial instrument of the Coal segment.
b) Assets by segment
| September 30, 2022 | December 31, 2021 | |||||||||||
| Product inventory | Investments in associates and joint ventures | Property, plant and equipment and intangible | Product inventory | Investments in associates and joint ventures | Property, plant and equipment and intangible | |||||||
| Ferrous minerals | 2,715 | 1,258 | 30,892 | 2,186 | 1,113 | 28,988 | ||||||
| Base metals | 1,612 | - | 18,694 | 1,384 | 17 | 20,127 | ||||||
| Other | - | 537 | 1,954 | 21 | 621 | 1,827 | ||||||
| Total | 4,327 | 1,795 | 51,540 | 3,591 | 1,751 | 50,942 | ||||||
| Three-month period ended September 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| Capital expenditures | Capital expenditures | |||||||||||
| Sustaining capital (i) | Project execution | Depreciation, depletion and amortization | Sustaining capital (i) | Project execution | Depreciation, depletion and amortization | |||||||
| Ferrous minerals | 497 | 200 | 442 | 583 | 136 | 408 | ||||||
| Base metals | 341 | 81 | 325 | 325 | 113 | 227 | ||||||
| Other (ii) | 17 | 94 | 8 | 6 | 36 | 14 | ||||||
| Total | 855 | 375 | 775 | 914 | 285 | 649 | ||||||
| 13 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Nine-month period ended September 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| Capital expenditures | Capital expenditures | |||||||||||
| Sustaining capital (i) | Project execution | Depreciation, depletion and amortization | Sustaining capital (i) | Project execution | Depreciation, depletion and amortization | |||||||
| Ferrous minerals | 1,473 | 581 | 1,355 | 1,639 | 331 | 1,246 | ||||||
| Base metals | 954 | 238 | 880 | 973 | 250 | 911 | ||||||
| Other (ii) | 71 | 342 | 36 | 23 | 66 | 55 | ||||||
| Total | 2,498 | 1,161 | 2,271 | 2,635 | 647 | 2,212 | ||||||
(i) According to the Company's remuneration policy, the sustaining capital investments are deducted from the 30% of the adjusted EBITDA. The calculation also considers the current investment of discontinued coal operations, which was US$38 for the nine-month period ended September 30, 2022 (2021: US$114).
(ii) The sustaining capital investments related to the Midwestern System were reclassified from “ferrous minerals” to “other” for the three and nine-month periods ended September 30, 2021 in the amounts of US$5 and US$10, respectively. Depreciation, depletion and amortization were reclassified for the same periods in the amounts of US$4 and US$18, respectively.
c) Assets by geographic area
| September 30, 2022 | December 31, 2021 | |||||||||||||||
| Investments in associates and joint ventures | Intangible | Property, plant and equipment | Total | Investments in associates and joint ventures | Intangible | Property, plant and equipment | Total | |||||||||
| Brazil | 1,795 | 7,525 | 25,907 | 35,227 | 1,730 | 7,050 | 23,793 | 32,573 | ||||||||
| Canada | - | 1,817 | 10,748 | 12,565 | - | 1,958 | 12,441 | 14,399 | ||||||||
| Americas, except Brazil and Canada | - | - | 4 | 4 | - | - | 3 | 3 | ||||||||
| Europe | - | - | 752 | 752 | - | - | 739 | 739 | ||||||||
| Indonesia | - | 1 | 2,696 | 2,697 | - | 1 | 2,723 | 2,724 | ||||||||
| Asia, except Indonesia and China | - | - | 794 | 794 | 21 | - | 874 | 895 | ||||||||
| China | - | 1 | 19 | 20 | - | 2 | 21 | 23 | ||||||||
| Oman | - | - | 1,276 | 1,276 | - | - | 1,337 | 1,337 | ||||||||
| Total | 1,795 | 9,344 | 42,196 | 53,335 | 1,751 | 9,011 | 41,931 | 52,693 | ||||||||
d) Net operating revenue by geographic area
The sales revenue from Ferrous minerals for the three and nine-month periods ended September 30, 2022, decreased from prior periods mainly due to the decline of 27% in the average realized price of iron ore for both periods, following the decrease in the international price of this product.
| Three-month period ended September 30, 2022 | ||||||||
| Ferrous minerals | Base metals | Other | Total | |||||
| Americas, except United States and Brazil | 127 | 140 | - | 267 | ||||
| United States of America | 102 | 321 | - | 423 | ||||
| Germany | 91 | 286 | - | 377 | ||||
| Europe, except Germany | 318 | 665 | - | 983 | ||||
| Middle East, Africa, and Oceania | 629 | 10 | - | 639 | ||||
| Japan | 689 | 168 | - | 857 | ||||
| China | 4,337 | 303 | - | 4,640 | ||||
| Asia, except Japan and China | 653 | 132 | - | 785 | ||||
| Brazil | 881 | 17 | 60 | 958 | ||||
| Net operating revenue | 7,827 | 2,042 | 60 | 9,929 | ||||
| Three-month period ended September 30, 2021 | ||||||||
| Ferrous minerals | Base metals | Other (i) | Total | |||||
| Americas, except United States and Brazil | 201 | 80 | 27 | 308 | ||||
| United States of America | 71 | 274 | - | 345 | ||||
| Germany | 176 | 174 | - | 350 | ||||
| Europe, except Germany | 546 | 430 | - | 976 | ||||
| Middle East, Africa, and Oceania | 553 | 5 | - | 558 | ||||
| Japan | 1,293 | 143 | - | 1,436 | ||||
| China | 5,361 | 241 | - | 5,602 | ||||
| Asia, except Japan and China | 953 | 220 | - | 1,173 | ||||
| Brazil | 1,412 | 7 | 163 | 1,582 | ||||
| Net operating revenue | 10,566 | 1,574 | 190 | 12,330 | ||||
(i) Includes the reclassification of the revenues of Midwestern System in the amount of US$112.
| 14 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Nine-month period ended September 30, 2022 | ||||||||
| Ferrous minerals | Base metals | Other (i) | Total | |||||
| Americas, except United States and Brazil | 393 | 417 | 125 | 935 | ||||
| United States of America | 176 | 1,034 | - | 1,210 | ||||
| Germany | 312 | 888 | - | 1,200 | ||||
| Europe, except Germany | 1,460 | 1,588 | - | 3,048 | ||||
| Middle East, Africa, and Oceania | 1,779 | 19 | 26 | 1,824 | ||||
| Japan | 2,171 | 561 | - | 2,732 | ||||
| China | 14,338 | 793 | - | 15,131 | ||||
| Asia, except Japan and China | 1,963 | 500 | 47 | 2,510 | ||||
| Brazil | 2,994 | 49 | 265 | 3,308 | ||||
| Net operating revenue | 25,586 | 5,849 | 463 | 31,898 | ||||
| Nine-month period ended September 30, 2021 | ||||||||
| Ferrous minerals | Base metals | Other (i) | Total | |||||
| Americas, except United States and Brazil | 578 | 304 | 121 | 1,003 | ||||
| United States of America | 330 | 847 | - | 1,177 | ||||
| Germany | 499 | 1,103 | - | 1,602 | ||||
| Europe, except Germany | 2,125 | 1,717 | - | 3,842 | ||||
| Middle East, Africa, and Oceania | 1,496 | 12 | - | 1,508 | ||||
| Japan | 2,763 | 358 | - | 3,121 | ||||
| China | 20,819 | 665 | - | 21,484 | ||||
| Asia, except Japan and China | 2,722 | 693 | - | 3,415 | ||||
| Brazil | 3,823 | 43 | 379 | 4,245 | ||||
| Net operating revenue | 35,155 | 5,742 | 500 | 41,397 | ||||
(i) Includes the reclassification of the revenues of Midwestern System in the amount of US$231 for the nine-month period ended September 30, 2022 (US$325 for the nine-month period ended September 30, 2021).
5. Costs and expenses by nature
a) Cost of goods sold, and services rendered
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Personnel | 454 | 353 | 1,292 | 1,163 | ||||
| Materials and services (i) | 958 | 700 | 2,492 | 2,057 | ||||
| Fuel oil and gas (i) | 497 | 246 | 1,134 | 671 | ||||
| Maintenance | 755 | 698 | 2,188 | 2,071 | ||||
| Royalties | 245 | 395 | 733 | 998 | ||||
| Energy | 188 | 160 | 520 | 460 | ||||
| Acquisition of products | 763 | 634 | 1,898 | 1,668 | ||||
| Depreciation, depletion and amortization | 752 | 603 | 2,174 | 2,074 | ||||
| Freight | 1,315 | 1,176 | 3,317 | 2,949 | ||||
| Other | 374 | 507 | 1,125 | 1,124 | ||||
| Total | 6,301 | 5,472 | 16,873 | 15,235 | ||||
| Cost of goods sold | 6,150 | 5,312 | 16,439 | 14,799 | ||||
| Cost of services rendered | 151 | 160 | 434 | 436 | ||||
| Total | 6,301 | 5,472 | 16,873 | 15,235 | ||||
(i) The increase in costs is mainly due to higher fuel prices and inflation of other inputs and services during the three and nine-month periods ended September 30, 2022.
b) Selling and administrative expenses
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Selling | 16 | 24 | 59 | 65 | ||||
| Personnel | 42 | 29 | 140 | 128 | ||||
| Services | 28 | 29 | 80 | 68 | ||||
| Depreciation and amortization | 9 | 11 | 32 | 30 | ||||
| Other | 24 | 21 | 56 | 59 | ||||
| Total | 119 | 114 | 367 | 350 | ||||
| 15 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
c) Other operating expenses, net
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Asset retirement obligations | - | - | 40 | - | ||||
| Provision for litigations (note 25) | 32 | 23 | 96 | 67 | ||||
| Profit sharing program | 26 | 30 | 93 | 105 | ||||
| Other | (7) | (22) | 93 | (51) | ||||
| Total | 51 | 31 | 322 | 121 | ||||
The breakdown of Research and Development expenses by operating segment is presented in note 4 (a).
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Financial income | ||||||||
| Short-term investments | 119 | 70 | 369 | 138 | ||||
| Other | 22 | 20 | 59 | 86 | ||||
| 141 | 90 | 428 | 224 | |||||
| Financial expenses | ||||||||
| Loans and borrowings gross interest | (140) | (156) | (463) | (504) | ||||
| Capitalized loans and borrowing costs | 9 | 14 | 40 | 44 | ||||
| Interest on REFIS | (42) | (17) | (113) | (34) | ||||
| Interest on lease liabilities (note 20d) | (15) | (14) | (47) | (47) | ||||
| Bond premium repurchase (note 20d) | - | - | (113) | (63) | ||||
| Other | (33) | (67) | (192) | (247) | ||||
| (221) | (240) | (888) | (851) | |||||
| Other financial items, net | ||||||||
| Net foreign exchange gains (losses) | 201 | 372 | (151) | 323 | ||||
| Participative stockholders' debentures (note 19) (i) | 470 | 152 | 758 | (1,107) | ||||
| Financial guarantees (i) | - | (34) | 479 | 330 | ||||
| Derivative financial instruments (note 17) | 190 | (458) | 781 | (41) | ||||
| Reclassification of cumulative translation adjustments to the income statement (notes 13 and 14) | 1,608 | 10 | 1,608 | 1,128 | ||||
| Indexation losses, net | (42) | (242) | (89) | (45) | ||||
| 2,427 | (200) | 3,386 | 588 | |||||
| Total | 2,347 | (350) | 2,926 | (39) | ||||
(i) These lines were reclassified from the prior period in order to present “Financial expenses” and “Other financial items, net” in similar line items from period to period.
a) Financial guarantees
As of September 30, 2022, the total guarantees granted by the Company (within the limit of its direct or indirect interest) to certain associates and joint ventures totaled US$1,491 (December 31, 2021: US$1,513). The fair value of these financial guarantees in the amount of US$101 (December 31, 2021: US$542) is recorded as “Other non-current liabilities”.
| 16 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
a) Deferred income tax assets and liabilities
| Assets | Liabilities | Deferred taxes, net | ||||
| Balance at December 31, 2021 | 11,441 | 1,881 | 9,560 | |||
| Tax effect in the income statement | (1,881) | (23) | (1,858) | |||
| Translation adjustment | 375 | (100) | 475 | |||
| Other comprehensive income | 74 | 62 | 12 | |||
| Transfers between assets and liabilities | (184) | (184) | - | |||
| Sale of California Steel Industries (note 14) | - | (28) | 28 | |||
| Balance at September 30, 2022 | 9,825 | 1,608 | 8,217 | |||
| Assets | Liabilities | Deferred taxes, net | ||||
| Balance at December 31, 2020 | 10,335 | 1,770 | 8,565 | |||
| Tax effect in the income statement | 812 | (24) | 836 | |||
| Transfers between assets and liabilities | 7 | 7 | - | |||
| Translation adjustment | (452) | (4) | (448) | |||
| Other comprehensive income | (121) | 179 | (300) | |||
| Tax loss carryforward from coal operations (note 14) | 821 | - | 821 | |||
| Balance at September 30, 2021 | 10,581 | 1,928 | 8,653 |
b) Income tax reconciliation – Income statement
Income tax expense is recognized based on the estimate of the weighted average effective tax rate expected for the full year, adjusted for the tax effect of certain items that are recognized in full on the interim tax calculation. Therefore, the effective tax rate in the interim financial statements may differ from management’s estimate of the effective tax rate for the year.
The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as follows:
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Income before income taxes | 5,248 | 5,967 | 16,873 | 23,781 | ||||
| Income taxes at statutory rate – 34% | (1,784) | (2,029) | (5,736) | (8,086) | ||||
| Adjustments that affect the taxes basis: | ||||||||
| Tax incentives | 479 | 971 | 1,538 | 2,589 | ||||
| Equity results | 28 | 68 | 58 | 103 | ||||
| Monetary exchange variation on tax losses carryforward | (56) | 120 | (500) | 81 | ||||
| Other (i) | 529 | 409 | 834 | 969 | ||||
| Income taxes | (804) | (461) | (3,806) | (4,344) | ||||
(i) Refers mainly to the reclassifications of accumulated translation adjustments to income for the periods presented (notes 13 and 14).
c) Income taxes - Settlement program (“REFIS”)
| September 30, 2022 | December 31, 2021 | |||
| Current liabilities | 351 | 324 | ||
| Non-current liabilities | 1,861 | 1,964 | ||
| REFIS liabilities | 2,212 | 2,288 | ||
| SELIC rate | 13.75% | 9.25% |
It mainly relates to the settlement program of claims regarding the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. This amount bears SELIC interest rate (Special System for Settlement and Custody) and will be paid in monthly installments until October 2028.
d) Uncertain tax positions
There have been no relevant developments on matters related to the uncertain tax positions since the December 31, 2021 financial statements.
| 17 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
e) Recoverable and payable taxes
| September 30, 2022 | December 31, 2021 | |||||||||||
| Current assets | Non-current assets | Current liabilities | Current assets | Non-current assets | Current liabilities | |||||||
| Value-added tax | 280 | - | 29 | 217 | 11 | 162 | ||||||
| Brazilian federal contributions | 452 | 677 | 53 | 520 | 511 | 12 | ||||||
| Income taxes | 115 | 437 | 82 | 113 | 413 | 1,861 | ||||||
| Financial compensation for the exploration of mineral resources - CFEM | - | - | 65 | - | - | 59 | ||||||
| Other | 11 | - | 74 | 12 | - | 83 | ||||||
| Total | 858 | 1,114 | 303 | 862 | 935 | 2,177 | ||||||
8. Basic and diluted earnings (loss) per share
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income attributable to Vale's stockholders: | ||||||||
| Net income from continuing operations | 4,455 | 5,477 | 13,004 | 19,384 | ||||
| Net income (loss) from discontinued operations | - | (1,591) | 2,060 | (2,366) | ||||
| 4,455 | 3,886 | 15,064 | 17,018 | |||||
| In thousands of shares | ||||||||
| Weighted average number of common shares outstanding | 4,549,205 | 5,080,890 | 4,674,248 | 5,065,750 | ||||
| Weighted average number of common shares outstanding and potential ordinary shares | 4,553,843 | 5,085,314 | 4,678,886 | 5,070,174 | ||||
| Basic and diluted earnings per share from continuing operations: | ||||||||
| Common share (US$) | 0.98 | 1.08 | 2.78 | 3.83 | ||||
| Basic and diluted earnings (loss) per share from discontinued operations: | ||||||||
| Common share (US$) | - | (0.31) | 0.44 | (0.47) | ||||
| Basic and diluted earnings per share: | ||||||||
| Common share (US$) | 0.98 | 0.76 | 3.22 | 3.36 | ||||
| September 30, 2022 | December 31, 2021 | |||
| Receivables from contracts with customers | ||||
| Related parties (note 28) | 135 | 109 | ||
| Third parties | ||||
| Ferrous minerals | 1,421 | 3,023 | ||
| Base metals | 611 | 668 | ||
| Other | 22 | 162 | ||
| Accounts receivable | 2,189 | 3,962 | ||
| Expected credit loss | (39) | (48) | ||
| Accounts receivable, net | 2,150 | 3,914 |
No customer individually represented 10% or more of the Company’s accounts receivable or revenues for the periods presented in these interim financial statements.
Provisionally priced commodities sales – The commodity price risk arises from volatility of iron ore, nickel and copper prices. The Company is mostly exposed to the fluctuations in the iron ore and copper price (note 17). The selling price of these products can be measured reliably at each period since the price is quoted in an active market.
The sensitivity of the Company’s risk on final settlement of provisionally priced accounts receivables are presented below:
| September 30, 2022 | ||||||||
| Thousand metric tons | Provisional price (US$/ton) | Change | Effect on revenue | |||||
| Iron ore | 17,271 | 91.9 | +/- 10% | +/- 159 | ||||
| Iron ore pellets | 76 | 136.2 | +/- 10% | +/- 1 | ||||
| Copper | 81 | 9,652.0 | +/- 10% | +/- 79 | ||||
| 18 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| September 30, 2022 | December 31, 2021 | |||
| Finished products | 3,489 | 2,795 | ||
| Work in progress | 862 | 820 | ||
| Consumable inventory | 1,022 | 857 | ||
| Allowance to net realizable value | (105) | (95) | ||
| Total | 5,268 | 4,377 |
Finished and work in progress products inventories by segments are presented in note 4(b) and the cost of goods sold is presented in note 5(a).
| September 30, 2022 | December 31, 2021 | |||
| Third parties - Brazil | 2,258 | 1,766 | ||
| Third parties - Abroad | 2,120 | 1,618 | ||
| Related parties (note 28) | 357 | 91 | ||
| Total | 4,735 | 3,475 |
12. Other financial assets and liabilities
| Current | Non-current | |||||||
| September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||
| Other financial assets | ||||||||
| Restricted cash | - | - | 78 | 117 | ||||
| Derivative financial instruments (note 17a) | 152 | 111 | 152 | 20 | ||||
| Investments in equity securities | - | - | 6 | 6 | ||||
| 152 | 111 | 236 | 143 | |||||
| Other financial liabilities | ||||||||
| Derivative financial instruments (note 17a) | 103 | 243 | 271 | 592 | ||||
| Other financial liabilities - Related parties (note 28) | 136 | 393 | - | - | ||||
| Financial guarantees provided (note 6a) (i) | - | - | 101 | 542 | ||||
| Liabilities related to the concession grant | 693 | 760 | 1,576 | 1,437 | ||||
| Contract liability | 534 | 566 | - | - | ||||
| 1,466 | 1,962 | 1,948 | 2,571 | |||||
(i) In July 2022, the Company signed a binding agreement with ArcelorMittal for the sale of CSP. At the closing, CSP's debt will be settled and the financial liability related to the guarantee granted will be derecognised by Vale.
a) Liabilities related to the concession grant
On April 14, 2022, the Company prepaid US$168 of its concession grant obligation related to the Estrada de Ferro Carajás ("EFC") as approved by the Board of Directors on October 28, 2021. The outstanding balance will be settled in quarterly installments until 2057.
| Liability | Discount rate | |||||||
| September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||
| Concession grant | 725 | 586 | 11.04% | 11.04% | ||||
| Midwestern Integration Railway ("FICO") | 1,176 | 1,206 | 5.69% | 5.29% | ||||
| Infrastructure program | 342 | 343 | 5.65% | 5.43% | ||||
| West-East Integration Railway ("FIOL") | 26 | 62 | 8.72% | 5.81% | ||||
| Total | 2,269 | 2,197 |
| 19 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
13. Investments in subsidiaries, associates and joint ventures
| Investments in associates and joint ventures | Equity results in the income statement | Dividends received | ||||||||||||||||||||||
| Three-month period ended September 30, | Nine-month period ended September 30, | Three-month period ended September 30, | Nine-month period ended September 30, | |||||||||||||||||||||
| Associates and joint ventures | % ownership | % voting capital | September 30, 2022 | December 31, 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Ferrous minerals | ||||||||||||||||||||||||
| Baovale Mineração S.A. | 50.00 | 50.00 | 23 | 21 | 1 | 1 | 2 | 4 | 1 | - | 1 | - | ||||||||||||
| Companhia Coreano-Brasileira de Pelotização | 50.00 | 50.00 | 86 | 51 | 15 | 15 | 37 | 30 | - | - | 10 | 2 | ||||||||||||
| Companhia Hispano-Brasileira de Pelotização | 50.89 | 50.89 | 44 | 38 | 11 | 1 | 11 | 1 | 4 | - | 5 | 7 | ||||||||||||
| Companhia Ítalo-Brasileira de Pelotização | 50.90 | 51.00 | 68 | 48 | 11 | 16 | 24 | 29 | - | - | 19 | 6 | ||||||||||||
| Companhia Nipo-Brasileira de Pelotização | 51.00 | 51.11 | 146 | 129 | 11 | 15 | 33 | 28 | - | - | 41 | 7 | ||||||||||||
| MRS Logística S.A. | 48.16 | 46.75 | 480 | 418 | 22 | 33 | 52 | 69 | - | - | - | - | ||||||||||||
| Samarco Mineração S.A. (note 22) | 50.00 | 50.00 | - | - | - | - | - | - | - | - | - | - | ||||||||||||
| VLI S.A. | 29.60 | 29.60 | 411 | 408 | 9 | (23) | (11) | (31) | - | - | - | - | ||||||||||||
| 1,258 | 1,113 | 80 | 58 | 148 | 130 | 5 | - | 76 | 22 | |||||||||||||||
| Base metals | ||||||||||||||||||||||||
| Korea Nickel Corporation | 25.00 | 25.00 | - | 17 | - | - | 3 | - | - | - | - | - | ||||||||||||
| - | 17 | - | - | 3 | - | - | - | - | - | |||||||||||||||
| Other | ||||||||||||||||||||||||
| Aliança Geração de Energia S.A. | 55.00 | 55.00 | 379 | 367 | 9 | 41 | 25 | 58 | 23 | 5 | 23 | 26 | ||||||||||||
| Aliança Norte Energia Participações S.A. | 51.00 | 51.00 | 104 | 105 | (2) | - | (5) | (3) | - | - | - | - | ||||||||||||
| California Steel Industries, Inc. ("CSI") (note 14) | 50.00 | 50.00 | - | - | - | 104 | - | 165 | - | - | 65 | - | ||||||||||||
| Companhia Siderúrgica do Pecém ("CSP") (note 14) | 50.00 | 50.00 | - | 99 | - | - | - | (42) | - | - | - | - | ||||||||||||
| Mineração Rio do Norte S.A. | 40.00 | 40.00 | - | - | - | (3) | - | (5) | - | - | - | - | ||||||||||||
| Other | - | - | 54 | 50 | - | (2) | 3 | - | - | - | - | - | ||||||||||||
| 537 | 621 | 7 | 140 | 23 | 173 | 23 | 5 | 88 | 26 | |||||||||||||||
| Total | 1,795 | 1,751 | 87 | 198 | 174 | 303 | 28 | 5 | 164 | 48 | ||||||||||||||
| 20 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
a) Changes in the period
| 2022 | 2021 | |||
| Balance at January 1, | 1,751 | 2,031 | ||
| Translation adjustment | 51 | (82) | ||
| Equity results | 174 | 303 | ||
| Impairment of CSP | (111) | - | ||
| Dividends declared | (52) | (132) | ||
| Other | (18) | 5 | ||
| Balance at September 30, | 1,795 | 2,125 |
Capital reduction in a foreign subsidiary – In August 2022, the Company approved a capital reduction in the amount of US$1,500 of Vale International S.A. (“VISA”), a wholly-owned foreign subsidiary, leading to a reduction in the absolute value of the investment held by the Parent Company. Therefore, the return of capital received in September 2022 was determined as a partial disposal and, in accordance with the requirements of IAS 21, the exchange differences recorded in the stockholders’ equity were reclassified to the income statement in the same proportion as the reduction in the net investment held in VISA, leading to a gain of US$1,543 presented as “Other financial items, net” (note 6). The remaining balance of cumulative translation adjustments of VISA represents US$4,487 as of September 30, 2022.
14. Acquisitions and divestitures
| Nine-month period ended September 30, 2022 | ||||||||||
| Cumulative translation adjustments | Result of the transaction | |||||||||
| Other financial items, net | Equity results and other results in associates and joint ventures | Total recycling from OCI | Impairment reversal (impairment) of non-current assets | Equity results and other results in associates and joint ventures | ||||||
| Midwestern System | 37 | - | 37 | 1,121 | - | |||||
| California Steel Industries | - | 150 | 150 | - | 142 | |||||
| Companhia Siderúrgica do Pecém (i) | - | - | - | - | (135) | |||||
| Other | 28 | - | 28 | 3 | (9) | |||||
| 65 | 150 | 215 | 1,124 | (2) | ||||||
| Discontinued operations (Coal) | 3,072 | - | 3,072 | (589) | - | |||||
| 3,137 | 150 | 3,287 | 535 | (2) | ||||||
(i) Includes impairment of the investment in the amount of US$111 and a provision for accounts receivable with CSP in the amount of US$24.
| Nine-month period ended September 30, 2021 | ||||||||||
| Cumulative translation adjustments | Result of the transaction | |||||||||
| Other financial items, net | Equity results and other results in associates and joint ventures | Total recycling from OCI | Impairment of non-current assets | Equity results and other results in associates and joint ventures | ||||||
| Midwestern System | - | - | - | - | - | |||||
| Vale Nouvelle-Calédonie S.A.S. | 1,132 | - | 1,132 | (98) | - | |||||
| Vale Manganês | - | - | - | (28) | - | |||||
| Other | (4) | - | (4) | - | (70) | |||||
| 1,128 | - | 1,128 | (126) | (70) | ||||||
| Discontinued operations (Coal) | 424 | - | 424 | (3,186) | - | |||||
| 1,552 | - | 1,552 | (3,312) | (70) | ||||||
Midwestern System - During the first quarter of 2022, the Company classified the assets and liabilities related to the Midwestern System as held for sale due to the negotiations with interested parties in Vale’s iron ore, manganese and logistics assets in the Midwestern System, through its equity interests in Mineração Corumbaense Reunida S.A., Mineração Mato Grosso S.A., International Iron Company, Inc. and Transbarge Navegación S.A. These negotiations resulted in the execution of a binding agreement with J&F Mineração Ltda. (“J&F”) for the sale of these assets, which was signed on April 6, 2022.
The carrying amount of those assets were fully impaired in past years and the Company had a liability related to take-or-pay logistics contracts in the amount of US$932 that were deemed onerous contracts under the Company’s business model for the Midwestern System, which had negative reserves of US$892 before reclassification to “Non-current assets and liabilities held for sale”.
| 21 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
These offers received during the sale process of the assets represented an objective evidence of impairment reversal and the remeasurement of the existing provision, which led to a gain of US$1,121 recorded as “Impairment reversal (impairment and disposals) of non-current assets, net”, of which US$214 relates to the impairment reversal on the Property, plant and equipment and US$916 is due to the remeasurement of the onerous contract liability, partially offset by losses in working capital adjustments at the closing of the transaction in the amount of US$9.
On July 15, 2022, the transaction was completed and the Company received US$153 and recorded a gain of US$37, as the reclassification of the cumulative translation adjustments from the stockholders’ equity to the income statement.
California Steel Industries (“CSI”) - In December 2021, the Company entered into a binding agreement with Nucor Corporation (“Nucor”) for the sale of its 50% interest in CSI for US$437. In February 2022, the Company concluded the sale and recorded a gain of US$292 for the nine-month period ended September 30, 2022, as “Equity results and other results in associates and joint ventures”, of which US$142 relates to a gain from the sale and US$150 is due to the reclassification of the cumulative translation adjustments from the stockholders’ equity to the income statement.
Sale of Companhia Siderúrgica do Pecém (“CSP”) - In July 2022, the Company and the other shareholders of CSP signed a binding agreement with ArcelorMittal Brasil S.A. (“ArcelorMittal”) for the sale of CSP for approximately US$2,132. The completion of the transaction will be used in full for the prepayment of CSP’s outstanding net debt of approximately US$2,300, as the Company has already recognized an impairment loss of US$135 for the nine-month period ended September 30, 2022. The Company does not expect any material impact at closing, which is expected to occur in the first quarter 2023, subject to customary regulatory approvals.
Manganese ferroalloys operations in Minas Gerais - In January 2022, the Company completed the sale of its ferroalloys operations in Barbacena and Ouro Preto and its manganese mining operations at Morro da Mina, in the state of Minas Gerais, to VDL Group (“VDL”) for a total consideration of US$40. As the Company had already adjusted the net assets to the fair value less cost of disposal, the closing did not result in an additional impact on the income statement for the nine-month period ended September 30, 2022 (2021: impairment of US$28). As a result, the Company no longer has manganese ferroalloys operations.
Vale Nouvelle-Calédonie S.A.S. (“VNC”) - In December 2020, the Company signed a binding put option agreement to sell its interest in VNC for an immaterial consideration to Prony Resources consortium. With the final agreement signed in March 2021, the Company recorded a loss in the amount of US$98, presented as “Impairment reversal (impairment and disposals) of non-current assets, net” in the income statement for the nine-month period ended September 30, 2021. In the same period, the Company also recorded a gain of US$1,132 due to the cumulative translation adjustments reclassification from the stockholders’ equity to the income statement as “Other financial items, net”.
Discontinued operations (Coal) - In June 2021, in preparation for a sale of the coal operation, in connection with the sustainable strategic mining agenda, the Company carried out a corporate reorganization by acquiring the interests held by Mitsui in the coal assets, which consist of Moatize mine and the Nacala Logistics Corridor (“NLC”). Following the acquisition of Mitsui’s stakes, and therefore, the simplification of the governance, the Company started the process of divesting its participation in the coal business.
In December 2021, the Company entered into a binding agreement with Vulcan Resources (formerly known as Vulcan Minerals - “Vulcan”) for the sale of these assets. Under the sale agreement Vulcan has committed to pay the gross amount of US$270, in addition of a 10-year royalty agreement subject to certain mine production and coal price conditions and so, due to the nature and uncertainties related to the measurement of these royalties, gains will be recognized as incurred.
Therefore, in 2021 the Company adjusted the net assets of the coal business to the fair value less costs of disposal, resulting in impairment losses, and started presenting the coal segment as a discontinued operation starting from the year ended December 31, 2021.
On April 25, 2022, the transaction was completed and the Company recorded a net income from discontinued operations of US$2,060 for the nine-month period ended September 30, 2022, which is mainly driven by the reclassification of the cumulative translation adjustments of US$3,072, from the stockholders’ equity to the income statement, as required by IAS 21 - The Effects of Changes in Foreign Exchange Rates, partially offset by the derecognition of noncontrolling interest of US$585 due to the deconsolidation of the coal assets. Additionally, until the closing of the transaction, the Company recorded losses of US$589 due to the impairment of assets acquired in the period and working capital adjustments. These effects are presented below:
| 22 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
(a) Net income and cash flows from discontinued operations
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income from discontinued operations | ||||||||
| Net operating revenue | - | 352 | 448 | 605 | ||||
| Cost of goods sold and services rendered | - | (364) | (264) | (1,033) | ||||
| Operating expenses | - | (7) | (13) | (9) | ||||
| Impairment and disposals of non-current assets, net | - | (2,327) | (589) | (3,186) | ||||
| Operating loss | - | (2,346) | (418) | (3,623) | ||||
| Cumulative translation adjustments (i) | - | - | 3,072 | 424 | ||||
| Other financial results, net | - | (23) | (7) | (61) | ||||
| Derecognition of noncontrolling interest | - | - | (585) | - | ||||
| Equity results in associates and joint ventures | - | - | - | (26) | ||||
| Net income (loss) before income taxes | - | (2,369) | 2,062 | (3,286) | ||||
| Income taxes | - | 821 | (2) | 821 | ||||
| Net income (loss) from discontinued operations | - | (1,548) | 2,060 | (2,465) | ||||
| Net income (loss) attributable to noncontrolling interests | - | 43 | - | (99) | ||||
| Net income (loss) attributable to Vale's stockholders | - | (1,591) | 2,060 | (2,366) | ||||
(i) In 2021, the Company assessed that its Australian subsidiaries (part of the coal business), which were no longer operational, were considered "abandoned" under IAS 21 and, therefore, the Company recognized a gain related to the cumulative translation adjustments in the amount of US$424, which was reclassified to the net income for the nine-month period ended September 30, 2021.
|
Three-month period ended September 30, |
Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Cash flow from discontinued operations | ||||||||
| Operating activities | ||||||||
| Net income (loss) before income taxes | - | (2,369) | 2,062 | (3,286) | ||||
| Adjustments: | ||||||||
| Equity results in associates and joint ventures | - | - | - | 26 | ||||
| Impairment and disposals of non-current assets, net | - | 2,327 | 589 | 3,186 | ||||
| Derecognition of noncontrolling interest | - | - | 585 | - | ||||
| Financial results, net | - | 23 | (3,065) | (363) | ||||
| Decrease in assets and liabilities | - | 74 | (130) | 31 | ||||
| Net cash generated (used) by operating activities | - | 55 | 41 | (406) | ||||
| Investing activities | ||||||||
| Additions to property, plant and equipment | - | (49) | (38) | (114) | ||||
| Acquisition of NLC, net of cash | - | - | - | (2,345) | ||||
| Disposal of coal, net of cash | - | (65) | - | |||||
| Other | - | - | - | 71 | ||||
| Net cash used in investing activities | - | (49) | (103) | (2,388) | ||||
| Financing activities | ||||||||
| Payments | - | (3) | (11) | (10) | ||||
| Net cash used in financing activities | - | (3) | (11) | (10) | ||||
| Net cash generated (used) by discontinued operations | - | 3 | (73) | (2,804) | ||||
| 23 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Goodwill | Concessions | Software | Research and development project and patents | Total | ||||||
| Balance at December 31, 2021 | 3,208 | 5,223 | 86 | 494 | 9,011 | |||||
| Additions | - | 443 | 25 | - | 468 | |||||
| Disposals | - | (12) | - | - | (12) | |||||
| Amortization | - | (175) | (32) | - | (207) | |||||
| Translation adjustment | (93) | 159 | 2 | 16 | 84 | |||||
| Balance at September 30, 2022 | 3,115 | 5,638 | 81 | 510 | 9,344 | |||||
| Cost | 3,115 | 6,920 | 536 | 510 | 11,081 | |||||
| Accumulated amortization | - | (1,282) | (455) | - | (1,737) | |||||
| Balance at September 30, 2022 | 3,115 | 5,638 | 81 | 510 | 9,344 | |||||
| Goodwill | Concessions | Software | Research and development project and patents | Total | ||||||
| Balance at December 31, 2020 | 3,298 | 5,391 | 76 | 531 | 9,296 | |||||
| Additions | - | 121 | 22 | - | 143 | |||||
| Disposals | - | (4) | - | - | (4) | |||||
| Amortization | - | (187) | (23) | - | (210) | |||||
| Acquisition of NLC (note 14) | - | 1,428 | - | - | 1,428 | |||||
| Impairment (i) | (1,422) | - | - | (1,422) | ||||||
| Translation adjustment | (50) | (242) | (2) | (24) | (318) | |||||
| Balance at September 30, 2021 | 3,248 | 5,085 | 73 | 507 | 8,913 | |||||
| Cost | 3,248 | 7,486 | 741 | 507 | 11,982 | |||||
| Accumulated amortization | - | (2,401) | (668) | - | (3,069) | |||||
| Balance at September 30, 2021 | 3,248 | 5,085 | 73 | 507 | 8,913 |
(i) The Company recognized an impairment loss related to coal assets incorporated in the acquisition of NLC in the amount of US$1,422 for the nine-month period ended September 30, 2021.
16. Property, plant and equipment
| Building and land | Facilities | Equipment | Mineral properties | Railway equipment | Right of use assets | Others | Constructions in progress | Total | |||
| Balance at December 31, 2021 | 8,137 | 7,232 | 4,743 | 7,742 | 2,334 | 1,537 | 2,484 | 7,722 | 41,931 | ||
| Additions (i) | - | - | - | - | - | 42 | - | 3,690 | 3,732 | ||
| Disposals (ii) | (18) | (10) | (5) | - | (7) | - | (2) | (60) | (102) | ||
| Asset retirement obligation (note 23b) | - | - | - | (1,091) | - | - | - | - | (1,091) | ||
| Depreciation, depletion and amortization | (306) | (360) | (525) | (322) | (121) | (138) | (223) | - | (1,995) | ||
| Impairment reversal, net (note 14) | 56 | 34 | 64 | 39 | - | - | 21 | - | 214 | ||
| Transfer to asset held for sale - Midwestern System (note 14) | (56) | (34) | (64) | (39) | - | - | (21) | - | (214) | ||
| Translation adjustment | 69 | 94 | 6 | (281) | 74 | 9 | (27) | (223) | (279) | ||
| Transfers | 333 | 449 | 483 | 400 | 119 | - | 306 | (2,090) | - | ||
| Balance at September 30, 2022 | 8,215 | 7,405 | 4,702 | 6,448 | 2,399 | 1,450 | 2,538 | 9,039 | 42,196 | ||
| Cost | 15,090 | 12,039 | 11,086 | 15,445 | 3,934 | 2,058 | 5,647 | 9,039 | 74,338 | ||
| Accumulated depreciation | (6,875) | (4,634) | (6,384) | (8,997) | (1,535) | (608) | (3,109) | - | (32,142) | ||
| Balance at September 30, 2022 | 8,215 | 7,405 | 4,702 | 6,448 | 2,399 | 1,450 | 2,538 | 9,039 | 42,196 |
| 24 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Building and land | Facilities | Equipment | Mineral properties | Railway equipment | Right of use assets | Others | Constructions in progress | Total | |||
| Balance at December 31, 2020 | 8,591 | 7,591 | 4,933 | 8,054 | 2,523 | 1,563 | 2,495 | 5,398 | 41,148 | ||
| Additions (i) | - | - | - | - | - | 56 | - | 3,502 | 3,558 | ||
| Disposals (ii) | (3) | (26) | (60) | - | (5) | - | - | (44) | (138) | ||
| Asset retirement obligation | - | - | - | (442) | - | - | - | - | (442) | ||
| Depreciation, depletion and amortization | (332) | (361) | (495) | (319) | (129) | (130) | (193) | - | (1,959) | ||
| Acquisition of NLC (note 14) | 235 | 140 | 102 | - | 318 | 33 | 2 | 92 | 922 | ||
| Impairment (iii) | (231) | (114) | (85) | - | (313) | (33) | (2) | (233) | (1,011) | ||
| Translation adjustment | (263) | (276) | (71) | (64) | (110) | (17) | (63) | (116) | (980) | ||
| Transfers | 226 | 370 | 521 | 200 | 84 | - | 208 | (1,609) | - | ||
| Transfer to net assets held for sale | (3) | (2) | (3) | (2) | - | - | (1) | - | (11) | ||
| Balance at September 30, 2021 | 8,220 | 7,322 | 4,842 | 7,427 | 2,368 | 1,472 | 2,446 | 6,990 | 41,087 | ||
| Cost | 15,228 | 12,074 | 10,905 | 16,674 | 3,747 | 1,951 | 5,463 | 6,990 | 73,032 | ||
| Accumulated depreciation | (7,008) | (4,752) | (6,063) | (9,247) | (1,379) | (479) | (3,017) | - | (31,945) | ||
| Balance at September 30, 2021 | 8,220 | 7,322 | 4,842 | 7,427 | 2,368 | 1,472 | 2,446 | 6,990 | 41,087 |
(i) Includes capitalized interest.
(ii) The net result from the disposal of assets recorded as “Impairment reversal (impairment and disposals) of non-current assets, net” was US$174 (2021: US$95).
(iii) The Company recognized an impairment loss of US$882 related to NLC assets for the nine-month period ended September 30, 2021.
Right-of-use assets (leases)
| December 31, 2021 | Additions and contract modifications | Depreciation | Translation adjustment | September 30, 2022 | ||||||
| Ports | 680 | 1 | (39) | 4 | 646 | |||||
| Vessels | 492 | - | (33) | (2) | 457 | |||||
| Pelletizing plants | 215 | 15 | (34) | 8 | 204 | |||||
| Properties | 84 | 15 | (21) | 4 | 82 | |||||
| Energy plants | 49 | - | (5) | (4) | 40 | |||||
| Mining equipment | 17 | 11 | (6) | (1) | 21 | |||||
| Total | 1,537 | 42 | (138) | 9 | 1,450 |
Lease liabilities are presented in note 20.
17. Financial and capital risk management
a) Effects of derivatives on the balance sheet
| Assets | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Current | Non-current | Current | Non-current | |||||
| Foreign exchange and interest rate risk | ||||||||
| CDI & TJLP vs. US$ fixed and floating rate swap | 2 | 5 | - | - | ||||
| IPCA swap | - | - | 41 | - | ||||
| Pre-dollar swap and forward transactions | 61 | 116 | 20 | 9 | ||||
| Libor swap | 6 | 5 | 1 | 11 | ||||
| 69 | 126 | 62 | 20 | |||||
| Commodities price risk | ||||||||
| Base metals products | 67 | 19 | 28 | - | ||||
| Gasoil, Brent and freight | 16 | 7 | 8 | - | ||||
| 83 | 26 | 36 | - | |||||
| Other | - | 13 | - | |||||
| - | - | 13 | - | |||||
| Total | 152 | 152 | 111 | 20 | ||||
| 25 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Liabilities | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Current | Non-current | Current | Non-current | |||||
| Foreign exchange and interest rate risk | ||||||||
| CDI & TJLP vs. US$ fixed and floating rate swap | 47 | 174 | 151 | 440 | ||||
| IPCA swap | 6 | 70 | 6 | 113 | ||||
| Pre-dollar swap and forward transactions | 10 | 7 | 57 | 38 | ||||
| Libor swap | - | - | - | 1 | ||||
| 63 | 251 | 214 | 592 | |||||
| Commodities price risk | ||||||||
| Base metals products | 13 | - | 27 | - | ||||
| Gasoil, Brent and freight | 24 | 9 | 2 | - | ||||
| 37 | 9 | 29 | - | |||||
| Other | 3 | 11 | - | - | ||||
| 3 | 11 | - | - | |||||
| Total | 103 | 271 | 243 | 592 | ||||
The balance of derivatives is presented in the balance sheet as “Other financial assets and liabilities” (note 12).
b) Net exposure
| September 30, 2022 | December 31, 2021 | |||
| Foreign exchange and interest rate risk | ||||
| CDI & TJLP vs. US$ fixed and floating rate swap | (214) | (591) | ||
| IPCA swap | (76) | (78) | ||
| Pre-dollar swap and forward transactions | 160 | (66) | ||
| Libor swap (i) | 11 | 11 | ||
| (119) | (724) | |||
| Commodities price risk | ||||
| Base metals products | 73 | 1 | ||
| Gasoil, Brent and freight | (10) | 6 | ||
| 63 | 7 | |||
| Other | (14) | 13 | ||
| (14) | 13 | |||
| Total | (70) | (704) |
(i) In March 2021, the UK Financial Conduct Authority (“FCA”), the financial regulator in the United Kingdom, announced the discontinuation of the LIBOR rate for all terms in pounds, euros, Swiss francs, yen and for terms of one week and two months in dollars at the end of December 2021 and the other terms at the end of June 2023. The Company has adopted market practices in its new agreements and is monitoring the transition of the agreements that are still subject to LIBOR exposure.
c) Effects of derivatives on the income statement
| Gain (loss) recognized in the income statement | ||||||||
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Foreign exchange and interest rate risk | ||||||||
| CDI & TJLP vs. US$ fixed and floating rate swap | 45 | (194) | 314 | (142) | ||||
| IPCA swap | (3) | (42) | 63 | 27 | ||||
| Eurobonds swap | - | - | - | (28) | ||||
| Pre-dollar swap and forward operations | 188 | (238) | 386 | (32) | ||||
| Libor swap | 2 | 2 | 44 | 9 | ||||
| 232 | (472) | 807 | (166) | |||||
| Commodities price risk | ||||||||
| Base metals products | - | - | 9 | (2) | ||||
| Gasoil, Brent and freight | (32) | 12 | (7) | 120 | ||||
| (32) | 12 | 2 | 118 | |||||
| Other | (10) | 2 | (28) | 7 | ||||
| (10) | 2 | (28) | 7 | |||||
| Total | 190 | (458) | 781 | (41) | ||||
| 26 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
d) Effects of derivatives on the cash flows
| Financial settlement inflows (outflows) | ||||||||
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Foreign exchange and interest rate risk | ||||||||
| CDI & TJLP vs. US$ fixed and floating rate swap | (46) | (10) | (89) | (109) | ||||
| IPCA swap | 49 | - | 60 | (18) | ||||
| Eurobonds swap | - | - | - | (29) | ||||
| Pre-dollar swap and forward operations | 70 | 3 | 162 | (74) | ||||
| Libor and treasury swap | 44 | - | 36 | (1) | ||||
| 117 | (7) | 169 | (231) | |||||
| Commodities price risk | ||||||||
| Base metals products | (16) | (16) | (194) | (24) | ||||
| Gasoil, Brent and freight | (1) | 62 | 8 | 154 | ||||
| Thermal and coking coal | - | (17) | - | (17) | ||||
| (17) | 29 | (186) | 113 | |||||
| Other | - | - | (1) | 1 | ||||
| Total | 100 | 22 | (18) | (117) | ||||
e) Hedge accounting
| Gain (loss) recognized in the other comprehensive income | ||||||||
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net investment hedge | (47) | (127) | 27 | (85) | ||||
| Cash flow hedge (Thermal coal) | - | (12) | - | (17) | ||||
| Cash flow hedge (Nickel and Palladium) | 40 | 22 | 48 | 1 | ||||
Cash flow hedge (Nickel)
| Notional (ton) | Fair value | Financial settlement Inflows (Outflows) | Value at Risk | Fair value by year | |||||||||||||||
| September 30, 2022 | December 31, 2021 | Bought / Sold | Average strike (US$/ton) | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | 2023 | ||||||||||
| Nickel Revenue Hedge Program | |||||||||||||||||||
| Forward | 18,900 | 39,575 | S | 25,113 | 70 | (26) | (212) | 22 | (11) | 81 | |||||||||
| Total | 70 | (26) | (212) | 22 | (11) | 81 | |||||||||||||
In 2022, the Company renewed its hedge nickel program due to the high volatility of nickel prices linked to future cash flows forecast for the period. In this program, hedging operations were executed, through forward contracts, to protect a portion of the projected volume of sales at floating, highly probable realization prices, guaranteeing prices above the average unit cost of nickel production for the protected volumes. The contracts are traded on the London Metal Exchange or over-the-counter market and the hedged item's P&L is offset by the hedged item’s P&L due to Nickel price variation.
Cash flow hedge (Palladium)
| Notional (t oz) | Fair value | Financial settlement Inflows (Outflows) | Value at Risk | Fair value by year | ||||||||||||||
| September 30, 2022 | December 31, 2021 | Bought / Sold | Average strike (US$/t oz) | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | ||||||||||
| Palladium Revenue Hedge Program | ||||||||||||||||||
| Call Options | 11,057 | 44,228 | S | 3,368 | - | (1) | - | - | - | |||||||||
| Put Options | 11,057 | 44,228 | B | 2,436 | 3 | 26 | 10 | 1 | 3 | |||||||||
| Total | 3 | 25 | 10 | 1 | 3 | |||||||||||||
| 27 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
f) Protection programs for the R$ denominated debt instruments and other liabilities
| Notional | Fair value | Financial Settlement Inflows (Outflows) | Value at Risk | Fair value by year | ||||||||||||||||||
| September 30, 2022 | December 31, 2021 | Index | Average rate | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | 2023 | 2024+ | ||||||||||||
| CDI vs. US$ fixed rate swap | (156) | (461) | (55) | 28 | (8) | (36) | (112) | |||||||||||||||
| Receivable | R$ 6,636 | R$ 8,142 | CDI | 101.93% | ||||||||||||||||||
| Payable | US$ 1,540 | US$ 1,906 | Fix | 2.52% | ||||||||||||||||||
| TJLP vs. US$ fixed rate swap | (58) | (130) | (34) | 4 | (3) | (8) | (47) | |||||||||||||||
| Receivable | R$ 879 | R$ 1,192 | TJLP + | 1.05% | ||||||||||||||||||
| Payable | US$ 221 | US$ 320 | Fix | 3.41% | ||||||||||||||||||
| R$ fixed rate vs. US$ fixed rate swap | 123 | 62 | 36 | 71 | - | 51 | 72 | |||||||||||||||
| Receivable | R$ 20,957 | R$ 5,730 | Fix | 5.22% | ||||||||||||||||||
| Payable | US$ 3,968 | US$ 1,084 | Fix | -1.35% | ||||||||||||||||||
| IPCA vs. US$ fixed rate swap | (76) | (118) | 9 | 6 | (2) | (6) | (68) | |||||||||||||||
| Receivable | R$ 1,348 | R$ 1,508 | IPCA + | 4.54% | ||||||||||||||||||
| Payable | US$ 333 | US$ 373 | Fix | 3.88% | ||||||||||||||||||
| IPCA vs. CDI swap | - | 40 | 51 | - | - | - | - | |||||||||||||||
| Receivable | - | R$ 769 | IPCA + | - | ||||||||||||||||||
| Payable | - | R$ 1,350 | CDI | - | ||||||||||||||||||
| Forward | R$ 4,395 | R$ 6,013 | B | 5.39 | 37 | (4) | 126 | 13 | 1 | 31 | 5 | |||||||||||
g) Protection program for Libor floating interest rate US$ denominated debt
| Notional | Fair value | Financial Settlement Inflows (Outflows) | Value at Risk | Fair value by year | ||||||||||||||||||
| September 30, 2022 | December 31, 2021 | Index | Average rate | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | 2023 | 2024+ | ||||||||||||
| Libor vs. US$ fixed rate swap | 11 | 11 | 44 | 1 | 2 | 7 | 2 | |||||||||||||||
| Receivable | US$ 150 | US$ 950 | Libor | 0.85% | ||||||||||||||||||
| Payable | US$ 150 | US$ 950 | Fix | 0.85% | ||||||||||||||||||
In August 2022, swap operations to convert interest rates indexed to the Libor to fixed rates were liquidated due to the settlement of a portion of the debt. The Company kept its swap strategy for remaining amount of US$150 of debt indexed to the Libor.
h) Protection for treasury volatility related to tender offer transaction
| Notional | Fair value | Financial Settlement Inflows (Outflows) | Value at Risk | Fair value by year | ||||||||||||||
| September 30, 2022 | December 31, 2021 | Index | Average rate | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | ||||||||||
| Forwards | - | - | - | - | - | - | (8) | - | - | |||||||||
To reduce the volatility of the premium to be paid to investors for the tender offer transaction issued on June 9, 2022, treasury lock transactions were implemented and already settled.
| 28 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
i) Protection program for product prices and input costs
| Notional | Fair value | Financial settlement Inflows (Outflows) | Value at Risk | Fair value by year | |||||||||||||||
| September 30, 2022 | December 31, 2021 | Bought / Sold | Average strike (US$/bbl) | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022 | 2023+ | ||||||||||
| Brent crude oil (bbl) | |||||||||||||||||||
| Call options | 10,268,250 | 762,000 | B | 106 | 23 | 7 | 13 | 5 | 2 | 21 | |||||||||
| Put options | 10,268,250 | 762,000 | S | 69 | (28) | (2) | - | 6 | (8) | (20) | |||||||||
| Forward Freight Agreement (days) | |||||||||||||||||||
| Freight forwards | 1,350 | 330 | B | 17,447 | (5) | 1 | (2) | 1 | (3) | (2) | |||||||||
In 2022, the Company renewed its brent crude oil hedge through options contracts on Brent Crude Oil, for different portions of the exposure, in order to reduce the impact of fluctuations in fuel oil prices on the hiring and availability of maritime freight and, consequently, to reduce the Company’s cash flow volatility. The derivative transactions were negotiated over-the-counter and the protected item is part of the costs linked to the price of fuel oil used on ships. The financial settlement inflows or outflows are offset by the protected items’ losses or gains.
j) Other derivatives, including embedded derivatives in contracts
| Notional | Fair value | Financial settlement Inflows (Outflows) | Value at Risk | Fair value | |||||||||||||||
| September 30, 2022 | December 31, 2021 | Bought / Sold | Average strike (US$/bbl) | September 30, 2022 | December 31, 2021 | September 30, 2022 | September 30, 2022 | 2022+ | |||||||||||
| Option related to a Special Purpose Entity (i) | |||||||||||||||||||
| Call option | - | 137,751,623 | B | - | - | 15 | - | - | - | ||||||||||
| Embedded derivative in natural gas purchase agreement | |||||||||||||||||||
| Call options | 746,667 | 729,571 | S | 233 | (14) | (1) | (1) | 9 | (14) | ||||||||||
| Fixed price sales protection | |||||||||||||||||||
| Nickel forwards | 792 | 342 | B | 20,630 | - | 1 | 1 | - | - | ||||||||||
| Hedge program for products acquisition for resale | |||||||||||||||||||
| Nickel forwards | 84 | 1,206 | S | 22,523 | - | (1) | - | - | - | ||||||||||
(i) In January 2019, the Company acquired a call option related to shares of certain special purpose entities, which are part of a wind farm located in state of Bahia, Brazil, which expired in July 2022 without exercising the option.
| 29 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
k) Sensitivity analysis of derivative financial instruments
The following tables present the potential value of the instruments given hypothetical stress scenarios for the main market risk factors that impact the derivatives positions. The scenarios were defined as follows:
- Probable: the probable scenario was defined as the fair value of the derivative instruments as of September 30, 2022.
- Scenario I: fair value estimated considering a 25% deterioration in the associated risk variables.
- Scenario II: fair value estimated considering a 50% deterioration in the associated risk variables.
| Instrument | Instrument's main risk events | Probable | Scenario I | Scenario II | |||
| CDI vs. US$ fixed rate swap | R$ depreciation | (156) | (521) | (885) | |||
| US$ interest rate inside Brazil decrease | (156) | (206) | (262) | ||||
| Brazilian interest rate increase | (156) | (193) | (230) | ||||
| Protected item: R$ denominated liabilities | R$ depreciation | n.a. | - | - | |||
| TJLP vs. US$ fixed rate swap | R$ depreciation | (58) | (111) | (165) | |||
| US$ interest rate inside Brazil decrease | (58) | (63) | (69) | ||||
| Brazilian interest rate increase | (58) | (67) | (76) | ||||
| TJLP interest rate decrease | (58) | (64) | (71) | ||||
| Protected item: R$ denominated debt | R$ depreciation | n.a. | - | - | |||
| R$ fixed rate vs. US$ fixed rate swap | R$ depreciation | 123 | (775) | (1,673) | |||
| US$ interest rate inside Brazil decrease | 123 | 37 | (54) | ||||
| Brazilian interest rate increase | 123 | (55) | (218) | ||||
| Protected item: R$ denominated debt | R$ depreciation | n.a. | - | - | |||
| IPCA swap vs. US$ fixed rate swap | R$ depreciation | (76) | (157) | (238) | |||
| US$ interest rate inside Brazil decrease | (76) | (87) | (99) | ||||
| Brazilian interest rate increase | (76) | (92) | (107) | ||||
| IPCA index decrease | (76) | (84) | (92) | ||||
| Protected item: R$ denominated debt | R$ depreciation | n.a. | - | - | |||
| US$ floating rate vs. US$ fixed rate swap | US$ Libor decrease | 11 | 5 | - | |||
| Protected item: Libor US$ indexed debt | US$ Libor decrease | n.a. | (5) | - | |||
| NDF BRL/USD | R$ depreciation | 37 | (133) | (303) | |||
| US$ interest rate inside Brazil decrease | 37 | 28 | 18 | ||||
| Brazilian interest rate increase | 37 | 17 | (3) | ||||
| Protected item: R$ denominated liabilities | R$ depreciation | n.a. | - | - | |||
| Instrument | Instrument's main risk events | Probable | Scenario I | Scenario II | ||||
| Fuel oil protection | ||||||||
| Options | Price input decrease | (5) | (112) | (290) | ||||
| Protected item: Part of costs linked to fuel oil prices | Price input decrease | n.a. | 112 | 290 | ||||
| Forward Freight Agreement | ||||||||
| Forwards | Freight price decrease | (5) | (9) | (13) | ||||
| Protected item: Part of costs linked to maritime freight prices | Freight price decrease | n.a. | 9 | 13 | ||||
| Nickel sales fixed price protection | ||||||||
| Forwards | Nickel price decrease | - | (4) | (8) | ||||
| Protected item: Part of nickel revenues with fixed prices | Nickel price decrease | n.a. | 4 | 8 | ||||
| Nickel Revenue Hedging Program | ||||||||
| Options | Nickel price increase | 70 | (29) | (128) | ||||
| Protected item: Part of nickel revenues with fixed sales prices | Nickel price increase | n.a. | 29 | 128 | ||||
| Palladium Revenue Hedging Program | ||||||||
| Options | Palladium price increase | 3 | - | (2) | ||||
| Protected item: Part of palladium future revenues | Palladium price increase | n.a. | - | 2 |
| Instrument | Main risks | Probable | Scenario I | Scenario II | ||||
| Embedded derivatives - Gas purchase | Pellet price increase | (14) | (30) | (47) |
| 30 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
l) Financial counterparties’ ratings
The transactions of derivative instruments, cash and cash equivalents as well as short-term 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 as published by Moody’s regarding the main financial institutions used by the Company to contract derivative instruments, cash and cash equivalents transaction.
| September 30, 2022 | December 31, 2021 | |||||||
| Cash and cash equivalents and investment | Derivatives | Cash and cash equivalents and investment | Derivatives | |||||
| Aa1 | 22 | - | 128 | - | ||||
| Aa2 | 348 | 2 | 285 | 15 | ||||
| Aa3 | 226 | - | 495 | 34 | ||||
| A1 | 1,970 | 124 | 1,145 | 3 | ||||
| A2 | 583 | 66 | 3,478 | 39 | ||||
| A3 | 898 | 25 | 1,518 | 20 | ||||
| Baa1 | - | - | 90 | - | ||||
| Baa2 | 114 | - | 10 | - | ||||
| Ba2 (i) | 570 | 77 | 2,763 | 5 | ||||
| Ba3 (i) | 493 | 17 | 1,988 | - | ||||
| Other | - | (7) | 5 | 15 | ||||
| 5,224 | 304 | 11,905 | 131 | |||||
(i) A substantial part of the balances is held with financial institutions in Brazil and, in local currency, they are deemed investment grade.
| 31 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
18. Financial assets and liabilities
The Company classifies its financial instruments in accordance with the purpose for which they were acquired, and determines the classification and initial recognition according to the following categories:
| September 30, 2022 | December 31, 2021 | |||||||||||||||
| Financial assets | Amortized cost | At fair value through OCI | At fair value through profit or loss | Total | Amortized cost | At fair value through OCI | At fair value through profit or loss | Total | ||||||||
| Current | ||||||||||||||||
| Cash and cash equivalents (note 20) | 5,182 | - | - | 5,182 | 11,721 | - | - | 11,721 | ||||||||
| Short-term investments (note 20) | - | - | 42 | 42 | - | - | 184 | 184 | ||||||||
| Derivative financial instruments (note 17a) | - | - | 152 | 152 | - | - | 111 | 111 | ||||||||
| Accounts receivable (note 9) | 638 | - | 1,512 | 2,150 | 703 | - | 3,211 | 3,914 | ||||||||
| 5,820 | - | 1,706 | 7,526 | 12,424 | - | 3,506 | 15,930 | |||||||||
| Non-current | ||||||||||||||||
| Judicial deposits (note 25c) | 1,289 | - | - | 1,289 | 1,220 | - | - | 1,220 | ||||||||
| Restricted cash (note 12) | 78 | - | - | 78 | 117 | - | - | 117 | ||||||||
| Derivative financial instruments (note 17a) | - | - | 152 | 152 | - | - | 20 | 20 | ||||||||
| Investments in equity securities (note 12) | - | 6 | - | 6 | - | 6 | - | 6 | ||||||||
| 1,367 | 6 | 152 | 1,525 | 1,337 | 6 | 20 | 1,363 | |||||||||
| Total of financial assets | 7,187 | 6 | 1,858 | 9,051 | 13,761 | 6 | 3,526 | 17,293 | ||||||||
| Financial liabilities | ||||||||||||||||
| Current | ||||||||||||||||
| Suppliers and contractors (note 11) | 4,735 | - | - | 4,735 | 3,475 | - | - | 3,475 | ||||||||
| Derivative financial instruments (note 17a) | - | - | 103 | 103 | - | - | 243 | 243 | ||||||||
| Loans, borrowings and leases (note 20) | 447 | - | - | 447 | 1,204 | - | - | 1,204 | ||||||||
| Liabilities related to the concession grant (note 12a) | 693 | - | - | 693 | 760 | - | - | 760 | ||||||||
| Other financial liabilities - Related parties (note 28) | 136 | - | - | 136 | 393 | - | - | 393 | ||||||||
| Contract liability | 534 | - | - | 534 | 566 | - | - | 566 | ||||||||
| 6,545 | - | 103 | 6,648 | 6,398 | - | 243 | 6,641 | |||||||||
| Non-current | ||||||||||||||||
| Derivative financial instruments (note 17a) | - | - | 271 | 271 | - | - | 592 | 592 | ||||||||
| Loans, borrowings and leases (note 20) | 11,757 | - | 11,757 | 12,578 | - | - | 12,578 | |||||||||
| Participative stockholders' debentures (note 19) | - | - | 2,659 | 2,659 | - | - | 3,419 | 3,419 | ||||||||
| Liabilities related to the concession grant (note 12a) | 1,576 | - | - | 1,576 | 1,437 | - | - | 1,437 | ||||||||
| Financial guarantees (note 6a) | - | - | 101 | 101 | - | - | 542 | 542 | ||||||||
| 13,333 | - | 3,031 | 16,364 | 14,015 | - | 4,553 | 18,568 | |||||||||
| Total of financial liabilities | 19,878 | - | 3,134 | 23,012 | 20,413 | - | 4,796 | 25,209 | ||||||||
a) Hierarchy of fair value
| September 30, 2022 | December 31, 2021 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||
| Financial assets | ||||||||||||||||
| Short-term investments (note 20) | 42 | - | - | 42 | 184 | - | - | 184 | ||||||||
| Derivative financial instruments (note 17a) | - | 304 | - | 304 | - | 118 | 13 | 131 | ||||||||
| Accounts receivable (note 9) | - | 1,512 | - | 1,512 | - | 3,211 | - | 3,211 | ||||||||
| Investments in equity securities (note 12) | 6 | - | - | 6 | 6 | - | - | 6 | ||||||||
| 48 | 1,816 | - | 1,864 | 190 | 3,329 | 13 | 3,532 | |||||||||
| Financial liabilities | ||||||||||||||||
| Derivative financial instruments (note 17a) | - | 374 | - | 374 | - | 835 | - | 835 | ||||||||
| Participative stockholders' debentures (note 19) | - | 2,659 | - | 2,659 | - | 3,419 | - | 3,419 | ||||||||
| Financial guarantees (note 6) | - | 101 | - | 101 | - | 542 | - | 542 | ||||||||
| - | 3,134 | - | 3,134 | - | 4,796 | - | 4,796 | |||||||||
There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the periods presented.
| 32 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
a.i) Changes in Level 3 assets and liabilities during the period
| Derivative financial instruments | ||||
| Financial assets | Financial liabilities | |||
| Balance at December 31, 2021 | 13 | - | ||
| Losses recognized in the income statement | (13) | - | ||
| Balance at September 30, 2022 | - | - | ||
b) Fair value of loans and borrowings
| September 30, 2022 | December 31, 2021 | |||||||
| Carrying amount | Fair value | Carrying amount | Fair value | |||||
| Quoted in the secondary market: | ||||||||
| Bonds | 6,158 | 5,713 | 7,448 | 9,151 | ||||
| Debentures | 235 | 232 | 387 | 387 | ||||
| Debt contracts in Brazil in: | ||||||||
| R$, indexed to TJLP, TR, IPCA, IGP-M and CDI | 278 | 278 | 354 | 449 | ||||
| R$, with fixed interest | 2 | 2 | 13 | - | ||||
| Basket of currencies and bonds in US$ indexed to LIBOR | - | - | 11 | 11 | ||||
| Debt contracts in the international market in: | ||||||||
| US$, with variable and fixed interest | 3,762 | 3,569 | 3,615 | 3,231 | ||||
| Other currencies, with variable interest | 9 | 9 | 87 | 54 | ||||
| Other currencies, with fixed interest | 88 | 86 | 107 | 117 | ||||
| Total | 10,532 | 9,889 | 12,022 | 13,400 | ||||
19. Participative stockholders’ debentures
At the time of its privatization in 1997, the Company issued a total of 388,559,056 debentures to then-existing stockholders, including the Brazilian Government. The debentures’ terms were set to ensure that pre-privatization stockholders would participate in potential future benefits that might be obtained from exploration of mineral resources. This obligation related to the debentures will cease when all the relevant mineral resources are exhausted, sold or otherwise disposed of by the Company.
Holders of participative stockholders’ debentures have the right to receive semi-annual payments equal to an agreed percentage of revenues less value-added tax, transport fee and insurance expenses related to the trading of the products, derived from these mineral resources. On October 3, 2022 (subsequent event), the Company made available for withdrawal as remuneration the amount of US$137 for the first semester of 2022, as disclosed on the “Shareholders’ debentures report” made available on the Company’s website.
To calculate the fair value of the liability, the Company uses the weighted average price of trades in the secondary market for the last month of the quarter. The average price decreased from R$49.10 per debenture for the year ended December 31, 2021 to R$37.00 per debenture for the period ended September 30, 2022, resulting in a gain of US$758 recorded in the income statement for the nine-month period ended September 30, 2022 (an expense of US$1,107 for the nine-month period ended September 30, 2021), respectively. As of September 30, 2022 the liability was US$2,659 (US$3,419 as at December 31, 2021).
The average price decreased from R$43.39 per debenture for the period ended June 30, 2022 (R$60.34 for the period ended June 30, 2021) to R$37.00 per debenture for the period ended September 30, 2022 (R$57.78 for the period ended September 30, 2021), resulting in a gain of US$470 recorded in the income statement for the three-month period ended September 30, 2022 (US$152 for the three-month period ended September 30, 2021).
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Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
20. Loans, borrowings, leases, cash and cash equivalents and short-term investments
a) Net debt
The Company evaluates the net debt with the objective of ensuring the continuity of its business in the long-term.
| September 30, 2022 | December 31, 2021 | |||
| Debt contracts | 10,666 | 12,180 | ||
| Leases | 1,538 | 1,602 | ||
| Total of loans, borrowings and leases | 12,204 | 13,782 | ||
| (-) Cash and cash equivalents | 5,182 | 11,721 | ||
| (-) Short-term investments | 42 | 184 | ||
| Net debt | 6,980 | 1,877 |
b) Cash and cash equivalents
Cash and cash equivalents include cash, immediately redeemable deposits, and short-term investments with an insignificant risk of change in value and readily convertible to cash, being US$1,875 (US$6,714 as of December 31, 2021) denominated in R$, indexed to the CDI, US$2,579 (US$4,769 as of December 31, 2021) denominated in US$ and US$728 (US$238 as of December 31, 2021) denominated in other currencies as of September 30, 2022.
c) Short-term investments
As of September 30, 2022, the balance of US$42 (US$184 as of December 31, 2021) substantially comprises investments in exclusive investment fund immediately liquidity, whose portfolio is composed of committed transactions and Financial Treasury Bills (“LFTs”), which are floating-rate securities issued by the Brazilian government.
d) Loans, borrowings, and leases
i) Total debt
| Current liabilities | Non-current liabilities | |||||||||
| Average interest rate (i) | September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | ||||||
| Quoted in the secondary market: | ||||||||||
| US$ Bonds | 6.00% | - | - | 6,158 | 7,448 | |||||
| R$ Debentures (ii) | 9.96% | 45 | 186 | 190 | 201 | |||||
| Debt contracts in Brazil in (iii): | ||||||||||
| R$, indexed to TJLP, TR, IPCA, IGP-M and CDI | 10.83% | 44 | 95 | 234 | 259 | |||||
| R$, with fixed interest | 3.04% | 2 | 12 | - | 1 | |||||
| Basket of currencies and bonds in US$ indexed to LIBOR | - | - | 11 | - | - | |||||
| Debt contracts in the international market in: | ||||||||||
| US$, with variable and fixed interest | 4.20% | 54 | 479 | 3,708 | 3,136 | |||||
| Other currencies, with variable interest | 4.09% | - | 77 | 9 | 10 | |||||
| Other currencies, with fixed interest | 3.59% | 11 | 12 | 77 | 95 | |||||
| Accrued charges | 134 | 158 | - | - | ||||||
| Total | 290 | 1,030 | 10,376 | 11,150 | ||||||
(i) In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable as of September 30, 2022.
(ii) The Company has debentures in Brazil that were raised with BNDES for infrastructure investment projects.
(iii) The Company contracted derivatives to mitigate the exposure to changes in cash flows of debt contracted in Brazil, resulting in an average cost of 3.59% per year in US$.
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Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
Future flows of debt payments, principal and interest
| Principal |
Estimated future interest payments (i) | |||
| 2022 | 78 | 138 | ||
| 2023 | 102 | 618 | ||
| 2024 | 607 | 593 | ||
| 2025 | 148 | 571 | ||
| Between 2026 and 2030 | 3,675 | 1,868 | ||
| 2031 onwards | 5,922 | 2,403 | ||
| Total | 10,532 | 6,191 |
(i) Based on interest rate curves and foreign exchange rates applicable as of September 30, 2022 and considering that the payments of principal will be made on their contracted payments dates. The amount includes the estimated interest not yet accrued and the interest already recognized in the financial statements.
Covenants
Some of the Company’s debt agreements with lenders contain covenants. The primary financial covenants in those agreements require maintaining certain ratios, such as debt to EBITDA, which is defined in note 4, and interest coverage. The Company did not identify any instances of noncompliance as of September 30, 2022.
Reconciliation of debt to cash flows arising from financing activities
| Quoted in the secondary market | Debt contracts in Brazil | Debt contracts on the international market | Total | |||||
| December 31, 2021 | 7,974 | 380 | 3,826 | 12,180 | ||||
| Additions | - | - | 775 | 775 | ||||
| Payments | (1,429) | (208) | (639) | (2,276) | ||||
| Interest paid (i) | (552) | (42) | (56) | (650) | ||||
| Cash flow from financing activities | (1,981) | (250) | 80 | (2,151) | ||||
| Effect of exchange rate | 102 | 31 | (71) | 62 | ||||
| Interest accretion | 403 | 119 | 53 | 575 | ||||
| Non-cash changes | 505 | 150 | (18) | 637 | ||||
| September 30, 2022 | 6,498 | 280 | 3,888 | 10,666 |
(i) Classified as cash flow due to operational activities.
Funding and payments
| · | In January 2022, the Company contracted two lines of credit indexed to Libor, in the amount of US$425 with maturity in 2027 with the Bank of Nova Scotia, and prepaid US$200 of a line of credit maturing in 2023 with the same bank. |
| · | In May 2022, the Company contracted the credit line of US$200 with MUFG Bank indexed to Secured Overnight Financing Rate (“SOFR”) and maturing in 2027. |
| · | In June 2022, the Company repurchased US$1,291 of its bonds and paid a premium of US$113, which has been recorded and is presented as “Bond premium repurchase” under the financial results for the nine-month period ended September 30, 2022. |
| · | In July 2022, the Company contracted the credit line of US$150 with SMBC Bank indexed to Secured Overnight Financing Rate (“SOFR”) and maturing in 2027. |
| · | In August 2022, the Company settle its infrastructure debentures of the 2nd series, by a payment of US$170. |
| · | In January 2021, the Company contracted the credit line of US$300 with The New Development Bank maturing in 2035 and indexed to Libor + 2.49% per year. |
| · | In March 2021, the Company redeemed all of its 3.750% bonds due January 2023, in the total amount of US$884 (EUR750 million) and paid a premium of US$63, which was recorded and is presented as “Bond premium repurchase” under the financial results for the nine-month period ended September 30, 2021. |
| 35 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
Lease liabilities
| December 31, 2021 | Additions and contract modifications | Payments (i) | Interest | Sale of Midwestern System (note 14) | Translation adjustment | September 30, 2022 | ||||||||
| Ports | 713 | 1 | (54) | 20 | (17) | 8 | 671 | |||||||
| Vessels | 489 | - | (47) | 13 | - | (2) | 453 | |||||||
| Pelletizing plants | 225 | 15 | (9) | 8 | - | 6 | 245 | |||||||
| Properties | 103 | 15 | (27) | 2 | - | 5 | 98 | |||||||
| Energy plants | 59 | - | (5) | 2 | - | (4) | 52 | |||||||
| Mining equipment | 13 | 11 | (4) | 2 | - | (3) | 19 | |||||||
| Total | 1,602 | 42 | (146) | 47 | (17) | 10 | 1,538 | |||||||
| Current liabilities | 174 | 157 | ||||||||||||
| Non-current liabilities | 1,428 | 1,381 | ||||||||||||
| Total | 1,602 | - | - | - | - | - | 1,538 |
(i) The total amount of the variable lease payments not included in the measurement of the lease liabilities for the nine-month period ended September 30, 2022 was US$270 (2021: US$277).
Annual minimum payments and remaining lease term
The following table presents the undiscounted lease obligation by maturity date. The lease liability recognized in the balance sheet is measured at the present value of such obligations.
| 2022 | 2023 | 2024 | 2025 | 2026 onwards | Total | Remaining contractual term (years) | Discount rate | |||||||||
| Ports | 16 | 62 | 62 | 61 | 729 | 927 | 1 to 21 | 3% to 5% | ||||||||
| Vessels | 16 | 62 | 60 | 59 | 346 | 543 | 3 to 11 | 3% to 4% | ||||||||
| Pelletizing plants | 41 | 48 | 40 | 40 | 112 | 281 | 1 to 11 | 2% to 5% | ||||||||
| Properties | 11 | 24 | 21 | 13 | 42 | 111 | 1 to 8 | 2% to 6% | ||||||||
| Energy plants | 2 | 6 | 5 | 5 | 50 | 68 | 1 to 8 | 5% to 6% | ||||||||
| Mining equipment | 2 | 6 | 4 | 4 | 3 | 22 | 1 to 6 | 2% to 6% | ||||||||
| Total | 88 | 208 | 192 | 182 | 1,282 | 1,952 |
On January 25, 2019, a tailings dam (“Dam I”) failed at the Córrego do Feijão mine, in the city of Brumadinho, state of Minas Gerais. The failure released a flow of tailings debris, destroying some of Vale’s facilities, affecting local communities and disturbing the environment. The tailings released have caused an impact of around 315 km in extension, reaching the nearby Paraopeba River. The dam failure in Brumadinho (“event”) resulted in 270 fatalities or presumed fatalities, including 4 victims still missing, and caused extensive property and environmental damage in the region.
As a result, on February 4, 2021, the Company entered into a Judicial Settlement for Integral Reparation (“Global Settlement”), which was under negotiations since 2019, with the State of Minas Gerais, the Public Defender of the State of Minas Gerais and the Federal and the State of Minas Gerais Public Prosecutors Offices, to repair the environmental and social damage resulting from the Dam I rupture.
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Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
Changes on the provisions in the period
| Consolidated | ||||||||||||
| December 31, 2021 |
Operating expense |
Present value adjustment | Disbursements | Translation adjustment | September 30, 2022 | |||||||
| Global Settlement for Brumadinho | ||||||||||||
| Payment obligations | 1,427 | - | 14 | (571) | 108 | 978 | ||||||
| Provision for socio-economic reparation and others | 852 | - | (11) | (70) | 59 | 830 | ||||||
| Provision for social and environmental reparation | 705 | - | 21 | (24) | 37 | 739 | ||||||
| 2,984 | - | 24 | (665) | 204 | 2,547 | |||||||
| Commitments | ||||||||||||
| Tailings containment and geotechnical safety | 318 | 236 | (1) | (58) | 1 | 496 | ||||||
| Individual indemnification | 115 | - | - | (60) | 6 | 61 | ||||||
| Other commitments | 120 | 31 | (1) | (23) | - | 127 | ||||||
| 553 | 267 | (2) | (141) | 7 | 684 | |||||||
| 3,537 | 267 | 22 | (806) | 211 | 3,231 | |||||||
| Current liabilities | 1,156 | 1,318 | ||||||||||
| Non-current liabilities | 2,381 | 1,913 | ||||||||||
| Liabilities | 3,537 | - | - | - | - | 3,231 | ||||||
| Discount rate in nominal terms | 8.08% | 8.75% | ||||||||||
The Company has incurred expenses, which have been recognized straight to the income statement, in relation to tailings management, humanitarian assistance, payroll, legal services, water supply, among others. In the three and nine-month periods ended September 30, 2022, the Company incurred expenses in the amounts of US$160 and US$437, respectively (US$161 and US$461 in the three and nine-month periods ended September 30, 2021).
a) Global Settlement for Brumadinho
The Global Agreement includes: (i) payment obligations, of which the funds will be used directly by the State of Minas Gerais and Institutions of Justice for socio-economic and socio-environmental compensation projects; (ii) socioeconomic projects in Brumadinho and other municipalities; and (iii) compensation of the environmental damage caused by the dam rupture. These obligations are projected for an average period of 5 years.
For the measures (i) and (ii), the agreement specifies an amount for each project and changes in the original budget and deadlines may have an impact in the provision. In addition, despite the amount set by Global Settlement to carry out the environmental recovery actions, it has no cap due to the Company's legal obligation to fully repair the environmental damage caused by the dam rupture. The expenses related to these obligations are deducted from the income tax calculation, in accordance with the Brazilian tax regulation, which is subject to periodic inspection by the competent authorities. Therefore, despite the fact Vale is monitoring this provision, the amount recorded could materially change depending on several factors that are not under the Company’s control.
b) Contingencies and other legal matters
(b.i) Public civil actions brought by the State of Minas Gerais and state public prosecutors for damages resulting from the rupture of Dam I
The Company is party to public civil actions brought by the State of Minas Gerais and justice institutions, claiming compensation for socioeconomic and socio-environmental damages resulting from the dam failure and seeking a broad range of preliminary injunctions ordering Vale to take specific remediation and reparation actions. As a result of the Global Settlement, settled in February 2021, the requests for the reparation of socio-environmental and socioeconomic damages caused by the dam rupture were substantially resolved. Indemnifications for individual damages was excluded from the Global Settlement, and the Term of Commitment signed with the Public Defendants of the State of Minas Gerais was ratified, whose parameters are utilized as a basis for the settlement of individual agreements. In the same year of 2021, it was initiated, by Vale and the State of Minas Gerais and justice institutions, the fulfilment of the Global Settlement.
(b.ii) Collective Labor Civil Actions
In 2021, public civil actions were filed in the Betim Labor Court in the State of Minas Gerais, by a workers' unions claiming the payment of compensation for death damages to own and outsourced employees, who died as a result of the rupture of Dam I. Initial sentences were published condemning Vale to pay from US$185 thousand (R$1 million) per fatal victim. Vale is defending itself on the lawsuits and understands that the likelihood of loss is possible.
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Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
(b.iii) U.S. Securities class action suit
Vale is defending itself in a class action brought before a Federal Court in New York and filed by holders of securities - American Depositary Receipts ("ADRs") - issued by Vale. Following the decision of the Court, in May 2020, that denied the Motion to Dismiss presented by the Company, the Discovery phase has started and is expected to be concluded in 2023.
On November 24, 2021, a new Complaint was filed before the same Court by eight Plaintiffs, all investment funds, as an “opt-out” litigation from the class action already pending in the Eastern District of New York court, asserting virtually the same claims against the same defendants as those in the class case.
The likelihood of loss of these proceedings is classified as possible. However, considering the initial stage of this class action, it is not possible to reliably estimate the amount of a potential loss at this time. The Plaintiff did not specify the amounts alleged in this demand.
(b.iv) Arbitration proceedings in Brazil filed by minority stockholders and a class association
In Brazil, Vale is a defendant in (i) one arbitration filed by 385 minority stockholders, (ii) two arbitrations filed by a class association allegedly representing all Vale’s minority stockholders, and (iii) three arbitrations filed by foreign investment funds.
In the six proceedings, the Claimants argue Vale was aware of the risks associated with the dam and failed to disclose it to the stockholders. Based on such argument, they claim compensation for losses caused by the decrease of the value of the shares.
The expectation of loss is classified as possible for the six procedures and, considering the initial phase, it is not possible at this time to reliably estimate the amount of a possible loss.
In one of the proceedings filed by foreign funds, the Claimants initially estimated the amount of the alleged losses would be approximately US$333 (R$1,800 million). In another proceeding filed by foreign funds, the Claimants initially estimated the amount of the alleged losses would be approximately US$721 (R$3,900 million). The Company disagrees with the ongoing proceedings and understands that, in this case and at the current stage of the proceedings, the probability of loss in the amount claimed by the foreign funds is remote.
(b.v) Lawsuit filed by the Securities and Exchange Commission (“SEC”) and Investigations conducted by CVM
On April 28, 2022, SEC filed a suit against Vale alleging violations of U.S. securities laws arising from Vale’s disclosures about its dam safety management, including the dam in Brumadinho. The SEC is seeking the imposition of civil monetary penalties, disgorgement and other relief within the SEC’s authority in a lawsuit filed in a federal court. Vale believes that its disclosures did not violate U.S. law and is contesting such allegations. On September 29, 2022, Vale served the SEC with its motion to dismiss the complaint. The SEC’s deadline to serve Vale with its Opposition to the motion to dismiss is currently ongoing. The likelihood of loss of this proceeding is classified as possible and it is not yet possible to reliably estimate the amount of a potential loss to the Company due to the initial phase of the lawsuit.
CVM is also conducting investigations relating to Vale's disclosure of relevant information to shareholders, investors and the market in general, especially regarding the conditions and management of Vale's dams. The likelihood of loss of this proceeding is classified as possible and it is not yet possible to reliably estimate the amount of a potential loss to the Company.
(b.vi) Criminal proceedings and investigations
In January 2020, the State Prosecutors of Minas Gerais (“MPMG”) filed criminal charges against 16 individuals (including former executive officers of Vale and former employees) for a number of potential crimes, including homicide, and against Vale S.A. for alleged environmental crimes. In November 2021, the Brazilian Federal Police concluded an investigation on potential criminal liability for the Brumadinho dam rupture. The investigation has been sent to the Federal Public Prosecutors (“MPF”), which has not brought criminal charges against Vale. The MPF and the Brazilian Federal Police conducted a separate investigation into the causes of the dam rupture in Brumadinho, which may result in new criminal proceedings. Vale is defending itself against the criminal claims and is no possible to estimate when a decision will be issued.
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Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
(b.vii) Decision of Brazilian Office of the Comptroller General (“CGU”)
In October 2020, the Company was informed that the CGU initiated an administrative proceeding based on the same allegations under the Brazilian Law 12,846/2013 in connection with inspection and monitoring activities relating to the Brumadinho dam. In August 2022, the CGU has concluded that Vale has failed to present reliable information to the Brazilian National Mining Agency (“ANM”) and that it was issued a positive stability condition (“DCE”) statement for the Dam I of Brumadinho, when, in the understanding of the CGU, it should be negative. Thus, even recognizing the non-existence of corruption acts, the CGU issued a fine of US$16 (R$86 million), the minimum baseline established by law, recognizing the non-involvement or tolerance of the top management. Vale has submitted a request for reconsideration, but it believes the likelihood of loss this amount is possible.
c) Insurance
The Company is negotiating with insurers the payment of indemnification under its civil liability and Directors and Officers Liability Insurance. However, these negotiations are still in progress, therefore any payment of insurance proceeds will depend on the coverage definitions under these policies and assessment of the amount of loss. Due to uncertainties, no indemnification related to these insurers was recognized in these financial statements.
22. Liabilities related to associates and joint ventures
a) Provision related to the rupture of Samarco dam
In November 2015, the Fundão tailings dam owned by Samarco Mineração S.A. (Samarco) failed, releasing tailings downstream, flooding certain communities and causing impacts on communities and the environment along the Doce river. The rupture resulted in 19 fatalities and caused property and environmental damage to the affected areas. Samarco is a joint venture equally owned by Vale S.A. and BHP Billiton Brasil Ltda. (‘‘BHPB’’).
In 2016, Vale, Samarco and BHPB, entered into a Framework Agreement with the Federal Government of Brazil, the states of Espírito Santo and Minas Gerais and certain other public authorities to establish that is developing and executing environmental and socio-economic programs to remediate and provide compensation for damage caused by the Samarco dam failure.
In June 2018, Samarco, Vale and BHPB entered into a comprehensive agreement with the offices of the federal and state (Minas Gerais and Espírito Santo) prosecutors, public defenders and attorney general, among other parties (“TacGov Agreement”), improving the governance mechanism of Renova Foundation and establishing, among other things, a process for potential revisions to the remediation programs under the Framework Agreement.
Under the Framework Agreement, Samarco has primary responsibility for funding Fundação Renova’s annual calendar year budget for the duration of the Framework Agreement. However, to the extent that Samarco does not meet its funding obligations, each of Vale and BHPB have secondary funding obligations under the Framework Agreement in proportion to its 50 per cent shareholding in Samarco.
Samarco began to gradually recommence operations in December 2020, however, there remains significant uncertainty regarding Samarco’s long-term cash flow generation. In light of these uncertainties and based on currently available information, Vale has a provision for its obligations under the Framework Agreement programs in the amount of US$2,953 at September 30, 2022 (December 31, 2021: US$2,910).
b) Germano Dam
In addition to the Fundão tailings dam, Samarco owns the Germano dam, which was also built under the upstream method and has been inactive since the Fundão dam rupture. Due to the safety requirements set by the Brazilian National Mining Agency (“ANM”), Samarco prepared a project for the de-characterization of this dam, resulting in a provision for the de-characterization of the Germano tailings dam. As of September 30, 2022, Vale has a provision for de-characterization of Germano tailings dam in the amount of US$191 (December 31, 2021: US$202).
| 39 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
c) Changes on the provisions in the period
| 2022 | 2021 | |||
| Balance at January 1, | 3,112 | 2,074 | ||
| Additional provision | 89 | 560 | ||
| Disbursements | (114) | (131) | ||
| Present value adjustment | (44) | (101) | ||
| Translation adjustment | 101 | (137) | ||
| Balance at September 30, | 3,144 | 2,265 | ||
| September 30, 2022 | December 31, 2021 | |||
| Current liabilities | 2,027 | 1,785 | ||
| Non-current liabilities | 1,117 | 1,327 | ||
| Liabilities | 3,144 | 3,112 |
d) Samarco’s working capital
In addition to the provision, Vale S.A. made available US$21 during the nine-month period ended September 30, 2021, which was fully used to fund Samarco’s working capital. This amount was recognized in Vale´s income statement as an expense in “Equity results and other results in associates and joint ventures”. In 2022, Vale was not required to fund Samarco’s working capital.
e) Judicial recovery of Samarco
In April 2021, Samarco announced the request for Judicial Reorganization (“RJ”) that was filed with the Minas Gerais Court to renegotiate its debt, which is held by bondholders abroad. The purpose of RJ is to restructure Samarco’s debts and establish an independent and sustainable financial position, allowing Samarco to keep working to resume its operations safely and to fulfill its obligations related to the Renova Foundation.
In addition, the ongoing discussions in the context of the RJ may lead to the loss of deductibility of part of the expenses incurred with the Renova Foundation and of the deferred taxes over the total provision, depending on the method determined for restructuring Samarco's debts. As of September 30, 2022, the exposure is US$1,471 (R$7,951 million), of which US$439 (R$2,376 million) are expenses already incurred and considered as part of the Company’s uncertain tax positions.
The Company is working in the perspective that the mechanisms resulting from the RJ will continue allowing the deductibility of these expenses. However, future decisions resulting from the negotiations regarding Samarco's capital structure, which are not under Vale's control, could materially change the deferred tax recognized by the Company.
f) Contingencies related to Samarco accident
These proceedings include public civil actions brought by Brazilian authorities and multiple proceedings involving claims for significant amounts of damages and remediation measures. The Framework Agreements represents a model for the settlement of the public civil action brought by the MPF and other related proceedings. There are also putative securities class actions in the United States against Vale and some of its current and former officers and a criminal proceeding in Brazil. The main updates regarding the lawsuits in the period were as follows:
(f.i) Public civil action brought by federal prosecutors and framework agreements
Vale is a defendant in several legal proceedings brought by governmental authorities and civil associations claiming socioenvironmental and socioeconomic damages and a number of specific remediation measures as a result of the rupture of Samarco’s Fundão dam, including a claim brought by the Federal Public Prosecution Office in 2016 seeking US$29 billion (R$155 billion) (full amount of the claim, the effect for Vale would be 50% of this amount), which has been suspended from the date of ratification of the TacGov Agreement.
However, pre-requisites established in the TacGov Agreement, for renegotiation of the Framework Agreement were not implemented during the two-year period and on September 30, 2020, and Brazilian Federal and State prosecutors and public defenders filed a request for the immediate resumption of the US$29 billion (R$155 billion) claim.
Therefore, Vale, Samarco, BHPB and Federal and State prosecutors have been engaging in negotiations to seek a definitive settlement of the obligations under the Framework Agreement and the US$29 billion (R$155 billion) Federal Public Prosecution Office claim. The goal with a potential agreement is to provide a stable framework for the execution of reparation and compensation programs.
| 40 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
The potential agreement is still uncertain as it is subject to conclusion of the negotiations and approval by the Company, relevant authorities and Intervenient parties.
The estimate of the economic impact of a potential agreement will depend mainly on (i) a detailed assessment of the estimates of the amounts to be spent on the reparation and compensation projects being discussed, (ii) an analysis of the detailed scope of such projects to determine their overlap with the initiatives and amounts already provisioned; and (iii) the timing of the execution of projects and disbursements, which will impact the present value of the obligations.
Therefore, until any revisions to the Programs are agreed, Fundação Renova will continue to implement the Programs in accordance with the terms of the Framework Agreement and the TacGov Agreement, for which the expected costs are reflected in the Company’s provision.
(f.ii) Criminal proceeding
In September 2019, the federal court of Ponte Nova dismissed all criminal charges against Vale representatives relating to the first group of charges, which concerns to the results of the Fundão dam failure, remaining only the legal entity in the passive pole. The second group of charges against Vale S.A. and one of the Company’s former employee, which concerns the accusation of alleged crimes committed against the Environmental Public Administration, remained unchanged. The Company is defending itself and cannot estimate when a final decision on the case will be issued.
g) Insurance
Since the Fundão dam rupture, the Company negotiated with insurers the indemnification payments based on its general liability policies. In the nine-month period ended September 30, 2021, the Company received US$33, which was recorded as a gain in the income statement as “Equity results and other results in associates and joint ventures”. The Company did not receive any further insurance in 2022 and does not expect to receive any material amounts in the future.
23. Provision for de-characterization of dam structures and asset retirement obligations
The Company is subject to laws and regulations that requires the decommissioning of the assets and mines sites at the end of the operation and, therefore, decommissioning expenditures are incurred predominantly when the Company ceases the operating activities. Depending on the geotechnical characteristics of the structures, the Company is required to de-characterize the structures, as described below.
a) De-characterization of upstream and centerline geotechnical structures
As a result of the Brumadinho dam rupture (note 21), the Company has decided to speed up the plan to “de-characterize” all of its tailings dams built under the upstream method, certain “centerline structures” and dikes, located in Brazil. The Company also operates tailings dams in Canada, including upstream compacted dams. However, the Company has decided that these dams will be decommissioned using other methods, and so, the provision to execute decommissioning of dams in Canada is recognized as “Asset retirement obligations and environmental obligations”, presented in item (b) below.
In September 2020, the federal government enacted Law no. 14,066, which modified the National Dam Safety Policy (Law no. 12,334/2020), reinforcing the prohibition of constructing and raising upstream dams in Brazil. The statute also requires companies to de-characterize the structures built using the upstream method by 2022, or by a later date if it is proven that the de-characterization is not technically feasible by 2022. A substantial part of the Company's de-characterization projects will be completed in 15 years, which exceeds the date established in the regulation due to the characteristics and safety levels of the Company's geotechnical structures.
Thus, in February 2022, the Company filed with the relevant bodies a request for an extension to perform the projects and, as a result, signed a Term of Commitment establishing legal and technical certainty for the process of de-characterization of the upstream dams, considering that the deadline defined was technically unfeasible, especially due to the necessary actions to increase safety during the works. With the signing of the agreement, the Company recorded an additional provision of US$37 to make investments in social and environmental projects over a period of 8 years.
| 41 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
Changes on the provisions in the period
| 2022 | 2021 | |||
| Balance at January 1, | 3,523 | 2,289 | ||
| Additional provision | 72 | - | ||
| Disbursements | (247) | (254) | ||
| Present value adjustment | (23) | (81) | ||
| Translation adjustment | 129 | (97) | ||
| Balance at September 30, | 3,454 | 1,857 | ||
| September 30, 2022 | December 31, 2021 | |||
| Current liabilities | 472 | 451 | ||
| Non-current liabilities | 2,982 | 3,072 | ||
| Liabilities | 3,454 | 3,523 |
In addition, due to the de-characterization projects, the Company has suspended some operations due to judicial decisions or technical analysis performed by Vale on its upstream dam structures located in Brazil. The Company has been recording losses in relation to the operational stoppage and idle capacity of the ferrous mineral segment in the amounts of US$202 for the nine-month period ended on September 30, 2022 (US$256 for the nine-month period ended on September 30, 2021). The Company is working on legal and technical measures to resume all operations at full capacity.
b) Asset retirement obligations and environmental obligations
| Liability | Discount rate | |||||||||
| September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | Cash flow duration | ||||||
| Liability by geographical area | ||||||||||
| Brazil | 1,334 | 1,398 | 5.74% | 5.48% | 2119 | |||||
| Canada | 1,463 | 2,727 | 1.39% | 0.00% | 2150 | |||||
| Oman | 123 | 123 | 4.86% | 3.03% | 2035 | |||||
| Indonesia | 69 | 77 | 4.49% | 4.20% | 2061 | |||||
| Other | 183 | 255 | 0.02 - 2.55% | 0.00 - 7.79% | - | |||||
| 3,172 | 4,580 | |||||||||
Changes on the provisions in the period
| 2022 | 2021 | |||||||||||
| Asset retirement obligations | Environmental obligations | Total | Asset retirement obligations | Environmental obligations | Total | |||||||
| Balance at January 1, | 4,283 | 297 | 4,580 | 4,220 | 302 | 4,522 | ||||||
| Present value adjustment (i) | (1,169) | (4) | (1,173) | (432) | (8) | (440) | ||||||
| Disbursements | (73) | (41) | (114) | (60) | (32) | (92) | ||||||
| Revisions on projected cash flows | 40 | 1 | 41 | - | - | - | ||||||
| Translation adjustment | (116) | 5 | (111) | (56) | (10) | (66) | ||||||
| Transfer to assets held for sale (note 14) | (49) | (2) | (51) | - | - | - | ||||||
| Balance at September 30, | 2,916 | 256 | 3,172 | 3,672 | 252 | 3,924 | ||||||
| September 30, 2022 | December 31, 2021 | |||||||||||
| Asset retirement obligations | Environmental obligations | Total | Asset retirement obligations | Environmental obligations | Total | |||||||
| Current | 131 | 97 | 228 | 72 | 98 | 170 | ||||||
| Non-current | 2,785 | 159 | 2,944 | 4,211 | 199 | 4,410 | ||||||
| Liability | 2,916 | 256 | 3,172 | 4,283 | 297 | 4,580 | ||||||
(i) Mainly refers to the increase in the discount rate of the asset retirement obligation in Canada, which increased from 0.00% to 1.39% in the nine-month period ended September 30, 2022. The adjustment in provision was recorded as the property, plant and equipment (note 16).
c) Financial guarantees
The Company has issued letters of credit and surety bonds of US$566 as of September 30, 2022 (US$605 as of December 31, 2021), in connection with the asset retirement obligations for its Base Metals operations.
| 42 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Current liabilities | Non-current liabilities | |||||||
| September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||
| Provisions for litigation (note 25) | 100 | 93 | 1,089 | 1,012 | ||||
| Employee post-retirement obligations (note 26) | 105 | 99 | 1,260 | 1,533 | ||||
| Payroll, related charges and other remunerations | 724 | 816 | - | - | ||||
| Onerous contracts (note 14) | - | 37 | - | 874 | ||||
| 929 | 1,045 | 2,349 | 3,419 | |||||
The Company is defendant in numerous legal actions in the ordinary course of business, including civil, tax, environmental and labor proceedings.
The Company makes use of estimates to recognize the amounts and the probability of outflow of resources, based on reports and technical assessments and on management’s assessment. Provisions are recognized for probable losses of which a reliable estimate can be made.
Arbitral, legal and administrative decisions against the Company, new jurisprudence and changes of existing evidence can result in changes regarding the probability of outflow of resources and on the estimated amounts, according to the assessment of the legal basis.
a) Provision for legal proceedings
The Company has considered all information available to assess the likelihood of an outflow of resources and in the preparation on the estimate of the costs that may be required to settle the obligations.
Tax litigations - Mainly refers to the lawsuit filed in 2011 by Valepar (merged by Vale) seeking the right to exclude the amount of dividends received in the form of interest on capital (“JCP”) from the PIS and COFINS tax base. The amount reserved for this proceeding as of September 30, 2022 is US$434 (2021: US$402). This proceeding is guaranteed by a judicial deposit in the amount of US$502 as of September 30, 2022 (2021: US$463).
Civil litigations - Refers to lawsuits for: (i) indemnities for losses, payments and contractual fines due to contractual imbalance or non-compliance that are alleged by suppliers, and (ii) land claims referring to real estate Vale's operational activities.
Labor litigations - Refers to lawsuits for individual claims by in-house employees and service providers, primarily involving demands for additional compensation for overtime work, moral damages or health and safety conditions.
Environmental litigations - Refers mainly to proceedings for environmental damages and issues related to environmental licensing.
| Tax litigation | Civil litigation | Labor litigation | Environmental litigation | Total of litigation provision | ||||||
| Balance at December 31, 2021 | 456 | 284 | 358 | 7 | 1,105 | |||||
| Additions and reversals, net (note 5) | 3 | 39 | 47 | 7 | 96 | |||||
| Payments | (1) | (51) | (43) | - | (95) | |||||
| Indexation and interest | 22 | 28 | 13 | - | 63 | |||||
| Translation adjustment | 13 | 5 | 12 | - | 30 | |||||
| Transfer to held for sale (note 14) | (1) | (7) | (2) | - | (10) | |||||
| Balance at September 30, 2022 | 492 | 298 | 385 | 14 | 1,189 | |||||
| Current liabilities | 15 | 22 | 61 | 2 | 100 | |||||
| Non-current liabilities | 477 | 276 | 324 | 12 | 1,089 | |||||
| 492 | 298 | 385 | 14 | 1,189 | ||||||
| 43 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Tax litigation | Civil litigation | Labor litigation | Environmental litigation | Total of litigation provision | ||||||
| Balance at December 31, 2020 | 485 | 260 | 335 | 11 | 1,091 | |||||
| Additions and reversals, net (note 5) | - | 5 | 61 | 1 | 67 | |||||
| Payments | (5) | (20) | (41) | (4) | (70) | |||||
| Indexation and interest | 5 | 22 | 28 | - | 55 | |||||
| Acquisition of NLC (note 14) | (22) | (11) | (15) | - | (48) | |||||
| Translation adjustment | - | 1 | 8 | - | 9 | |||||
| Balance at September 30, 2021 | 463 | 257 | 376 | 8 | 1,104 | |||||
| Current liabilities | 7 | 15 | 57 | 1 | 80 | |||||
| Non-current liabilities | 456 | 242 | 319 | 7 | 1,024 | |||||
| 463 | 257 | 376 | 8 | 1,104 |
b) Contingent liabilities
| September 30, 2022 | December 31, 2021 | |||
| Tax litigations | 6,286 | 8,731 | ||
| Civil litigations | 1,196 | 1,503 | ||
| Labor litigations | 549 | 516 | ||
| Environmental litigations | 1,030 | 954 | ||
| Total | 9,061 | 11,704 |
In addition, as reported in the financial statements for the year ended December 31, 2021, the Company is a counterparty in several actions and the main updates on contingent liabilities since then, are discussed as follows:
(b.i) Tax proceedings - PIS/COFINS
The Company is a party to several collections related to the alleged improper use of PIS and COFINS credits (federal taxes levied on the companies' gross revenue). Brazilian tax legislation authorizes taxpayers to use PIS and COFINS tax credits, such as those referring to the acquisition of inputs for the production process and other items. The tax authorities mainly claim that (i) some credits were not related to the production process, and (ii) the right to use the tax credits was not adequately proven. During 2022 the Company received new proceedings in the amount of US$529 (R$2,862 million), for which the likelihood of loss is deemed possible.
(b.ii) Tax proceedings - Value added tax on services and circulation of goods (“ICMS”)
Vale is engaged in several administrative and court proceedings relating to additional charges of ICMS by the tax authorities of different Brazilian states. In each of these proceedings, the tax authorities claim that (i) use of undue tax credit; (ii) failing to comply with certain accessory obligations; (iii) the Company is required to pay the ICMS on acquisition of electricity (iv) operations related to the collection of tax rate differential (“DIFAL”) and (v) incidence of ICMS on its own transportation. During 2022, the Company received new proceedings in the amount of US$84 (R$453 million), for which the likelihood of loss is deemed possible.
c) Judicial deposits
| September 30, 2022 | December 31, 2021 | |||
| Tax litigations | 1,009 | 957 | ||
| Civil litigations | 137 | 100 | ||
| Labor litigations | 131 | 141 | ||
| Environmental litigations | 12 | 22 | ||
| Total | 1,289 | 1,220 |
d) Guarantees contracted for legal proceedings
In addition to the above-mentioned tax, civil, labor and environmental judicial deposits, the Company contracted US$2,181 in guarantees for its lawsuits, as an alternative to judicial deposits.
| 44 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
26. Employee post-retirement obligations
a) Long-term incentive programs
The Company has long-term reward mechanisms that include the Matching program and the Performance Shares Units (“PSU”) for eligible executives to retain and stimulate their performance.
On March 30, 2022, a new cycle of the Matching program started and the fair value was calculated on the Company's share price and their respective ADRs at the grant date, which was R$95.87 and US$20.03 per share. The Company will grant 1,437,588 shares for the new cycle (2021: 1,046,255 shares).
During the third quarter of 2022, a new cycle of the PSU program has started and the Company will grant 1,709,955 shares (2021: 1,474,723 shares). The fair value was calculated based on the performance factor using Monte Carlo simulations for the Return to Shareholders Indicator and health and safety and sustainability indicators. The assumptions used for the Monte Carlo simulations are shown in the table below, as well as the result used to calculate the expected value of the total performance factor.
| PSU | 2022 | |
| Granted shares | 1,709,955 | |
| Date shares were granted | 1/3/2022 | |
| VALE (BRL) | 78.00 | |
| VALE ON (USD) | 13.81 | |
| Expected volatility | 39.00%p.y. | |
| Expected term (in years) | 3 | |
| Expected shareholder return indicator | 51.20% | |
| Expected performance factor | 53.08% | |
The fair value of the program will be recognized on a straight-line basis over the required three-year period of service, net of estimated losses.
b) Reconciliation of assets and liabilities recognized in the balance sheet
| September 30, 2022 | December 31, 2021 | |||||||||||
| Overfunded pension plans | Underfunded pension plans | Other benefits | Overfunded pension plans | Underfunded pension plans | Other benefits | |||||||
| Balance at beginning of the period | 919 | - | - | 864 | - | - | ||||||
| Interest income | 51 | - | - | 58 | - | - | ||||||
| Changes on asset ceiling | 249 | - | - | 60 | - | - | ||||||
| Translation adjustment | 27 | - | - | (63) | - | - | ||||||
| Balance at end of the period | 1,246 | - | - | 919 | - | - | ||||||
| Amount recognized in the balance sheet | ||||||||||||
| Present value of actuarial liabilities | (4,942) | (592) | (1,089) | (2,833) | (3,983) | (1,428) | ||||||
| Fair value of assets | 6,188 | 316 | - | 3,752 | 3,779 | - | ||||||
| Effect of the asset ceiling | (1,246) | - | - | (919) | - | - | ||||||
| Liabilities | - | (276) | (1,089) | - | (204) | (1,428) | ||||||
| Current liabilities | - | (41) | (64) | - | (47) | (52) | ||||||
| Non-current liabilities | - | (235) | (1,025) | - | (157) | (1,376) | ||||||
| Liabilities | - | (276) | (1,089) | - | (204) | (1,428) | ||||||
| 45 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
a) Share capital
As of September 30, 2022, the share capital was US$61,614 corresponding to 4,778,889,263 shares issued and fully paid without par value.
| September 30, 2022 | ||||||
| Common shares | Golden shares | Total | ||||
| Shareholders with more than 5% of total capital | 1,317,200,871 | - | 1,317,200,871 | |||
| Previ | 408,743,556 | - | 408,743,556 | |||
| Capital World Investors | 319,508,101 | - | 319,508,101 | |||
| Blackrock, Inc | 302,602,159 | - | 302,602,159 | |||
| Mitsui&co | 286,347,055 | - | 286,347,055 | |||
| Free floating | 3,225,390,427 | - | 3,225,390,427 | |||
| Golden shares | - | 12 | 12 | |||
| Total outstanding (without shares in treasury) | 4,542,591,298 | 12 | 4,542,591,310 | |||
| Shares in treasury | 236,297,953 | - | 236,297,953 | |||
| Total capital | 4,778,889,251 | 12 | 4,778,889,263 | |||
b) Cancellation of treasury shares
| · | On February 24, 2022, the Board of Directors approved the cancellation of 133,418,347 common shares issued by the Company and held in treasury, without reducing the value of its share capital. The effect of US$2,830 was recorded in shareholders' equity as “Treasury shares used and cancelled”. |
| · | On July 28, 2022, the Board of Directors approved the cancellation of 220,150,800 common shares issued by the Company and held in treasury, without reducing the value of its share capital. The effect of US$3,786 was recorded in shareholders' equity as “Treasury shares used and cancelled”. |
· On September 16, 2021, the Board of Directors approved the cancellation of 152,016,372 common shares of the Company acquired in previous buyback programs and held in treasury, without reducing its capital stock. The effect of US$2,401 was recorded in shareholders' equity as “Treasury shares used and cancelled”.
c) Remuneration approved
| · | On February 24, 2022, the Board of Directors approved the remuneration to shareholders in the amount of US$3,500, which was fully paid on March 16, 2022. |
| · | On July 28, 2022, the Board of Directors approved the remuneration to shareholders in the amount of US$3,000, which was fully paid on September 1, 2022. |
| · | On February 25, 2021, the Board of Directors approved the remuneration to shareholders in the amount of US$3,972, which was fully paid on March 15, 2021. |
| · | On June 17, 2021, the Board of Directors approved an additional remuneration to shareholders in the amount of US$2,200, which was fully paid on June 30, 2021. |
| · | On September 16, 2021, the Board of Directors approved the stockholder’s remuneration in the total amount of US$7,391 million, which was fully paid on September 30, 2021. |
d) Share buyback
| · | On May 16, 2022, the Company reached the approved limit for the buyback program of up to 470,000,000 shares. Of this amount, 178,815,500 common shares and their respective ADRs were repurchased in 2022, corresponding US$3,251, of which US$1,750 were acquired through wholly owned subsidiaries and US$1,501 by the Parent Company. |
| · | On May 16, 2022, the Company started a new share buyback program to repurchase 500,000,000 common shares and their respective ADRs over the next 18 months. During the nine-month period ended September 30, 2022, the Company repurchased 119,114,479 common shares and their respective ADRs, corresponding to US$1,819, of which US$964 were acquired through wholly owned subsidiaries and US$855 by the Parent Company. |
| 46 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| · | As of September 30, 2022, the Company hold 236,297,953 shares, being 125,456,849 through its wholly owned subsidiaries and 110,841,104 directly by the Parent Company, of which US$2,127 through its wholly owned subsidiaries and US$1,887 million by the Parent Company. |
| · | During the nine-month period ended September 30, 2021, the Company repurchased 238,860,947 common shares at an average cost of US$20.28 per share (R$105.76 per share), being 99,842,600 through wholly owned subsidiaries and 139,018,347 directly by the parent company. The amount acquired was US$4,845, being US$1,837 through wholly owned subsidiaries and US$3,008 by the Parent Company. |
The Company’s related parties are subsidiaries, joint ventures, associates, stockholders and its related entities and key management personnel of the Company.
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.
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 variable lease payments of the pelletizing plants.
Purchases, accounts receivable and other assets, and accounts payable and other liabilities relate largely to amounts charged by joint ventures and associates related to the pelletizing plants operational lease and railway transportation services.
a) Transactions with related parties
| Three-month period ended September 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| Net operating revenue | Cost and operating expenses | Financial results | Net operating revenue | Cost and operating expenses | Financial results | |||||||
| Joint ventures | 104 | (273) | (6) | 177 | (280) | (1) | ||||||
| Companhia Siderúrgica do Pecém | 92 | - | 1 | 177 | - | 4 | ||||||
| Aliança Geração de Energia S.A. | - | (34) | - | - | (30) | - | ||||||
| Pelletizing companies (i) | - | (81) | (8) | - | (129) | (5) | ||||||
| MRS Logística S.A. | - | (118) | - | - | (86) | - | ||||||
| Norte Energia S.A. | - | (37) | - | - | (34) | - | ||||||
| Other | 12 | (3) | 1 | - | (1) | - | ||||||
| Associates | 73 | (9) | (2) | 69 | (6) | (1) | ||||||
| VLI | 72 | (8) | (1) | 68 | (6) | (1) | ||||||
| Other | 1 | (1) | (1) | 1 | - | - | ||||||
| Major stockholders | 67 | - | 88 | 52 | - | (113) | ||||||
| Bradesco | - | - | 88 | - | - | (114) | ||||||
| Mitsui | 67 | - | - | 52 | - | - | ||||||
| Banco do Brasil | - | - | - | - | - | 1 | ||||||
| Total of continuing operations | 244 | (282) | 80 | 298 | (286) | (115) | ||||||
(i) Aggregated entities: Companhia Coreano-Brasileira de Pelotização, Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização.
| 47 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Nine-month period ended September 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| Net operating revenue | Cost and operating expenses | Financial results | Net operating revenue | Cost and operating expenses | Financial results | |||||||
| Joint ventures | 379 | (738) | (29) | 516 | (610) | (9) | ||||||
| Companhia Siderúrgica do Pecém | 347 | - | (1) | 516 | - | 2 | ||||||
| Aliança Geração de Energia S.A. | - | (87) | - | - | (80) | - | ||||||
| Pelletizing companies (i) | - | (249) | (28) | - | (219) | (11) | ||||||
| MRS Logística S.A. | 1 | (296) | - | - | (216) | - | ||||||
| Norte Energia S.A. | - | (100) | - | - | (88) | - | ||||||
| Other | 31 | (6) | - | - | (7) | - | ||||||
| Associates | 219 | (21) | (3) | 196 | (15) | (2) | ||||||
| VLI | 218 | (20) | (2) | 195 | (15) | (2) | ||||||
| Other | 1 | (1) | (1) | 1 | - | - | ||||||
| Major stockholders | 224 | - | 270 | 166 | - | (31) | ||||||
| Bradesco | - | - | 270 | - | - | (33) | ||||||
| Mitsui | 224 | - | - | 166 | - | - | ||||||
| Banco do Brasil | - | - | - | - | - | 2 | ||||||
| Total of continuing operations | 822 | (759) | 238 | 878 | (625) | (42) | ||||||
| Discontinued operation - Coal (note 14) | - | - | - | - | (95) | 15 | ||||||
| Total | 822 | (759) | 238 | 878 | (720) | (27) | ||||||
(i) Aggregated entities: Companhia Coreano-Brasileira de Pelotização, Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização.
b) Outstanding balances with related parties
| Assets | ||||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||||
| Cash and cash equivalents | Accounts receivable | Dividends receivable, financial instruments and other assets | Cash and cash equivalents | Accounts receivable | Dividends receivable, financial instruments and other assets | |||||||
| Joint ventures | - | 96 | 36 | - | 75 | 96 | ||||||
| Companhia Siderúrgica do Pecém | - | 92 | 17 | - | 74 | 39 | ||||||
| Pelletizing companies (i) | - | - | - | - | - | 37 | ||||||
| MRS Logística S.A. | - | - | 19 | - | - | 19 | ||||||
| Other | - | 4 | - | - | 1 | 1 | ||||||
| Associates | - | 22 | - | 17 | - | 18 | 3 | |||||
| VLI | - | 18 | - | - | 16 | - | ||||||
| Other | - | 4 | 17 | - | 2 | 3 | ||||||
| Major stockholders | 481 | 2 | 70 | 1,825 | 4 | 5 | ||||||
| Bradesco | 445 | - | 70 | 1,746 | - | 5 | ||||||
| Mitsui | - | 2 | - | - | 4 | - | ||||||
| Banco do Brasil | 36 | - | - | 79 | - | - | ||||||
| Pension plan | - | 15 | - | - | 12 | - | ||||||
| Total | 481 | 135 | 123 | 1,825 | 109 | 104 | ||||||
(i) Aggregated entities: Companhia Coreano-Brasileira de Pelotização, Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização.
| 48 |
Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated | |
| Liabilities | |||||||
| September 30, 2022 | December 31, 2021 | ||||||
| Supplier and contractors | Financial instruments and other liabilities | Supplier and contractors | Financial instruments and other liabilities | ||||
| Joint ventures | 340 | 136 | 70 | 393 | |||
| Pelletizing companies (i) | 267 | 136 | 13 | 393 | |||
| MRS Logística S.A. | 41 | - | 41 | - | |||
| Other | 32 | - | 16 | - | |||
| Associates | 8 | 88 | 9 | 47 | |||
| VLI | 6 | 88 | 6 | 47 | |||
| Other | 2 | - | 3 | - | |||
| Major stockholders | 1 | 116 | 2 | 265 | |||
| Bradesco | - | 116 | - | 265 | |||
| Mitsui | 1 | - | 2 | - | |||
| Pension plan | 8 | - | 10 | - | |||
| Total | 357 | 340 | 91 | 705 | |||
(i) Aggregated entities: Companhia Coreano-Brasileira de Pelotização, Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização.
| 49 |
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) | ||
| Date: October 27, 2022 | ||