Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the
Securities Exchange Act of 1934
For the month of
July 2021
22250-145
(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 ⌧ 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 ⌧ |
(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 ⌧ |
(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 ⌧ |
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82- .)
Table of Contents
Explanatory Note
Vale is amending its report on Form 6-K furnished to the Securities and Exchange Commission on July 29, 2021 (File/Film Number: 001-15030 / 211124302) (the “Original 6-K”) solely for the purpose of adding Exhibit 101, which contains Interactive Data File disclosure in accordance with Rule 405 of Regulation S-T. Except as described above, this amendment does not amend any information set forth in the Original 6-K.
Vale S.A. Interim Financial Statements
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1
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 statement of financial position of Vale S.A. and its subsidiaries (the “Company”) as of June 30, 2021, and the related consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the three and six-month periods ended June 30, 2021 and June 30, 2020, and the consolidated statement of changes in equity for the six-month periods ended June 30, 2021 and June 30, 2020, 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 International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of the Company as of December 31, 2020, and the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2021, which included a paragraph describing a change in the manner of accounting for leases on January 1, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial position as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.
Basis for Review Results
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
Rio de Janeiro, RJ, Brazil
July 28, 2021
PricewaterhouseCoopers Auditores Independentes, Rua do Russel 804, Edifício Manchete, 6º e 7º andares, Rio de Janeiro, RJ, Brasil 22210-907, T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br
2
Consolidated Income Statement
In millions of United States dollars, except earnings per share data
Three-month period ended June 30, | Six-month period ended June 30, | |||||||||
| Notes |
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Net operating revenue |
| 4(c) |
| | | | | |||
Cost of goods sold and services rendered |
| 5(a) |
| ( | ( | ( | ( | |||
Gross profit |
|
| | | | | ||||
Operating expenses |
|
| ||||||||
Selling and administrative expenses |
| 5(b) |
| ( | ( | ( | ( | |||
Research and evaluation expenses |
|
| ( | ( | ( | ( | ||||
Pre-operating and operational stoppage |
| 20 |
| ( | ( | ( | ( | |||
Brumadinho event | 20 | ( | ( | ( | ( | |||||
Other operating expenses, net |
| 5(c) |
| ( | ( | ( | ( | |||
|
| ( | ( | ( | ( | |||||
Impairment and disposals of non-current assets |
| 12 and 15 |
| ( | ( | ( | ( | |||
Operating income |
|
| | | | | ||||
Financial income |
| 6 |
| | | | | |||
Financial expenses |
| 6 |
| ( | ( | ( | ( | |||
Other financial items, net | 6 | | ( | | ( | |||||
Equity results and other results in associates and joint ventures |
| 13 and 21 |
| ( | ( | ( | ( | |||
Income before income taxes |
|
| | | | | ||||
Income taxes |
| 7(b) |
| |||||||
Current tax |
|
| ( | ( | ( | ( | ||||
Deferred tax |
|
| ( | | ( | | ||||
|
| ( | ( | ( | | |||||
Net income |
| | | | | |||||
Loss attributable to non-controlling interests | ( | ( | ( | ( | ||||||
Net income attributable to Vale's stockholders |
|
| | | | | ||||
Earnings per share attributable to Vale's stockholders: |
|
|
|
| ||||||
Basic and diluted earnings per share: |
| 8 |
|
|
| |||||
Common share (US$) |
|
| |
| | |
| | ||
The accompanying notes are an integral part of these interim financial statements.
3
Consolidated Statement of Comprehensive Income
In millions of United States dollars
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Net income | | | | | ||||
Other comprehensive income (loss): |
|
|
| |||||
Items that will not be reclassified to the income statement |
|
|
| |||||
Translation adjustments |
| |
| ( | |
| ( | |
Retirement benefit obligations (note 24) |
| |
| ( | |
| ( | |
Fair value adjustment to investment in equity securities | ( | | | ( | ||||
Total items that will not be reclassified to the income statement, net of tax |
| |
| ( | |
| ( | |
Items that may be reclassified to the income statement |
|
|
| |||||
Translation adjustments |
| ( |
| | ( |
| | |
Net investments hedge (note 16) | | ( | | ( | ||||
Net cash flow hedge (note 16) | ( | ( | ( | | ||||
Reclassification of cumulative translation adjustment to net income (note 12) | ( | — | ( | — | ||||
Total items that may be reclassified to the income statement, net of tax |
| ( |
| | ( |
| | |
Total comprehensive income (loss) |
| |
| ( | |
| ( | |
Comprehensive loss attributable to non-controlling interests |
| ( |
| ( | ( |
| ( | |
Comprehensive income (loss) attributable to Vale's stockholders |
| |
| ( | |
| ( | |
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.
4
Consolidated Statement of Cash Flows
In millions of United States dollars
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Cash flow from operations (a) |
| |
| | |
| | |
Interest on loans and borrowings paid (note 19) |
| ( |
| ( | ( |
| ( | |
Cash received (paid) on settlement of Derivatives, net (note 16) |
| |
| ( | ( |
| | |
Interest on participative stockholders' debentures paid (note 18) |
| ( |
| ( | ( |
| ( | |
Income taxes (including the settlement program) |
| ( |
| ( | ( |
| ( | |
Net cash provided by operating activities |
| |
| | |
| | |
Cash flow from investing activities: |
|
|
|
| ||||
Capital expenditures (notes 14 and 15) | ( | ( | ( | ( | ||||
Additions to investments (note 13) | — | — | ( | ( | ||||
Acquisition of NLC, net of cash (note 12) | ( | — | ( | — | ||||
Cash paid on the disposal of VNC (note 12) | — | — | ( | — | ||||
Dividends received from associates and joint ventures (note 13) |
| |
| | |
| | |
Short-term investment |
| |
| | ( |
| | |
Investment fund applications | — | ( | — | ( | ||||
Other investments activities, net |
| ( |
| ( | ( |
| ( | |
Net cash used in investing activities |
| ( |
| ( | ( |
| ( | |
Cash flow from financing activities: |
|
|
|
| ||||
Loans and borrowings from third-parties (note 19) |
| |
| — | |
| | |
Payments of loans and borrowings from third-parties (note 19) |
| ( |
| ( | ( |
| ( | |
Lease payments (note 19) |
| ( |
| ( | ( |
| ( | |
Dividends and interest on capital paid to stockholders (note 25) |
| ( | — | ( | — | |||
Dividends and interest on capital paid to non-controlling interest | ( | ( | ( | ( | ||||
Share buyback program (note 25) | ( | — | ( | — | ||||
Net cash used in financing activities |
| ( |
| ( | ( |
| | |
Increase (decrease) in cash and cash equivalents |
| |
| | ( |
| | |
Cash and cash equivalents at the beginning of the period |
| |
| | |
| | |
Effects of exchange rate changes on cash and cash equivalents |
| |
| ( | |
| ( | |
Cash and cash equivalents at end of the period |
| |
| | |
| | |
Non-cash transactions: |
|
|
| |||||
Additions to property, plant and equipment - capitalized loans and borrowing costs |
| |
| | |
| | |
Cash flow from operating activities: |
|
|
|
| ||||
Income before income taxes |
| |
| | |
| | |
Adjusted for: |
|
|
| |||||
Provisions related to Brumadinho event (note 20) | — | | — | | ||||
Equity results and other results in associates and joint ventures (note 13) |
| |
| | |
| | |
Impairment and disposal of non-current assets |
| |
| | |
| | |
Depreciation, depletion and amortization |
| |
| | |
| | |
Financial results, net (note 6) |
| ( |
| | ( |
| | |
Changes in assets and liabilities: |
|
|
| |||||
Accounts receivable |
| ( |
| ( | |
| ( | |
Inventories |
| ( |
| ( | ( |
| ( | |
Suppliers and contractors (i) |
| |
| | |
| ( | |
Provision — Payroll, related charges and other remunerations |
| |
| | ( |
| ( | |
Payments related to Brumadinho event (note 20) (ii) | ( | ( | ( | ( | ||||
Other assets and liabilities, net |
| ( |
| ( | ( |
| ( | |
Cash flow from operations (a) | | | | | ||||
(i)
(ii)
The accompanying notes are an integral part of these interim financial statements.
5
Consolidated Statement of Financial Position
In millions of United States dollars
| Notes |
| June 30, 2021 |
| December 31, 2020 | |
Assets |
|
|
|
| ||
Current assets |
|
|
|
| ||
Cash and cash equivalents |
| 19 |
| |
| |
Short-term investments | 19 | | | |||
Accounts receivable |
| 9 |
| |
| |
Other financial assets |
| 11 |
| |
| |
Inventories |
| 10 |
| |
| |
Recoverable taxes |
|
| |
| | |
Others |
| |
| | ||
| |
| | |||
|
| |||||
Non-current assets |
|
|
| |||
Judicial deposits |
| 23(c) |
| |
| |
Other financial assets |
| 11 |
| |
| |
Recoverable taxes |
|
| |
| | |
Deferred income taxes |
| 7(a) |
| |
| |
Others |
| |
| | ||
| |
| | |||
Investments in associates and joint ventures |
| 13 |
| |
| |
Intangibles |
| 14 |
| |
| |
Property, plant and equipment |
| 15 |
| |
| |
| |
| | |||
Total assets |
| |
| | ||
Liabilities |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Suppliers and contractors |
| |
| | ||
Loans, borrowings and leases |
| 19 |
| |
| |
Other financial liabilities | 11 | | | |||
Taxes payable |
| |
| | ||
Settlement program ("REFIS") | 7(c) |
| |
| | |
Liabilities related to associates and joint ventures |
| 21 |
| |
| |
Provisions |
| 22 |
| |
| |
Liabilities related to Brumadinho | 20 |
| |
| | |
De-characterization of dams | 20 | | | |||
Dividends payable | | | ||||
Others |
| |
| | ||
| |
| | |||
|
| |||||
Non-current liabilities |
|
|
| |||
Loans, borrowings and leases |
| 19 |
| |
| |
Participative stockholders' debentures | 18 | | | |||
Other financial liabilities |
| 11 |
| |
| |
Settlement program ("REFIS") | 7(c) |
| |
| | |
Deferred income taxes |
| 7(a) |
| |
| |
Provisions |
| 22 |
| |
| |
Liabilities related to Brumadinho | 20 | | | |||
De-characterization of dams | 20 | | | |||
Liabilities related to associates and joint ventures |
| 21 |
| |
| |
Streaming transactions |
|
| |
| | |
Others |
| |
| | ||
| |
| | |||
Total liabilities |
| |
| | ||
Stockholders' equity |
| 25 |
|
|
|
|
Equity attributable to Vale's stockholders |
| |
| | ||
Equity attributable to non-controlling interests |
| |
| ( | ||
Total stockholders' equity |
| |
| | ||
Total liabilities and stockholders' equity |
| |
| |
The accompanying notes are an integral part of these interim financial statements.
6
Consolidated Statement of Changes in Equity
In millions of United States dollars
|
|
|
|
|
| Equity |
|
| ||||||||||||
Cumulative | attributable | Equity | Total | |||||||||||||||||
Treasury | Other | translation | Retained | to Vale’s | attributable to non- | stockholders’ | ||||||||||||||
Share capital | Capital reserve | Profit reserves | shares |
| reserves | adjustments |
| earnings | stockholders | controlling interests | equity | |||||||||
Balance at December 31, 2020 |
| | | | ( | ( | ( | — | | ( | | |||||||||
Net income (loss) |
| — | — | — | — | — | — | | | ( | | |||||||||
Other comprehensive income |
| — | — | | — | | ( | — | | | | |||||||||
Dividends and interest on capital of Vale's stockholders (note 25) |
| — | — | ( | — | — | — | ( | ( | — | ( | |||||||||
Dividends of non-controlling interest |
| — | — | — | — | — | — | — | — | ( | ( | |||||||||
Acquisition and disposal of non-controlling interest (note 12) |
| — | — | — | — | ( | — | — | ( | | | |||||||||
Share buyback program (note 25) |
| — | — | — | ( | — | — | — | ( | — | ( | |||||||||
Share-based payment (note 24) |
| — | — | | | | ||||||||||||||
Treasury shares utilized in the period (note 25) |
| — | — | — | | — | — | — | | — | | |||||||||
Balance at June 30, 2021 |
| | | | ( | ( | ( | | | | | |||||||||
|
|
|
|
|
| Equity |
|
| ||||||||||||
Cumulative | attributable | Equity | Total | |||||||||||||||||
Treasury | Other | translation | Retained | to Vale’s | attributable to non- | stockholders’ | ||||||||||||||
Share capital | Capital reserve | Profit reserves | shares | reserves | adjustments | earnings | stockholders | controlling interests | equity | |||||||||||
Balance at December 31, 2019 |
| | |
| |
| ( | ( |
| ( | — |
| |
| ( |
| | |||
Net income (loss) |
| — | — | — | — | — | — | | | ( | | |||||||||
Other comprehensive income |
| — | — | ( | — | ( | ( | — | ( | | ( | |||||||||
Dividends of non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||
Capitalization of non-controlling interest advances | — | — | — | — | — | — | — | — | | | ||||||||||
Treasury shares utilized in the period (note 25) | — | — | — | | — | — | — | | — | | ||||||||||
Balance at June 30, 2020 |
| | |
| |
| ( | ( |
| ( | |
| |
| ( |
| |
The accompanying notes are an integral part of these interim financial statements.
7
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
1. | Corporate information |
Vale S.A. and its subsidiaries (“Vale” or the “Company”) are iron ore and iron ore pellets producers, which are key raw materials for steelmaking, and nickel producers, which is used to produce stainless steel and metal alloys employed in the production process of several products. The Company also produces copper, metallurgical and thermal coal, manganese ore and, platinum group metals, gold, silver and cobalt. The information by segment is presented in note 4.
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).
2. | Basis of preparation of the interim financial statements |
a) Statement of compliance
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”).
b) Basis of presentation
The interim financial statements have been prepared to update users about relevant events and transactions that occurred in the period and should be read in conjunction with the financial statements for the year ended December 31, 2020. The accounting policies, accounting estimates and judgements, risk management and measurement methods are the same as those applied when preparing the last annual financial statements, except for the change in the accounting practice for the share-based payment plans as disclosed in note 24.
These interim financial statements were authorized for issue by the Executive Board on July 28, 2021.
The interim financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (“functional currency”), which in the case of the Parent Company is the Brazilian real (“R$”). For presentation purposes, these interim financial statements are presented in United States dollar (“US$”) as the Company believes that this is how international investors analyze the interim financial statements.
The exchange rates used by the Company to translate its foreign operations are as follows:
Average rate | ||||||||||||
Closing rate | Three-month period ended | Six-month period ended | ||||||||||
June 30, 2021 | December 31, 2020 | June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||
United States dollar | | | | | | | ||||||
Canadian dollar ("CAD") | | | | | | | ||||||
Euro ("EUR") | | | | | | | ||||||
8
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
3. Significant events in the current period
The financial position, cash flows and performance of the Company were particularly affected by the following events and transactions during the three-month period ended June 30, 2021:
| ● | In April 2021, the Company approved a share buyback program for its common shares, limited to a maximum of |
| ● | In June 2021, the Company approved and paid dividends to its shareholders in the amount of US$ |
| ● | In June 2021, the Company paid US$ |
| ● | In June 2021, Fundação Renova reviewed the expected cash outflows to comply with the mitigation and compensation programs, which resulted in an addition of US$ |
| ● | In June 2021, production and maintenance employees of Sudbury, Canada, represented by United Steelworkers (“USW”) voted to reject the Company’s offer of a new |
4. Information by business segment and by geographic area
The Company operates the following reportable segments: Ferrous Minerals, Base Metals and Coal. The segments are aligned with products and reflect the structure used by Management to evaluate Company’s performance. The responsible bodies for making operational decisions, allocating resources and evaluating performance ("chief operating decision maker" under IFRS 8 - Operating Segments) are the Executive Boards and the Board of Directors. Accordingly, the performance of the operating segments is assessed based on a measure of adjusted EBITDA.
The Company allocates to “Others” the revenues and cost of other products, services, research and development, investments in joint ventures and associates of other business and unallocated corporate expenses. Additionally, the costs related to the Brumadinho event are not directly linked to the Company's operating activities and, therefore, are allocated to "Other" as well.
In the current period, the Company has allocated the financial information of Vale Nouvelle-Calédonie SAS (“VNC”) operation to “Others” as this operation is no longer analyzed by the chief operating decision maker as part of to the performance of the Base Metals business segment due to the sale of this operation. The comparative periods were restated to reflect this change in the allocation criteria.
9
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
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 and disposal of non-current assets.
Three-month period ended June 30,2021 | ||||||||||||||
|
|
| Sales, |
|
|
| Dividends |
| ||||||
Cost of goods | administrative | received and | ||||||||||||
sold and | and other | Pre operating | interest from | |||||||||||
Net operating | services | operating | Research and | and operational | associates and | Adjusted | ||||||||
revenue | rendered | expenses | evaluation | stoppage | joint ventures | EBITDA | ||||||||
Ferrous minerals |
|
|
|
|
|
|
|
|
|
| ||||
Iron ore |
| | ( | ( | ( | ( | — | | ||||||
Iron ore pellets |
| | ( | | — | ( | | | ||||||
Ferroalloys and manganese |
| | ( | ( | — | ( | — | | ||||||
Other ferrous products and services |
| | ( | | ( | — | — | | ||||||
| | ( | ( | ( | ( | | | |||||||
Base metals |
| |||||||||||||
Nickel and other products |
| | ( | ( | ( | ( | — | | ||||||
Copper |
| | ( | ( | ( | ( | — | | ||||||
| | ( | ( | ( | ( | — | | |||||||
Coal |
| | ( | — | ( | — | — | ( | ||||||
Others | | ( | ( | ( | — | | ( | |||||||
| ( | ( | ( | ( | | | ||||||||
Brumadinho event |
| — | — | ( | — | — | — | ( | ||||||
COVID-19 |
| — | — | ( | — | — | — | ( | ||||||
Total |
| | ( | ( | ( | ( | | | ||||||
Three-month period ended June 30,2020 | ||||||||||||||
|
|
| Sales, |
|
|
| Dividends |
| ||||||
Cost of goods | administrative | received and | ||||||||||||
sold and | and other | Pre operating | interest from | |||||||||||
Net operating | services | operating | Research and | and operational | associates and | Adjusted | ||||||||
revenue | rendered | expenses | evaluation | stoppage | joint ventures | EBITDA | ||||||||
Ferrous minerals | ||||||||||||||
Iron ore |
| | ( | ( | ( | ( | — | | ||||||
Iron ore pellets |
| | ( | | ( | ( | | | ||||||
Ferroalloys and manganese |
| | ( | — | ( | ( | — | | ||||||
Other ferrous products and services |
| | ( | | — | — | — | | ||||||
| | ( | ( | ( | ( | | | |||||||
Base metals |
| |||||||||||||
Nickel and other products |
| | ( | ( | ( | ( | — | | ||||||
Copper |
| | ( | ( | ( | — | — | | ||||||
| ( | ( | ( | ( | — | | ||||||||
Coal |
| | ( | | ( | — | — | ( | ||||||
Others (i) | | ( | ( | ( | ( | | ( | |||||||
| ( | ( | ( | ( | | | ||||||||
Brumadinho event | — | — | ( | — | — | — | ( | |||||||
COVID-19 | — | — | ( | — | — | — | ( | |||||||
Total | | ( | ( | ( | ( | | | |||||||
(i) Includes the reclassification of the EBITDA of VNC in the amount of US$
10
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Six-month period ended June 30,2021 | ||||||||||||||
|
|
| Sales, |
|
|
| Dividends |
| ||||||
Cost of goods | administrative | received and | ||||||||||||
sold and | and other | Pre operating | interest from | |||||||||||
Net operating | services | operating | Research and | and operational | associates and | Adjusted | ||||||||
revenue | rendered | expenses | evaluation | stoppage | joint ventures | EBITDA | ||||||||
Ferrous minerals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron ore |
| | ( | ( | ( | ( | — | | ||||||
Iron ore pellets |
| | ( | | ( | ( | | | ||||||
Ferroalloys and manganese |
| | ( | ( | — | ( | — | | ||||||
Other ferrous products and services |
| | ( | | ( | — | — | | ||||||
| | ( | ( | ( | ( | | | |||||||
Base metals |
| |||||||||||||
Nickel and other products |
| | ( | ( | ( | ( | — | | ||||||
Copper |
| | ( | ( | ( | ( | — | | ||||||
| ( | ( | ( | ( | — | | ||||||||
Coal |
| | ( | | ( | — | | ( | ||||||
Others (i) | | ( | ( | ( | ( | | ( | |||||||
| ( | ( | ( | ( | | | ||||||||
Brumadinho event | — | — | ( | — | — | — | ( | |||||||
COVID-19 | — | — | ( | — | — | — | ( | |||||||
Total | | ( | ( | ( | ( | | | |||||||
(i) Includes the EBITDA of VNC in the amount of US$
Six-month period ended June 30,2020 | ||||||||||||||
|
|
| Sales, |
|
|
| Dividends |
| ||||||
Cost of goods | administrative | received and | ||||||||||||
sold and | and other | Pre operating | interest from | |||||||||||
Net operating | services | operating | Research and | and operational | associates and | Adjusted | ||||||||
revenue | rendered | expenses | evaluation | stoppage | joint ventures | EBITDA | ||||||||
Ferrous minerals |
|
|
|
|
|
|
| |||||||
Iron ore | | ( | ( | ( | ( | — | | |||||||
Iron ore pellets | | ( | | ( | ( | | | |||||||
Ferroalloys and manganese |
| | ( | — | ( | ( | — | | ||||||
Other ferrous products and services |
| | ( | | ( | — | — | | ||||||
| | ( | ( | ( | ( | | | |||||||
Base metals |
| |||||||||||||
Nickel and other products |
| | ( | ( | ( | ( | — | | ||||||
Copper |
| | ( | ( | ( | — | — | | ||||||
| ( | ( | ( | ( | — | | ||||||||
Coal |
| | ( | | ( | — | | ( | ||||||
Others (i) | | ( | ( | ( | ( | | ( | |||||||
| ( | ( | ( | ( | | | ||||||||
| ||||||||||||||
Brumadinho event |
| — | — | ( | — | — | — | ( | ||||||
COVID-19 | — | — | ( | — | — | — | ( | |||||||
Total |
| | ( | ( | ( | ( | | | ||||||
(i) Includes the reclassification of the EBITDA of VNC in the amount of US$
11
Selected 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:
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Net income attributable to Vale's stockholders | | | | | ||||
Loss attributable to non-controlling interests | ( | ( | ( | ( | ||||
Net income | | | | | ||||
Depreciation, depletion and amortization | | | | | ||||
Income taxes | | | | ( | ||||
Financial results | ( | | ( | | ||||
Equity results and other results in associates and joint ventures | | | | | ||||
Dividends received and interest from associates and joint ventures (i) | | | | | ||||
Impairment and disposal of non-current assets | | | | | ||||
Adjusted EBITDA | | | | | ||||
(i) Includes the remuneration of the financial instrument of the Coal segment.
b) Assets by segment
June 30,2021 | December 31,2020 | |||||||||||
Investments in | Property, plant | Investments in | Property, plant | |||||||||
associates and | and equipment | associates and | and equipment | |||||||||
| Product inventory |
| joint ventures |
| and intangibles (i) |
| Product inventory |
| joint ventures |
| and intangibles (i) | |
Ferrous minerals |
| | | | | | | |||||
Base metals |
| | | | | | | |||||
Coal (note 12) |
| | — | | | — | — | |||||
Others |
| — | | | — | | | |||||
Total |
| | | | | | | |||||
Three-month period ended June 30, | ||||||||||||
2021 | 2020 | |||||||||||
Capital expenditures (ii) | Capital expenditures (ii) | |||||||||||
Depreciation, | Depreciation, | |||||||||||
Sustaining | Project | depletion and | Sustaining | Project | depletion and | |||||||
| capital |
| execution |
| amortization |
| capital |
| execution |
| amortization | |
Ferrous minerals | | | | | | | ||||||
Base metals | | | | | | | ||||||
Coal (note 12) | | — | | | — | — | ||||||
Others (iii) | | | | | | | ||||||
Total | | | | | | | ||||||
Six-month period ended June 30, | ||||||||||||
2021 | 2020 | |||||||||||
| Capital expenditures (ii) | Capital expenditures (ii) | ||||||||||
Depreciation, | Depreciation, | |||||||||||
Sustaining | Project | depletion and | Sustaining | Project | depletion and | |||||||
| capital |
| execution |
| amortization |
| capital |
| execution |
| amortization | |
Ferrous minerals | | | | | | | ||||||
Base metals | | | | | | | ||||||
Coal (note 12) | | — | | | — | | ||||||
Others (iii) | | | | | | | ||||||
Total | | | | | | | ||||||
(i) Goodwill is allocated to ferrous minerals and base metals segments in the amount of US$
(ii) Cash outflows.
12
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
(iii) Includes the reclassification of VNC under the captions “Sustaining capital” and “depreciation, depletion and amortization”, in the amount of US$
c) Net operating revenue by geographic area
Three-month period ended June 30, 2021 | ||||||||||
Ferrous | ||||||||||
| minerals |
| Base metals |
| Coal |
| Others |
| Total | |
Americas, except United States and Brazil |
| | | — | — | | ||||
United States of America |
| | | — | — | | ||||
Germany | | | — | — | | |||||
Europe, except Germany |
| | | | — | | ||||
Middle East, Africa and Oceania |
| | | | — | | ||||
Japan |
| | | | — | | ||||
China |
| | | | — | | ||||
Asia, except Japan and China |
| | | | — | | ||||
Brazil |
| | | | | | ||||
Net operating revenue |
| | | | | | ||||
Three-month period ended June 30,2020 | ||||||||||
Ferrous | ||||||||||
| minerals |
| Base metals |
| Coal |
| Others (i) |
| Total | |
Americas, except United States and Brazil | | | — | | | |||||
United States of America | | | — | — | | |||||
Germany | | | — | — | | |||||
Europe, except Germany | | | | — | | |||||
Middle East, Africa and Oceania | | | | — | | |||||
Japan | | | — | — | | |||||
China | | | — | — | | |||||
Asia, except Japan and China | | | | — | | |||||
Brazil | | | | | | |||||
Net operating revenue | | | | | | |||||
(i) Includes the reclassification of VNC in the amount of US$
Six-month period ended June 30,2021 | ||||||||||
Ferrous | ||||||||||
| minerals |
| Base metals |
| Coal |
| Others (i) |
| Total | |
Americas, except United States and Brazil | | | — | | | |||||
United States of America | | | — | — | | |||||
Germany | | | — | — | | |||||
Europe, except Germany | | | | — | | |||||
Middle East, Africa and Oceania | | | | — | | |||||
Japan | | | | — | | |||||
China | | | | — | | |||||
Asia, except Japan and China | | | | — | | |||||
Brazil | | | | | | |||||
Net operating revenue | | | | | | |||||
(i) Includes the revenue of VNC in the amount of US$
13
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Six-month period ended June 30, 2020 | ||||||||||
| Ferrous |
|
|
|
|
|
|
|
| |
| minerals |
| Base metals |
| Coal |
| Others (i) |
| Total | |
Americas, except United States and Brazil | | | — | | | |||||
United States of America |
| | | — | — | | ||||
Germany |
| | | — | — | | ||||
Europe, except Germany |
| | | | — | | ||||
Middle East, Africa and Oceania |
| | | | — | | ||||
Japan |
| | | | — | | ||||
China |
| | | | — | | ||||
Asia, except Japan and China |
| | | | — | | ||||
Brazil |
| | | | | | ||||
Net operating revenue |
| | | | | | ||||
(i) Includes the reclassification of VNC in the amount of US$
Provisionally priced commodities sales - The commodity price risk arises from volatility of iron ore, nickel, copper and coal prices. The Company is mostly exposed to the fluctuations in the iron ore and copper price (note 16). 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 is presented below:
June 30, 2021 | ||||||||
|
| Provisional price |
|
| ||||
| Thousand metric tons | (US$/tonne) | Change |
| Effect on Revenue | |||
Iron ore |
| |
| |
| +/- | % | |
Copper |
| |
| |
| +/- | % | |
5. | Costs and expenses by nature |
a) Cost of goods sold and services rendered
Three -month period ended June 30, | Six -month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Personnel | | | | | ||||
Materials and services | | | | | ||||
Fuel oil and gas | | | | | ||||
Maintenance | | | | | ||||
Royalties | | | | | ||||
Energy | | | | | ||||
Ores acquired from third parties (i) | | | | | ||||
Depreciation,depletion and amortization | | | | | ||||
Freight (ii) | | | | | ||||
Others | | | | | ||||
Total | | | | | ||||
Cost of goods sold | | | | | ||||
Cost of services rendered | | | | | ||||
Total | | | | | ||||
| (i) | The increase in “Ores acquired from third parties” is mainly due to the significant increase in the reference price of iron ore compared to 2020. |
| (ii) | The increase in "Freight" is mainly due to the significant increase in volumes of CFR sales and higher international freight prices. |
Tax on mineral production (Taxa de Fiscalização de Recursos Minerais - “TFRM”) – Several Brazilian states, including Minas Gerais, Pará and Mato Grosso do Sul, impose a TFRM, which is currently assessed at rates ranging from R$
14
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
ton of minerals produced in or transferred from the state. The expenses related to the TFRM are presented in these interim financial statements under “Royalties”. In March 2021, a state decree increased the TFRM rate in the state of Para to R$
b) Selling and administrative expenses
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Selling | | | | | ||||
Personnel | | | | |||||
Services | | | | |||||
Depreciation and amortization | | | | |||||
Others | | | | |||||
Total | | | | |||||
c) Other operating expenses (income), net
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Provision for litigations | | | | |||||
Profit sharing program | | | | |||||
COVID-19 expenses | | | | | ||||
Others (i) | ( | | ( | | ||||
Total | | | | |||||
| (i) | Includes the gain related to the exclusion of ICMS from the PIS and COFINS computation tax base, as detailed in note 23(e). |
6. Financial result
15
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Financial income | ||||||||
Short-term investments | | | | | ||||
Others | | | | | ||||
| | | | |||||
Financial expenses | ||||||||
Loans and borrowings gross interest (note 19) | ( | ( | ( | ( | ||||
Capitalized loans and borrowing costs | | | | | ||||
Participative stockholders' debentures (note 18) | ( | ( | ( | ( | ||||
Interest on REFIS | ( | ( | ( | ( | ||||
Interest on lease liabilities (note 19) | ( | ( | ( | ( | ||||
Financial guarantees (i) | | ( | | ( | ||||
Expenses with cash tender offer redemption (note 19) | — | — | ( | — | ||||
Others | ( | ( | ( | ( | ||||
( | ( | ( | ( | |||||
Other financial items, net | ||||||||
Net foreign exchange gains (losses) | ( | | ( | ( | ||||
Derivative financial instruments (note 16) | | ( | | ( | ||||
Reclassification of cumulative translation adjustment on VNC sale (note 12) | — | — | | — | ||||
Indexation gains (losses), net | ( | ( | | ( | ||||
| ( | | ( | |||||
Total | | ( | | ( | ||||
(i) Refers to the fair value adjustments on financial guarantees given to associates due to their rating improvement, leading to a decrease in the probability of default on the guaranteed loans. Further details are disclosed in note 13.
7. Income taxes
a) Deferred income tax assets and liabilities
| Assets |
| Liabilities |
| Deferred taxes, net | |
Balance at December 31, 2020 | | | | |||
Effect in income statement | ( | | ( | |||
Translation adjustment | | | | |||
Other comprehensive income | ( | | ( | |||
Balance at June 30, 2021 | | | |
| Assets |
| Liabilities |
| Deferred taxes, net | |
Balance at December 31, 2019 | | | | |||
Effect in income statement | | ( | | |||
Translation adjustment | ( | ( | ( | |||
Other comprehensive income | | ( | | |||
Balance at June 30, 2020 | | | |
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. The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as follows:
16
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Income before income taxes | | | | | ||||
Income taxes at statutory rate - | ( | ( | ( | ( | ||||
Adjustments that affect the basis of taxes: | ||||||||
Tax incentives | | | | | ||||
Equity results | | | | ( | ||||
Addition (reversal) of tax loss carryforward | ( | | ( | | ||||
Others | | | | ( | ||||
Income taxes | ( | ( | ( | | ||||
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.
c) Income taxes - Settlement program (“REFIS”)
| June 30, 2021 |
| December 31, 2020 | |
Current liabilities |
| |
| |
Non-current liabilities |
| |
| |
REFIS liabilities |
| |
| |
SELIC rate |
|
|
The balance mainly relates to the settlement program of the claims related to the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. As at June 30, 2021, the balance is due in
d) Uncertain tax positions
There have been no developments on matters related to the uncertain tax positions since the December 31, 2020 financial statements.
8. Basic and diluted earnings per share
The basic and diluted earnings per share are presented below:
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Net income attributable to Vale's stockholders: | ||||||||
Net income | | | | | ||||
Thousands of shares | ||||||||
Weighted average number of shares outstanding - common shares | | | | | ||||
Basic and diluted earnings per share: |
|
|
|
|
|
| ||
Common share (US$) |
| | | | | |||
The Company does not have potential outstanding shares or other instruments with dilutive effect on the earnings per share computation.
17
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
9. Accounts receivable
| June 30, |
| December 31, |
| |
2021 | 2020 | ||||
Accounts receivable |
| |
| | |
Expected credit loss | ( | ( | |||
| |
| | ||
Revenue related to the steel sector — % | | % | | % |
| Three-month period ended June 30, | Six-month period ended June 30, | ||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Impairment of accounts receivable recorded in the income statement | | ( | | | ||||
As at June 30, 2021, there is no customer that individually represents more than 10% of the Company’s accounts receivable or revenues. In 2020, the Company had a customer of the Ferrous Minerals Segment whose revenue individually represented
10. Inventories
| June 30, |
| December 31, | |
2021 | 2020 | |||
Finished products |
| |
| |
Work in progress | | | ||
Consumable inventory |
| |
| |
Total |
| |
| |
| Three-month period ended June 30, | Six-month period ended June 30, | ||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Reversal (provision) for net realizable value | ( | | | ( | ||||
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).
11. Other financial assets and liabilities
Current | Non-Current | |||||||
| June 30, |
| December 31, |
| June 30, |
| December 31, | |
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Other financial assets | ||||||||
Restricted cash | — | — | | | ||||
Derivative financial instruments (note 16) | | | | | ||||
Investments in equity securities | — | — | | | ||||
Related parties (i) | — | | — | | ||||
| | | | |||||
Other financial liabilities | ||||||||
Derivative financial instruments (note 16) | | | | | ||||
Related parties (i) | | | — | | ||||
Financial guarantees provided (note 13) | — | — | | | ||||
Liabilities related to the concession grant (note 14) | | | | | ||||
Advances received | | | — | — | ||||
| | | | |||||
(i) The decrease refers to the settlement of the loans due to the transaction for the acquisition of NLC, as detailed in note 12.
18
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Investment in equity securities – Mainly refers to
12. Acquisitions and divestitures
a)Business Combinations
The Company has coal operations in Mozambique, through Vale Moçambique S.A. (“Vale Moçambique”), where the metallurgical and thermal coal extraction and processing are operated. Vale Moçambique is a company controlled by Vale, with a non-controlling interest held by Mitsui & Co. Ltd. (“Mitsui”). Coal products are transported from the Moatize mine to the maritime terminal by the Nacala Logistics Corridor (“NLC”), that is a joint venture between Vale and Mitsui, in which each company holds
In April 2021, the Company signed an Investment Agreement with Mitsui for the acquisition by Vale of the totality of Mitsui´s interest in Vale Moçambique and NLC, which was concluded on June 22, 2021. With the conclusion, the following events have occurred:
(a.i) Acquisition of non-controlling interest in Vale Moçambique
The Company acquired the
(a.ii) Business combinations - NLC
On June 22, 2021, the acquisition was concluded with the settlement of NLC’s loans with third parties (“Project Finance”) in the amount of US$
Additionally, the Company has updated the discounted cash flow model to assess the fair value of the acquired business, resulting in a loss of US$
19
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
The fair values of identifiable assets acquired and liabilities assumed as a result of the NLC’s acquisition are as follows:
| June 22, 2021 | |
Acquired assets |
|
|
Cash and cash equivalents |
| |
Inventory, recoverable tax and other assets |
| |
Intangible |
| |
Property, plant and equipment |
| |
Assumed liabilities |
| ( |
Net identifiable assets acquired |
| |
Fair value adjustments (i) |
| ( |
Total identifiable net assets at fair value (ii) |
| |
Pre-existing relationship (Loans receivable from NLC) |
| |
Loss on pre-existing relationship |
| ( |
| | |
Cash consideration |
| |
(-) Balances acquired |
|
|
Cash and cash equivalents |
| |
Net cash outflow |
| |
(i) Of this amount, US$
(ii) The fair value was assessed using the fair value less costs of disposal model, through discounted cash flow techniques, which is classified as “level 3” in the fair value hierarchy. The cash flows were discounted by using a post-tax discount rate expressed in real terms, which represents an estimate of the rate that a market participant would apply having regard to the time value of money and the asset’s specific risk.
(a.iii) Reclassification of the cumulative translation adjustments
On the announcement of the Investment Agreement with Mitsui, the Company has also informed the market its divestiture intention in the coal segment. However, the Company has assessed that the criteria to classify the coal segment as a discontinued operation have not been met yet, since the conclusion of an eventual sale to a third party within the next 12 months is not deemed highly probable under IFRS 5 - Non-current assets held for sale and discontinued operations. The Company will continue assessing at each reporting date whether the coal segment meets the “discontinued operation“criteria.
Furthermore, the Company assessed that its Australian entities (part of the coal segment), which are no longer operational, were considered "abandoned" under IAS 21 - The Effects of Changes in Foreign Exchange Rates and, therefore, the Company recognized a gain related to the accumulated translation adjustments in the amount of US$
b)Other acquisitions and divestitures
Boston Electrometallurgical Company (“Boston Metal”) – In February 2021, the Company made an investment of US$
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 a consortium constituted in a new company called “Prony Resources”, led by the current management and employees of VNC and supported by the Caledonian and French authorities with Trafigura Pte. Ltd. as a non-controlling shareholder. Under the terms of agreement, the Company has assumed an obligation to pay to the buyers an amount of US$
20
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
In March 2021, the Company signed the share purchase and sale agreement with Prony Resources, concluding the transaction to sell its interest in VNC. With the final agreement, Vale's obligation to pay to buyers increased by US$
The agreement also established that Vale may purchase a certain amount of VNC’s annual nickel production with a cap price over a period of
Upon closing of the transaction, the Company also recognized a gain of US$
13. Investments in associates and joint ventures
a) Investment information
Investments in | ||||||||||||||||||||||||
associates | Equity results in the income | |||||||||||||||||||||||
and joint ventures | statement | Dividends received | ||||||||||||||||||||||
Three-month | Six-month | Three-month | Six-month | |||||||||||||||||||||
period ended | period ended | period ended | period ended | |||||||||||||||||||||
% | % voting | June 30, | December 31, | June 30, | June 30, | June 30, | June 30, | |||||||||||||||||
Associates and joint ventures | ownership | capital | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| ||||||||||||||||||||||||
Ferrous minerals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Baovale Mineração S.A. |
| |
| |
| |
| | |
| |
| |
| | — |
| — |
| — |
| — | ||
Companhia Coreano-Brasileira de Pelotização |
| |
| |
| |
| | |
| |
| |
| | |
| |
| |
| | ||
Companhia Hispano-Brasileira de Pelotização (i) |
| |
| |
| |
| | — |
| — |
| — |
| | |
| |
| |
| | ||
Companhia Ítalo-Brasileira de Pelotização (i) |
| |
| |
| |
| | |
| |
| |
| | |
| |
| |
| | ||
Companhia Nipo-Brasileira de Pelotização (i) |
| |
| |
| |
| | |
| |
| |
| | |
| — |
| |
| — | ||
MRS Logística S.A. |
| |
| |
| |
| | |
| |
| |
| | — |
| — |
| — |
| — | ||
Samarco Mineração S.A. (note 21) |
| |
| |
| — |
| — | — |
| — |
| — |
| — | — |
| — |
| — | — | |||
VLI S.A. |
| |
| |
| |
| | |
| |
| ( |
| ( | — |
| — |
| — |
| — | ||
| |
| |
| |
| | |
| |
| |
| | |
| | |||||||
Base metals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Korea Nickel Corp. |
| |
| |
| |
| | — |
| — |
| — |
| — | — |
| — |
| — |
| — | ||
| |
| |
| — |
| — | — |
| — |
| — |
| — | — |
| — | |||||||
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Aliança Geração de Energia S.A. (i) |
| |
| |
| |
| | |
| |
| |
| | |
| |
| |
| | ||
Aliança Norte Energia Participações S.A. (i) |
| |
| |
| |
| | ( |
| ( |
| ( |
| ( | — |
| — |
| — |
| — | ||
California Steel Industries, Inc. |
| |
| |
| |
| | |
| |
| |
| ( | — |
| — |
| — |
| — | ||
Companhia Siderúrgica do Pecém (“CSP”) (ii) |
| |
| |
| — |
| — | — |
| — |
| ( |
| ( | — |
| — |
| — |
| — | ||
Mineração Rio do Norte S.A. |
| |
| |
| |
| | |
| ( |
| ( |
| ( | — |
| — |
| — |
| — | ||
Others |
| |
| | ( |
| ( |
| ( |
| ( | — |
| — |
| — |
| — | ||||||
| |
| | |
| |
| |
| ( | |
| |
| |
| | |||||||
Total |
| |
| | |
| |
| |
| ( | |
| |
| |
| | ||||||
(i) Although the Company held a majority of the voting capital, the entities are accounted under the equity method due to the stockholders' agreement where relevant decisions are shared with other parties.
(ii) CSP is a joint venture and its results are accounted for under the equity method, in which the accumulated losses are capped to the Company ́s interest in the investee’s capital based on the applicable law and requirements. That is, after the investment is reduced to zero, the Company does not recognize further losses nor liabilities associated with the investee.
(iii) “Equity results and other results in associates and joint ventures” presented in the Income Statement considers, in addition to the equity results in associates and joint ventures shown in the table above, the results of Renova Foundation and Samarco (note 21) and other results with group entities.
21
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
b) Movements during the period
| 2021 |
| 2020 | |
Balance at January 1, |
| |
| |
Capital contribution to CSP | | | ||
Translation adjustment |
| |
| ( |
Equity results in income statement |
| |
| ( |
Equity results in statement of comprehensive income |
| — |
| ( |
Dividends declared |
| ( |
| ( |
Others |
| |
| |
Balance at June 30, |
| |
| |
The amount of investments by segments are presented in note 4(b).
c) Financial guarantees provided
As at June 30, 2021 and December 31, 2020, the notional value of corporate financial guarantees provided by the Company (within the limit of its direct or indirect interest) for certain associates and joint ventures were US$
14. Intangibles
Movements during the period
Research and development | ||||||||||||
| Goodwill | Concessions | Contract right | Software | project and patents | Total | ||||||
Balance at December 31, 2020 | | | — | | | | ||||||
Additions | — | | — | | — | | ||||||
Disposals | — | ( | — | — | — | ( | ||||||
Amortization | — | ( | — | ( | — | ( | ||||||
Acquisition of NLC (note 12) | — | | — | — | — | | ||||||
Translation adjustment | | | — | | | | ||||||
Balance at June 30, 2021 | | | — | | | | ||||||
Cost | | | — | | | | ||||||
Accumulated amortization | — | ( | — | ( | — | ( | ||||||
Balance at June 30, 2021 | | | — | | | |
Research and development | ||||||||||||
| Goodwill |
| Concessions |
| Contract right |
| Software |
| project and patents | Total | ||
Balance at December 31, 2019 |
| |
| |
| |
| |
| | | |
Additions |
| — |
| |
| — |
| |
| — | | |
Disposals |
| — |
| ( |
| — |
| — |
| — | ( | |
Amortization |
| — |
| ( |
| ( |
| ( |
| — | ( | |
Translation adjustment |
| ( |
| ( |
| ( |
| ( |
| ( | ( | |
Balance at June 30, 2020 |
| |
| |
| |
| |
| | | |
Cost |
| |
| |
| |
| |
| | | |
Accumulated amortization |
| — |
| ( |
| ( |
| ( |
| — | ( | |
Balance at June 30, 2020 |
| |
| |
| |
| |
| | |
22
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
15. Property, plant and equipment
a) Movements during the period
| Building and |
|
|
| Mineral |
| Railway |
| Right of use |
|
| Constructions |
| |||||
land | Facilities | Equipment | properties | equipment | assets | Others | in progress | Total | ||||||||||
Balance at December 31, 2020 | | | | | | | | | | |||||||||
Additions (i) | — | — | — | — | — | | | | ||||||||||
Disposals | ( | ( | ( | — | ( | — | ( | ( | ||||||||||
Assets retirement obligation (ii) | — | — | — | ( | — | — | — | — | ( | |||||||||
Depreciation, depletion and amortization | ( | ( | ( | ( | ( | ( | ( | — | ( | |||||||||
Impairment (iii) | — | — | — | — | — | — | — | ( | ( | |||||||||
Acquisition of NLC (note 12) | | | | — | | | | | | |||||||||
Translation adjustment | | | | | | | | | | |||||||||
Transfers | | | | | | — | | ( | — | |||||||||
Balance at June 30, 2021 | | | | | | | | | | |||||||||
Cost | | | | | | | | | | |||||||||
Accumulated depreciation | ( | ( | ( | ( | ( | ( | ( | — | ( | |||||||||
Balance at June 30, 2021 | | | | | | | | | |
Building and | Mineral |
| Railway | Right of use |
| Constructions | ||||||||||||
| land |
| Facilities |
| Equipment |
| properties | equipment |
| assets | Others |
| in progress |
| Total | |||
Balance at December 31, 2019 | | |||||||||||||||||
Additions (i) |
| — |
| — |
| — |
| — | — |
| | — |
| |
| | ||
Disposals |
| ( |
| ( |
| ( |
| ( | ( |
| — | ( |
| ( |
| ( | ||
Assets retirement obligation |
| — |
| — |
| — |
| | — |
| — | — |
| — |
| | ||
Depreciation, depletion and amortization |
| ( |
| ( |
| ( |
| ( | ( |
| ( | ( |
| — |
| ( | ||
Impairment | ( | ( | ( | ( | — | — | ( | ( | ( | |||||||||
Translation adjustment |
| ( |
| ( |
| ( |
| ( | ( |
| ( | ( |
| ( |
| ( | ||
Transfers |
| |
| |
| |
| | |
| — | |
| ( |
| — | ||
Balance at June 30, 2020 |
| |
| |
| |
| | |
| | |
| |
| | ||
Cost |
| |
| |
| |
| | |
| | |
| |
| | ||
Accumulated depreciation |
| ( |
| ( |
| ( |
| ( | ( |
| ( | ( |
| — |
| ( | ||
Balance at June 30, 2020 |
| |
| |
| |
| | |
| | |
| |
| |
23
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
(i) Includes capitalized borrowing costs.
(ii) Refers to changes in discount rates.
(iii) Due to the Company's assessment of the fair value of the coal assets, the assets acquired during the year are provided for impairment in full. In the current year, the Company recognized an impairment loss related to coal assets acquired this year in the amount of US$
b) Right-of-use assets (Leases)
Additions and contract | Translation | |||||||||
December 31, 2020 | modifications | Depreciation | adjustment | June 30, 2021 | ||||||
Ports | | — | ( | | | |||||
Vessels |
| | — |
| ( |
| — |
| | |
Pellets plants |
| | |
| ( |
| |
| | |
Properties |
| | |
| ( |
| |
| | |
Energy plants |
| | — |
| ( |
| — |
| | |
Mining equipment and locomotives (i) |
| | |
| ( |
| — |
| | |
Total |
| | |
| ( |
| |
| |
(i) "Additions and contract modifications" includes the effects arising from the acquisition of NLC in the amount of US$
Lease liabilities are presented in note 19.
16. | Financial and capital risk management |
a) Effects of derivatives on the balance sheet
Assets | ||||||||
June 30, 2021 | December 31, 2020 | |||||||
| Current |
| Non-current |
| Current |
| Non-current | |
Foreign exchange and interest rate risk |
|
|
|
|
|
|
|
|
CDI & TJLP vs. US$ fixed and floating rate swap |
| |
| |
| — |
| — |
IPCA swap |
| |
| |
| |
| |
Eurobonds swap |
| — |
| — |
| — |
| |
Pre-dollar swap and forward (NDF) |
| |
| |
| — |
| |
Libor swap |
| — |
| |
| — |
| — |
| |
| |
| |
| | |
Commodities price risk |
|
|
|
|
|
|
|
|
Base metals products |
| |
| |
| |
| — |
Gasoil, Brent and freight |
| |
| — |
| |
| — |
| |
| |
| |
| — | |
Others |
| — |
| |
| — |
| |
| — |
| |
| — |
| | |
Total |
| |
| |
| |
| |
24
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Liabilities | ||||||||
June 30, 2021 | December 31, 2020 | |||||||
| Current |
| Non-current |
| Current |
| Non-current | |
Foreign exchange and interest rate risk |
|
|
|
|
|
|
|
|
CDI & TJLP vs. US$ fixed and floating rate swap |
| |
| |
| |
| |
IPCA swap |
| — |
| |
| |
| |
Eurobonds swap |
| — |
| — |
| |
| — |
Pre-dollar swap and forward (NDF) |
| |
| |
| |
| |
Libor swap |
| |
| |
| |
| |
| |
| |
| |
| | |
Commodities price risk |
|
|
|
|
|
|
|
|
Base metals products |
| |
| — |
| |
| — |
Gasoil, Brent and freight |
| — |
| — |
| |
| — |
Thermal coal |
| |
| |
| — |
| — |
| |
| |
| |
| — | |
Others |
| |
| — |
| |
| — |
Total |
| |
| |
| |
| |
a.i) Net exposure
| June 30, 2021 |
| December 31, 2020 | |
Foreign exchange and interest rate risk |
|
|
|
|
CDI & TJLP vs. US$ fixed and floating rate swap |
| ( |
| ( |
IPCA swap |
| ( |
| ( |
Eurobonds swap |
| — |
| ( |
Pre-dollar swap and forward (NDF) |
| |
| ( |
Libor swap (i) |
| |
| ( |
| ( |
| ( | |
Commodities price risk |
|
|
|
|
Base metals products |
| ( |
| ( |
Gasoil, Brent and freight |
| |
| |
Thermal coal |
| ( |
| — |
| |
| | |
Others |
| |
| ( |
| |
| ( | |
Total |
| ( |
| ( |
25
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
a.ii)Effects of derivatives on the income statement and cash flows
Gain (loss) recognized in the income statement | ||||||||
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Foreign exchange and interest rate risk |
|
|
|
| ||||
CDI & TJLP vs. US$ fixed and floating rate swap |
| |
| ( |
| |
| ( |
IPCA swap |
| |
| ( |
| |
| ( |
Eurobonds swap |
| — |
| |
| ( |
| ( |
Pre-dollar swap and forward (NDF) |
| |
| ( |
| |
| ( |
Libor swap |
| ( |
|
| |
| — | |
| |
| ( |
| |
| ( | |
Commodities price risk |
|
|
|
|
|
|
|
|
Base metals products |
| — |
| — |
| ( |
| ( |
Gasoil, Brent and freight |
| |
| |
| |
| ( |
| |
| |
| |
| ( | |
Others |
| |
| |
| |
| |
| |
| |
| |
| | |
Total |
| |
| ( |
| |
| ( |
| Financial settlement inflows (outflows) | |||||||
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||
Foreign exchange and interest rate risk |
|
|
|
|
|
|
|
|
CDI & TJLP vs. US$ fixed and floating rate swap |
| ( |
| ( |
| ( |
| ( |
IPCA swap |
| — |
| — |
| ( |
| — |
Eurobonds swap |
| — |
| — |
| ( |
| ( |
Pre-dollar swap and forward (NDF) |
| ( |
| |
| ( |
| ( |
Libor swap |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| ( |
| ( | |
Commodities price risk |
|
|
|
|
|
|
|
|
Base metals products |
| ( |
| |
| ( |
| |
Gasoil, Brent and freight |
| |
| ( |
| |
| ( |
| |
| ( |
| |
| | |
Others |
| — |
| |
| |
| |
| — |
| |
| |
| | |
Total |
| |
| ( |
| ( |
| |
a.iii) Hedge accounting
Gain (loss) recognized in the other comprehensive income | ||||||||
Three-month period ended June 30, | Six-month period ended June 30, | |||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Net investments hedge |
| |
| ( |
| |
| ( |
Thermal Coal Cash flow hedge |
| ( |
| — |
| ( |
| — |
Cash flow hedge (Nickel and Palladium) |
| ( |
| ( |
| ( |
| |
Net investment hedge:
In March 2021, the Company redeemed all its euro bonds (note 19). As a result, the amount of debt designated as a hedge instrument for this investment is US$
26
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Cash flow hedge (Thermal Coal):
To reduce the volatility of its cash flow as a result of fluctuations in thermal coal prices, in May 2021, the Company implemented a Thermal Coal Revenue Hedge Program. Under this program, hedge transactions were executed through forward contracts to protect a portion of the projected sales of this product at fluctuating prices that is highly probable to occur. Hedge accounting treatment is being given to the program. The contracts are traded over-the-counter and the cash settlement in/out results are offset by the protected items' loss/gain results due to thermal coal price variations. In July 2021 (subsequent event), the Company also implemented a Metallurgical Coal Revenue Hedge program applying the same strategy.
Financial | ||||||||||||||||||
|
|
|
|
|
|
| settlement |
|
| |||||||||
Notional (ton) | Fair value | Inflows | Fair value | |||||||||||||||
June 30, | December 31, | Bought / | Average strike | June 30, | December 31, | (Outflows) | Value at Risk | by year | ||||||||||
Flow | 2021 | 2020 |
| Sold |
| (US$/t oz) | 2021 | 2020 | June 30, 2021 | June 30, 2021 |
| 2021 | ||||||
Coal Revenue Hedging Program |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Call Options | | — |
| S |
| | ( | — | ( | |
| ( | ||||||
Put Options | | — |
| B |
| | ( | — | ( | |
| ( | ||||||
Total |
|
| ( | — | ( | |
| ( | ||||||||||
Cash Flow Hedge (Nickel):
Financial | ||||||||||||||||||
settlement | ||||||||||||||||||
Inflows | ||||||||||||||||||
Notional (ton) | Fair value |
| (Outflows) | Value at Risk | Fair value by year | |||||||||||||
| June 30, |
| December 31, |
| Bought / | Average strike |
| June 30, |
| December 31, |
| June 30, |
| June 30, |
| |||
Flow |
| 2021 |
| 2020 |
| Sold |
| (US$/ton) |
| 2021 |
| 2020 |
| 2021 |
| 2021 |
| 2021 |
Nickel Revenue Hedging Program (i) | ||||||||||||||||||
Call options |
| |
| |
| S | |
| ( |
| ( |
| ( |
| |
| ( | |
Put options | | | B | | | | — | | | |||||||||
Total |
|
|
|
|
|
|
| ( |
| ( |
| ( |
| |
| ( | ||
(i) With the hedge structure, the company ensures prices between US$
Cash flow hedge (Palladium):
|
|
|
|
| Financial settlement |
|
| Fair value | ||||||||||
Notional (t oz) | Fair value | Inflows (Outflows) | Value at Risk | by year | ||||||||||||||
Flow | June 30, 2021 | December 31, 2020 | Bought / Sold | Average strike (US$/t oz) | June 30, 2021 | December 31, 2020 | June 30, 2021 | June 30, 2021 | 2021 | |||||||||
Palladium Revenue Hedging Program | ||||||||||||||||||
Call Options |
| |
| |
| S |
| |
| ( |
| ( |
| — |
| |
| ( |
Put Options |
| |
| |
| B |
| |
| |
| — |
| — |
| |
| |
Total |
|
|
|
|
| |
| ( |
| — |
| |
| | ||||
27
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
b) Protection programs for the R$ and EUR denominated debt instruments and other liabilities
Financial | ||||||||||||||||||||||
Settlement | ||||||||||||||||||||||
Inflows | ||||||||||||||||||||||
Notional | Fair value | (Outflows) | Value at Risk | Fair value by year | ||||||||||||||||||
| June 30, |
| December 31, |
|
| Average |
| June 30, |
| December 31, |
| June 30, |
| June 30, |
| |||||||
Flow |
| 2021 |
| 2020 |
| Index |
| rate |
| 2021 |
| 2020 |
| 2021 |
| 2021 |
| 2021 |
| 2022 |
| 2023+ |
CDI vs. US$ fixed rate swap |
|
|
|
|
| ( |
| ( |
| ( | | ( | ( | ( | ||||||||
Receivable |
| R$ |
| R$ |
| CDI |
| | % | |||||||||||||
Payable |
| US$ |
| US$ |
| Fix |
| | % | |||||||||||||
TJLP vs. US$ fixed rate swap |
|
|
|
|
| ( |
| ( |
| ( | | ( | ( | ( | ||||||||
Receivable |
| R$ |
| R$ |
| TJLP + |
| | % | |||||||||||||
Payable |
| US$ |
| US$ |
| Fix |
| | % | |||||||||||||
R$fixed rate vs. US$ fixed rate swap |
|
|
|
|
| |
| ( |
| ( | | | ( | | ||||||||
Receivable |
| R$ |
| R$ |
| Fix |
| | % | |||||||||||||
Payable |
| US$ |
| US$ |
| Fix |
| ( | % | |||||||||||||
IPCA vs. US$ fixed rate swap |
|
|
|
|
| ( |
| ( |
| ( | | | — | ( | ||||||||
Receivable |
| R$ |
| R$ |
| IPCA + |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable |
| US$ |
| US$ |
| Fix |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
IPCA vs. CDI swap |
|
|
|
|
| |
|
| — |
| — |
| |
| |
| — | |||||
Receivable |
| R$ |
| R$ |
| IPCA + |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable |
| R$ |
| R$ |
| CDI |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
EUR fixed rate vs. US$ fixed rate swap |
|
|
|
|
| — |
| ( |
| ( |
| — |
| — |
| — |
| — | ||||
Receivable |
| — |
| EUR |
| Fix |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable |
| — |
| US$ |
| Fix |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward |
| R$ |
| R$ |
| B |
| |
| |
| ( |
| |
| |
| |
| |
| |
c) Protection program for Libor floating interest rate US$ denominated debt
Financial | ||||||||||||||||||||||
Settlement | ||||||||||||||||||||||
Inflows | ||||||||||||||||||||||
Notional | Fair value | (Outflows) | Value at Risk | Fair value by year | ||||||||||||||||||
Flow |
| June 30, 2021 |
| December 31, 2020 |
| Index |
| Average rate |
| June 30, 2021 |
| December 31, 2020 |
| June 30, 2021 | June 30, 2021 |
| 2021 |
| 2022 |
| 2023+ | |
Libor vs. US$fixed rate swap |
| |
| ( |
| ( | |
| ( |
| — |
| | |||||||||
Receivable |
| US$ |
| US$ |
| Libor |
| | % |
|
|
|
|
|
|
|
|
|
|
| ||
Payable |
| US$ |
| US$ |
| Fix |
| | % |
|
|
|
|
|
|
|
|
|
|
| ||
d) Protection program for product prices and input costs
Financial | ||||||||||||||||||
settlement | Fair | |||||||||||||||||
Inflows | Value at | value by | ||||||||||||||||
Notional | Fair value | (Outflows) | Risk | year | ||||||||||||||
|
|
|
| Average |
|
|
|
|
| |||||||||
June 30, | December 31, | Bought / | strike | June 30, | December 31, | June 30, | June 30, | |||||||||||
Flow | 2021 | 2020 |
| Sold |
| (US$/bbl) | 2021 | 2020 | 2021 | 2021 |
| 2021+ | ||||||
Brent crude oil (bbl) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Call options | | |
| B |
| | | | | |
| | ||||||
Put options | | |
| S |
| | — | ( | — | — |
| — | ||||||
Forward Freight Agreement (days) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Freight forwards (days) | | |
| B |
| | | | | |
| — | ||||||
28
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
e) Embedded derivatives in contracts
|
|
|
|
|
| Financial |
|
| ||||||||||
settlement | ||||||||||||||||||
Inflows | ||||||||||||||||||
National | Fair value | (Outflows) | Value at Risk | Fair value | ||||||||||||||
| December 31, | Bought / | Average | June 30, |
| December 31, | June 30, | June 30, | ||||||||||
Flow | June 30, 2021 | 2020 | Sold | strike | 2021 | 2020 | 2021 | 2021 | 2021+ | |||||||||
Option related to a Special Purpose Entity “SPE” (quantity) | ||||||||||||||||||
Call option |
| |
| |
| B |
| |
| |
| |
| — |
| |
| |
Embedded derivatives in contracts for the sale of part of its shareholding (quantity) | ||||||||||||||||||
Put option |
| |
| |
| S |
| |
| ( |
| ( |
| — |
| |
| ( |
Embedded Derivative in natural gas purchase agreement (volume/month) | ||||||||||||||||||
Call options |
| |
| |
| S |
| |
| ( |
| — |
| — |
| |
| ( |
Hedge program for finished products | ||||||||||||||||||
Nickel forwards |
| |
| — |
| S |
| |
| — |
| — |
| — |
| — |
| — |
Fixed prices sales protection | ||||||||||||||||||
Nickel forwards |
| |
| — |
| B |
| |
| |
| — |
| |
| — |
| |
Embedded in raw material purchase contract (ton) | ||||||||||||||||||
Nickel forwards |
| |
| |
| S |
| |
| ( |
| |
| — |
| |
| ( |
Copper forwards |
| |
| |
| S |
| |
| — |
| — |
| — |
| — |
| — |
f) 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 at June 30, 2021
- Scenario I: fair value estimated considering a
- Scenario II: fair value estimated considering a
29
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Instrument |
| Instrument's main risk events |
| Probable |
| Scenario I |
| Scenario II |
CDI vs. US$ fixed rate swap |
| R$ depreciation |
| ( |
| ( |
| ( |
| US$ interest rate inside Brazil decrease |
| ( |
| ( |
| ( | |
| Brazilian interest rate increase |
| ( |
| ( |
| ( | |
Protected item: R$denominated liabilities |
| R$ depreciation |
| n.a. |
| — |
| — |
TJLP vs. US$ fixed rate swap |
| R$ depreciation |
| ( |
| ( |
| ( |
| US$ interest rate inside Brazil decrease |
| ( |
| ( |
| ( | |
| Brazilian interest rate increase |
| ( |
| ( |
| ( | |
| TJLP interest rate decrease |
| ( |
| ( |
| ( | |
Protected item: R$denominated debt |
| R$ depreciation |
| n.a. |
| — |
| — |
R$fixed rate vs. US$ fixed rate swap |
| R$ depreciation |
| |
| ( |
| ( |
| US$ interest rate inside Brazil decrease |
| |
| |
| | |
| Brazilian interest rate increase |
| |
| |
| ( | |
Protected item: R$denominated debt |
| R$ depreciation |
| n.a. |
| — |
| — |
IPCA vs. US$ fixed rate swap |
| R$ depreciation |
| ( |
| ( |
| ( |
| US$ interest rate inside Brazil decrease |
| ( |
| ( |
| ( | |
| Brazilian interest rate increase |
| ( |
| ( |
| ( | |
| IPCA index decrease |
| ( |
| ( |
| ( | |
Protected item: R$denominated debt |
| R$ depreciation |
| n.a. |
| — |
| — |
IPCA vs. CDI swap |
| Brazilian interest rate increase |
| |
| |
| |
| IPCA index decrease |
| |
| |
| | |
Protected item: R$denominated debt linked to IPCA |
| IPCA index decrease |
| n.a. |
| ( |
| ( |
US$floating rate vs. US$ fixed rate swap |
| US$ Libor decrease |
| |
| ( |
| ( |
Protected item: Libor US$ indexed debt |
| US$ Libor decrease |
| n.a. |
| |
| |
NDF BRL/USD |
| R$ depreciation |
| |
| ( |
| ( |
| US$ interest rate inside Brazil decrease |
| |
| |
| | |
| Brazilian interest rate increase |
| |
| |
| | |
Protected item: R$denominated liabilities |
| R$depreciation |
| n.a. |
| — |
| — |
30
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Instrument |
| Instrument's main risk events |
| Probable |
| Scenario I |
| Scenario II |
Fuel oil protection | ||||||||
Options |
| Price input decrease |
| |
| |
| |
Protected item: Part of costs linked to fuel oil prices |
| Price input decrease |
| n.a. |
| |
| |
Forward Freight Agreement |
|
|
|
|
|
|
|
|
Forwards |
| Freight price decrease |
| |
| |
| ( |
Protected item: Part of costs linked to maritime freight prices |
| Freight price decrease |
| n.a. |
| ( |
| |
Nickel sales fixed price protection |
|
|
|
|
|
|
|
|
Forwards |
| Nickel price decrease |
| |
| ( |
| ( |
Protected item: Part of nickel revenues with fixed prices |
| Nickel price decrease |
| n.a. |
| ( |
| ( |
Nickel Revenue Hedging Program |
|
|
|
|
|
|
|
|
Options |
| Nickel price increase |
| ( |
| ( |
| ( |
Protected item: Part of nickel future revenues |
| Nickel price increase |
| n.a. |
| |
| |
Palladium Revenue Hedging Program |
|
|
|
|
|
|
|
|
Options |
| Palladium price increase |
| |
| ( |
| ( |
Protected item: Part of palladium future revenues |
| Palladium price increase |
| n.a. |
| |
| |
Thermal Coal Revenue Hedging Program |
|
|
|
|
|
|
|
|
Options |
| Thermal coal price increase |
| ( |
| ( |
| ( |
Protected item: Part of thermal coal future revenues |
| Thermal coal price increase |
| n.a. |
| |
| |
Option - SPCs |
| SPCs stock value decrease |
| |
| |
| — |
Instrument |
| Main risks |
| Probable |
| Scenario I |
| Scenario II |
Embedded derivatives - Raw material purchase (nickel) |
| Nickel price increase |
| ( |
| ( |
| ( |
Embedded derivatives - Raw material purchase (copper) |
| Copper price increase |
| — |
| ( |
| ( |
Embedded derivatives - Gas purchase |
| Pellet price increase |
| ( |
| ( |
| ( |
Embedded derivatives - Guaranteed minimum return |
| Stock value decrease |
| ( |
| ( |
| ( |
31
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
g) Financial counterparties’ ratings
The table below presents the ratings published by Moody’s regarding the main financial institutions that we hire derivative instruments, cash and cash equivalents transactions.
Consolidated | ||||||||
June 30, 2021 |
| December 31, 2020 | ||||||
Cash and cash equivalents and | Cash and cash equivalents | |||||||
| short-term investment |
| Derivatives |
| and short-term investment |
| Derivatives | |
Aa1 |
| |
| — |
| |
| |
Aa2 |
| |
| |
| |
| |
Aa3 |
| |
| |
| |
| |
A1 |
| |
| |
| |
| |
A2 |
| |
| |
| |
| |
A3 |
| |
| |
| |
| |
Baa1 |
| — |
| — |
| |
| — |
Baa2 |
| |
| — |
| |
| — |
Ba1 |
| — |
| |
| |
| — |
Ba2 |
| |
| |
| |
| |
Ba3 |
| |
| |
| — |
| — |
Others |
| |
| |
| |
| |
| |
| |
| |
| | |
17. | Financial assets and liabilities |
a) Financial instruments classification
June 30, 2021 | December 31, 2020 | |||||||||||||||
At fair value | At fair value | |||||||||||||||
Amortized | At fair value | through | Amortized | At fair value | through profit | |||||||||||
Financial assets |
| cost |
| through OCI |
| profit or loss |
| Total |
| cost |
| through OCI |
| or loss |
| Total |
Current |
|
| ||||||||||||||
Cash and cash equivalents (note 19) | | — | — | | | — | — |
| | |||||||
Short-term investments (note 19) | — | — | | | — | — | | | ||||||||
Derivative financial instruments (note 16) | — | — | | | — | — | |
| | |||||||
Accounts receivable (note 9) | | — | | | | — | |
| | |||||||
Related parties (note 26) | — | — | — | — | | — | — |
| | |||||||
| — | | | | — | |
| | ||||||||
Non-current |
| |||||||||||||||
Judicial deposits (note 23) | | — | — | | | — | — | | ||||||||
Restricted cash | | — | — | | | — | — | | ||||||||
Derivative financial instruments (note 16) | — | — | | | — | — | |
| | |||||||
Investments in equity securities | — | | — | | — | | — |
| | |||||||
Related parties (note 26) | — | — | — | — | | — | — |
| | |||||||
| | | | | | |
| | ||||||||
Total of financial assets | | | | | | | |
| | |||||||
Financial liabilities |
| |||||||||||||||
Current |
| |||||||||||||||
Suppliers and contractors | | — | — | | | — | — |
| | |||||||
Derivative financial instruments (note 16) | — | — | | | — | — | |
| | |||||||
Loans, borrowings and leases (note 19) | | — | — | | | — | — |
| | |||||||
Dividends payable | | — | — | | | — | — | | ||||||||
Liabilities related to the concession grant (note 14) | | — | — | | | — | — | | ||||||||
Related parties (note 26) | | — | — | | | — | — |
| | |||||||
Other financial liabilities (note 11) | | — | — | | | | ||||||||||
| — | | | | — | |
| | ||||||||
Non-current |
| |||||||||||||||
Derivative financial instruments (note 16) | — | — | | | — | — | |
| | |||||||
Loans, borrowings and leases (note 19) | | — | — | | | — | — |
| | |||||||
Related parties (note 26) | — | — | — | — | | — | — |
| | |||||||
Participative stockholders' debentures (note 18) | — | — | | | — | — | |
| | |||||||
Liabilities related to the concession grant (note 14) | | — | — | | | — | — | | ||||||||
Financial guarantees (note 13) | — | — | | | — | — | | | ||||||||
| — | | | | — | | | |||||||||
Total of financial liabilities | | — | | | | — | |
| | |||||||
32
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
b) Hierarchy of fair value
June 30, 2021 | December 31, 2020 | |||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Short-term investments | | — | — | | | — | — | | ||||||||
Derivative financial instruments | — |
| | | | — | | | | |||||||
Accounts receivable | — | | — | | — | | — | | ||||||||
Investments in equity securities | | — | — | | | — | — | | ||||||||
Total | |
| | | | | | | | |||||||
Financial liabilities |
| |||||||||||||||
Derivative financial instruments | — |
| | | | — | | | | |||||||
Participative stockholders' debentures | — |
| | — | | — | | — | | |||||||
Financial guarantees | — | | — | | — | | — | | ||||||||
Total | — |
| | | | — | | | | |||||||
There were
b.i) Changes in Level 3 assets and liabilities during the period
Derivative financial instruments | ||||
| Financial assets |
| Financial liabilities | |
Balance at December 31, 2020 |
| |
| |
Gain and losses recognized in income statement |
| ( |
| ( |
Translation adjustments |
| |
| — |
Balance at June 30, 2021 |
| |
| |
c) Fair value of loans and financing
June 30, 2021 | December 31, 2020 | |||||||
| Carrying amount |
| Fair value |
| Carrying amount |
| Fair value | |
Quoted in the secondary market: | ||||||||
Bonds |
| |
| |
| |
| |
Eurobonds |
| — |
| — |
| |
| |
Debentures |
| |
| |
| |
| |
Debt contracts in Brazil in: |
|
|
|
|
|
|
|
|
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI |
| |
| |
| |
| |
R$, with fixed interest |
| |
| |
| |
| |
Basket of currencies and bonds in US$ indexed to LIBOR |
| |
| |
| |
| |
Debt contracts in the international market in: |
|
|
|
|
|
|
|
|
US$, with variable and fixed interest |
| |
| |
| |
| |
Other currencies, with variable interest |
| |
| |
| — |
| — |
Other currencies, with fixed interest |
| |
| |
| |
| |
Total |
| |
| |
| |
| |
Due to the short-term cycle, the fair value of cash and cash equivalents balances, financial investments, accounts receivable and accounts payable approximate their book values.
18. | Participative stockholders’ debentures |
At the time of its privatization in 1997, the Company issued a total of
33
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Holders of participative stockholders’ debentures have the right to receive semi-annual payments equal to an agreed percentage of revenues less value-added tax, transport fee and insurance expenses related to the trading of the products, derived from these mineral resources. On April 1, 2021, the Company made available for withdrawal as remuneration the amount of US$
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 increased from R$
19. | 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.
| June 30, 2021 |
| December 31, 2020 | |
Debt contracts in the international markets |
| |
| |
Debt contracts in Brazil |
| |
| |
Leases | | | ||
Total of loans, borrowings and leases |
| |
| |
(-) Cash and cash equivalents |
| |
| |
(-) Short-term investments | | | ||
Net debt (cash) |
| ( |
| |
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. They are readily convertible to cash, being US$
c) | Short-term investments |
At June 30, 2021, the balance of US$
34
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
d) Loans, borrowings and leases
i) Total debt
Average | Current liabilities | Non-current liabilities | ||||||||
| interest rate (i) | June 30, 2021 |
| December 31, 2020 |
| June 30, 2021 |
| December 31, 2020 | ||
Quoted in the secondary market: |
|
|
|
|
|
|
|
| ||
Bonds |
| % | — | — | | | ||||
Eurobonds |
| — | — | — | | |||||
Debentures |
| % | | | | | ||||
Debt contracts in Brazil in: |
| |||||||||
R$, indexed to TJLP, TR, IPCA, IGP-M and CDI (ii) |
| % | | | | | ||||
R$, with fixed interest |
| % | | | | | ||||
Basket of currencies and bonds in US$ indexed to LIBOR | % | | | — | | |||||
Debt contracts in the international market in: |
| |||||||||
US$, with variable and fixed interest |
| % | | | | | ||||
Other currencies, with variable interest |
| % | | — | | — | ||||
Other currencies, with fixed interest | % | | | | | |||||
Accrued charges |
| | | — | — | |||||
Total |
| | | | | |||||
(i) In order to determine the average interest rate for debt contracts with floating rates, the Company used the rate applicable as at June 30, 2021.
(ii) R$ denominated debt that bears interest at IPCA, CDI, TR or TJLP, plus spread. For a total of US$
Future flows of debt payments, principal and interest
|
| Estimated future | ||
Principal | interest payments (i) | |||
2021 |
| | | |
2022 |
| | | |
2023 |
| | | |
2024 |
| | | |
Between 2025 and 2029 |
| | | |
2030 onwards |
| | | |
Total |
| | |
(i) Based on interest rate curves and foreign exchange rates applicable as at June 30, 2021 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 interim financial statements.
Credit and financing lines
The Company has two revolving credit facilities to assist the short-term liquidity management and to enable more efficiency in cash management in the available amount of US$
Funding and payments
In January 2021, the Company contracted the credit line US$
35
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
In March 2021, the Company redeemed all of its
Covenants
Some of the Company’s debt agreements with lenders contain financial covenants. The primary financial covenants in those agreements require maintaining certain ratios, such as debt to EBITDA (as defined in note 4(a)) and interest coverage. The Company has not identified any instances of noncompliance as at June 30, 2021.
Reconciliation of debt to cash flows arising from financing activities
| Quoted in the |
|
| Debt contracts on the |
| |||
secondary market | Debt contracts in Brazil | international market | Total | |||||
December 31, 2020 |
| | | | | |||
Additions |
| — | — | | | |||
Payments (i) |
| ( | ( | ( | ( | |||
Interest paid |
| ( | ( | ( | ( | |||
Cash flow from financing activities |
| ( | ( | | ( | |||
Effect of exchange rate |
| ( | ( | | ( | |||
Interest accretion |
| | | | | |||
Non-cash changes |
| | ( | | | |||
June 30, 2021 |
| | | | |
(i) Includes expenses with the redemption in the amount of US$
ii) Lease liabilities
Additions and contract | ||||||||||||
| December 31, 2020 |
| modifications |
| Payments (i) |
| Interest (ii) |
| Translation adjustment |
| June 30, 2021 | |
Ports |
| |
| — |
| ( |
| |
| |
| |
Vessels |
| |
| — |
| ( |
| |
| — |
| |
Pellets plants |
| |
| |
| ( |
| |
| |
| |
Properties |
| |
| |
| ( |
| |
| |
| |
Energy plants |
| |
| — |
| ( |
| |
| — |
| |
Mining equipment and locomotives (iii) |
| |
| |
| ( |
| |
| |
| |
Total |
| |
| |
| ( |
| |
| |
| |
(i) The total amount of the variable lease payments not included in the measurement of lease liabilities, which have been recognized straight to the income statement, for the three and six-month periods ended June 30, 2021 was US$
(ii) The interest accretion recognized in the income statement is disclosed in note 6.
(iii) "Additions and contract modifications" includes the effects arising from the acquisition of NLC in the amount of US$
36
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Annual minimum payments
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| 2025 onwards |
| Total | |
Ports |
| |
| |
| |
| |
| |
| |
Vessels |
| |
| |
| |
| |
| |
| |
Pellets plants |
| |
| |
| |
| |
| |
| |
Properties |
| |
| |
| |
| |
| |
| |
Energy plants |
| |
| |
| |
| |
| |
| |
Mining equipment and locomotives |
| |
| |
| |
| |
| |
| |
Total |
| |
| |
| |
| |
| |
| |
The amounts in the table above 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.
e) Guarantees
As at June 30, 2021 and December 31, 2020, loans and borrowings are secured by property, plant and equipment in the amount of US$
20. Brumadinho dam failure
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
As a result of the dam failure, the Company has recognized provisions to meet its assumed obligations, individual indemnification to those affected by the event, remediation of the affected areas and compensation to the society. The Company also recognized a provision for de-characterization of the dams. Below are the changes in during the current period:
|
| Impact on the |
|
|
|
| ||||||
December 31, | income | Present value | Translation | |||||||||
2020 | statement | adjustment | Disbursements (ii) | adjustment | June 30, 2021 | |||||||
Global Settlement for Brumadinho |
| |
| — |
| ( |
| ( |
| |
| |
Provision for individual indemnification and other commitments |
| |
| — |
| ( |
| ( |
| |
| |
Liabilities related to Brumadinho |
| |
| — |
| ( |
| ( |
| |
| |
De-characterization of dams |
| |
| — |
| ( |
| ( |
| |
| |
Incurred expenses (i) |
| — |
| |
| — |
| ( |
| — |
| — |
| |
| |
| ( |
| ( |
| |
| |
(i) The Company has incurred expenses, which have been recognized straight to the income statement, in relation to communication services, accommodation and humanitarian assistance, equipment, legal services, water, food aid, taxes, among others. For the three and six-month periods ended June 30, of 2021, the Company incurred expenses in the amount of US$
(ii) Disbursement is presented net of the judicial deposits utilization.
a) Global Settlement for Brumadinho
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. The Global
37
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
Settlement was ratified by the Minas Gerais State Court on February 4, 2021 and the res judicata was drawn up on April 7, 2021.
With the Global Settlement, the requests contained in public civil actions regarding the socio-environmental and socioeconomic collective damages caused by the dam rupture were substantially resolved and the parameters for the reparation and compensation of said damages were established. As a result, the Company recorded an additional provision as at December 31, 2020.
The provision is discounted at presented value using an observable rate that reflects the current market assessments of the time value of money and the risks specific to the liability at the reporting date. During the current year, the discount rate applied on the provisions for the Global Settlement, individual indemnification and other commitments, has increased from
Based on the present value of the projected cash outflows, the provision related to Global Settlement is detailed as follows:
| June 30, 2021 |
| December 31, 2020 | |
Cash settlement obligation, net of judicial deposits |
| |
| |
Provision for socio-economic reparation and others |
| |
| |
Provision for social and environmental reparation |
| |
| |
| |
| |
| June 30, 2021 |
| December 31, 2020 | |
Current liabilities |
| |
| |
Non-current liabilities |
| |
| |
Liabilities |
| |
| |
(a.i) Cash settlement obligation
The cash settlement obligation relates to the socio-economic reparation and socio-environmental compensation projects that will be carried out or managed directly by the State of Minas Gerais and Institutions of Justice, mainly aiming to develop the urban mobility program and strengthening public service programs, as well as other projects that will be proposed by the affected population. In addition, resources will be used in a program of income transfer to those affected by the event, which will be carried out by Institutions of Justice. Of the total amount, US$
(a.ii) Provision for socio-economic reparation and others
The Global Settlement includes remediation projects for Brumadinho and other affected municipalities of the Paraopeba basin. The socioeconomic reparation actions aims to strengthen the productive activities of the affected region, through measures for greater economic diversification of the municipality of Brumadinho, reducing its historical dependence on mining, and, for the rest of the Basin, finding ways to support the transformation of the economy of the impacted municipalities. These projects will be carried out directly by the Company for an average period of
The estimated amounts for the project execution, although set in the agreement, may vary since the implementation of those projects are Vale's responsibility and changes against the original budget may result in changes in provision in future reporting periods.
(a.iii) Provision for social and environmental reparation
The Global Settlement establishes the rule for the development of the environmental reparation plan, and projects for the compensation of environmental damage already known. These measures aim to repair the damage caused, restore the ecosystems disruption, restore local infrastructure, repair social and economic losses, recover affected areas and repair the loss of memory and cultural heritage caused by the dam rupture. It also includes several actions to clean up the affected areas and improvements to the water catchment system along the Paraopeba River and other water collection points near the affected area. These measures and compensation projects will be carried out directly by the Company for an average period of
The estimated amount to carry out the environmental recovery actions is part of the Global Settlement. However, it has no cap due to
38
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
the Company's legal obligation to fully repair the environmental damage caused by the dam rupture. Therefore, this provision may change in the future depending on several factors that are not under the control of the Company.
b) Provision for individual indemnification and other commitments
For the individual indemnification, Vale and the Public Defendants of the State of Minas Gerais formalized an agreement on April 5, 2019, under which those affected by the Brumadinho’s Dam failure may join an individual or family group out-of-Court settlement agreements for the indemnification of material, economic and moral damages. This agreement establishes the basis for a wide range of indemnification payments, which were defined according to the best practices and case law of Brazilian Courts, following rules and principles of the United Nations (“UN”). As at June 30, 2021, the provision recorded is US$
In addition to the Global Settlement, the Company has been working to ensure geotechnical safety of the remaining structures at the Córrego do Feijão mine, in Brumadinho, and the removal and proper disposal of the tailings of Dam I. As at June 30, 2021, the provision recorded is US$
In addition, the Company was notified of the imposition of administrative fines by the Brazilian Institute of the Environment and Renewable Natural Resources (“IBAMA”), in the amount of US$
c) De-characterization of other dams in Brazil
Following the Brumadinho Dam rupture, the Company has decided to speed up the plan to “de-characterize” its tailings dams built under the upstream method (same method as Brumadinho’s dam), certain “centerline structures” and dikes, located in Brazil. The observable rate applied to the provision for the de-characterization of dams, increased from
(c.i) Operation stoppages
The Company has suspended some operations due to judicial decisions or technical analysis performed by Vale on its upstream dam structures. 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$
d) Contingencies and other legal matters
(d.i) Requests for fines or forfeit of assets
On August 26, 2020, the Public Prosecutor's Office of Minas Gerais (“MPMG”) and other plaintiffs of the Public Civil Actions presented a request for ruling condemning Vale to indemnify alleged economic losses of the State of Minas Gerais and collective moral damages, both claims already considered in said Public Civil Actions filed against Vale in January 2019 as a result of the Brumadinho dam rupture. In that submission, the plaintiffs also requested the immediate freezing of US$
In other proceeding, in May 2020, the MPMG requested the imposition of fines or forfeit of assets, rights and amounts of the Company, allegedly based on Article 5, item V of Brazilian Law 12.846/2013. According to the MPMG, Vale would have, through its employee’s actions, hindered the inspection activities of public agencies in the complex. Vale was not required to present any guarantees of US$
In January 2021, the Comptroller General of the State of Minas Gerais (“CGE”) notified Vale to present it defense against the Administrative Liability Proceeding (“PAR”) initiated based on the same article. Vale presented its defense in March 2021, and filed a writ of mandamus in the face of the establishment of this PAR, which had the injunction granted to suspend the proceeding of the PAR.
39
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
In October 2020, the Company was informed that the Brazilian Office of the Comptroller General (“CGU”) initiated an administrative proceeding based on the same allegations made by the MPMG. As this is a discretionary procedure from the CGU, the Company estimates its likelihood of a loss during the administrative phase as possible, but it reaffirms its assessment of loss as remote in the annulment lawsuit to be instituted against any decision by CGU, if necessary.
(d.ii) U.S. Securities putative class action suit
Vale is defending itself in a putative class action brought before a Federal Court in New York and filed by holders of securities - American Depositary Receipts ("ADRs") - issued by Vale. The Lead Plaintiff alleges that we made false and misleading statements or omitted to make disclosures concerning the risks of the operations of Dam I in the Córrego de Feijão mine and the adequacy of the related programs and procedures.
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 the fact Discovery was expected to be concluded by June 2021. However, due to the pandemic, the fact Discovery term has been extended to be concluded by March 2022, the fact Discovery is currently ongoing. In parallel, in February 2021 the Plaintiff filed a motion for class certification, which we opposed on April, 2021. On June, 2021 a Reply was filed by the Plaintiff and rebuttal expert reports were filed by the parties. A decision by the Court on the motion for class certification is expected to be issued in the upcoming weeks.
Based on the evaluation of the Company's legal counsel and given the very preliminary stage, the expectation of loss of this process is classified as possible. However, considering the initial stage of this putative class action, it is not possible at this time to reliably estimate the amount of a potential loss.
(d.iii) Arbitration proceedings in Brazil filed by shareholders and a class association
In Brazil, Vale is a defendant in (i)
In the
Based on the evaluation of the Company's legal counsel and given the very preliminary stage, the expectation of loss of these proceedings is classified as possible.
Specifically, in the proceeding filed by foreign funds, the Claimants estimated the amount of the alleged losses at approximately US$
(d.iv) Investigations by the CVM and the Securities and Exchange Commission (“SEC”)
The Company is cooperating with the CVM and the SEC by providing documents and other information related to the Dam I rupture in connection with ongoing investigations by both agencies. These investigations relate 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 CVM and SEC investigations may result in the application of fines and administrative penalties either through negotiated resolutions or court proceedings.
(d.v) Criminal proceedings and investigations
In January 2020, the MPMG brought criminal charges against
40
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
estimate when a decision on this criminal proceeding will be issued. The criminal action is currently suspended while the MPMG organizes the relevant documents to enable defendants to defend themselves properly.
(d.vi) Labor Collective Civil Action
In 2021, public civil actions were filed by a labor union in the Labor Court of Betim in the Brazilian State of Minas Gerais, claiming the indemnification payment for death damage to each direct and outsourced employee who has died due to the Dam I rupture. They are claiming to represent
e) Insurance and financial guarantees
(e.i) Insurance
The Company is negotiating with insurers the payment of indemnification under its operational risk and civil liability. However, these negotiations are still at a preliminary stage, 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 to the Company was recognized in these interim financial statements.
(e.ii) Financial guarantees
In April 2021, the financial guarantees related to the Brumadinho event were released, due the Global Settlement. As at December 31, 2020, the Company had financial guarantees in the amount of US$
21. Liabilities related to associates and joint ventures
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 June 2016, Samarco, Vale and BHPB created the Fundação Renova, a not-for-profit private foundation, to develop and implement (i) social and economic remediation and compensation programs and (ii) environmental remediation and compensation programs in the region affected by the dam rupture. The creation of Fundação Renova was provided for under the agreement for settlement and conduct adjustment (the ‘‘Framework Agreement’’) signed in March 2016 by Vale, BHPB, Samarco, the Brazilian federal government, the two Brazilian states affected by the rupture (Minas Gerais and Espírito Santo) and other governmental authorities.
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, improving the governance mechanism of Fundação Renova and establishing, among other things, a process for potential revisions to the remediation programs provided under the Framework Agreement based on the findings of experts hired by Samarco to advise the MPF (Federal Prosecutor’s Office) over a two-year period (the ‘‘June 2018 Agreement’’). Under the Framework Agreement, the June 2018 Agreement and Renova’s by-laws, Fundação Renova must be funded by Samarco, but to the extent that Samarco is unable to fund, Vale and BHPB must ratably bear the funding requirements Under the Framework Agreement.
On April 9, 2021, Samarco announced the request for Judicial Reorganization (“RJ”) 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.
The RJ does not affect Samarco's obligation to remediate and compensate the impacts of the Fundão tailings dam failure. However, as Samarco began the gradual resumption of operations in December 2020, it is not yet possible to reliably estimate when Samarco will
41
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
generate cash to comply with its assumed obligation in the TTAC. Thus, the liability recorded by Vale on June 30, 2021 does not consider Samarco's potential cash flows generation. Therefore, the RJ did not have any additional impact on these interim financial statements.
In addition, the Company has a provision of US$
Movements during the period
| 2021 |
| 2020 | |
Balance at January 1, |
| |
| |
Provision |
| |
| |
Disbursements |
| ( |
| ( |
Present value valuation |
| ( |
| |
Translation adjustment |
| |
| ( |
Balance at June 30, |
| |
| |
| June 30, 2021 |
| December 31, 2020 | |
Current liabilities |
| |
| |
Non-current liabilities |
| |
| |
Liabilities |
| |
| |
Renova Foundation
During the second quarter of 2021, Fundação Renova reviewed the assumptions used on the preparation of the estimates incorporated into the mitigation and compensation programs mainly due recent judicial decisions increasing the scope of some TTAC programs. The periodic review, resulted in an additional provision of US$
Samarco’s working capital
In addition to the provision, Vale S.A. made available US$
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 Company expects the Framework Agreements to represent 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:
(i) Public Civil Action filed by the Federal Government and others and public civil action filed by the Federal Public Prosecutors ("MPF")
The Framework Agreement (“TAC-Gov”) considers the renegotiation of the Renova Foundation's reparation programs depending on the results of the studies carried out by the experts. The negotiations started in April 2021 and a letter of principles was signed in June 2021 by Vale, BHP and Samarco with the representatives of the government and various justice institutions. Based on terms set on this letter, there has been a request from the MPF to a new suspension of the proceedings for 120 days in order to continue the extrajudicial negotiation.
In March 2021, a new incidental proceeding (“Eixo Prioritário”) was initiated, at the request of the Federal Attorney General’s Office (“AGU”), with the purpose of discuss a restructure on Renova Foundation's organizational management structure, the “Eixo Prioritário
42
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
13”. There was granted an injunction for an expert procedure and diagnosis report to be made at the Renova Foundation, in particular of its governance mechanisms. The companies filed a motion for clarification, arguing that, in order to remedy the alleged inefficiency of the governance system that permeates the reparation, it is appropriate to expand the scope of the expert's analysis, to consider the entire management structure of such measures, created with the TTAC, and requesting that the expert also assess the external management carried out by the Interfederative Committee (“CIF”) in the scope of the preliminary diagnosis.
The “Eixo Prioritário 7”, which relates to the individual compensation of Renova Foundation, has a risk in relation to decisions that could be decided in favor to the claims to include new categories of professional damages and new areas. Depending on the outcome of these proceedings, the provision recorded by the Company may have a material impact in future reporting periods.
(ii) Class Action in the United States
In March 2017, the holders of securities issued by Samarco Mineração S.A. filed a potential collective action in the New York Federal Court against Samarco, Vale, BHP Billiton Limited, BHP Billiton PLC and BHP Brasil Ltda. based on U.S. Federal Securities laws, which was dismissed without prejudice, in June 2019. In December 2019 the plaintiffs filed a Notice of Appeal to the NY Court of Appeals.
In January 2021, it was held a hearing before the Second Circuit of the New York State Court of Appeals. In March 2021 the Second Circuit denied the plaintiff’s appeal. This decision became res judicata in June 2021, since no further appeal has been filed by the Plaintiff. Thus, the case is closed and should be filed by the Court.
(iii) 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 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 employees, which concerns the accusation of alleged crimes committed against the Environmental Public Administration, remained unchanged. In June 2021, the Company filed an appeal with the Superior Court of Justice against the decision of the Federal Regional Court of the 1st Region that did not decided in favor of Vale. In July 2021, the Federal Prosecutor filed an appeal with the Federal Regional Court of the 1st Region, against the judge's decision that rejected the resumption of the procedural instruction, requesting the review of the decision. The Company cannot estimate when a final decision on the case will be issued.
Insurance
Since the Fundão dam rupture, the Company has been negotiating with insurers the indemnification payments based on its general liability policies. For the period ended June 30, 2021, the Company received payments in the amount of US$
22. | Provisions |
Current liabilities | Non-current liabilities | |||||||
| June 30, 2021 |
| December 31, 2020 |
| June 30, 2021 |
| December 31, 2020 | |
Payroll, related charges and other remunerations | | | — | — | ||||
Onerous contracts | | | | | ||||
Environmental obligations | | | | | ||||
Asset retirement obligations (i) | | | | | ||||
Provision related to VNC sale (note 12) | — | | — | — | ||||
Provisions for litigation (note 23) | | | | | ||||
Employee postretirement obligations (note 24) | | | | | ||||
Provisions | | | | | ||||
(i) The Company has issued letters of credit and surety bonds for US$
43
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
23. | Litigations |
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. The main litigations refer to:
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 stockholders’ equity (“JCP”) from the PIS and COFINS tax base. The amount reserved for this proceeding as at June 30, 2021 is US$
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.
|
|
|
| Environmental |
| Total of | ||||
| Tax litigation |
| Civil litigation |
| Labor litigation |
| litigation |
| litigation provision | |
Balance at December 31, 2020 | | | | | | |||||
Additions and reversals, net |
| ( | ( | | | | ||||
Payments |
| — | ( | ( | ( | ( | ||||
Indexation and interest |
| | | | — | | ||||
Translation adjustment |
| | | | — | | ||||
Acquisition of NLC (note 12) | — | | | — | | |||||
Balance at June 30, 2021 | | |||||||||
Current liabilities | | | | — | | |||||
Non-current liabilities | | | | | | |||||
| | | | |
|
|
|
| Environmental |
| Total of | ||||
Tax litigation |
| Civil litigation | Labor litigation | litigation | litigation provision | |||||
Balance at December 31, 2019 |
| |
| |
| |
| |
| |
Additions and reversals, net |
| |
| |
| |
| |
| |
Payments |
| ( |
| ( |
| ( |
| — |
| ( |
Indexation and interest |
| |
| |
| |
| — |
| |
Translation adjustment |
| ( |
| ( |
| ( |
| ( |
| ( |
Balance at June 30, 2020 |
| |
| |
| |
| |
| |
Current liabilities | | | | — | | |||||
Non-current liabilities | | | | | | |||||
| | | | |
b) Contingent liabilities
The main contingent liabilities, updated by applicable interest rates, for which the likelihood of loss is not considered remote are presented by nature as follows:
| June 30, 2021 |
| December 31, 2020 | |
Tax litigations | | | ||
Civil litigations | | | ||
Labor litigations | | | ||
Environmental litigations | | | ||
Total | | |
44
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
The contingent liabilities related to the Brumadinho event and Samarco are not presented above. Further information is presented in notes 20 and 21.
As reported in the annual financial statements for 2020, the Company is party in several actions and the main updates on contingent liabilities since then, are discussed as follows:
(b.i) Assessments regarding the disallowance of JCP:
In February 2021 Vale was assessed for collection of corporate income tax (IRPJ, CSLL) and penalties regarding the disallowance of the JCP expenses deducted from the 2017 taxable income, in the amount of US$
(b.ii) Proceeding related to income tax paid abroad:
In March 2021, Vale was assessed for the collection of US$
c) | Judicial deposits |
| June 30, 2021 |
| December 31, 2020 | |
Tax litigations | | | ||
Civil litigations | | | ||
Labor litigations | | | ||
Environmental litigations | | | ||
Total | | |
d) Guarantees contracted for legal proceedings
In addition to the above-mentioned tax, civil, labor and environmental judicial deposits, the Company contracted US$
e) ICMS included in PIS and COFINS computation tax base
Vale has been discussing the issue regarding the exclusion of ICMS in PIS and COFINS tax basis in
The other proceeding, which covers the taxable events occurred between December 2001 and February 2012, resulted in a gain of US$
45
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
24. | Employee benefits |
a) Long-term incentive programs
For the long-term awarding of eligible executives, the Company compensation plans includes Matching program and Performance Share Unit program (“PSU”), with
Matching Program
For the Matching program, the participants can acquire Vale’s common shares in the market without any benefits being provided by Vale. If the shares acquired are held for a period of
Performance Shares Units
For PSU program, the eligible executives have the opportunity to receive during a
At the Annual and Extraordinary Shareholders' Meeting ("AGOE") held on April 30, 2021, the Company's shareholders approved changes in the PSU program to be implemented as from the 2021 grant, consisting of (i) a change in the payment of the program award, which will be paid with common shares of the Company, and (ii) additional payment at the end of each cycle based on the remuneration that will be paid by Vale to its stockholders during the cycle.
b) Modification altering manner of settlement
Both programs were classified as “cash-settled” due to the PSU requirements and the Company’s settlement practice for the Matching program and, therefore, presented as a liability. However, the decision taken at the AGOE (“modification date”) demonstrates the Company's declared intention to change the form of liquidation of the programs. As a result, those programs were modified to become “equity-settled” and were remeasured at the modification-date fair value.
Fair value at modification date
The fair value of the Matching program was estimated using the Company’s stock price and ADR at the modification date, which was R$
46
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
For the PSU, the program was measured using Monte Carlo simulations to estimate the TSR indicator and ESG indicators. The assumptions used in the Monte Carlo simulation to estimate the fair value of the TSR indicator are shown below:
PSU |
| 2021 |
|
Granted shares |
| | |
Date shares were granted |
| 04/30/2021 | |
VALE (BRL) |
| | |
VALE ON (USD) |
| | |
Expected volatility |
| ||
Expected dividend yield (i) |
| ||
Expected term (in years) |
| | |
Expected value of the total shareholder return (TSR) |
| | % |
Expected value of the performance factor (Total) |
| | % |
(i) Source: Bloomberg 04/30/2021
Reclassification from cash-settled to equity-settled
Matching |
| April 30, 2021 |
| Remeasurement |
| Reclassification |
| May 1, 2021 |
| Expense |
| June 30, 2021 |
Liability |
| |
| |
| ( |
| |
| — |
| |
Stockholders' equity |
| |
| — |
| |
| |
| |
| |
Net income |
| |
| ( |
| — |
| ( |
| ( |
| ( |
PSU |
| April 30, 2021 |
| Remeasurement |
| Reclassification |
| May 1, 2021 |
| Expense |
| June 30, 2021 |
Liability |
| |
| ( |
| ( |
| |
| — |
| |
Stockholders' equity |
| |
| — |
| |
| |
| |
| |
Net income |
| |
| |
| — |
| |
| ( |
| |
c) Employee post-retirement obligations
Reconciliation of net liabilities recognized in the statement of financial position
June 30, 2021 | December 31, 2020 | |||||||||||
Overfunded | Underfunded | Overfunded | Underfunded | |||||||||
| pension plans |
| pension plans |
| Other benefits |
| pension plans |
| pension plans |
| Other benefits | |
Amount recognized in the statement of financial position | ||||||||||||
Present value of actuarial liabilities | ( | ( | ( | ( | ( | ( | ||||||
Fair value of assets | | | — | | | — | ||||||
Effect of the asset ceiling | ( | — | — | ( | — | — | ||||||
Liabilities | — | ( | ( | — | ( | ( | ||||||
Current liabilities | — | ( | ( | — | ( | ( | ||||||
Non-current liabilities | — | ( | ( | — | ( | ( | ||||||
Liabilities | — | ( | ( | — | ( | ( | ||||||
47
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
25. | Stockholders’ equity |
a) Share capital
As at June 30, 2021, the share capital was US$
June 30, 2021 | ||||||
Stockholders |
| Common shares |
| Golden shares |
| Total |
Shareholders with more than 5% of total capital | | — | | |||
Previ | | — | | |||
Capital World Investors | | — | | |||
Capital Research Global Investors | | — | | |||
Bradespar | | — | | |||
Mitsui&co | | — | | |||
Blackrock, Inc | | — | | |||
Others | | — | | |||
Golden shares | — | | | |||
Total outstanding (without shares in treasury) | | | | |||
Shares in treasury | | — | | |||
Total capital | | | | |||
The information presented above is based on the communications provided by stockholders in connection with the Instruction 358 issued by the Brazilian Securities and Exchange Commission (“CVM”).
b) Share buyback program
On April 1, 2021, the Board of Directors approved a share buyback program for Vale’s common share which will be limited to a maximum of
c) Treasury shares
The Company utilized
d) Stockholder’s remuneration
On February 25,2021, based on the Company’s dividends policy, the Board of Directors approved the stockholder’s remuneration in the amount of US$
On June 17, 2021, the Board of Directors approved an additional stockholder’s remuneration in the total amount of US$
48
Selected Notes to the Interim Financial Statements Expressed in millions of United States dollar, unless otherwise stated |
|
26. | Related parties |
The Company’s related parties are subsidiaries, joint ventures, associates, stockholders and its related entities and key management personnel of the Company. Transactions between the parent company and its subsidiaries are eliminated on consolidation and are not disclosed in this note.
In June 2021, the Company concluded the transaction for the acquisition of the interests held by Mitsui (related party) in Vale Moçambique and Nacala Logistics Corridor (note 12).
a) Transactions with related parties
Three-month period ended June 30, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Joint | Joint | |||||||||||||||
| Ventures |
| Associates |
| Stockholders |
| Total |
| Ventures |
| Associates |
| Stockholders |
| Total | |
Net operating revenue | | | | | | | | | ||||||||
Cost and operating expenses | ( | ( | — | ( | ( | ( | — | ( | ||||||||
Financial result | ( | ( | | | | | ( | ( | ||||||||
Six-month period ended June 30, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Joint | Joint | |||||||||||||||
| Ventures |
| Associates |
| Stockholders |
| Total |
| Ventures |
| Associates |
| Stockholders |
| Total | |
Net operating revenue | | | | | | | | | ||||||||
Cost and operating expenses | ( | ( | — | ( | ( | ( | — | ( | ||||||||
Financial result | ( | ( | ( | ( | | | ( | ( | ||||||||
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.
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 and the logistics costs for using the Nacala Logistics Corridor, which has been consolidated since June 2021 as described in note 12.
b) Outstanding balances with related parties
June 30, 2021 | December 31, 2020 | |||||||||||||||
Joint | Joint | |||||||||||||||
| Ventures |
| Associates |
| Stockholders |
| Total |
| Ventures |
| Associates |
| Stockholders |
| Total | |
Assets | ||||||||||||||||
Cash and cash equivalents (i) | — | — | | | — | — | | | ||||||||
Accounts receivable | | | | | | | | | ||||||||
Dividends receivable | | — | — | | | — | — | | ||||||||
Loans (ii) | — | — | — | — | | — | — | | ||||||||
Derivatives financial instruments (i) | — | — | | | — | — | | | ||||||||
Other assets | | | — | | | | — | | ||||||||
Liabilities | — | — | — | — | ||||||||||||
Supplier and contractors | | | | | | | | | ||||||||
Loans (ii) | — | — | — | — | — | | | | ||||||||
Derivatives financial instruments (i) | — | — | | | — | — | | | ||||||||
Other liabilities | | | — | | | | — | | ||||||||
(i) Refers to regular financial instruments with large financial institutions that are deemed related parties
(ii) Refers to loans settled upon completion of the acquisition of NLC (note 12).
49