淡水河谷 (VALE) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss fourth quarter 2014 results.

(Operator Instructions)

As a reminder, this conference is being recorded and the recording will be available on the Company's website at vale.com, at the "Investors" link. The replay of this conference call will be available by phone until March 4, 2015, on (55 11) 3193-1012 or 2820-4012, access code 8167178#. This conference call and the slide presentation are being transmitted via internet as well, also through the Company's website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors.

With us today are Mr. Murilo Ferreira, Chief Executive Officer (CEO); Mr. Luciano Siani, Executive Officer of Finance and Investor Relations (CFO); Mr. Peter Poppinga, Executive Officer of Ferrous Minerals; Mr. Roger Downey, Executive Officer of Fertilizers and Coal; Ms. Vania Somavilla, Executive Officer of Human Resources, Health and Safety, Sustainability, and Energy; Mr. Galib Chaim, Executive Officer of Capital Projects; Ms. Jennifer Maki, Executive Officer of Base Metals; and Mr. Clovis Torres, General Counsel and Chief Compliance Officer.

First, Mr. Murilo Ferreira will proceed to the presentation, and after that we will open for questions and answers. It's now my pleasure to turn the call over to Mr. Murilo Ferreira. Sir, you may now begin.

Good morning. Good afternoon. Ladies and gentlemen, welcome to our webcast and conference call. Thank you all for joining us to discuss both our 2014 and fourth quarter results.

First of all, I'm pleased to report that despite the decline in commodity prices, Vale delivered a sound operational and financial performance in 2014, with annual production records in iron ore, copper, and gold, as well as the highest production in nickel since 2008.

I would like to state that for the fourth consecutive year our continued efforts to protect and take care of our workers are supporting the improvement of our health and safety numbers, with our total rate dropped from 2.6 to 2.3.

In 2014, we achieved a reduction of over $1.2 billion in expenses, in addition to the big reduction in costs and expenses achieved last year. Our general sales and administrative expenses decreased by over 20%, and our pre-operating and stoppage expenses decreased by roughly 45%.

We [give emphasis] a reduction in CapEx for the fourth consecutive year, with a reduction of $2.2 billion in our investments, from $14.2 billion in 2013 to $12 billion in 2014.

We reached a deal with Mitsui in Vale Mozambique, with an expected impact of $3.7 billion, both in terms of CapEx avoidance and in cash inflow once the transaction is completed.

However, despite our efforts, the lower commodity prices took their toll of our adjusted EBITDA in 2014, which decreased to $13.4 billion. Our underlying earnings was $4.4 billion. Despite a scenario of declining commodity price and still high capital expenditures, Vale paid $4.2 billion in dividends in 2014, while maintaining its net debt almost flat, at the level of $24.7 billion.

I would like also to highlight that base metal adjusted EBITDA reached $2.5 billion in the year, and the fertilizer EBITDA increased to $278 million in 2014, against to a negative EBITDA of $54 million in 2013, despite lower volumes and sale prices.

Iron ore had a record production in 2014.

Operating revenues is slightly over $26 billion, a decrease of about 27% when compared to 2013. The decrease was primarily a result of lower iron ore sales prices, around $9.2 billion, and lower pellet sales price, around [$1.1 billion]. These were only partially offset by sales volume increase.

It's important to note that iron ore cash costs will decrease even further from the $23.20 per tonne that we had in the fourth quarter 2014, as our internal cost reduction initiatives brings additional fruit and we increase production and dilute our fixed costs.

In 2014, the iron ore market was hit mainly in the second half of 2014 by the growing supply of iron ore combined with the reduction in the global demand. However, as iron ore price decreased, higher-cost producers in China and overseas lost competitiveness and started to leave the market, providing for adjustment in the supply and demand balance for the commodity. Better market conditions are expected, with a new price equilibrium being reached in the medium term.

Base metals increased its share of revenues, from 15% in 2013 to 20% in 2014, mainly to the improvement in nickel sales volumes and prices. Base metals adjusted EBITDA was $2.5 billion in 2014, representing an increase of 54% in relation to 2013. Nickel price and volumes of both nickel and copper more than offset the weaker price scenario for copper in 2014.

I would like to highlight Long Harbour and Salobo II projects, two important milestones of our base metals business. Both reached in a very positive ramping up trend.

Although 2014 was a tough year for copper prices, the market is likely to see improved prices in 2015, as difficulties with the new copper projects around the world and lower production guidance at existing operations decrease expectations for supply growth from 2015 on.

With coal, we continue to focus on reducing costs and increasing profitability. Milestone project such as the Moatize mining are already contributing to our production targets, while underperforming coal minings such as Integra and Isaac Plains coal minings have put in care and maintenance.

Also in the coal business, as previous highlighted, the deal with Mitsui allows us to receive cash back and reduce our investment needs in both Moatize and the Nacala Corridor projects, while maintaining our operational control of the mining.

As previous mentioned, in the fertilizer business we saw improvements, with adjusted EBITDA increasing to $278 million in 2014, from a negative $54 million in 2013, despite lower sales volumes and prices. Fertilizer demand in the international market is likely to remain strong, and prices should continue improve with constraining supply in various parts of the world.

In 2014, we achieved many important accomplishments, such as the granting of the permit to open N4WS mine pit located in Carajas; the completion of eight projects; an investment agreement with Mitsui and Vale Mozambique; the renegotiation of the extension of our contract in Indonesia in its mining concession until 2045; among others.

For 2015, we stand firm in our intention to further advance in the cost and expense reduction, to seek higher productivity in our operations, to optimize our capital expenditure, and to accelerate our divestiture in partnership programs.

Finally, I would like to assure you that we will continue working to preserve the payment of good dividends and to maintain a healthy capital restructure in 2015 and 2016, while we still invest in our key projects and prepare the foundations for an even strong free cash flow generation, from 2017 and onwards.

Thank you so much, and let's now open this webcast for your questions. Thank you.

(Operator Instructions) Rodolfo Angele, J.P. Morgan.

I just wanted to start with a follow-up question to what was discussed in the call in Portuguese. There, we were discussing ways to bridge or to improve the free cash flow [story], especially in this year and next year. And one of the strategies is of course the divestitures, and within the divestitures we discussed again the potential of IPOing the base metals division. And there, Murilo, you mentioned that Vale is working on this as if there was a set date, but it's not apparently a done deal.

So, my question is, how should we think about this? Or, what is the thought process once that date -- once you get to a point where you are ready to do it? What is going to be the key driver? Is it going to be the state of markets, overall? How are you going to think about it?

And the second question is on FX. If you could give us currently what is your estimate in terms of [assessatility] of de facto devaluation in your costs and your CapEx?

Rodolfo, in fact we are working hard in the IPO process, and you mentioned very well [where I] think we had a set date. We needed to consider that the main purpose of this project is regarding unlocked value. It is not just to bridge funds to Vale mainly in 2015 and 2016. Then, in this regard, all depend of the market conditions, and in case of having some proposal that could be considered very attractive for us.

I could say that probably if you just see today it could be very challenging to have this transaction in place. But I think that mainly in the next coming weeks we will see a new scenario in the nickel, the nickel price. Then, I prefer to say to wait and see before going ahead with any conclusion. The most important is to go ahead with all the procedures that must be done in order to be ready in accordancy with our plan.

Luciano?

Rodolfo, if you remember maybe a year and a half ago, we used to say that every ten cents on the Brazilian real would represent a savings in cash of about $1 billion. This number is now lower for two reasons. First, because now ten cents represents a smaller percentage in terms of the value of the dollar, and also, because our investment plan now is reduced. So, this number is more now around $800 million for every ten cents on the Brazilian real.

Carlos de Alba, Morgan Stanley.

The first question has to do with an update, if you may, on the project finance component of the Nacala Corridor deal that was announced last year. Where are we in terms of closing that part of the transaction?

And the second question, if you could comment on what are your expectations of working capital or changing working capital, as well as cash taxes for 2015 that are embedded in the comment that you don't think gross debt will increase in 2015?

Carlos, Luciano. We are very actively working on the project finance. We have all the banks already fully engaged on that. Leading [multilateral] institutions working on a weekly basis on that deal mode towards us.

However, it's a very complex transaction. We have to first clear a certain -- the regulatory approvals in the government of Mozambique and Malawi for the transaction itself, for the Mitsui deal, which should be cleared by April/May according to our estimates.

And now, we're working with the project finance, probably at the end of the third quarter of next year, beginning of fourth quarter, for the closing of the project finance.

In terms of working capital, we believe there is potential for several hundred millions dollars of additional gains, and we're working diligently on a daily basis to increase that number as we continue to see opportunities to discount receivables, to reduce inventories, and to finance ourselves with our suppliers.

In terms of cash taxes, again the cash taxes are going to be probably minimal. If you could look at the balance sheet, we have a lot of prepaid taxes, well in excess of $1 billion. We also have now credits because of the recent losses on the devaluation of the real. So, we expect cash taxes to be minimal next year, going forward, on the back of this. But I won't give you a figure for that.

By the way, I think that it's good to mention that we got [the exceptions] in accordance with the Brazilian law regarding the project S11D.

Wilfredo Ortiz, Deutsche Bank.

Just two quick questions. As far as the iron ore price realizations, we've seen already that the discount between the reference price versus what you're actually realizing has been coming down over the course of the past quarters. And obviously, there's a combination of a number of different things that go to it, whether it's CFR, FOB basis, the premia discounts that you're receiving from the different products that you do sell, and also with the potential blending.

So, could you give us a little bit of a better sense as to where you see this discount or differential, if you will, from the reference price versus your realizations going forward over the course of this year as things progress -- the blending, more product from the north region, perhaps more sales on a CFR basis?

And secondly, as far as the pellet premia, you've obviously been able to achieve good realizations on the pellet side, and you provide certain comments that seem to be fairly positive on pellet, particularly from China. If you could also comment a little bit on where your expectations are, going forward?

Peter Poppinga.

The iron ore [realization], as I said, is a combination of several factors. We achieved a [6.4%] better number. So, we narrowed the gap between the platts and our own figures.

It is essentially -- there is things which will continue. We are increasing our CFR sales. This will continue, and this always has a positive effect on that. Although like I said, it's revenue; it's not all EBITDA. Some EBITDA is there because of the [bunker].

Then, in this case we have a $4 positive contribution simply because of the fact that the decline in iron ore price in Q3 was steeper than in Q4. So, this makes -- our price models gives you a positive contribution. Of course, if the price then goes the other way around one day -- and this will come -- then this effect leaves the equation.

The biggest effect which will start to be seen -- and it's just today very timid; from one quarter to the other, you have just $1 in this effect -- is the higher iron content and the lower humidity because of the better qualities coming because of our projects. So, this will probably --. It's today --. It was $1, and in the next quarters you can expect $2 or $3 in this respect, once we have our itabirites projects coming on -- [Cinsaleschi], higher contribution from the Carajas mines in the north area. And then, in two years when we have the big quantities of the southern range S11D coming, it will of course then have another jump.

And then, what we are renegotiating premiums, it is a fact that we are having success in our premium negotiation, and it's again linked to the MB 65% index, where we are getting higher premiums.

So, that is a trend, and I would say there is of course one caveat. If the price goes up again, we will probably have in a first moment a different momentum in the pricing system. There will be a negative contribution, but this will be offset by the iron content and lower humidity content. So, I am positive that in the next quarters the price realization will be going in the right direction.

On the pellets, we have higher demand. It's very interesting. Although you have a market which is depressed, it's very interesting to see that the pellet demand is increasing gradually, not only in the DR market but also in the blast furnace market. The premiums are holding surprisingly high, although we had a small decrease in the last months. But it's holding firm.

And this has to do with lots of things. For instance, in China we are selling more pellets into China. You saw the [lump] premium increasing a lot, as well, from our competitors. This means also some pellets become more interesting. And there's also the pollution effect, as China is treating very seriously the pollution issue. And as you know, [pellets' static charge material] -- high grade material increases the energy efficiency and reduces pollution.

So, this trend is also positive, and as I said we will --. Last year, we produced 43 million tonnes of pellets, and we are going to more than 10% -- or more than 15%, actually, probably increasing this figure into 2015.

Alfonso Salazar, Scotiabank.

I have a question on Long Harbour and the Voisey's Bay mine. If you can give us an update on how is this Long Harbour ramping up? And also, if you can explain a little bit the negotiations with the province for exporting more oil from Voisey's Bay?

Jennifer Maki, please.

The Long Harbour ramp-up is going well. We're on plan to produce 10,000 kilotons of nickel in 2015. And by the end of the year, we'll be positioned to take feed from Voisey's Bay. Right now, we're using a [blend of mat] from Indonesia and Voisey's Bay.

On the development agreement amendment that we signed with the government of Newfoundland, it gives us additional flexibility in 2015, 2016, 2017 as we ramp up the Long Harbour facility to ship out the middlings concentrate into Siberia into Thompson, until that there's a facility in Long Harbour can take up the quantities that are produced by the mine. And in exchange for that, we agreed to donate $30 million into the province as well as we pay a small processing charge to the government.

Thiago Lofiego, Merrill Lynch.

Two follow-up questions. First on the itabirite projects. Would you consider postponing, if needed, of course, [the DKE] hard itabirites projects, given your capital structure concerns in the next couple of years? Is that an option, at all? And also, what's your medium- to long-term view on further hard itabirite projects considering the current iron ore price outlook?

The second question is on the redeemable [PN shares] operation at NBR you mentioned in the Vale Day. Is that something that you're effectively analyzing for this year? Or, is it just one potential lever that you could eventually pull if you decide to?

I'll take the itabirite one. And then, if Galib wants to comment on it, too, from a project --. From the project perspective, everything is on schedule.

This is very important that we don't misunderstand us here. Vale has a clear strategy and it's committed to reach within two years, once S11D comes on stream, 450 million tonnes a year. This means we want to maximize the utilization of our existing infrastructure and port capacity; [there are four] ports.

So, this port capacity is 410 million to 420 million tonnes, or will be once we finish the S11D. Then, we have the domestic market, give or take another 30 million to 40 million. That gives you the 450 million tonnes.

So, we want to maximize the utilization of this existing infrastructure, and we want to fill the pipeline with high-margin, upstream ore coming from the S11D, of course, and some optimizations in the southern system. So, we have finalized the first -- the projects in [the itabirites]: Vargem Grande; Conceicao; Conceicao II, which actually gives us new capacity, which is almost -- it's ramping up; [Cawiti] is roughly --.

It's on schedule.

-- on schedule.

Forecast is second half --.

For second half.

The end of this year.

End of this year will be starting up. And the [fifth line of Bruco II] is already done, as well.

By doing that, we don't need -- we can -- and this will come in some years some optimizations in the south system and the southeast system -- but we don't need a big amount of new greenfield projects to fill this pipeline I mentioned.

So, that's our plan, and it's 450 million tonnes and 30 to 40 domestic markets, and the rest will be exported and maximizing the utilization of our port capacity.

Which means in the end that we are not considering, at least in a short period of time, new itabirites projects.

Thiago, on the transactions and the preferred shares, all the transactions that we listed on the New York Day, on the Vale Day, are being seriously considered, and the purpose there was to show that we have enough flexibility. And we will choose the ones which are most value-accretive and have better adherence to our strategy.

The preferred shares, in that respect, they have a feature: they are very quick to execute and we know who the interested parties are. And it's sort of a plug that we can pull at any time in order to -- if we feel the need to do that in terms of our strategy. So, I would say you should take into account that this is a definite concrete possibility, but very flexible that we will do it at any time.

Leonardo Correa, BTG Pactual.

The first question on my side is regarding a potential streamlining of some operations in the iron ore unit. You have certainly a lot of different moving parts in iron ore, with some systems in place. So, I just wanted to get a sense on what potential assets or which systems now we could see --? If iron ore prices deteriorate further, where could we see some potential streamlining of assets? Which would be perhaps the targets? If you can elaborate a little bit on that, that would help a lot.

And the second question, I'm not sure we touched on this also in the Portuguese call, but on impairments. We saw a result on impairments which was, to a certain extent, offset by a gain that you booked on Onca Puma. But just thinking forward, we've been seeing in the industry several impairments from competitors. Of course, the long-term pricing outlook of iron ore has also deteriorated quite a bit. So, I just wanted to get a sense on whether your potential iron ore assets, going forward, there is a risk that we see some potential revisions on those book values, just considering this new very weak iron ore pricing environment?

Those are the questions.

On the streamlining, we indicated -- and this is now being calibrated, but it's around this number -- 340 million tonnes production this year indication from the Vale Day of December. Very close to reality, and we believe with 340 million tonnes we have healthy margins, even in the current environment of price. So, we will keep those.

What I mentioned before is that we have several projects which came on stream in 2014, which are coming on stream in 2015. And if you take the difference, additional capacity, from 2015 in relation to 2014, you have: in [Saramochi], for instance, 5 million tonnes more; you have in [Saralechi], 4 million tonnes more, or 5 million tonnes more; Vargem Grande is increasing 6 million tonnes in relation to 2014, because they already produced in 2014; Conceicao I and II, 8 million tonnes; and [fifth line Bruco II], also 8 million tonnes. All this together from these new projects gives you an additional quantity in 2015 of 30 million tonnes.

But as I said, from this 30 million tonnes, we will only use 10 million to increase production -- 330 million we produced last year to 340 million we want to produce next year. So, 10 million from those ramp-ups will be used for increased production. The other 20 million will be used for substitution of low-margin ore.

Well, we have two types of low-margin ore. We have third parties, where we probably will reduce it by one-half; so, let's say 7 million or 8 million less. And we have another 15 million. Out of this 20 million from the ramp-ups, we have 15 million where we will substitute our own ore in some regions. Those are some marginal mines in the south system, some marginal mines in the southeast system, some satellite mines, and eventually Corumba, where we are going to adapt -- right-size the production so that we have positive margins there, because today it's the only system where we have a slightly negative margin.

So, that is the plan. From the 30 million which comes in from the new projects which come into play in 2015, we will only use 10 million to increase our production. So, that means we will increase the margin. And we use 20 million to substitute low-margin ore from third parties and from our own mines.

Leonardo, Luciano. On the impairment side, on the iron ore, we don't see any forecast for impairments any time soon. The asset base of the existing iron ore assets are very depreciated. So, we have -- just if you look at the financial statements, you will see that it's around $35 billion. So, proportionately to its contribution to the cash generation and even to the market value of the Company, still it's a relatively small asset base.

There's a lot of property, plant, and equipment that we've been investing through over the past few years which are still -- have not been added to the existing set of producing assets. So, when you look at producing assets, the number is small, actually, small when you compare to the cash flow generation potential. So, very far away, unless we decide to close a specific mine. Then, maybe on that specific mine, we will need to do some reassessment.

On the overall impairments, as you saw, fertilizer was a big number because of the decreased prices and decreased outlook. But on the other hand, there was a reverse in Onca Puma thanks to the good performance, thanks to the good outlook.

VNC, Vale has a proportion of the cash flows which is, I would say, more than its fair share of cash flows on the equity stake because of other financing arrangements. So, that plays into account, as well. So, every year we do an impairment test on VNC. That's the result.

So, I would say we have nothing against providing you transparency of what we think the assets are worth, and that's what we've been doing, and we'll continue to be doing.

Andreas Bokkenheuser, UBS.

Just a couple of questions from me. Firstly, management has on previous occasion obviously reiterated its preference for not gearing up the balance sheet. But let's assume for a moment here that iron ore prices give up another $10 to $15 a tonne, which certainly seems to be within the realm of likelihood. What effectively happens then? Do you think you can do enough asset sales basically to cover your CapEx commitments? Or, do you think there's a point here where CapEx get delayed and maybe the Carajas expansion gets delayed as well? So, that would be my first question.

And my second question, you've also previously maintained that you're not going to do the base metals IPO at any given price. And you are marginally bullish on nickel prices, as is consensus. But is there a minimum valuation level that you will accept for the base metals IPO that you have in mind? And further, to the base metals question, what is your committed CapEx to your Vale Indonesia operations in view of your commitment there to your contract of work and to the country?

Just to say that we have a consensus with our Board that the S11D will go ahead at any scenario, and we have different plans in case of different prices, with different strategies regarding the source of money. One decision is very clear; it's regarding S11D. It's our priority. It's very low cost. It's a good quality, much better that you can see in the market. Then, for sure we will stay with the implementation of S11D.

Regarding the IPO, we [have in a range], but I think that we are not authorized to discuss at this point of time, and we believe that it's not efficient, as well. But we have a range that should be considered at least now to pursue the IPO.

Andreas, just an additional comment. Taking your reasoning to the extreme, if iron ore falls to $30 per tonne, obviously we won't be able to fill the gap with asset sales. So, there will be a point in which you would simply say, well, let go my leverage because we have as a priority to conclude the strategic projects for the Company as S11D.

On this line of reasoning, for instance, we believe -- again, as I mentioned on the Portuguese call -- that we are already pre-funded at spot pricing scenarios, given the coal transaction in place that we will close this year. We are already very well advanced in terms of additional transactions that will be eventually required to fund an eventual gap in 2016, but that could obviously in a doomsday scenario be used to fund additional gaps in 2015.

As for 2016, if you get to 2016 with S11D very well advanced, the rhythm as it is progressing, there's no harm in increasing slightly your leverage, as you are in the eve of completing your major project. I would say everyone would understand that -- again, I stress that, under this doomsday scenario that you are pointing out.

But we still believe that given current spot scenarios and so on, that Vale will comfortably bridge the two years until S11D is completed.

Garrett Nelson, BB&T Capital Markets.

I just have a couple of macro questions. What is your outlook for Chinese steel production in 2015 as you see the market today? Has your view changed at all since the Investor Day in early December? Chinese steel prices and spreads have declined significantly over the past few months. And I think China's steel production was down close to 5% in January, year over year, after about 1% growth in 2014.

I know overcapacity is a major problem, obviously, and there are some very complex issues impacting that market. Maybe just some intelligence regarding what you're seeing right now in China?

Before we go into that question, we will let Jennifer just answer the previous question on the Vale Indonesia commitments.

On Vale Indonesia, we have a commitment to expand the capacity of the plant to 90 kilotons per annum, and we have flexibility in the short term when we undertake that. We're just completing the final feasibility study on that and expect to bring that forward shortly. It's not a huge capital number; it's in the $400 million Phase I is the estimate. And it's spread over a number of years. And it can be funded by the cash flow in Indonesia, as well.

So, the other commitments in the contract of work that relate to future development in [Pamala and Bahadopi], they're in early feasibility stages of studies and there's no immediate need to spend money there. And we're also looking at partnerships for those projects, as well.

And regarding steel production in 2015, what we expect for China is of course in the very short term what we are seeing is that in January steel production was down, but it's traditionally, as we know, January is always a weak month.

What we think is that it will grow in the year a little less than 1%, certainly not any more like in the past, but it will grow marginally. And then, picking up stronger. We think in spite of the shift from infrastructure to consumption, still some urbanization is very much needed in the hinterlands of China, and this will probably peak in 2020 or 2025. Until then, steel production and consumption will go up at a pace which is less than it was before.

Surprisingly, the rest of the world in 2015 is showing strong behavior, like, for instance, in the Middle East we have strong demand. Also, India, where in India you have some infrastructure being built. Interest rates are going down. And actually, we are seeing that India is transforming -- it's migrating from a -- it's now a net importer of iron ore. And actually, we sold 4 million tonnes last year into India. And according to our forecasts and our order books, we are probably going to double this sales to India this year.

It's of course still all about China, but there are other things happening in the world which will mitigate that.

Paul Massoud, Stifel.

I apologize if this is a repetition from the Portuguese call, but in the past -- I think at Vale Day -- you had talked about 220 million tonnes of global production on the iron ore side being uneconomic. And so, I was wondering if you could just give an update on that figure? And if we've seen additional cuts since early December that may have taken some of that high-cost production out? Or, potentially, is there a shift downward in the cost curve?

My second question is for maybe an explanation on the difference between your realized copper price and what the LME average was during the fourth quarter? I think it was about an $800-a-tonne difference. And so, I'm assuming there's some provisional pricing implications in that figure? But if you could talk a little bit more about the delta there and whether or not we'll see that gap continue? Or, if there's potential to see it shrink in coming quarters?

Some months before -- I think it was last year -- we said that under the current price scenario, around 220 million tonnes of the world iron ore production would not be competitive any more. I'm revising this number now, since we had some people exiting the market and we also had strong cost deflation, like because of exchange rate and other things.

So, today, we can estimate that 150 million tonnes are not competitive. But it takes some time. This is not from one day to the other that people exit from the market or go for care and maintenance, and so on.

What we have seen in 2014, that 94 million tonnes of Chinese production has exited the market and 28 million tonnes of seaborne has exited the market. So, in 2014, we had a Chinese domestic production, 240 million.

In 2015, we saw less Chinese, of course, going out -- 27 million, according to our numbers -- but 42 million exiting from the seaborne side. And the Chinese concentrate production, we are forecasting to be around 210 million tonnes. And one or two years down the road, this should be stabilizing in China, at around 170 million tonnes of concentrate.

Interesting also to mention that in the very short term what we see is the mines, they have high stocks but it's coming down now. It's very drastically coming down in the last weeks, one months. We had 20 days stocks coming down to 15 days. And the utilization rates -- the average utilization rate of the mines in China was 80% two months ago. Now, it's 50% only, according to our numbers and statistics from China. On the other hand, the stocks in the ports are high, and interestingly the stocks in the steelworks are very, very low.

So, what we probably think will happen is an uptick now in demand, in buying, for the next -- once the Chinese new year end, and this will of course give a positive momentum in the price, but it won't change the big picture which we have outlined before, that prices remain under pressure since we have more new supply coming than new demand.

On the copper price realization, you're correct. Part of that would be the provisionally priced that gets adjusted. But also, our proportion of copper concentrate as total copper sold will increase as Salobo continues to ramp up. So, you'll see that delta continue as Salobo ramps up.

[Henickly Weg], Deutsche Bank.

Two things in terms of follow-up, I guess. One was, in terms of the VNC, you've extended the negotiations with Sumic again. Could you just clarify what the test number is in terms of the 2015 production requirement? And what the potential liability is in terms of buying the 14.5% stake if you don't meet that?

And then, secondly, in terms of your pelletizing operations, you've still got three idle plants. We've got a constructive view that you touch on in terms of the outlook for the pellet market. Is there any potential for those plants to come back on stream? Do you have the raw material to feed that? And what sort of further expansion in terms of pellet premiums would you require to justify that?

Let me answer first the pellet plant questions. Yes, we have some plants. As you know, the idle plants are in the south; Vale I and Vale II are idled. They need some brownfield work there, some equipment modernization.

And since we had our pellet plant in the south system coming -- in Vargem Grande, but also in Tubarao VIII coming -- it was a higher profitability to bring those on stream, get them to full capacity, which means that this year we are going to produce more pellets than last year, 10% to 15% more.

But it is very easy for us. It is very easy, and it doesn't require big investments to restart pellet plant I and II in Tubarao. Of course, we have all the licenses. It's a compelling business case.

However, we are studying it. We are preparing our studies. What would we do different? How would we bring them on stream again? But there are no concrete plans today in terms of investments or in terms of timing. We will we watching the market, and we will be watching our cash position in order to decide if we invest in pelletizing I and II.

And the pellet plant in the northern system, in Sao Luis, we don't have any concrete plan yet; we are still studying.

On New Caledonia, the details of the extension to the end of December 2015 with our partners there is disclosed in the commitment notes in the financial statements. So, I would refer you to that and just say that our focus remains on achieving our planned budget in New Caledonia in 2015.

Jeremy Sussman, Clarkson Capital Markets.

First, on the Portuguese call, I think you said you expect nickel prices to increase in the next few weeks. I'm curious, I guess, what you're seeing that gives you that sense?

And then, the follow-up question is how much iron ore inventory do you have in Brazil and Malaysia right now? I know it decreased by 5 million tonnes in the fourth quarter. So, that would be helpful.

On the nickel price side, we do anticipate stronger demand for nickel, as the months progress in the year and especially as we come out of Chinese new year. Just given the significant destocking that we saw in 2014, we remain quite confident that this will happen. And we also see the ore inventories in China have decreased a lot. And so, there's lower grade inventories there that will drive up the cost of the nickel pig iron production. And it's not sustainable at this level. And so, we really do believe in 2015 that the market will move from surplus into deficit.

I have to check on the inventory in more detail, but we have, roughly speaking, 56 million tonnes of inventory in the mines. We have them in the ports, as well, and we have in Malaysia. In Malaysia, it's probably 8 million tonnes. But the split between the mines and the port, I have to check on that. We will [refer] to you. The answer is around 56 million tonnes of inventories in total.

This is Luciano. As a follow-up, just reminding you that we've been talking in the past about the stranded inventory that we have on the south system, especially on the Vargem Grande complex and also in --. And that with the Pico-Fabrica road and other developments and rail loops of these mines, we have now the capacity to slowly haul this additional ore towards our ports in Tubarao and in the south. So, this is a potential for additional cash flow, as well, without incurring the production costs.

Thank you, Luciano, for this reminder. It's actually important to say that the Pico-Fabrica road enables us to flow out this inventory, this stranded inventory, that's around 9 million to 10 million tonnes in the southern system. But since the southern system ports are already at capacity and we still have some spare capacity in Tubarao ports, this Pico-Fabrica road enables us to transfer the ore, this inventory, from the southern system to the southeast system and ship this out of the Tubarao port.

John Tumazos, Very Independent Research.

Could you elaborate a little bit about the range of a potential nickel/copper IPO that you said already has been set? Would such a transaction have debt attached? Would the transaction terms be less than $2 billion for each 10%? There's scenarios where other mining stocks like First Quantum, Teck, Freeport are down almost 50%. And transaction terms at bad prices might not be as beneficial to Vale.

John, this is Luciano. Obviously, we cannot give specific details on all of those questions. But just for you to think about it, we have guided about $4 billion to $6 billion of EBITDA. That's what we want to achieve for the business. If we don't achieve results on that range, either by reason of prices or others, we will not go towards the IPO. If we reach the $4 billion to $6 billion, you know what are the trading multiples. So, you can do, I think, your own math. But we are targeting significant value; if it's not on the table, we'll not do it.

Marcos Assumpcao, Itau BBA.

First question here, on the product quality. If you could comment a little bit on the amount of production that is being currently penalized by high silica rates? How much is the penalty today? And if you expect this production volume to decline? When do you expect that to decline, given the improvements in quality that you are seeing?

And a second question, also, here. If there is further price decline, just questioning here what would be Vale's marginal cost of production? Like, the average cash cost on iron ore is $22, but what would be the marginal cost of production? And at what level Vale would eventually analyze also cutting capacity if prices are too low? Just a sensitivity.

Regarding the quality, we have around 20 million tonnes of higher-silica material today, but this, as I mentioned before, that's why we have Malaysia. We have also other blending facilities. And this will gradually be mixed with the Carajas [finds]. Plus, this will be substituted by the new projects coming on stream and which we already have on stream. And then, [Cawati] comes on stream at the end of this year.

And once you have new projects, the itabirite projects, on full capacity, the trend is that this goes down very much. So, the high silica will actually be reduced very, very much in the next two years.

Then, for a general guidance, you can work with from this year, two years ahead you will have 1% more iron in the mix -- in general, on average -- which means around $500 million more revenue under the same price conditions.

Regarding the marginal cost of our products, normally we don't show this in much detail. So, I would not like to comment on that.

Thank you very much for your questions. Really appreciate your understanding and your time for having this discussion.

This concludes Vale's conference call for today. Thank you very much for your participation. You may now disconnect.