淡水河谷 (VALE) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Vale's conference call to discuss the third quarter of 2016 results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (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 November 2, 2016, on 55-11-31-93-10-12, or 28-20-40-12, access code 8585970 pound key. 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; Mr. Humberto Freitas, Executive Officer of Logistics and Mineral Research; Ms. Jennifer Maki, Executive Officer of Base Metals and Mr. Clovis Torres, Executive Director Human Resources, Sustainability, Compliance and General Counsel.

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.

Ladies and gentlemen, welcome to our webcast and conference call. Thank you all for joining us to discuss our third quarter 2016 results. I'm proud to report that we had another good operational and financial quarter. With operational performance, we reached several production records in the third quarter. For example, we achieved production records for iron ore, including a headquarter at Carajas for three pelletizing plants in Brazil; Tubarao 3, Tubarao 8 and Vargem Grande; for containing gold as a by-product in copper and nickel concentrates; and for Moatize coal production.

On the financial side, we achieved impressive cost and expenses reductions in the first nine months of 2016, which decreased by over $2 billion when comparing to the first nine months of 2015, as a result of our continued success in cost reduction initiatives.

Moving to the third quarter performance. Adjusted EBITDA was $3 billion, about 27% higher than in the second quarter 2016 with improvements from our Ferrous Minerals, Base Metals and Coal business segments. Our CapEx amounted $1.3 billion in the third quarter with project execution amounting $740 million (sic - see press release, "$741 million"), out of which $530 million in the S11D project.

There is only one main project on the development in the S11D project. We are happy to see that S11D achieved an important milestone with big progress in the third quarter. S11D successfully began its hot commissioning with almost 200,000 tons of production in the third quarter 2016, with the start-up expected for this quarter and the first commercial ore sales planned for the first quarter 2017. S11D project will reduce our Q1 cash cost, improve our operational flexibility, increasing logistics capacity in the Northern System to 230 million tons per year by 2020. We remain focused on strengthening our balance sheet and continue to reduce our leverage. In the third quarter of 2016, we managed to reduce our net debt by $1.5 billion to $26 billion with a cash position of $5.5 billion.

A few comments about Ferrous Minerals. Our C1 cash cost for iron ore fines in Brazil in Real reduced by 10% to BRL42.20 per ton versus BRL46.90 per ton in the third quarter of 2015, despite inflation of over 8% mainly due to improvements in operational performance and ongoing cost-cutting initiatives.

Our landed-in-China iron ore and pellets EBITDA break-even decreased to $28.30 per ton in the third quarter from the $28.50 per ton in the previous quarter, despite the appreciation of the Brazilian Real and higher bunker oil price.

In Base Metals, Vale's Salobo EBITDA was $131 million, increasing by $9 million when compared with the second quarter 2016. Salobo's EBITDA amounted $384 million in the first nine months, excluding the impact of the Goldstream transaction becoming a big contributor to Base Metal cash generation.

VNC continues to improve despite adjusted negative EBITDA of close to $40 billion. EBITDA improved by $11 million when compared to the previous quarter, despite the planned maintenance shutdown in the third quarter 2016. VNC's unit cost net of by-product credits reached slightly more than $12,000 per ton in the third quarter 2016.

In Coal, we had an important improvement in the third quarter with Coal EBITDA almost reaching break-even as a result of the lower cost in Mozambique, with the ramping up of the Nacala Logistics Corridor, and the starting up of the Moatize II processing plant. Met coal realized price has not yet reflected the recent sharp increase in coal index price due to Vale's lagged price system, but are expected to improve in the fourth quarter of 2016 with the improvement in benchmark price. We started up the Moatize II processing plant in August. Their ramping up is progressing well and contribute to our quarterly production record in Moatize of almost 1.8 billion tons being 40% higher than the second quarter of 2016.

The ramping up of the Nacala Logistics Corridor continued as planned. Production costs per ton at the Nacala Port continued to improve at $87 per ton in the third quarter 2016, 16% lower than in the previous quarter with further improvement expected for the coming quarters.

And looking at the Fertilizer business, EBITDA increasing about 85% to $59 million in the third quarter 2016 compared with the previous quarter, driven by lower cost and higher volume despite lower market price and the appreciation of the Brazilian Real.

We are committed to complete our divestment program in line with our commitment to have taken two important steps in that direction. In August, we sold an additional 25% of the goldstream as a by-product from Salobo's copper concentrate. And in September, we achieved an important milestone in Mozambique coal transaction by approving new terms with Mitsui. The divestment program is key to our efforts to strengthening our balance sheet and continue to reduce our leverage.

As I think you all know, we are driven by our commitment to safety to people and to preserve the environment. Moreover, we understand that it is important to all of our stakeholders, including the people in place where we operate. We are constantly looking to adapt and evolve by building what we have seen, experience and learn.

On that regard, on November 5, Samarco accident, we complete one year anniversary. And since then, we stood by our commitment to do what is right.

Thank you all for your interest in Vale, and now let's open this webcast for your questions. Thank you very much.

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

Carlos de Alba, Morgan Stanley.

Thank you very much. First question has to do with any specifics, Murilo, perhaps that you could share with us on the selling of the fertilizer or the strategic transaction in the Fertilizer business. Clearly, you are still committed to that, but if you could give us more specifics, that will be very useful. And the second has to do with VNC, the operation has continued to perform better and improving its results. Is this now an asset that Vale feels comfortable keeping this portfolio going forward or still the Company is analyzing whether or not, it will sell the asset or do something strategically with it? Thank you.

(inaudible) Jennifer Maki, please.

As it relates to Vale New Caledonia, we've seen good progress on the cost reduction. We've seen almost, by the end of the year, a $100 million of fixed cost reduction relative to 2015. And today, the cost is around $12,000 a ton. And included in the third quarter, we had some one-time maintenance costs. And so, if you were to adjust for that, you get just above $11,000 and we also had 21 days of shutdown.

And so, to me, it's clearly reachable by the end of the year, that we're below $11,000 a ton. And I know the employees are working really hard to achieve that and we need to achieve that because the nickel price is $10,500 today. And so, I think since we've come back from the shutdown in July, the production has trended in the right direction. But we still need to increase it further and it needs to be consistently delivered. I know our employees are obviously putting safety first, they're working hard to ensure a future for VNC and we're receiving good support locally. But the job is not yet done and we have some more work to do there.

Regarding selling fertilizer, (inaudible) address that you're looking for a strategic transaction. As you know, we have huge resources and reserves in nickel, in iron ore, we have a good portfolio in copper. We have a very interesting and good project in Mozambique. But we don't have a good project in potash for instance. Then we -- it's not just the case of doing a divestment. We are looking at some alternatives in order to increase the efficiency of the whole system in Fertilizer. We continue to be very positive about the future of the Fertilizer and will let us to stay in the business, but we want to address differently, as a company recognize that we don't have huge reserves, huge resources mainly in potash in Brazil.

Thank you very much.

Jon Brandt, HSBC

Hi, good morning. Thanks for the call. Two questions from me. The first one, if you can give us an update on the FMG agreement that you signed back earlier this year. We've better iron ore prices, better premiums, you are now blending your own ore. I'm wondering if this agreement still makes sense and if it does, if you could sort of give us a rationale as to why, and maybe a bit of an update on that agreement?

And then secondly, with higher iron ore prices and some of the other non-core asset sales that you're doing, I'm wondering if you're still open to the selling part of your iron ore operations or streaming, or trying to realize some value there, if you can reach your targeted $15 billion in net debt in 2017 by, sort of, (inaudible) Fertilizer (inaudible) as well as higher EBITDA and cash flow generation from the better prices? Thanks.

With regards of my comments about Fertilizer, we had that transaction in Coal, and I think that it's extremely positive in order to enjoy the full benefit of the Nacala Corridor. As you know, we stay with 50% of our existing position in the Nacala Corridor and just selling 15% into the mining.

Then I think that in the context of the divestment, we are addressing properly and nothing to invest so heavily in the logistics side in Mozambique, and being much more focused in mining in the coal market. And Fertilizer as you know, I did some comments and about the streaming -- about assets that could be divested, we can adjust the amount of money that could be received. We -- the main focus, I repeat again is to reach a fair net debt. I think that this number can be in the range of $15 billion to $17 billion. It's our focus, we are not considering to reduce our divestments, but not exceed in a way that we could reach the level of what is -- $12 billion, $13 billion, no way. I think that we must calibrate profit, and Peter?

Jon, thanks for the question. For us, FMG has a strategic component. It's not a tactical approach changing with fluctuating or fluctuating with iron ore prices or premiums. So that's Vale's rationale. As a strategic component to that, we are still discussing for actions in 2017, although the negotiations are more complex than originally thought. And that's probably because of different expectations where the value creation for both parties will or would occur. So, those expectations have to be adjusted, but at least from our side it is not a tactical approach, it is a strategic approach and to adjust for the expectation. Thank you.

Rene Kleyweg, Deutsche Bank.

Hi, gentlemen and thanks for taking the questions. Could you provide an update on what you're seeing on the mine side in terms of commissioning with S11D and how everything is going there, Peter? And with regards to San Luis, on the last call, you touched on the potential ability to add some crushing capacity at San Luis and get things up and running there. Are there any other challenges to ramping up at San Luis, and is it dependent on what visibility you have on Samarco restarting? Thank you.

Rene, thanks for the question. When you mean San Luis, you probably not -- you're not -- you're still talking pellets, right, not S11D? Yes, we are analyzing all the options. We have several options to increase pellet production. Like I said before, we have options increasing the productivity of (inaudible) existing credit plan. This has to do with our feed availability, which has to do in turn with some licenses we are still working on. We are increasing productivity in Oman. For instance, by shipping Carajas ore - Carajas fines to Oman, you increase dramatically the grind ability of the Oman pellet plant, so you produce more, because its rich ore.

Even we are studying -- shipping, transshipping some Carajas fines into the Tubarao pellet plants where you can also achieve the same effect for us to do more, but it's more than offset by higher production in the pellet plants in the south, because you -- it's a very easy ore to grind. And then, there is of course the San Luis pellet plant and then there is the other pellet plants in Tubarao, which we are analyzing. All those options are being analyzed and I think we can, in the Vale, we can have a better picture of what's the most feasible situation there.

Regarding the mine in S11D, we are on schedule. We have -- on the whole S11D, as you know, 95 -- the mining mill is 95% physical progress completed. The logistics is 74% physical progress completed. In the mine mill, we are already commissioning, we already produced like Murilo said before, almost 500,000 tons of run-of-mine. And the systems are all working well, being commissioned. So far no big problems, only small normal adjustments in terms of commissions. So we are positive that end of this year in December, we will have the first production. But first sales will only happen in the beginning of 2017. Thank you.

If you allow me to just to confirm that our railway spur is completed, including under supervision after the control that we have in San Luis. It's completely -- it's 100% completely our railway spur. Thank you very much for question, Rene.

Christian Georges, Societe Generale.

Thank you, gentlemen. Two questions on royalties. Could you give us an idea of your targeted production levels for coal next year? And also you're saying that the met coal price increase has not been reflected yet, but has thermal coal price increase been reflected yet on your performance in the Q3?

And the second thing on Moatize, with regards to the project finance you are contemplating, once the Mitsui deal goes through, I mean are you well advanced with the banks and other mini banks in the project finance, or is it something which may be delayed due to the problems with that line in general? Thank you.

Hi, Georges. Luciano, please.

Hi, good afternoon. As we ramp up the Nacala Corridor, we're also ramping up the mine in tandem. So what we are achieving is -- should be somewhere around 13 million tons of coal transported to Nacala next year. And basically, that is a result of reaching the 80 million ton capacity level by the end of this year. Luciano on --

On the project finance, so, as you saw, we have reached agreement with Mitsui, which is a very positive milestone going forward. We also had top-level meetings in Tokyo few weeks ago. Our CEO, Mr. Murilo met with the Governor of (inaudible) and also on a very high level, the commitment of the institutions have been sealed going forward. I myself went -- visit next year, as well in the beginning of last week of September and it was also very well received. Continues to be a lot of strong institutional support going forward.

There is an understanding that the roadblock now is just -- go through the lengthy documentation for finalizing the project. We're talking about 115 agreements almost 20,000 pages of documents. So that's where the teams are working on. We've got all the approvals in Mozambique. We're having very high-level meetings with the ministers in Malawi. There's especially a single meeting today, which might be definitive and we're still awaiting the final approvals from the Malawi government. But looking forward, the only obstacles to successful completion should be documentation in Malawi approvals. Syndication is progressing very well. We have more demand than ECA coverage from the banks, which means there will be some competition. Costs are actually coming down and we expect to deliver (inaudible) not only with a decent side, but also very competitive in terms of costs.

Just going back to your question on price, coal prices have surprised, because of the issues with the Sena Corridor where we stopped loading from there. We have some carryover tonnage. So we haven't been -- we haven't been able to really get any effect of the new coal prices -- the higher coal prices in the third quarter.

We -- the first shipment of new, that's the high price coal, is being loaded right now. So, we will have that affect in the fourth quarter, of course. In terms of realization, well, just to give you an idea on, if you compare the current levels of [premium level] seen on the spot market today, our Chipanga product received a very small discount to that somewhere just about [245]. But of course, we have a mix of different coals, so the average realization in relation to the benchmark and to the spot price level is obviously a little bit lower in the mix. We also are reducing the price differential that we had in relation to previous quarters when we shipped from Nacala -- from Beira, I'm sorry, because of the size of the vessels and because of the fact we had to transfer -- use a transfer vessel there. We absorbed a freight differential, which was against us, with Nacala now we don't have that anymore. So that should improve realization going forward.

Alex Hacking, Citi.

Thank you. Good morning, good afternoon, everyone. Roger, just to follow up on Moatize, when Nacala is at [480 million] ton here capacity, how much of that 80 million tons to anticipate would be premium hard coking coal versus thermal coal versus intermediate coals? If you could quantify that, it would be very helpful given the very different types of consumers' products?

And then, the second question, I guess, is for Peter. Is Vale steel intending to reduce its iron ore inventory from current levels and if so, could you maybe quantify to what extent you intent to reduce inventory in the fourth quarter this year? And then how much you could maybe think about reducing that in 2017? Thank you very much.

Hi, Alex. Just on your question regarding product split. This year as you know, through the past -- over the past few years, we've been accumulating thermal coal stockpiles, which we are unloading -- offloading this year. So, we have a slightly twisted mix in our 2016 shipments, but from 2017 onwards, we won't have those inventories anymore. And so you should work with a two-thirds met, one-third thermal split, in favor of met, yes.

Hi, Alex thanks for the question. So on the inventory, as I said before, it's a balancing act between mainly three actions. First, on targets, we want to progressively reduce inventory in Vale's iron ore chain, that's the first statement. And when you compare the end of December last year and looking now to end of December this year, we're forecasting a reduction of say 4 million tons to 5 million tons of total inventory reduction, that's the driver number one.

The other driver is that we want to have a progressive increase in offshore blending for better price realization. That's sometimes against the -- because we are still not completely -- let's say, full or completely loaded in our distribution centers. So it's still work in progress, still building up some inventories offshore. But this helps price realization, that's why we're doing it. This year we're blending roughly 40 million tons, next year we're going to 70 million tons or 80 million tons offshore.

And then, the other driver is progressive. Since we have inventories, it's better to have more downstream than more upstream. So our aim is to shift inventories more and more downstream, and I reminded in the production report that in 2014, we had less than 10% offshore and in 2017 it's targeted to have roughly 35% offshore.

But on general, -- generally speaking, inventories will go down, but much more in the mine and in Brazil and less on a global scale, because of those three drivers. Thank you.

[Daniel Lehrich, BNP Paribas]

Hi, thanks very much for taking my question. And just a quick follow-up on the coal transaction. Do you view that the political situation or the mix could in any way influence the timing of the completion? I think there has been a number of issues in recent weeks, what is your update on that one.

And quickly on the $2.7 billion which you mentioned in the recent press release, can you again confirm how much the actual amount is which you expect to flow in? Is there any requirement to capitalize the Nacala Corridor? And just second question on Samarco, could you give a quick update on your discussion with authorities here. Is there any -- do you see any progress in reinstating the previously agreed Samarco agreement on restarting the operation? Thank you.

I was in Tokyo last week. I can say that we are extremely well aligned about the closing of the transaction with Mitsui. I think that the (technical difficulty) overall package. If we're going to have a few hundred million, less or more, it will basically depend on the final cost conditions for the package.

And about Samarco, it's important to point out that, first of all, we must reach a good alignment with BHP in order to be well prepared to going back into the operation. We have some discussion about (inaudible) as Vale has some infrastructure in the region that can help Samarco. But we must adjust to the terms and conditions of this infrastructure. And up to now, we are not able to reach this agreement. And we must reach (inaudible) as well about the debt. We have a different view of BHP. I have a meeting with the CEO, Mr. Andrew Mackenzie next week in London, and we hope that we have a nice strong and good relationship with him. I also like us to reach an agreement in some key points to leave with our teams in order to go ahead with the transaction. Thank you very much.

Jeremy Sussman, Clarksons.

Yes, hello. Thanks very much for taking my question. I just want to -- just want to ask about 2017 guidance. I know you are going to discuss it more on the upcoming Vale Day. But I think recently you gave a number of 360 million tons to 380 million tons in 2017, which was a little bit lower than what you had given at the last Vale Day, I believe. So just wondering, you know with S11D on track, kind of, what's changed since then? Are you holding back some tons that you could shift if you wanted to, any color would be fantastic? Thank you.

Thanks, Jeremy for the question. Well, nothing has changed on this guidance. We're still sticking to the number of, up to the range of 360 million to 380 million. We will detail that a little more in the Vale Day in one month. But again, (inaudible) margin optimization, and of course, we will always have a mature eye on the market, but the main rationale for this range is that we have, the key here is we have a constraint in Logistics in Northern System in 2017, which is 135 million tons. We want to maximize in Northern System and the ramp-up of S11D is not two years anymore, but its four years. So we will reach 90 million tons by 2020 and then we have the full logistics of 230 million tons. This phase approach can be done with the same CapEx we had forecast before. But we are stretching it out in terms of execution and this also minimized operation interference with the existing operations. So, the 175 once maximized in 2017 from the Northern System as a whole, ramp-up of S11D plus and also Northern range we have already. And then, the rest will come from the southeastern system and from the Southern System. So this is the information I can give you today.

Peter, if you allow me, just to confirm that the Northern System (Technical Difficulty) 230 million tons. Originally (inaudible) in the North range with 140 million tons and in the South range and S11D with 90 million tons, which leads to 230 million tons. Right now, we have reached to 155 million tons, which means that in the end, we have to reach the level of 75 million tons, but (inaudible) of the source of the material, which is the North range or the South range, all depends on the demand. (inaudible) the market, then it's some adjustment, but considering that we have new price structure of 230 million tons for iron ore. Thank you very much.

Peter Bisztyga, Barclays.

Hi guys, and thanks for taking my question. (inaudible) follow-up I guess on the met coal, do you guys see any changes in any type of contracts your customers are going to enter? In other words, are they more inclined to choose that in a spot or I guess, (inaudible) in this very high price? I guess, generally, any thoughts you might have on the industry response from the supply side of this price would be very helpful.

Well, I think everyone is still unsure of how long coal prices can stay (inaudible). There are lots of very specific issues that have led to this price hike. I don't think customers are looking into anything, but of course you have seen the benchmark been settled at much higher levels. So I think what we're seeing is -- the long-term market term contract being adjusted accordingly to where we think the coal prices should be over the following quarters.

Thiago Lofiego, Bradesco BBI

Thank you gentlemen, two follow-up questions. One on the blending side. Peter, if you could comment on what are the pros and cons of doing your own blending with the [Southern] tons versus engaging (inaudible) blending with FMG tons, I just would like to understand your rationale specifically on that and if you could give us an update on what exactly could go on with that agreement with Fortescue? And second question on the freight rates, is there more room to continue to negotiate rates down versus your own average or you're pretty much at a limit there in terms of the contract rates? Thank you.

Regarding FMG, I think we have our own blending strategy. It was built some time ago and we are not executing it. There is nothing hindering us to do both, yes. But it depends on further negotiations with FMG, so I will not enter into details right now, because we don't have them first of all, and second, it wouldn't be right to discuss things which have been negotiated, but it is not one (inaudible) excluding the other.

We have our own blending strategy, we have our own (inaudible) Southern system, for instance here as I said before, one of the big changes we are implementing that we don't spend now anymore enough, you'll need to make final cover-ups in the Southern system (inaudible) losing capacity stretching to match our mine. Now we have intermediate products planned off-shore which gives then the final product. That's one of our strategy, but again, when FMG comes, when we are ready and when we have demand, can be a phased approach, one is not excluding the other. On the freight rate, it depends very much on the bunker, of course, but let's say at constant bunkers, we have still some room for optimization. The biggest -- the first one, (inaudible) is to have [3 to 3.5] depending on the bunker. [3 to 3.5] follows a more competitive freight rate than the first generation.

So that's a plus. Then you have the fact that probably if you then consider the whole supply chain, we still have floating transfer system in the Philippines which we will probably (inaudible). And then, there is of course a whole new dimension we are working with, which is the active and the rebalancing of our spot policy, spot rate policy on how to optimize that. So yes, there is, there is room to go down. But as you know, the biggest element in freight is to be at the bunker, a variation, but a constant bunker, yes we can still go down a little bit in our freight rate utilization. Thank you.

Felipe Hirai, Bank of America Merrill Lynch.

Hi, good afternoon, everyone. This actually (inaudible) here. My question is a follow-up on Base Metals to Jennifer. Jennifer, you mentioned earlier in this call that you aim to reach a cash cost of below $11,000 per ton by the end of the year. And we are wondering if you could share with us what the long-term goal is, in terms of cash cost for the asset? And when you think that could be achieved, that is the question. Thank you.

Thanks for the question. I think we can achieve below $11,000 a ton at the end of the year, by the end of the year, obviously, not the average for the fourth quarter. But as we continue to grow the production that's really what we need to achieve the $11,000 a ton, or slightly below that. And I would say when you look to 2017, it would probably be at the same level. But long term, and we're fully ramped up at [57], we will be below $10,000 a ton after by-product credit.

Okay, thanks.

Ivano Westin, Credit Suisse.

Hi, gentlemen, and thanks for the follow-up questions. Just two points please. On the first one, on the Fertilizer divestment, can we expect to be concluded this year just to be clear, (inaudible) is very helpful. The other point, on -- a follow-up to Peter, on the previous (inaudible) $25 and all the measures, do you expect to achieve that? Could you just clarify Peter please, when you expect to achieve this $25? Thank you very much.

Peter?

Ivano, thanks for the question. That's a tough question. When we have the aspiration to target $25 and I can list you again, all the main elements of how we can get there, but we haven't established a firm target of when. It's of course not next year, it's not 2018. One of the conditions must be (inaudible), the other conditions, second generation (inaudible) and these are more than 30 new vessels, right. And so, we are talking mid-term, we're not talking next year or 2018. Again, what are the main pillars to achieve that. It's three pillars, we have to optimize our global integrated supply chain in terms of efficiency and price realization. This is not optimized yet, but I talked about it. Vale (inaudible) generation, there is a full discharge in China which is increasing to rebalance our portfolio, a long-term trade.

The ability that we have now to reduce cost in Southern System, because we are not making a final product at the port anymore. We are planning in offshore. We are reducing OpEx by replacing trucks by belt conveyors in Itabira and Carajas and so on. And the price realization, that is, if you grant more you have a better price realization and to explore the optionality which is very important and you can adjust certain macro movements in the market.

Then we have the distribution centers in China, which will be important for us also to increase our price realization and as I said before in this call, we feel that we are -- that market is not pricing in correctly our low alumina iron ores from the southeast system. So, we will work on that to increase our premiums for low alumina ore. All that is part of the growth to the 25. The other one as I stated is the S11D and the global recovery, which is a very important macro element, we are increasing our global recovery strongly from one quarter to the other, in one way through the other. That is the total amount of product (inaudible) Run of Mine plus the rate. And I said before, we are out of the way -- we are not leaving far behind. We are not jeopardizing our ore bodies, we are transforming [weight] into ore either by beneficiating (inaudible). Now we have the ability in Itabira recovering consistent (inaudible) or by simply calling -- including some surface material which (inaudible) considered waste. We are now including the waste into the ore. In the past, we had one-to-one strip ratio, now practicing 0.6 to 1 strip ratio, which is a big progress.

And then the other element of this global recovery, of course, the way you treat the ore. So, we are more and more dry processing, it was already a plant before the Samarco incident. But we are more and more dry processing and this is -- to date, say this year, we are at 40% dry. And we are growing in five years to 70% dry, which of course, increases also your global recovery, which performs CapEx, which reduces OpEx and so forth.

So, the macro element for -- which will be mapped, and which will be detailed (inaudible) to 25. Thank you.

Ivano, on the Fertilizer deal, we have ongoing discussions with interested parties. And we expect to announce it soon, but for sure, before year-end. Thank you very much.

Marcos Assumpcao, Itau BBA.

Okay. Good morning, everyone. First question on the Nacala Corridor. If you could comment eventually -- it's more for the future. If you could, if the project is scalable, if you could expand the capacity of the railroad and port considering that you have already a higher mining capacity?

Second question on China, regarding a potential devaluation of the currency. What could be the impact to Vale, and Murilo, if you could comment specifically on the shutdowns that we've seen in the mining industry in China, if you would expect some restarts if they will regain some cost competitiveness in the future or if they restart, or if the capacity shutdowns are probably irreversible? Thank you.

Marcos, I don't think that it is realistic to say that we could expect some return to the market. I think that it's not so easy to shut our plant and later on to reverse and to going back into operation. I think that the devaluation that we had recently, it was almost 3%. It is not a big number and the problem that we're facing is mainly in the environment perspective, and I don't think that until the number of 120 million tons I believe that is (inaudible) state of the business, but the lap of flexibility from 120 million tons until 160 million tons, 165 million tons, we could consider, but something above this number, I don't think that is realistic to consider going back into the business. And the Nacala Corridor?

Yes, we can easily increase the capacity of Nacala Corridor. The bottleneck today is the (inaudible) bottleneck to railway and in this case, we can just increase the number of crossing yards.

Thank you very much, I appreciate your interest about Vale and I hope to see you soon. Thank you very much.

That does concludes Vale's conference call for today. Thank you very much for your participation, you may now disconnect.