Executive Summary / Key Takeaways

• Vale S.A. is strategically transforming its portfolio, leveraging its dominant position in high-quality iron ore and aggressively expanding into critical energy transition metals like copper and nickel, underpinned by a "value over volume" philosophy and significant technological advancements.
• Operational excellence and cost discipline are driving substantial improvements, with iron ore C1 cash costs seeing four consecutive quarters of year-on-year reduction, and copper all-in costs significantly revised downwards for 2025, reflecting robust performance and higher byproduct revenues.
• The ambitious R$70 billion "New Carajás Program" is set to boost copper production by 32% and maintain high-quality iron ore output in Carajás by 2030, reinforcing Vale's long-term growth trajectory in essential decarbonization materials.
• Despite market volatility and ongoing legal liabilities, Vale maintains a disciplined capital allocation approach, targeting an expanded net debt midpoint of $15 billion and demonstrating a commitment to shareholder returns through dividends and buybacks.
• Technological differentiators, including autonomous mining equipment and innovative iron ore briquettes, provide a competitive moat by enhancing safety, efficiency, and sustainability, positioning Vale as a leader in low-carbon mining solutions.

A Global Mining Powerhouse Forging a Sustainable Future

Vale S.A., a global leader in iron ore and nickel production, is strategically positioning itself at the forefront of the global energy transition. Founded in 1942 as Companhia Vale do Rio Doce, the company has evolved into a dual-engine powerhouse, balancing its foundational iron ore business with an accelerating focus on critical energy transition metals. This strategic pivot is encapsulated in its "Vale 2030 vision," which prioritizes a performance-driven culture, a superior portfolio, and a commitment to being a trusted partner for society. This vision is particularly relevant in a volatile commodity market increasingly driven by decarbonization trends and the escalating demand for green industrial inputs.

Vale's foundational strength lies in its unique mineral endowment, particularly its vast, high-quality iron ore deposits in Brazil, which command a premium in the market. The company's vertically integrated supply chain, encompassing mining, railways, maritime terminals, and ports, provides a significant competitive advantage by enhancing efficiency and market access. This integrated model allows Vale to streamline operations and deliver products to international markets effectively.

Technological differentiation is a cornerstone of Vale's strategy, enhancing both operational efficiency and sustainability. The company has extensively deployed autonomous mining equipment, with 72 pieces currently operating across its Brazilian mines, including 24 haul trucks, 18 drill rigs, and 30 yard machines. This technology, first introduced at the Brucutu mine in 2018, significantly reduces risks to employees by removing personnel from hazardous operational areas, while also providing greater operational stability and efficiency gains. Autonomous drill rigs, for instance, have demonstrated a 7.3% reduction in fuel consumption compared to manned counterparts. Autonomous haul trucks are expected to increase equipment useful life by 15%, reduce fuel consumption and maintenance costs by 10%, and increase average speed, contributing to lower CO2 and particulate matter emissions. At the Guaíba port, autonomous yard operations have led to a 12% increase in recovery rates. Vale plans to expand its autonomous program, increasing from 14 to 70 autonomous trucks at Serra Norte over the next three years, promising substantial productivity improvements.

Another key technological differentiator is Vale's iron ore briquettes, a product developed over nearly two decades through a patented cold sintering process. These briquettes offer a compelling solution for steel industry decarbonization, capable of reducing CO2 emissions in steel production by up to 10% compared to traditional blast furnace processes by eliminating the carbon-intensive sintering stage. They also reduce emissions of sulfur dioxide and nitrogen oxide and notably, do not require water in their production. For direct reduction, briquettes offer lower production costs, lower investment intensity, and approximately 80% less CO2 emissions compared to traditional pellets. Vale is actively partnering with companies like Midrex Technologies to advance the use of these briquettes in direct reduction plants, exploring potential joint ventures to commercialize this technology. Furthermore, Vale operates a pilot plant for the magnetic concentration of low iron ores without using water, with a capacity of 1.5 million tons per year, a technology patented in 59 countries. These innovations underscore Vale's commitment to sustainable mining and provide a significant competitive edge in a world increasingly focused on low-carbon industrial processes.

Iron Ore Solutions: Maximizing Value in a Dynamic Market

Vale's iron ore business continues to be a cornerstone of its operations, characterized by a disciplined "value over volume" strategy. This approach prioritizes maximizing cash flows by dynamically adjusting its product portfolio based on market conditions, steel margins, and quality premiums. In Q2 2025, iron ore production reached 84 million tons, marking a 4% year-on-year increase and the highest second-quarter output since 2018. This growth was primarily driven by the ramp-up of new assets like Capanema and consistent performance from existing sites, with S11D achieving another production record.

The company's cost performance in iron ore has been particularly strong, demonstrating a fourth consecutive quarter of year-on-year C1 cash cost reduction. In Q2 2025, the C1 cash cost, excluding third-party purchases, reached $22.2 per ton, an 11% reduction year-on-year, driven by efficiency initiatives and a favorable exchange rate. The all-in cost for iron ore also decreased by 10% year-on-year to $55.3 per ton, reflecting lower C1 costs, reduced expenses, and improved premium realization from portfolio optimization. For the full year 2025, Vale remains confident in achieving its C1 cash cost guidance of $20.5 to $22 per ton.

Strategic initiatives are enhancing Vale's portfolio flexibility and cost competitiveness. The Vargem Grande and Capanema projects, which commenced operations at the end of 2024, are expected to produce a combined 40 million tons of iron ore in 2025 and reach full capacity in the first half of 2026. These projects boast significantly lower capital intensity compared to typical global iron ore projects, allowing Vale to maintain a lower overall CapEx. The expansion of the Plus 20 project at S11D is also advancing, with 73% physical progress by March 2025, aiming to deliver high-quality volumes at mid-teens C1 cash costs by the second half of 2026.

The "New Carajás Program," announced in February 2025 with an investment of R$70 billion ($12.78 billion) between 2025 and 2030, is a pivotal initiative to boost iron ore output in the Carajás region to 200 million tons per year by 2030. This includes an additional 20 million tons from the expansion of the Serra Sul mine (S11D). This program, along with the Gelado plant in Carajás, which will produce up to 6 million tons per year of high-quality iron ore by reprocessing existing tailings, underscores Vale's commitment to circular solutions and low-carbon products.

In the competitive landscape, Vale's high-grade iron ore from Carajás commands a premium, and its integrated logistics network provides a cost advantage. While competitors like BHP (BHP) and Rio Tinto (RIO) also boast large-scale iron ore operations, Vale's focus on low-capital-intensity projects and its flexible product mix, including mid-grade Carajás ore, allows it to adapt swiftly to market dynamics, such as narrowing quality premiums. The company is also expanding its market reach, anticipating selling over 10 million tons to India in 2025 and expecting continued growth in the coming years. Vale's strategy to prioritize high-grade iron ore (65% Fe content), which now accounts for 45% of traded volumes (up from 30% in 2023), aligns with global steel producers' demand for efficiency and emissions reduction.

Energy Transition Metals: Powering the Future

Vale's Energy Transition Metals business is rapidly accelerating its growth, particularly in copper and nickel, which are crucial for global decarbonization. The "Asset Review" initiative, led by Shaun Usmar, CEO of Vale Base Metals, has already yielded significant results, with approximately $340 million in cash improvements identified, primarily in OpEx and CapEx.

Copper production has shown robust growth, increasing 18% year-on-year in Q2 2025, marking the best second quarter since 2019. Copper sales also increased 17% year-on-year. This strong performance, particularly at Salobo and Sossego, has driven a dramatic reduction in all-in costs. In Q2 2025, copper all-in costs decreased by 60% year-on-year to $1,400 per ton. This impressive cost reduction, combined with a more favorable outlook for byproduct revenues (especially from higher gold prices), allowed Vale to revise down its 2025 all-in cost guidance for copper to a range of $1,500 to $2,000 per ton, implying a $300 million EBITDA improvement for the year. The "New Carajás Program" is set to further boost copper extraction by 32%, reaching approximately 350 kilotons annually by 2030. A key project within this program is Bacaba, which will extend the life of the Sossego plant with 50 kilotons a year at a competitive capital intensity of $5,400 per ton.

Nickel production also surged, rising 44% year-on-year in Q2 2025, driven by productivity initiatives and the successful ramp-up of the Voisey's Bay underground mine. Nickel sales increased 21% year-on-year. The commissioning of Onça Puma's second furnace has begun, expected to contribute an additional 12 to 15 kilotons of cost-competitive nickel production once fully ramped up. These operational improvements, coupled with higher byproduct revenues, led to a 30% year-on-year decrease in nickel all-in costs to $12,396 per ton in Q2 2025. Vale's polymetallic operations, particularly in Ontario, provide diversification, with copper, cobalt, and PGMs contributing significantly to revenue. The company's all-in costs are sensitive to byproduct prices; for instance, every $100 an ounce move in gold price translates to approximately a $135 a ton improvement in copper all-in cost.

Vale's strategic focus on energy transition metals positions it strongly against competitors. While Glencore (GLNCY) excels in commodity trading, Vale's emphasis on production and extraction, combined with its unique mineral endowments, provides a qualitative advantage in product quality and reliability. The company is actively optimizing its portfolio, including a strategic review of the Thompson asset, to ensure capital is allocated to the highest-returning opportunities. This disciplined approach aims to position Vale's nickel operations in the lower half of the cost curve, ensuring resilience amidst current market oversupply and preparing for future price recoveries.

Financial Discipline and Shareholder Value Creation

Vale's financial performance in Q2 2025 demonstrated resilience despite a challenging commodity price environment. Pro forma EBITDA reached $3.4 billion, a 7% increase quarter-on-quarter, though a 14% decrease year-on-year, primarily due to a 13% decline in iron ore reference prices. Net income for Q2 2025 rose 6% year-on-year to $21.17 billion, reflecting sustained profitability. The company's gross profit margin stood at 34.24%, with a return on equity of 14%.

Recurring free cash flow in Q2 2025 was $1 billion, a significant $500 million increase from Q1 2025, driven by higher pro forma EBITDA and lower working capital variation. Capital expenditures continue to trend downwards, reflecting efficiency gains and the completion of key projects. Vale remains confident in delivering its $5.9 billion CapEx guidance for 2025.

Vale maintains a disciplined capital allocation approach, with an expanded net debt target range of $10 billion to $20 billion, aiming to move towards the $15 billion midpoint in the coming quarters. The closing of the Aliança Energia deal in Q3 2025, which will bring $1 billion in cash proceeds and deconsolidated debt, is expected to contribute positively to this goal. In line with its commitment to shareholder returns, Vale's Board of Directors approved a $1.4 billion distribution in interest on capital to be paid in September 2025, implying an annualized yield of 7%. The company has also approved the potential use of derivative instruments for buybacks, providing flexibility for cash flow management.

The company has made substantial progress in addressing legacy liabilities, notably with the definitive BRL 170 billion settlement for the Samarco Fundão dam collapse in Q3 2024. This agreement includes BRL 100 billion in cash payments over 20 years and BRL 32 billion in performance obligations by Samarco, in addition to BRL 38 billion already disbursed. While this involved an extra provision of approximately $1 billion, increasing expanded net debt to $16.5 billion in Q3 2024, these outflows are treated as debt amortization within Vale's expanded net debt concept, allowing the company to maintain its capital allocation framework.

Conclusion

Vale S.A. stands as a compelling investment proposition, underpinned by a robust core iron ore business and an accelerating strategic pivot towards energy transition metals. The company's unwavering commitment to operational excellence, cost leadership, and technological innovation is clearly evident in its consistent financial performance and ambitious growth projects. From the disciplined "value over volume" strategy in iron ore, supported by low-capital-intensity expansions and advanced briquette technology, to the aggressive growth in copper and nickel driven by the "New Carajás Program" and asset optimization, Vale is systematically enhancing its competitive standing.

Despite the inherent volatility of commodity markets and the ongoing management of legacy liabilities, Vale's strong balance sheet, disciplined capital allocation, and commitment to shareholder returns position it favorably. The company's technological advancements, particularly in autonomous mining and low-carbon briquettes, not only drive efficiency and safety but also establish a significant competitive moat, aligning with global demands for sustainable industrial solutions. As the world transitions to a low-carbon economy, Vale's unique endowment and strategic focus on critical minerals are poised to generate substantial long-term value for its stakeholders.