United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the

Securities Exchange Act of 1934

 

For the month of

 

October 2021

 

Vale S.A.

 

Praia de Botafogo nº 186, 18º andar, Botafogo
22250-145 Rio de Janeiro, RJ, Brazil

(Address of principal executive office)

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

 

(Check One) Form 20-F x Form 40-F o

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))

 

(Check One) Yes o No x

 

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))

 

(Check One) Yes o No x

 

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

 

(Check One) Yes o No x

 

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82- .)

 

 

 

 

 

 

Interim Financial Statements

September 30, 2021

 

 

IFRS in US$

 

     

 

 

 

Vale S.A. Interim Financial Statements

Contents

 

  Page
Report of Independent Registered Public Accounting Firm 3
Consolidated Income Statement 4
Consolidated Statement of Comprehensive Income 5
Consolidated Statement of Cash Flows 6
Consolidated Statement of Financial Position 7
Consolidated Statement of Changes in Equity 8
Notes to the Interim Financial Statements 9
1.      Corporate information 9
2.      Basis of preparation of the interim financial statements 9
3.      Significant events in the current period 9
4.      Information by business segment and by geographic area 10
5.      Costs and expenses by nature 15
6.      Financial results 16
7.      Income taxes 16
8.      Basic and diluted earnings per share 17
9.      Accounts receivable 18
10.    Inventories 18
11.    Other financial assets and liabilities 18
12.    Acquisitions and divestitures 19
13.    Investments in subsidiaries, associates and joint ventures 22
14.    Intangible 23
15.    Property, plant and equipment 23
16.    Financial and capital risk management 24
17.    Financial assets and liabilities 32
18.    Participative stockholders’ debentures 34
19.    Loans, borrowings, leases, cash and cash equivalents and short-term investments 34
20.    Brumadinho’s dam failure 37
21.    Liabilities related to associates and joint ventures 41
22.    Provisions 43
23.    Litigations 44
24.    Employee benefits 45
25.    Stockholders’ equity 47
26.    Related parties 48

 

  2  

 

 

 

Report of Independent registered Public Accounting Firm

 

To the Stockholders and Board of Directors of

Vale S.A.

 

Results of Review of Interim Financial Statements

 

We have reviewed the accompanying consolidated statement of financial position of Vale S.A. and its subsidiaries (the “Company”) as of September 30, 2021, and the related consolidated income statement, consolidated statement of comprehensive income and the consolidated statement of cash flows for the three and nine-month periods ended September 30, 2021 and September 30, 2020, and the consolidated statement of changes in equity for the nine-month periods ended September 30, 2021 and September 30, 2020, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of the Company as of December 31, 2020, and the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2021, which included a paragraph describing a change in the manner of accounting for leases on January 1, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial position as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

 

Basis for Review Results

 

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ PricewaterhouseCoopers Auditores Independentes Ltda.

Rio de Janeiro, RJ, Brazil

October 28, 2021

 

  3  

 

 

Consolidated Income Statement

In millions of United States dollars, except earnings per share data

 

        Three-month period ended September 30,     Nine-month period ended September 30,  
    Notes   2021     2020     2021     2020  
Net operating revenue   4(c)     12,682       10,762       42,002       25,249  
Cost of goods sold and services rendered   5(a)     (5,836 )     (4,816 )     (16,268 )     (13,306 )
Gross profit         6,846       5,946       25,734       11,943  
                                     
Operating expenses                                    
Selling and administrative expenses   5(b)     (115 )     (127 )     (353 )     (366 )
Research and evaluation expenses         (136 )     (105 )     (377 )     (290 )
Pre-operating and operational stoppage   3 and 20     (165 )     (188 )     (501 )     (694 )
Brumadinho event   20     (161 )     (114 )     (461 )     (403 )
Other operating expenses, net   5(c)     (36 )     (113 )     (122 )     (412 )
          (613 )     (647 )     (1,814 )     (2,165 )
Impairment and disposals of non-current assets   12 and 15     (2,390 )     (298 )     (2,983 )     (730 )
Operating income         3,843       5,001       20,937       9,048  
                                     
Financial income   6     91       69       251       311  
Financial expenses   6     (136 )     (1,215 )     (1,699 )     (2,325 )
Other financial items, net   6     (328 )     (214 )     1,348       (2,116 )
Equity results and other results in associates and joint ventures   13 and 21     128       (40 )     (342 )     (741 )
Income before income taxes         3,598       3,601       20,495       4,177  
                                     
Income taxes   7(b)                                
Current tax         (2,464 )     (743 )     (5,180 )     (1,416 )
Deferred tax         2,824       (51 )     1,657       1,126  
          360       (794 )     (3,523 )     (290 )
                                     
Net income         3,958       2,807       16,972       3,887  
Net income (loss) attributable to non-controlling interests         72       (101 )     (46 )     (255 )
Net income attributable to Vale's stockholders         3,886       2,908       17,018       4,142  
                                     
Earnings per share attributable to Vale's stockholders:                                    
Basic and diluted earnings per share:   8                                
Common share (US$)         0.76       0.57       3.36       0.81  

 

The accompanying notes are an integral part of these interim financial statements. 

 

  4  

 

 

Consolidated Statement of Comprehensive Income

In millions of United States dollars

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Net income     3,958       2,807       16,972       3,887  
Other comprehensive income (loss):                                
Items that will not be reclassified to the income statement                                
Translation adjustments     (3,249 )     (1,047 )     (1,364 )     (12,296 )
Retirement benefit obligations (note 24)     95       76       411       (124 )
Fair value adjustment to investment in equity securities (note 11)     150       251       343       42  
      (3,004 )     (720 )     (610 )     (12,378 )
                                 
Items that may be reclassified to the income statement                                
Translation adjustments     1,380       648       624       5,776  
Net investments hedge (note 16)     (127 )     (81 )     (85 )     (720 )
Net cash flow hedge (note 16)     10       (56 )     (16 )     (41 )
Reclassification of cumulative translation adjustment to net income (note 12)     (10 )     -       (1,552 )     -  
      1,253       511       (1,029 )     5,015  
Total comprehensive income (loss)     2,207       2,598       15,333       (3,476 )
                                 
Comprehensive loss attributable to non-controlling interests     69       (94 )     (47 )     (223 )
Comprehensive income (loss) attributable to Vale's stockholders     2,138       2,692       15,380       (3,253 )

 

Items above are stated net of tax and the related taxes are disclosed in note 7.

 

The accompanying notes are an integral part of these interim financial statements.  

 

  5  

 

 

Consolidated Statement of Cash Flows

In millions of United States dollars

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Cash flow from operations (a)     10,194       5,567       28,144       9,683  
Interest on loans and borrowings paid (note 19)     (173 )     (203 )     (599 )     (615 )
Cash received (paid) on settlement of derivatives, net (note 16)     22       (130 )     (117 )     29  
Interest on participative stockholders' debentures paid (note 18)     -       -       (193 )     (95 )
Income taxes (including the settlement program)     (992 )     (450 )     (3,436 )     (1,197 )
Net cash provided by operating activities     9,051       4,784       23,799       7,805  
                                 
Cash flow from investing activities:                                
Capital expenditures (notes 14 and 15)     (1,248 )     (872 )     (3,396 )     (2,963 )
Additions to investments (note 13)     -       -       (42 )     (75 )
Acquisition of NLC, net of cash (note 12)     -       -       (2,345 )     -  
Disbursement related to the disposal of VNC (note 12)     -       -       (555 )     -  
Dividends received from associates and joint ventures (note 13)     5       2       48       79  
Short-term investment     424       -       251       630  
Investment fund applications     -       (31 )     -       (127 )
Other investments activities, net     18       (106 )     (195 )     (292 )
Net cash used in investing activities     (801 )     (1,007 )     (6,234 )     (2,748 )
                                 
Cash flow from financing activities:                                
Loans and borrowings from third-parties (note 19)     -       1,800       300       6,800  
Payments of loans and borrowings from third-parties (note 19)     (111 )     (5,265 )     (1,523 )     (5,756 )
Lease payments (note 19)     (58 )     (45 )     (162 )     (144 )
Dividends and interest on capital paid to stockholders (note 25)     (7,391 )     (3,327 )     (13,483 )     (3,327 )
Dividends and interest on capital paid to non-controlling interest     (3 )     (3 )     (9 )     (11 )
Share buyback program (note 25)     (2,841 )     -       (4,845 )     -  
Net cash used in financing activities     (10,404 )     (6,840 )     (19,722 )     (2,438 )
                                 
Increase (decrease) in cash and cash equivalents     (2,154 )     (3,063 )     (2,157 )     2,619  
Cash and cash equivalents at the beginning of the period     13,649       12,113       13,487       7,350  
Effects of exchange rate changes on cash and cash equivalents     (638 )     (205 )     (473 )     (1,124 )
Cash and cash equivalents at end of the period     10,857       8,845       10,857       8,845  
                                 
Non-cash transactions:                                
Additions to property, plant and equipment - capitalized loans and borrowing costs     14       13       44       57  
                                 
Cash flow from operating activities:                                
Income before income taxes     3,598       3,601       20,495       4,177  
Adjusted for:                                
Provisions related to Brumadinho event (note 20)     -       -       -       21  
Equity results and other results in associates and joint ventures (note 13)     (128 )     40       342       741  
Impairment and disposal of non-current assets     2,390       298       2,983       730  
Depreciation, depletion and amortization     700       774       2,280       2,396  
Financial results, net (note 6)     373       1,360       100       4,130  
Changes in assets and liabilities:                                
Accounts receivable     3,889       (276 )     4,185       (577 )
Inventories     (574 )     (298 )     (936 )     (650 )
Suppliers and contractors (i)     338       214       373       (352 )
Provision - Payroll, related charges and other remunerations     60       177       (147 )     84  
Payments related to Brumadinho event (note 20) (ii)     (186 )     (218 )     (638 )     (589 )
Other assets and liabilities, net     (266 )     (105 )     (893 )     (428 )
Cash flow from operations (a)     10,194       5,567       28,144       9,683  

 

(i) Includes variable lease payments.

(ii) In addition, the Company has incurred in expenses in the amount of US$161 and US$461 for the three and nine-month periods ended September 30, 2021, respectively (US$114 and US$382 for the three and nine-month periods ended September 30, 2020).

 

The accompanying notes are an integral part of these interim financial statements.

 

  6  

 

 

 

Consolidated Statement of Financial Position

In millions of United States dollars

 

    Notes   September 30, 2021     December 31, 2020  
Assets                    
Current assets                    
Cash and cash equivalents   19     10,857       13,487  
Short-term investments   19     521       771  
Accounts receivable   9     873       4,993  
Other financial assets   11     1,366       329  
Inventories   10     5,085       4,061  
Recoverable taxes         824       509  
Others         405       253  
          19,931       24,403  
                     
Non-current assets held for sale   12     60       -  
          19,991       24,403  
Non-current assets                    
Judicial deposits   23(c)     1,221       1,268  
Other financial assets   11     162       1,784  
Recoverable taxes         1,322       1,091  
Deferred income taxes   7(a)     11,402       10,335  
Others         683       651  
          14,790       15,129  
                     
Investments in associates and joint ventures   13     2,099       2,031  
Intangible   14     8,913       9,296  
Property, plant and equipment   15     41,087       41,148  
          66,889       67,604  
Total assets         86,880       92,007  
                     
Liabilities                    
Current liabilities                    
Suppliers and contractors         4,096       3,367  
Loans, borrowings and leases   19     1,345       1,136  
Other financial liabilities   11     1,557       1,906  
Taxes payable         2,594       952  
Settlement program ("REFIS")   7(c)     330       340  
Liabilities related to associates and joint ventures   21     1,551       876  
Provisions   22     1,176       1,865  
Liabilities related to Brumadinho   20     2,336       1,910  
De-characterization of dams   20     435       381  
Dividends payable         35       1,220  
Others         606       641  
          16,061       14,594  
Liabilities associated with non-current assets held for sale   12     13       -  
          16,074       14,594  
Non-current liabilities                    
Loans, borrowings and leases   19     12,240       13,891  
Participative stockholders' debentures   18     4,128       3,413  
Other financial liabilities   11     2,825       4,564  
Settlement program ("REFIS")   7(c)     2,080       2,404  
Deferred income taxes   7(a)     1,928       1,770  
Provisions   22     7,274       8,434  
Liabilities related to Brumadinho   20     2,020       2,665  
De-characterization of dams   20     1,422       1,908  
Liabilities related to associates and joint ventures   21     714       1,198  
Streaming transactions         1,936       2,005  
Others         150       340  
          36,717       42,592  
Total liabilities         52,791       57,186  
                     
Stockholders' equity   25                
Equity attributable to Vale's stockholders         33,322       35,744  
Equity attributable to non-controlling interests         767       (923 )
Total stockholders' equity         34,089       34,821  
Total liabilities and stockholders' equity         86,880       92,007  

 

The accompanying notes are an integral part of these interim financial statements.

 

  7  

 

 

Consolidated Statement of Changes in Equity

In millions of United States dollars

 

 

 

  Share capital   Capital reserve   Profit
reserves
  Treasury
shares
  Other
reserves
  Cumulative translation
adjustments
  Retained
earnings
  Equity
attributable to
Vale’s
stockholders
  Equity
attributable to
non-controlling
interests
  Total
stockholders'
equity
 
Balance at December 31, 2020   61,614     1,139     7,042     (2,441 )   (2,056 )   (29,554 )   -     35,744     (923 )   34,821  
Net income (loss)   -     -     -     -     -     -     17,018     17,018     (46 )   16,972  
Other comprehensive income   -     -     (211 )   -     760     (2,187 )   -     (1,638 )   (1 )   (1,639 )
Dividends and interest on capital of Vale's stockholders (note 25)   -     -     (4,319 )   -     -     -     (8,368 )   (12,687 )   -     (12,687 )
Dividends of non-controlling interest   -     -     -     -     -     -     -     -     (24 )   (24 )
Acquisition and disposal of non-controlling interest (note 12)   -     -     -     -     (331 )   -     -     (331 )   1,761     1,430  
Share buyback program (note 25)   -     -     -     (4,845 )   -     -     -     (4,845 )   -     (4,845 )
Share-based payment (note 24)   -     -     -     -     54     -     -     54     -     54  
Treasury shares utilized in the period (note 25)   -     -     -     7     -     -     -     7     -     7  
Treasury shares cancellation (note 25)   -     -     -     2,401     -     -     (2,401 )   -     -     -  
Balance at September 30, 2021   61,614     1,139     2,512     (4,878 )   (1,573 )   (31,741 )   6,249     33,322     767     34,089  

 

  Share capital   Capital reserve   Profit
reserves
  Treasury
shares
  Other
reserves
  Cumulative translation
adjustments
  Retained
earnings
  Equity
attributable to
Vale’s
stockholders
  Equity
attributable to
non-controlling
interests
  Total
stockholders'
equity
 
Balance at December 31, 2019   61,614     1,139     7,090     (2,455 )   (2,110 )   (25,211 )   -     40,067     (1,074 )   38,993  
Net income (loss)   -     -     -     -     -     -     4,142     4,142     (255 )   3,887  
Other comprehensive income   -     -     (1,884 )   -     146     (5,657 )   -     (7,395 )   32     (7,363 )
Dividends and interest on capital of Vale's stockholders   -     -     (2,329 )   -     -     -     -     (2,329 )   -     (2,329 )
Dividends of non-controlling interest   -     -     -     -     -     -     -     -     (7 )   (7 )
Capitalization of non-controlling interest advances   -     -     -     -     -     -     -     -     14     14  
Treasury shares utilized in the period (note 25)   -     -     -     14     -     -     -     14     -     14  
Balance at September 30, 2020   61,614     1,139     2,877     (2,441 )   (1,964 )   (30,868 )   4,142     34,499     (1,290 )   33,209  

 

The accompanying notes are an integral part of these interim financial statements.

 

  8  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

1. Corporate information

 

Vale S.A. and its subsidiaries (“Vale” or the “Company”) are iron ore and iron ore pellets producers, which are key raw materials for steelmaking, and nickel producers, which is used to produce stainless steel and metal alloys employed in the production process of several products. The Company also produces copper, coking and thermal coal, manganese ore, platinum group metals, gold, silver and cobalt. The information by segment is presented in note 4.

 

Vale S.A. (the “Parent Company”) is a public company headquartered in the city of Rio de Janeiro, Brazil with securities traded on the stock exchanges of São Paulo – B3 S.A. (VALE3), New York - NYSE (VALE) and Madrid – LATIBEX (XVALO).

 

2. Basis of preparation of the interim financial statements

 

a) Statement of compliance

 

The consolidated interim financial statements of the Company (“interim financial statements”) have been prepared and are being presented in accordance with IAS 34 Interim Financial Reporting of the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

b) Basis of presentation

 

The interim financial statements have been prepared to update users about relevant events and transactions that occurred in the period and should be read in conjunction with the financial statements for the year ended December 31, 2020. The accounting policies, accounting estimates and judgements, risk management and measurement methods are the same as those applied when preparing the last annual financial statements, except for the change in the accounting practice for the share-based payment plans as disclosed in note 24.

 

The interim financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (“functional currency”), which in the case of the Parent Company is the Brazilian real (“R$”). For presentation purposes, these interim financial statements are presented in United States dollar (“US$”) as the Company believes this is how international investors analyze the interim financial statements.

 

The exchange rates used by the Company to translate its foreign operations are as follows:

 

          Average rate  
  Closing rate   Three-month period ended   Nine-month period ended  
  September 30,
2021
  December 31, 2020   September 30,
2021
  September 30, 2020   September 30,
2021
  September 30, 2020  
United States dollar   5.4394     5.1967     5.2286     5.3772     5.3317     5.0793  
Canadian dollar ("CAD")   4.2931     4.0771     4.1517     4.0366     4.2624     3.7505  
Euro ("EUR")   6.2983     6.3779     6.1623     6.2876     6.3769     5.7207  

 

These interim financial statements were authorized for issue by the Executive Committee on October 28, 2021.

 

3. Significant events in the current period

 

The financial position, cash flows and performance of the Company were particularly affected by the following events and transactions during the three-month period ended September 30, 2021:

 

Since the announcement of the Company’s divestiture intention in the coal segment, it started looking for a potential buyer to purchase the coal assets. Due to the negotiations carried out during the current quarter, the Company decided to impair those assets in full, resulting in a loss of US$2,304 recognized in the income statement as "Impairment and disposal of non-current assets” for the three-month period ended September 30, 2021 (note 12).

 

In September 2021, the Company approved and paid dividends of US$7,391 (R$40,200 million) to its shareholders (note 25).

 

  9  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

In August 2021, production and maintenance employees of Sudbury, Canada, represented by United Steelworkers (“USW”) approved the new five-year collective bargaining agreement, that was previously rejected in June 2021 and led to the stoppage of the operation at that location. The agreement became effective immediately after its approval and the strike came to an end. Due to the stoppage, the Company recorded expenses of US$51 recognized as "Pre-operating and operational stoppage" for the three-month period ended September 30, 2021 (US$110 for the nine-month period ended September 30, 2021).

 

In October 2021 (subsequent event), the Company approved the prepayment of the concession grant related to the Estrada de Ferro Carajás (“EFC”) and Estrada de Ferro Vitória Minas (“EFVM”) in the amount of US$344 (R$1,871 million) (note 11).

 

In October 2021 (subsequent event), the Superior Court of Justice issued a decision to exclude the Risoleta Neves hydroelectric plant out of the Energy Reallocation Mechanism. Therefore, the Company would be requested by the National Electric Energy Agency (“ANEEL”) and the Chamber of Electric Energy Commercialization (“CCEE”) to pay approximately US$72 (R$392 million), for which the Company has a provision as at September 30, 2021 (note 22).

 

In October 2021 (subsequent event), the Company approved a new share buyback program for its common shares, limited to a maximum of 200,000,000 common shares and their respective ADRs due to the upcoming conclusion of the current program in place as the cap number approved is close to being reached (note 25).

 

4. Information by business segment and by geographic area

 

The Company operates the following reportable segments: Ferrous Minerals, Base Metals and Coal. The segments are aligned with products and reflect the structure used by Management to evaluate Company’s performance. The responsible bodies for making operational decisions, allocating resources and evaluating performance ("chief operating decision maker" under IFRS 8 - Operating Segments) are the Executive Boards and the Board of Directors. Accordingly, the performance of the operating segments is assessed based on a measure of adjusted EBITDA.

 

The Company allocates to “Others” the revenues and cost of other products, services, research and development, investments in joint ventures and associates of other business and unallocated corporate expenses. Additionally, the costs related to the Brumadinho event are not directly linked to the Company's operating activities and, therefore, are allocated to "Other" as well.

 

The Company has allocated the financial information of Vale Nouvelle-Calédonie SAS (“VNC”) operation to “Others” as this operation is no longer analyzed by the chief operating decision maker as part of to the performance of the Base Metals business segment due to the sale of this operation. The comparative periods were restated to reflect this change in the allocation criteria.

 

a) Adjusted EBITDA

 

The definition of Adjusted EBITDA for the Company is the operating income or loss plus dividends received and interest from associates and joint ventures, and excluding the amounts charged as (i) depreciation, depletion and amortization and (ii) impairment and disposal of non-current assets.

 

  10  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

    Three-month period ended September 30, 2021  
    Net operating
revenue
    Cost of goods
sold and
services
rendered
    Sales,
administrative
and other
operating
expenses
    Research and
evaluation
    Pre operating
and operational
stoppage
    Dividends
received and
interest from
associates and
joint ventures
    Adjusted
EBITDA
 
Ferrous minerals                                                        
Iron ore     8,530       (3,064 )     (32 )     (53 )     (61 )     -       5,320  
Iron ore pellets     2,009       (612 )     (2 )     (1 )     (10 )     -       1,384  
Ferroalloys and manganese     45       (33 )     1       (1 )     (4 )     -       8  
Other ferrous products and services     94       (76 )     -       -       -       -       18  
      10,678       (3,785 )     (33 )     (55 )     (75 )     -       6,730  
                                                         
Base metals                                                        
Nickel and other products     896       (782 )     57       (20 )     (52 )     -       99  
Copper     678       (242 )     (6 )     (23 )     (1 )     -       406  
      1,574       (1,024 )     51       (43 )     (53 )     -       505  
                                                         
Coal     352       (314 )     (5 )     (1 )     -       -       32  
                                                         
Others     78       (60 )     (143 )     (37 )     (1 )     5       (158 )
      12,682       (5,183 )     (130 )     (136 )     (129 )     5       7,109  
                                                         
Brumadinho event     -       -       (161 )     -       -       -       (161 )
COVID-19     -       -       (10 )     -       -       -       (10 )
Total     12,682       (5,183 )     (301 )     (136 )     (129 )     5       6,938  
                                                         
    Three-month period ended September 30, 2020  
    Net operating
revenue
    Cost of goods
sold and services
rendered
    Sales,
administrative
and other
operating
expenses
    Research and
evaluation
    Pre operating
and operational
stoppage
    Dividends
received and
interest from
associates and
joint ventures
    Adjusted
EBITDA
 
Ferrous minerals                                                        
Iron ore     7,357       (2,064 )     (51 )     (31 )     (121 )     -       5,090  
Iron ore pellets     1,195       (431 )     2       (1 )     (17 )     -       748  
Ferroalloys and manganese     51       (44 )     (4 )     -       (8 )     -       (5 )
Other ferrous products and services     81       (60 )     -       -       -       2       23  
      8,684       (2,599 )     (53 )     (32 )     (146 )     2       5,856  
                                                         
Base metals                                                        
Nickel and other products     1,219       (776 )     (23 )     (8 )     -       -       412  
Copper     587       (190 )     (2 )     (15 )     -       -       380  
      1,806       (966 )     (25 )     (23 )     -       -       792  
                                                         
Coal     103       (321 )     (5 )     (10 )     -       20       (213 )
                                                         
Others (i)     169       (204 )     (133 )     (40 )     (3 )     -       (211 )
      10,762       (4,090 )     (216 )     (105 )     (149 )     22       6,224  
                                                         
Brumadinho event     -       -       (114 )     -       -       -       (114 )
COVID-19     -       -       (15 )     -       -       -       (15 )
Total     10,762       (4,090 )     (345 )     (105 )     (149 )     22       6,095  

 

(i) Includes the reclassification of the negative EBITDA of VNC in the amount of US$22.

 

  11  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

    Nine-month period ended September 30, 2021  
    Net operating
revenue
    Cost of goods
sold and
services
rendered
    Sales,
administrative
and other
operating
expenses
    Research and
evaluation
    Pre operating
and operational
stoppage
    Dividends
received and
interest from
associates and
joint ventures
    Adjusted
EBITDA
 
Ferrous minerals                                                        
Iron ore     29,884       (7,967 )     (115 )     (129 )     (227 )     -       21,446  
Iron ore pellets     5,164       (1,515 )     29       (2 )     (36 )     22       3,662  
Ferroalloys and manganese     143       (95 )     (1 )     (1 )     (12 )     -       34  
Other ferrous products and services     289       (213 )     3       (1 )     -       -       78  
      35,480       (9,790 )     (84 )     (133 )     (275 )     22       25,220  
                                                         
Base metals                                                        
Nickel and other products     3,822       (2,512 )     22       (49 )     (112 )     -       1,171  
Copper     1,920       (637 )     (7 )     (62 )     (3 )     -       1,211  
      5,742       (3,149 )     15       (111 )     (115 )     -       2,382  
                                                         
Coal     605       (966 )     (3 )     (5 )     -       78       (291 )
                                                         
Others (i)     175       (222 )     (345 )     (128 )     (2 )     26       (496 )
      42,002       (14,127 )     (417 )     (377 )     (392 )     126       26,815  
                                                         
Brumadinho event     -       -       (461 )     -       -       -       (461 )
COVID-19     -       -       (28 )     -       -       -       (28 )
Total     42,002       (14,127 )     (906 )     (377 )     (392 )     126       26,326  
                                                         
(i) Includes the negative EBITDA of VNC in the amount of US$65.  
                                                         
    Nine-month period ended September 30, 2020  
    Net operating
revenue
    Cost of goods
sold and services
rendered
    Sales,
administrative
and other
operating
expenses
    Research and
evaluation
    Pre operating
and operational
stoppage
    Dividends
received and
interest from
associates and
joint ventures
    Adjusted
EBITDA
 
Ferrous minerals                                                        
Iron ore     16,520       (5,486 )     (135 )     (79 )     (412 )     -       10,408  
Iron ore pellets     2,947       (1,220 )     14       (3 )     (59 )     53       1,732  
Ferroalloys and manganese     165       (135 )     (4 )     (1 )     (19 )     -       6  
Other ferrous products and services     243       (187 )     2       (1 )     -       2       59  
      19,875       (7,028 )     (123 )     (84 )     (490 )     55       12,205  
                                                         
Base metals                                                        
Nickel and other products     3,066       (1,850 )     (58 )     (30 )     (29 )     -       1,099  
Copper     1,493       (582 )     (4 )     (47 )     -       -       860  
      4,559       (2,432 )     (62 )     (77 )     (29 )     -       1,959  
                                                         
Coal     345       (1,056 )     -       (24 )     -       95       (640 )
                                                         
Others (i)     470       (601 )     (453 )     (105 )     (8 )     24       (673 )
      25,249       (11,117 )     (638 )     (290 )     (527 )     174       12,851  
                                                         
Brumadinho event     -       -       (403 )     -       -       -       (403 )
COVID-19     -       -       (100 )     -       -       -       (100 )
Total     25,249       (11,117 )     (1,141 )     (290 )     (527 )     174       12,348  

 

(i) Includes the reclassification of the negative EBITDA of VNC in the amount of US$116.

 

  12  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

Adjusted EBITDA is reconciled to net income as follows:

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Net income attributable to Vale's stockholders     3,886       2,908       17,018       4,142  
Net income (loss) attributable to non-controlling interests     72       (101 )     (46 )     (255 )
Net income     3,958       2,807       16,972       3,887  
Depreciation, depletion and amortization     700       774       2,280       2,396  
Income taxes     (360 )     794       3,523       290  
Financial results     373       1,360       100       4,130  
EBITDA     4,671       5,735       22,875       10,703  
                                 
Items to reconciled adjusted EBITDA                                
Equity results and other results in associates and joint ventures     (128 )     40       342       741  
Dividends received and interest from associates and joint ventures (i)     5       22       126       174  
Impairment and disposal of non-current assets     2,390       298       2,983       730  
Adjusted EBITDA     6,938       6,095       26,326       12,348  

 

(i) Includes the remuneration of the financial instrument of the Coal segment.

 

b) Assets by segment

 

    September 30, 2021     December 31, 2020  
    Product inventory     Investments in
associates and
joint ventures
    Property, plant
and equipment
and intangibles (i)
    Product inventory     Investments in
associates and
joint ventures
    Property, plant
and equipment
and intangibles (i)
 
Ferrous minerals     2,811       1,206       28,684       2,017       1,154       29,436  
Base metals     1,288       17       19,696       1,231       18       19,549  
Coal (note 12)     85       -       -       25       -       -  
Others     -       876       1,620       -       859       1,459  
Total     4,184       2,099       50,000       3,273       2,031       50,444  
                                                 
    Three-month period ended September 30,  
    2021     2020  
    Capital expenditures (ii)           Capital expenditures (ii)        
    Sustaining
capital
    Project
execution
    Depreciation,
depletion and
amortization
    Sustaining
capital
    Project
execution
    Depreciation,
depletion and
amortization
 
Ferrous minerals     588       136       412       402       37       403  
Base metals     325       113       227       308       70       349  
Coal (note 12)     49       -       51       27       -       -  
Others (iii)     1       36       10       27       1       22  
Total     963       285       700       764       108       774  
                                                 
    Nine-month period ended September 30,  
    2021     2020  
    Capital expenditures (ii)           Capital expenditures (ii)        
    Sustaining
capital
    Project
execution
    Depreciation,
depletion and
amortization
    Sustaining
capital
    Project
execution
    Depreciation,
depletion and
amortization
 
Ferrous minerals     1,649       331       1,264       1,420       187       1,303  
Base metals     973       250       911       903       185       1,000  
Coal (note 12)     114       -       68       138       -       19  
Others (iii)     13       66       37       125       5       74  
Total     2,749       647       2,280       2,586       377       2,396  

 

(i) Goodwill is allocated to ferrous minerals and base metals segments in the amount of US$1,311 and US$1,936 in September 30, 2021 and US$1,373 and US$1,926 in December 31, 2020, respectively.

(ii) Cash outflows.

(iii) Includes the reclassification of VNC under the captions “Sustaining capital” and “depreciation, depletion and amortization”, in the amount of US$27 and US$9, respectively, for the three-month period ended on September 30, 2020 and in the amount of US$122 and US$35, respectively, for the nine-month period ended on September 30, 2020.

 

  13  

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

 

c)   Net operating revenue by geographic area

 

    Three-month period ended September 30, 2021  
    Ferrous
minerals
    Base metals     Coal     Others     Total  
Americas, except USA and Brazil     228       80       -       -       308  
United States of America     71       274       -       -       345  
Germany     176       174       -       -       350  
Europe, except Germany     546       430       22       -       998  
Middle East, Africa and Oceania     553       5       37       -       595  
Japan     1,293       143       15       -       1,451  
China     5,361       241       71       -       5,673  
Asia, except Japan and China     953       220       209       -       1,382  
Brazil     1,497       7       (2 )     78       1,580  
Net operating revenue     10,678       1,574       352       78       12,682  

 

    Three-month period ended September 30, 2020  
    Ferrous
minerals
    Base metals     Coal     Others (i)     Total  
Americas, except USA and Brazil     113       37       -       98       248  
United States of America     102       176       -       -       278  
Germany     43       300       -       -       343  
Europe, except Germany     272       676       11       -       959  
Middle East, Africa and Oceania     401       3       13       -       417  
Japan     465       93       -       -       558  
China     6,136       280       -       -       6,416  
Asia, except Japan and China     544       210       72       -       826  
Brazil     608       31       7       71       717  
Net operating revenue     8,684       1,806       103       169       10,762  

 

(i) Includes the reclassification of VNC in the amount of US$98.

 

    Nine-month period ended September 30, 2021  
    Ferrous
minerals
    Base metals     Coal     Others (i)     Total  
Americas, except USA and Brazil     695       304       -       4       1,003  
United States of America     330       847       -       -       1,177  
Germany     499       1,103       -       -       1,602  
Europe, except Germany     2,125       1,717       45       -       3,887  
Middle East, Africa and Oceania     1,496       12       76       -       1,584  
Japan     2,763       358       35       -       3,156  
China     20,819       665       131       -       21,615  
Asia, except Japan and China     2,722       693       318       -       3,733  
Brazil     4,031       43       -       171       4,245  
Net operating revenue     35,480       5,742       605       175       42,002  

 

(i) Includes the revenue of VNC in the amount of US$4.

 

    Nine-month period ended September 30, 2020  
    Ferrous
minerals
    Base metals     Coal     Others (i)     Total  
Americas, except USA and Brazil     227       136       -       243       606  
United States of America     175       569       -       -       744  
Germany     292       778       -       -       1,070  
Europe, except Germany     781       1,481       92       -       2,354  
Middle East, Africa and Oceania     923       16       62       -       1,001  
Japan     1,130       295       13       -       1,438  
China     13,354       562       16       -       13,932  
Asia, except Japan and China     1,372       611       151       -       2,134  
Brazil     1,621       111       11       227       1,970  
Net operating revenue     19,875       4,559       345       470       25,249  

 

(i) Includes the reclassification of VNC in the amount of US$243.

 

Provisionally priced commodities sales – The commodity price risk arises from volatility of iron ore, nickel, copper and coal prices. The Company is mostly exposed to the fluctuations in the iron ore and copper price (note 16). The selling price of these products can be measured reliably at each period, since the price is quoted in an active market.

 

  14  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

 

The sensitivity of the Company’s risk on final settlement of provisionally priced accounts receivables is presented below:

 

    September 30, 2021  
    Thousand metric tons     Provisional price
(US$/tonne)
    Change     Effect on Revenue  
Iron ore     21,772       100.2       +/-10 %     218  
Iron ore pellets     407       167.2       +/-10 %     7  
Copper     104       10,981.8       +/-10 %     114  

 

5.        Costs and expenses by nature

 

a)  Cost of goods sold and services rendered

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Personnel     393       413       1,227       1,188  
Materials and services     805       809       2,326       2,362  
Fuel oil and gas     287       217       762       702  
Maintenance     810       689       2,259       1,975  
Royalties     399       212       1,003       544  
Energy     173       176       491       512  
Ores acquired from third parties (i)     634       279       1,668       540  
Depreciation, depletion and amortization     653       726       2,141       2,189  
Freight (ii)     1,176       932       2,949       2,319  
Others     506       363       1,442       975  
Total     5,836       4,816       16,268       13,306  
                                 
Cost of goods sold     5,676       4,677       15,832       12,880  
Cost of services rendered     160       139       436       426  
Total     5,836       4,816       16,268       13,306  

 

(i) The increase in “Ores acquired from third parties” is mainly due to the significant increase in the reference price of iron ore compared to 2020.

(ii) The increase in "Freight" is mainly due to the significant increase in volumes of CFR sales and higher international freight prices.

 

Tax on mineral production (Taxa de Fiscalização de Recursos Minerais - “TFRM”) Several Brazilian states, including Minas Gerais, Pará and Mato Grosso do Sul, charge a TFRM, which is currently assessed at rates ranging from R$0.50 to R$3.72 per metric ton of minerals produced in or transferred from the state. The expenses related to the TFRM are presented in these interim financial statements under “Royalties”. In March 2021, a state decree increased the TFRM rate in the state of Para to R$11.19 per metric ton, effective in April 2021. According to the prior rule, which would expire in 2031, the TFRM rate was R$3.72 per ton until the production of 10 million metric tons and R$0.74 for volumes over than 10 million metric tons. The Company did not apply this increase in the current period based on the Brazilian constitutional principle of mandatory notice period, which sets out the tax increase would become in force only in the subsequent year of its enactment and does not expect any impact for the year ending December 31, 2021. The Company is also evaluating other legal aspects to avoid this increase in the future.

 

b)  Selling and administrative expenses

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Selling     25       21       68       58  
Personnel     29       50       128       137  
Services     29       28       68       79  
Depreciation and amortization     11       9       30       40  
Others     21       19       59       52  
Total     115       127       353       366  

 

c)  Other operating expenses (income), net

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Provision for litigations     23       11       67       74  
Profit sharing program     31       34       106       79  
COVID-19 expenses     10       15       28       100  
Others (i)     (28 )     53       (79 )     159  
Total     36       113       122       412  

 

(i) Includes the gain related to the exclusion of ICMS from the PIS and COFINS computation tax base, as detailed in note 23(e). 

  

  15  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

 

6.        Financial result

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Financial income                                
Short-term investments     70       25       138       105  
Others (i)     21       44       113       206  
      91       69       251       311  
Financial expenses                                
Loans and borrowings gross interest (note 19)     (157 )     (208 )     (540 )     (615 )
Capitalized loans and borrowing costs     14       13       44       57  
Participative stockholders' debentures (note 18)     152       (553 )     (1,109 )     (833 )
Interest on REFIS     (17 )     (10 )     (34 )     (47 )
Interest on lease liabilities (note 19)     (16 )     (16 )     (51 )     (51 )
Financial guarantees (ii)     (34 )     (353 )     330       (525 )
Expenses with cash tender offer redemption (note 19)     -       -       (63 )     -  
Others     (78 )     (88 )     (276 )     (311 )
      (136 )     (1,215 )     (1,699 )     (2,325 )
Other financial items, net                                
Net foreign exchange gains (losses)     362       (18 )     292       (375 )
Derivative financial instruments (note 16)     (458 )     (187 )     (41 )     (1,657 )
Reclassification of cumulative translation adjustment (note 12)     10       -       1,142       -  
Indexation gains (losses), net     (242 )     (9 )     (45 )     (84 )
      (328 )     (214 )     1,348       (2,116 )
Total     (373 )     (1,360 )     (100 )     (4,130 )

 

(i) During nine-month period ended on September 30, 2020, includes amounts related to Eletrobras contingent assets in the amount of US$59, due to differences of monetary adjustments and interests due over to the third convertible bonds.
(ii) Refers to the fair value adjustments on financial guarantees given to associates due to their rating improvement, leading to a decrease in the probability of default on the guaranteed loans. Further details are disclosed in note 13 and 17.

 


7.        Income taxes

 

a)  Deferred income tax assets and liabilities

 

    Assets     Liabilities     Deferred taxes, net  
Balance at December 31, 2020     10,335       1,770       8,565  
Effect in income statement     1,633       (24 )     1,657  
Transfers between asset and liabilities     7       7       -  
Translation adjustment     (452 )     (4 )     (448 )
Other comprehensive income     (121 )     179       (300 )
Balance at September 30, 2021     11,402       1,928       9,474  

 

      Assets       Liabilities       Deferred taxes, net  
Balance at December 31, 2019     9,217       1,882       7,335  
Effect in income statement     1,049       (77 )     1,126  
Translation adjustment     (2,552 )     (105 )     (2,447 )
Other comprehensive income     1,896       (65 )     1,961  
Balance at September 30, 2020     9,610       1,635       7,975  

 

b)  Income tax reconciliation – Income statement

 

Income tax expense is recognized based on the estimate of the weighted average effective tax rate expected for the full year, adjusted for the tax effect of certain items that are recognized in full on the interim tax calculation. Therefore, the effective tax rate in the interim financial statements may differ from management’s estimate of the effective tax rate for the year.

 

  16  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

 

The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as follows:

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Income before income taxes     3,598       3,601       20,495       4,177  
Income taxes at statutory rate - 34%     (1,223 )     (1,224 )     (6,968 )     (1,420 )
Adjustments that affect the basis of taxes:                                
Tax incentives     971       491       2,589       980  
Equity results     68       (2 )     94       (25 )
Addition (reversal) of tax loss carryforward     109       103       -       497  
Others     435       (162 )     762       (322 )
Income taxes     360       (794 )     (3,523 )     (290 )

 

c)   Income taxes - Settlement program (“REFIS”)

 

    September 30, 2021     December 31, 2020  
Current liabilities     330       340  
Non-current liabilities     2,080       2,404  
REFIS liabilities     2,410       2,744  
                 
SELIC rate     6.25% per year       2.00% per year  

 

The balance mainly relates to the settlement program of the claims related to the collection of income tax and social contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. As at September 30, 2021, the balance is due in 85 remaining monthly installments, bearing the SELIC interest rate (Special System for Settlement and Custody), which is the Brazilian federal funds rate.

 

d) Uncertain tax positions

 

In September 2021, in the judgement of the leading case (RE 1.063.187), the Brazilian Federal Supreme Court (“STF”) ruled that is unconstitutional to include the gain related to the monetary adjustments, calculated based on the SELIC (Special System for Settlement and Custody), over certain tax credits on the computation of the Corporate Income Tax ("IRPJ") and Social Contribution on Net Income ("CSLL"). Despite the favorable conclusion to taxpayers, the decision is not yet final, as the publication of the decision is pending and may be appealed.

 

Vale filed a lawsuit to discuss the matter and is awaiting for the publication of the STF decision to assess the potential effects on the eventual gain involved, which is estimated at US$35 (R$190 million). Considering that the decision is not even published, the Company's external legal advisors consider a gain is not yet probable. Therefore, the Company did not record any gain in these interim financial statements.

 

8.        Basic and diluted earnings per share

 

The basic and diluted earnings per share are presented below:

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Net income attributable to Vale's stockholders:                                
Net income     3,886       2,908       17,018       4,142  
                                 
Thousands of shares                                
Weighted average number of common shares outstanding     5,080,890       5,129,911       5,065,750       5,129,475  
                                 
Basic and diluted earnings per share:                                
Common share (US$)     0.76       0.57       3.36       0.81  

 

The Company does not have potential outstanding shares or other instruments with dilutive effect on the earnings per share computation.

 

  17  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

  

9.        Accounts receivable

 

    September 30, 2021     December 31, 2020  
Accounts receivable     920       5,043  
Expected credit loss     (47 )     (50 )
      873       4,993  
                 
Revenue related to the steel sector     89.66 %     87.25 %

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Impairment of accounts receivable recorded in the income statement     1       1       4       10  

 

The decrease in the accounts receivable is mainly due to the reduction in average prices and volumes of provisional sales of iron ore.

 

As at September 30, 2021, there is no customer that individually represents more than 10% of the Company’s accounts receivable or revenues. In 2020, the Company had a customer of the Ferrous Minerals Segment whose revenue individually represented 10.1% of the Company’s total revenue.

 

10.      Inventories

 

    September 30, 2021     December 31, 2020  
Finished products     3,391       2,626  
Work in progress     793       647  
Consumable inventory     901       788  
Total     5,085       4,061  

 

    Three-month period ended September 30,     Nine-month period ended September 30,  
    2021     2020     2021     2020  
Reversal for net realizable value     28       42       29       3  

 

Finished and work in progress products inventories by segments are presented in note 4(b) and the cost of goods sold is presented in note 5(a).

 

11.     Other financial assets and liabilities

 

    Current     Non-Current  
    September 30, 2021     December 31, 2020     September 30, 2021     December 31, 2020  
Other financial assets                                
Restricted cash     -       -       121       38  
Derivative financial instruments (note 16)     145       134       35       66  
Investments in equity securities     1,221       -       6       757  
Related parties (i)     -       195       -       923  
      1,366       329       162       1,784  
Other financial liabilities                                
Derivative financial instruments (note 16)     334       328       630       689  
Related parties (i)     132       725       -       895  
Financial guarantees provided (note 13 and 17)     -       -       538       877  
Liabilities related to the concession grant (note 14)     392       209       1,657       2,103  
Advances received     699       644       -       -  
      1,557       1,906       2,825       4,564  

 

(i) The decrease refers to the settlement of the loans due to the transaction for the acquisition of NLC, as detailed in note 12.

 

Investment in equity securities – Mainly refers to 34.2 million common shares of The Mosaic Company (“Mosaic”), which is accounted for as a financial instrument measured at fair value through other comprehensive income. The fair value of this instrument is measured using the Mosaic’s share price at the end of each financial reporting period. In addition, the Company holds an investment of US$6 made in February 2021 to acquire a non-controlling interest of 3.24% in Boston Electrometallurgical Company, aiming to promote the development of a technology focused on the reduction of carbon dioxide on the steel production.

 

  18  

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
 

  

Liabilities related to the concession grant - On October 28, 2021 (subsequent event), the Board of Directors approved the prepayment in the amount of US$344 (R$1,871 million) of the concessions grant. With the prepayment, the liability will be remeasured and the outstanding balance is estimated to be US$179 (R$973 million).

 

12.      Acquisitions and divestitures

 

a)   Business Combinations

 

The Company has coking and thermal coal mining and processing operations in Mozambique. Vale Moçambique S.A. (“Vale Moçambique”) is a company controlled by Vale, with a non-controlling interest held by Mitsui & Co. Ltd. (“Mitsui”) until the acquisition completed on June 22, 2021, as detailed below in (a.i). Coal products are transported from the Moatize mine to the maritime terminal by the Nacala Logistics Corridor (“NLC”), which were a joint venture between Vale and Mitsui. The NLC’s main assets are the railways and port concessions located in Mozambique and Malawi.

 

(a.i) Acquisition of non-controlling interest in Vale Moçambique

 

On June 22, 2021 the Company acquired the 15% interest held by Mitsui in Vale Moçambique for an immaterial consideration, which resulted in a loss of US$331 (R$1,666 million) due to the negative reserves of Vale Moçambique at the conclusion of the transaction. This transaction with non-controlling interests was recognized in the Stockholders’ Equity for the period ended June 30, 2021 as “Acquisition and disposal of non-controlling interest”. After the acquisition of the interests previously held by Mitsui, the Company holds 95% of the share capital of Vale Moçambique and the remaining interest is held by the government of Mozambique.

 

(a.ii) Business combinations – NLC

 

Also on June 22, 2021, the acquisition was concluded with the settlement of NLC’s loans with third parties (“Project Finance”) in the amount of US$2,517, satisfying all conditions to acquire the additional 50% held by Mitsui. Therefore, the Company started consolidating the NLC’s assets and liabilities on its balance sheet.

 

In addition, the Company has updated the discounted cash flow model to assess the fair value of the acquired business, resulting in a loss of US$771 (US$798 as at December 31, 2020) on the fair value of the loans receivable from NLC, mainly due to the decrease in the long-term price assumption for both coking and thermal coal as well as the reduction in the expected production to reflect the operational challenges to reach the ramp-up of the coal business, after the revamp of the processing plants. The cash flows were discounted at a rate of 11.6%, and the loss was recognized as “Impairment and disposals of non-current assets” for the period ended June 30, 2021.

 

The fair values of identifiable assets acquired and liabilities assumed as a result of the NLC’s acquisition were as follows:

 

    June 22, 2021  
Acquired assets        
Cash and cash equivalents     172  
Inventory, recoverable tax and other assets     423  
Intangible     2,219  
Property, plant and equipment     1,363  
Assumed liabilities     (158 )
Net identifiable assets acquired     4,019  
Fair value adjustments (i)     (1,590 )
Total identifiable net assets at fair value (ii)     2,429  
         
Pre-existing relationship (Loans receivable from NLC)     859  
Loss on pre-existing relationship     (771 )
      2,517  
         
Cash consideration     2,517  
(-) Balances acquired        
Cash and cash equivalents     172  
Net cash outflow     2,345  

 

(i) Of this amount, US$441 was allocated to property, plant and equipment and US$791 was allocated to intangible and the remaining amount was allocated to other assets.

 

  19  

 

 

 

Selected Notes to the Interim Financial Statements
Expressed in millions of United States dollar, unless otherwise stated

 

(ii) The fair value was assessed using the fair value less costs of disposal model, through discounted cash flow techniques, which is classified as “level 3” in the fair value hierarchy. The cash flows were discounted by using a post-tax discount rate expressed in real terms, which represents an estimate of the rate that a market participant would apply having regard to the time value of money and the asset’s specific risk.

 

(a.iii) Fair value adjustments

 

On the announcement of the Investment Agreement with Mitsui, the Company has also informed the market its divestiture intention in the coal segment. Since then, interactions during the current quarter with potential interested parties in acquiring the Company’s coal assets have led management to decide to fully impair those assets, resulting in the recognition of an impairment loss of US$2,304 in the income statement as "Impairment and disposal of non-current assets” for the period ended September 30, 2021. Therefore, in the event of a potential sale, the Company will recognize a gain of approximately US$1,910 related to the accumulated translation adjustments on the disposal.

 

Additionally, due to the current stage of the sale process, the coal segment does not yet meet the “highly probable” definition under IFRS - 5 Non-Current Assets Held for Sale and Discontinued Operations to quality as held for sale as at September 30, 2021. Therefore, the Company will continue assessing the criteria at each period for financial reporting purposes.