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Edited Transcript of INCO.JK earnings conference call or presentation 30-Apr-20 8:00am GMT

Q1 2020 Vale Indonesia Tbk PT Earnings Call

Jakarta May 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Vale Indonesia Tbk PT earnings conference call or presentation Thursday, April 30, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bernardus Irmanto

PT Vale Indonesia Tbk - CFO & Director

* Nicolaas D. Kanter

PT Vale Indonesia Tbk - President Director & CEO

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Conference Call Participants

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* Ariyanto Kurniawan

PT Mandiri Sekuritas, Research Division - Analyst

* Eun Young Lee

DBS Bank Ltd., Research Division - VP

* Jayden Vantarakis

Macquarie Research - Head of Research

* Ricky Ho

CIMB Research - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to PT Vale Indonesia First Quarter 2020 Results and Outlook conference Call. Pak Nico, please begin.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [2]

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Thank you, Aaron. Good afternoon, ladies and gentlemen. This is Nico Kanter speaking, the President Director of PT Vale Indonesia Tbk. I'm glad that I can discuss our first quarter 2020 results with you all today. Despite having to focus on anticipating possible impacts of COVID-19 on our operations, we were still able to achieve good results in this quarter. I and other Board of Directors member with other senior management of PT Vale are joining from home. During this pandemic situation, we applied home office to all of our employees, contractors and [school].

This presentation and discussion will comprise assumptions and forward-looking statements that involve risks and uncertainties. In addition, all opinions and assumptions constitute our judgment and are subject to change without prior notice. Please refer to the following cautionary note and disclaimer.

As you may see in this graph, our TRIFR, total recoverable injury frequency rate, and LWCFR, lost work case frequency rate, were 0. This is a significant improvement from our previous period. We recognize the need to continuously work harder to lower our injury rate, and we are committed to create 0 harm working environment for our employees as well as contractors.

We are glad to report that we already fulfilled divestment obligations. Inalum, the state-owned mining company that oversees the state mining investments has been appointed by the government of the Republic of Indonesia to acquire the stake. Post divestment, VCL and Sumitomo, SMM, will jointly own almost 59% of PTVI's share. The final terms and conditions will be agreed by a definitive document, divestment agreement, and all parties have agreed to extend the signing deadline of the definitive agreement to May 29, 2020.

Production in first quarter 2020 was approximately 35% higher than in 1Q 2019. Anto, please.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [3]

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Thank you, Pak Nico. So I will continue the presentation covering the financial performance of the company during the first quarter of 2020.

So the group recorded positive earnings of USD 29 million in first quarter of 2020, significantly higher than in the same quarter last year when the group recorded net loss of USD 20 million. However, the number is 49% lower than earning in fourth quarter of 2019, which is $57.2 million, mainly due to lower nickel price and also lower shipments. The average realized price in first quarter of 2020 was $10,428 per ton, about 20% lower compared to the realized price in fourth quarter of 2019.

PT Vale recorded sales of $174.6 million in the first quarter of 2020, 37% lower than sales recorded in previous quarter, fourth quarter of 2019. The group's cost of revenue in first quarter of 2020 decreased by 14% to $154.2 million from $180.1 million in the fourth quarter of 2019.

So the graph shows the comparison between our average realized nickel price and unit cash cost of revenue. As you may see in the graph, our margin is still positive, and we were able to manage our cost prudently.

Next is on energy consumption. HSFO usage per ton of nickel produced decreased by 10% compared to the previous quarter and decreased by 11% compared to the same quarter last year. So on the other hand, diesel and coal consumption in the first quarter of 2020 increased by 9% and 2%, respectively, over the previous quarter. So the higher diesel consumption was mainly due to the longer mining hauling distance.

Next, I'm going to talk about the cost efficiency. So in early 2018, we launched a 2 years program to achieve $50 million cost reduction target. So since then, we implemented a series of initiatives to eliminate operational waste and improve efficiencies.

So as of March 2020, we were able to realize cost savings of $7 million. So it is the saving from January to March, and the target that we have for this year is around $43 million. So we actually did (inaudible) to our target, and at the same time, also looking for different (inaudible) initiative to achieve the $50 million cost- saving target.

So the group's cash and cash equivalent as of March 31, 2020 was $290 million (sic) [$292.8 million], an increase of about $44 million from the balance of December 2019. This was mainly due to the lower cash spending on capital expenditure in first quarter of 2020 compared to the previous quarter.

Next on the development of the project. For the project development progress, we received the AMDAL license for Pomalaa in January 2020. And now we are in the process of getting the first year permit. While for Bahodopi, we are still waiting for the AMDAL and other license to be approved. We expect to have final investment decision with partners for both projects, Pomalaa and Bahodopi, by first quarter of 2021.

So I think that's the end of the presentation. I now will hand over to the moderator for the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Jayden from Macquarie.

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Jayden Vantarakis, Macquarie Research - Head of Research [2]

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Just a quick question for me. Just on the tax, it looks like in the first quarter you had a positive tax number versus usually paying around 25%. Should we expect to see this in the coming quarters? Or will we see a reversion back to the previous tax rates? That's my first question.

And the second question is just on the ASP. If I look at the implied nickel price on 100% basis, it was higher than the LME for the quarter. I presume that there's some backward linkage to the very end of last year. So just wondering what your expectations are you can share for ASP realizations going into 2Q.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [3]

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Thanks, Jayden, for the question. For the tax rate, we actually have factored in the reduction of the CIT tax rate from 25% to 22% in this financial segment for the first quarter. I think if we compare like the installment of the CIT number installment until the end of the year, the difference between 25% and 22% is around USD 3 million. But we will basically record it in each quarter.

So for the first quarter, the installment that we place is actually still following the installment from last year until we actually submit our CIT return, which will happen in April. And in April, once we actually submitted the CIT return and then we will basically apply for the lower CIT installment as per the recognition.

And for the second question is -- I didn't really get the whole question, but if I can actually capture the last question is about the expectation of the nickel price for the second quarter of the year. Yes, the expectation, like right now, the nickel prices is in the level of $12,000. So like it's depending on how large the impact of the coronavirus in the market. So we expect that the price will remain as it is in the $12,000 level. We see today in the LME, the LME stock is actually the [231 a 1,000 pound] level. We see that probably the Chinese is actually is now resumed -- resuming to start up the operation. Probably the pace of coming back to the operation will be slow, but we expect that at least for the second quarter of this year, the nickel price will remain as it is.

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Operator [4]

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(Operator Instructions) Our next question, Ariyanto.

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Ariyanto Kurniawan, PT Mandiri Sekuritas, Research Division - Analyst [5]

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Kanter, I have 1 question with regards of your project. From what I understand, you have 2 projects, and the project were received (inaudible), right? So certainly, the government has issued a regulation about the nickel price -- nickel ore pricing. So can you share with us the agreement of the pricing is going to be using this new government regulation? Or there are other agreements that you mentioned?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [6]

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Yes. Thank you, Ari, for the question. Yes, we have seen the new regulation issued by the government. Basically, we're still waiting for the multi-channel chemical implementation regulation. As we read from the newly issued regulation that kind of floor price set by the government with the maximum tolerance of 3% for any adjustment due to the impurities, right, or other timing difference in the transaction. So we're still waiting for the formula. We don't know yet whether the anticipated regulation will also mention about limonite, but we believe that it will definitely mention about saprolite.

So for the 2 projects, we are still negotiating the pricing with our partner. It is something that we have anticipated that the regulation will be issued. So any negotiation that we will have with the partners, we continue the old pricing. We definitely need to comply with the regulation. It will impact probably the -- some economy of the smelters but this is something that is still under negotiation, and we believe we will come up with optimal kind of agreement that will benefit both mining and also the smelters.

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Ariyanto Kurniawan, PT Mandiri Sekuritas, Research Division - Analyst [7]

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Just a following question. Is it possible for you, Vale and the partner to use the test cost per (inaudible) of the market price or the revenue? Or you have to comply with the government regulation with regard of your pricing?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [8]

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My understanding Ari that like the government-based smart price will be the sure price. Again, as I mentioned before, there's a room for adjustment to the government-based smart price due to impurities. For example, if we sell ore and then the ore that we deliver actually has some impurities, there would be adjustments to the price, but the maximum adjustment would be 3%, right? So like, okay, is -- government-based smart price minus 3% is basically the lowest we can go. So that's what we are having in our hand now, and then would be the basis of the negotiation that we have. So it is still ongoing. We don't know yet the pricing for the 2 projects, but we believe we will conclude the negotiation.

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Operator [9]

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Our next question, [Tim] from Macquarie.

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Unidentified Analyst, [10]

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Just a quick question on your development projects with Pomalaa and Bahodopi, which I presume is the nickel (inaudible) project. What is the approximate start-up expectation for those 2 projects in year? Basically, which year do you think this production will take place? And secondly, you didn't mention anything about the expansion of your existing operation from 80,000 tons a year. Is there any news on that? Are you planning to go beyond 80,000 at any stage? And if so, when?

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [11]

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Thank you, [Tim]. I will answer. Probably, Febri or Dani can add. So for the 2 projects, we are now pursuing the requirement for us to take the final investment decision. And as I mentioned in the presentation, the target time line for the final investment decision would be quarter 1 next year. Hopefully, we can achieve that, although we see that there's a couple of issues now with the COVID-19 that limit us from traveling, from doing some field work, especially for permitting activities. But we will keep the target as it is now.

And for Bahodopi project, we are planning to have the (inaudible) smelters built in Bahodopi. It is too (inaudible) so in terms of time line for completion of our construction, the mechanical completion will probably be in 2024 time line, while the HPAL project in Pomalaa, a small complex technology and probably will take longer to complete. And then we're estimating that probably mechanical completion in 2025, 2026 time line. That's our estimation today.

And regarding your second question on the expansion of current facility in Sorowako. Yes, the plan for the expansion is actually tied with our CoW commitment to increase our production capacity in Sorowako. We are still doing the study now, like finalizing the study for another one line of [KEF] in Sorowako to give us additional production around 10 to 12 kiloton. Probably the time line would be similar, like probably 2021, 2022 starting, and then we will complete probably 2023, 2024.

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Unidentified Analyst, [12]

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Okay. And what is the capacity going to be at Bahodopi?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [13]

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Bahodopi? Sorry, you're asking -- your question is about the capacity for Bahodopi or for the other project?

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Unidentified Analyst, [14]

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For Bahodopi, yes.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [15]

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Bahodopi in -- our plan today is around 73 kilotons. .

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Unidentified Analyst, [16]

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73,000.

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Operator [17]

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Our next question, Ricky Ho from CIMB.

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Ricky Ho, CIMB Research - Analyst [18]

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Trying to update my energy cost consumption -- or sorry, my energy cost assumption. I got a couple of questions. Number one is, can you remind how do you procure your HSFO and also diesel. So I understand that on the global level, yes, the oil price has come down, but I am trying to measure the impact of how long will the lag be until it is fully translated into your numbers later on. And additionally, similar to -- related to oil, will the degree of the decline on whatever we see in WTI or Brent be the same with what will happen to the Indonesia's scale, for example? If I'm not mistaken, if you procure from Pertamina, then a few years back, they have been raising margin, taking higher profitability on their side. So I assume if you procure from Pertamina, then the decline will not be as high as what the global oil price has come down.

And then second question related to your production, will there be any upside to your production forecast of flat year-on-year growth? If yes, how much will the upside be? Higher level, about maximum capacity is 80,000 ton. But will you be able to boost to that level? And I assume that the flat year-on-year production goal have been assuming no maintenance taken through the furnace that you plan to do so per year. So assuming, say, for example, actually no maintenance, then we will there be upside to your production forecast. That will be all.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [19]

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Thank you. So the first question is related to the oil price. Yes, the Brent index, as we have seen -- been seeing lately, the WTI index is actually -- is even lower. So we are -- you're right, I mean we're having contract with Pertamina now in our formula -- pricing formula with Pertamina, we are using MOEX index, and the MOEX index is actually following the Brent index. There will be time lagging around 1 to 2 months from the MOEX to follow the Brent index. If you see the Brent index went down probably 2 weeks, last week and 2 weeks ago, then the level of price that we have today will appear in our cost probably 1 month or 2 months from now. So that's the lagging that we have.

And also for HSFO, there's -- on top of the baseline, which follow the index, we have the hedges around USD 3-point something. So we have to add that into equation to get the total oil price. But I think from our simulation, if the oil price declined by 30%, right? And as we see today, our unit cash costs will drop by around 9% to 10%. That's the simulation that we have. We have to be very careful as well with the movement of coal price at the same time. As you know that we replace oil with coal in some of our facilities in dryers and kiln. So the price arbitrage between oil and coal need to be monitored carefully. Technically speaking, we can switch easily from coal to go back to oil. But then what we need to anticipate is actually the supply itself, right, how quick we can get the oil supply to our facility and how big the storage that we can have so that we can go back to the oil. This is something that we monitor closely.

But to answer your question, yes. But I think -- again, coming back to your question, the Pertamina, yes, we are having contract with Pertamina. That's an additional cost on top of the index in our pricing formula that we agreed with Pertamina, and there will be time lagging of 1 to 2 months until the price can be seen in our cost.

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Ricky Ho, CIMB Research - Analyst [20]

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I see. So just -- before we move on to the second question, so I assume that the full impact is going to be in first quarter then, rather than second quarter, right?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [21]

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Yes, second quarter -- exactly. So second quarter probably only in late May, June, we will feel that. And probably, if the price remain as it is, we will have that in third quarter as well. At the same time, we are also planning for hedging right now. We're evaluating the option to do the hedging. Also looking at the fluctuation of the future price for the HSFO based on this now. So it's highly possible, (inaudible) we like that setting, we're looking for that now.

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Ricky Ho, CIMB Research - Analyst [22]

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Yes. Sorry. Do you mind to share your in-house forecast for this year and also next year? Like what are the oil price that are currently in your financial models or in your assumption? I know that things have been changing a lot in the past couple of days. But if you could share what the assumption that you are using on the oil price, then that will be good.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [23]

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So the oil price, again, I mean, I will give you just rough estimation. So for this year, after December, we are forecasting to have oil price below $25 per barrel. But we have to add the $3 for the exit. So it's around -- the total cost will be around $27. So for full year, it's going to be $27, but the impact will be, I would say, half of the full year operation and then next year is perhaps [16] out of -- from this year level.

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Ricky Ho, CIMB Research - Analyst [24]

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Yes. Okay. Sure. And then if you can share about the production process.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [25]

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Yes. The production, you correctly mentioned about the recap that we achieved back in 2015, 80 kiloton. Actually, since last year, since our operating -- operational rate, production rate has been -- if we analyze, right, so monthly, we actually produce 6.6, 6.7 kiloton monthly since May last year. So if we analyze the average, we actually -- 6.7 multiplied by 12, we actually in that production rate as we have in 2015. But remember, in 2015, we have the higher nickel grade. But this year last year, nickel grade is not as high as in 2015, but we still managed to have the production weight equal to 2015.

And this actually shows the consistency that we have in the operation or the improvement that we have been doing start -- showing some results. But the thing that we have to anticipate, as you mentioned, is the shutdown. For example, for the quarter 1 this year, we were producing 17 kiloton, right? But we have 15 days shutdown in February, March for the roof repair for the 3 furnaces. So if we actually eliminate that, like normalize that, the result of the production for first quarter of this year will be the same with the fourth quarter of last year. So for 2020, we're still discussing now on the furnace 4 rebuild. I mean in the last earning call, we mentioned about this furnace 4 rebuild. But we're now evaluating this activities, there's a possibility that we have to push the rebuild to 2021, that we will communicate when we have confirmed plan on this.

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Ricky Ho, CIMB Research - Analyst [26]

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So the furnace maintenance is not right now planned at the moment?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [27]

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Yes. We have to factor the impact of the COVID, the procurement of the material and also the availability of the expert to help us during the furnace 4 rebuild, so this is something that we're still discussing right now.

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Operator [28]

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Our next question Eun Young from DBS.

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [29]

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My question first thing is why -- do you have any impact on the operation because of the COVID-19? I understand also Indonesia is doing kind of lock down from the government. So I want to understand what's your operational situation currently? And second thing is what's your expectation on the production volume in second half -- so second quarter, second quarter? So do you think your production volume to be -- to increase compared to the first quarter or to decline compared to the first quarter?

And then I understood your cash cost has been increased to about 7,170 per ton. It's about 7% compared to last first quarter. What is your reason for the cash cost increases? That is a third question.

And then finally, I just listened to your answer about your completed construction of number 4. I'd like to ask (inaudible). So if you postponed the rebuilding of this furnace to the next year, what would be your sales volume, production volume in 2020? That is all my questions.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [30]

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Yes. I got your first and the third question, but I could not hear your second question clearly. Can you repeat again?

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [31]

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Second question is that what is your expectation on the production volume in second quarter. So first quarter...

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [32]

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No, no. That is the first question. I mean your question is related to the costs.

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [33]

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Your cash cost in first quarter this year was 7,170 per ton, which has increased by 7% compared to last fourth quarter. So what is the reason for cash cost to increase? Can you -- did you get it?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [34]

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So I think your first question is related to the COVID-19 impact to the operation. Yes, as of today, our operation is still running as it is. We have put several measures in order to minimize the impact and also to protect our employees. We understand the risk that is exposed by running the operation. That's why we are doing whatever we can do in order to protect the employees, right? We apply the physical distancing at work. We spray the disinfectant at the workplaces. We provide the nutrition -- additional nutrition for the employees. So at this point of time, as of March, in term of production, as you can see, there's no impact yet from the COVID.

However, we monitor very closely, especially the absenteeism on the employees and also monitor the positive cases confirmed around our operation and also to our employees. So we -- at the same time, we are developing the business case -- business continuity plan, we give several scenario depending on the affirmability of the manpower that we can use to run the operation. I think the running operation is not for economical reason, right? We have a big responsibility to operate still because like Vale is not only a big corporation, but we are also providing a lot of facilities, a lot of services to the community as well as providing benefit for the local government there. So stopping production will have a big, major impact to the community as well as to the government, right? So that's why whenever possible, we still maintain the operation. But at the same time, we are also aware. We are not going to put our employee at risk. We are protecting them, but we monitor the development very closely.

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [35]

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So how many confirmed cases in your company?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [36]

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So we have one confirmed case in Jakarta. It is related to -- it's actually one Jakarta-based employee, but he is fully recovered now. So it -- yes. And we have -- it is not our employee, it is contractors. We have also one positive case confirmed in Sorowako. So it is something that we have to watch out closely for sure and also increase our awareness of the situation.

So I will probably jump to the third question first. So like if we postpone the decision to do the furnace rebuild in quarter 4, meaning that in quarter 4, we will be operating -- fully operating...

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [37]

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Fully.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [38]

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Again, yes, yes. So the impact will be 100% in 2021, right? So I cannot disclose the number yet, like what would be the production level in 2020 if we actually postpone the furnace 4 rebuild. It is something that we're still discussing now. But one, we actually have a final decision on that. We will have further communication on that.

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [39]

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Okay. Okay. So second -- yes. So what is your reason for increases for the cash cost in the first quarter, this quarter compared to last fourth quarter.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [40]

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So let me just compare -- I'm not sure if it is increasing. Because my number's still 50%. So...

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [41]

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Oh, really?

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [42]

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Let me check. If you see -- yes, if we compare -- probably, the main reason is because -- but I will check. But if we compare the shipment, if we ship -- we compare the shipment in the first quarter of 2020 and the shipment of the fourth quarter 2019, then the shipment on the fourth quarter is much higher than the shipment in the first quarter of 2020. So probably that is the explanation. But I will check again. So if the shipment is lower in first quarter 2020 compared to fourth quarter 2019.

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Eun Young Lee, DBS Bank Ltd., Research Division - VP [43]

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Okay. Let me check my numbers, too.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [44]

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Yes, yes. So okay, I think you're right. The graph shows that increased just a bit compared to the last quarter. I think, again, my explanation is correct due to the lower production this quarter compared to last year. Last year, we also pushed forward all the maintenance to the first semester as well. So basically, the maintenance program that we plan to execute in the second semester of 2019, we actually pushed some of them to first semester of 2019.

So in quarter 1, as I mentioned before, we have 15 days maintenance program related to the furnace 4 rebuild. So it's a combination. So the explanation is that it was a combination of lower production and higher maintenance loss in quarter 1 compared to previous quarter.

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Operator [45]

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There are currently no questions in queue. (Operator Instructions) Our next question, [Tim] from Macquarie.

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Unidentified Analyst, [46]

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Yes. Sorry, guys, you probably want to go and have dinner, but -- your first quarter cost of [7,038] or your cash cost of revenue unit sales, your parent company, Vale, reported [7,037]. Is the way Vale reports the cost for PT Vale, does that include the cost through finished nickel whereas you're reporting the cost just to nickel matte. Is that correct?

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [47]

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Yes. What we reported is the cost to produce the nickel matte. Yes. Yes. I'm not sure, like probably the cost that Vale reported is the other cost to refine that. I'm not sure. But definitely for PT Vale, it is cost to produce nickel matte.

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Unidentified Analyst, [48]

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Okay, okay. So there could be about a quarter lag though between the cost Vale reports and the cost you report because they've got to process that into a finished product I presume due to timing issue.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [49]

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Probably. I don't know. I have to check the numbers.

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Operator [50]

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Our next follow-up question, Jayden, please go ahead from Macquarie.

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Jayden Vantarakis, Macquarie Research - Head of Research [51]

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Just want to clarify the comments earlier just on maintenance. Just to be clear, the rebuild of one of the furnaces, that's still ongoing for this year, and that's the reason why production should be around 71,000 tons. Is that correct?

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [52]

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Yes. So the 71,000 ton is based on the assumption that we will execute the furnace 4 rebuild starting this year, starting quarter 4 this year. But as I mentioned before, there would be -- there's a likelihood that we might need to push the furnace 4 rebuild to 2021. So basically, all the 4 furnaces will be running in 2020. So as you can expect, the production will be higher than 71,000. But we are discussing that, right, whether this is something that we are doing, like we pushing the rebuild to sometimes next year and if so, what would be the impact of production, so it is something that we have -- we are discussing now. We will be communicating once we have the final decision on that.

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Jayden Vantarakis, Macquarie Research - Head of Research [53]

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Sure. And I guess then that would allow you to produce at 20,000 tons a quarter, right? So you could probably get up to say 77,000 or thereabouts.

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [54]

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It's assuming that in every quarters, we are running without any shutdown, then yes, right? So 20,000, 6,000, 6,600, 6,700 per month is the running rate that we have today. But we have to anticipate as well like the shutdown that we will have in quarter 2, quarter 3. And also like -- this is just our expectation, right? So the decision to delay or to defer the furnace 4 rebuild might have some operational consequences, right? Like if we actually decided to decide to run the furnace 4, then probably we need to -- we may need to monitor the condition and probably adjust the power level, just depending on the condition of the furnace 4 at that time, just to be very, very safe in the operation.

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Jayden Vantarakis, Macquarie Research - Head of Research [55]

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Okay. That makes sense. And 1 final question. At the start of the call, I think in the prepared remarks, Pak Nico said that the plan is to execute the agreement with Inalum in May. Just want to clarify if you can provide any guidance, whether that will be old shares, a combination of new shares, old shares. What's the latest sort of thinking if you can provide any color on what we should expect from that when it is finalized?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [56]

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So Jayden, your question is whether it is all shares, meaning just direct transaction between the shareholders, the existing shareholders to Inalum or whether we are going to issue the new shares, is that your question?

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Jayden Vantarakis, Macquarie Research - Head of Research [57]

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Yes, exactly. Because there's many ways you could bring down the ownership price. I just wanted to know what's the latest thinking if you're able to share with us here.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [58]

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So at this point of time, I think there's no discussion on issuing new shares for now. So the expectation is to acquire the existing shares that is owned by our major shareholders today.

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Operator [59]

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Our next follow-up question, Ricky Ho from CIMB.

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Ricky Ho, CIMB Research - Analyst [60]

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I just want a follow-up question on your divestment. I am sure that at the moment I think the most likely scenario is that there will be a direct stake sale between VCL and also Inalum, right? But under scenario that Inalum might have some difficulty in financing, is the financing of the transaction is already, I would say, safe enough or -- I mean, I know that I have been preparing USD 100 million. But the thing is like a lot of SOE has been under pressure in terms of the credit ratings, and they just acquired Freeport last year. And the thing is that the Freeport cash flow is not going to come until next year, I believe. Then there will be some pressure if they have to take up more investment in other companies. Under that scenario in which there might be some difficulties to do a direct transaction, will you go back to the other schemes such as the rights issue for the divestment?

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [61]

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Yes. Probably Febri or Pak Nico can add to me, but there's no discussion at all to chase the (inaudible) right issuance at this point of time. I understand your point that probably there's some difficulties financially to conclude the transaction. But it is something that we are still discussing right now, like both party as a goodwill to conclude this transaction as soon as possible. Vale understand perfectly the challenges that Inalum is facing today. That's why we are actually very open to discuss with Inalum on how to conclude this as soon as possible. But the discussion on the rights issuance is not in the table yet as for now. Probably Pak Nico, you can add on that.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [62]

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Yes. Anto is correct that we actually -- the discussion Inalum did not open the discussion about the right issuance. So far, we just need to finalize the definitive agreement with Inalum.

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Ricky Ho, CIMB Research - Analyst [63]

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I see. So I'd say, worse comes to worst, they are lacking funds to acquire the stake that the parent -- your parent company has to sell down, and then that's kind of the government open that this divestment to be extended to next year or more -- definitely should be later more than 2020, if they have some financial issue because it also doesn't look good from the government side, so that USD 500 million gets off the country while rupia is under pressure. And now we're doing some (inaudible) rates and so on. So definitely, there will be some pressure on their side. So are you in fact with the government, say, to extend the divestment period through later more than 2020, for example?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [64]

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Yes...

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Bernardus Irmanto, PT Vale Indonesia Tbk - CFO & Director [65]

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Yes. Go ahead, Pak Nico.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [66]

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So sorry. We have not come to that discussion. Of course, we understand your concern, but so far, Inalum has not actually expressed their problems with their financial situation. So we just have to assume that they are actually going to be able to conclude until we actually finalize the definitive agreement. We cannot comment on their ability to raise funds.

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Ricky Ho, CIMB Research - Analyst [67]

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I see. So basically, it still remain on track, the divestment will happen based on the negotiation with Inalum, right? So, so far, so good. That should be the best case, right?

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [68]

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Yes. That's (inaudible).

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Operator [69]

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There are currently no questions in queue. (Operator Instructions) As there are no further questions, I will now hand the session back to Pak Nico. Over to you.

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Nicolaas D. Kanter, PT Vale Indonesia Tbk - President Director & CEO [70]

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Okay. Thank you, Aaron. So I would like to basically thank everyone again for all your support, and I'll be looking forward to meeting you again in the next quarter earnings call. My warm wishes to all of you, and please stay safe and well, healthy. Thank you very much.

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Operator [71]

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Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect. .