OREANDA-NEWS. Vale had a solid financial performance in the second quarter of 2013 (2Q13) amidst an environment of below-trend global economic growth and declining minerals and metals prices. Operating revenues were USD 11.3 billion, operating income, as measured by adjusted EBIT, reached USD 3.6 billion, adjusted EBITDA USD 5.0 billion, and underlying earnings USD 3.3 billion, USD 0.64 per share.

Copper, gold and coal production achieved all-time high figures, at 91,300 t, 63,000 oz and 2.4 Mt, respectively, while nickel output remained at 65,000 t, its best second quarter since 2Q08. Salobo is ramping up successfully, beginning to generate cash in June.

We are executing our business plan, which provides exposure to a large world-class natural resource base and multiple opportunities for shareholder value creation, underpinned by a greater focus on cost and capital management discipline, financial strength and an efficient logistics infrastructure. In this context, we are concluding important base metals projects, such as Salobo II copper, executing some world-class bulk materials projects, such as Carajas S11D iron ore and Moatize II coal, expanding the logistics network - Teluk Rubiah, CLNS 11D and the Nacala Corridor - to support our global operations. Simultaneously, we are divesting non-core assets, cutting research and development (R&D) expenditures, operating costs and corporate expenses and maintaining a strong balance sheet.

We have continued to deliver on our promises. The several initiatives under way are producing sequential improvements: total costs and expenses fell by USD 736 million in 2Q13 versus 2Q12, accumulating a reduction of USD 1.6 billion in the first half of 2013 (1H13) compared to 1H12 - driven by decreases in costs by USD 845 million (8%), sales, general and administrative (SG&A) expenses by USD 435 million (42%) and R&D by USD 324 million (49%).

Supported by the cost cutting efforts, adjusted EBITDA remained steady at USD 10.2 billion in the first half of this year, declining only USD 304 million on a year-on-year basis, notwithstanding the USD 2.1 billion fall in revenues determined mostly by price decreases.

We are strongly committed to persist in our relentless efforts to pursue a cost structure consistent with continuous value creation through the cycles. In addition to our own efforts, the cost performance of 2Q13 was reached with an average Brazilian real (BRL) / US dollar (USD) exchange rate of 2.07 in 2Q13, thus highlighting potential opportunities for further savings, given that the BRL/USD stood at 2.23 at the end of 2Q13.

Iron ore sales were slightly above planned, 61.9 Mt in 2Q13 and 117.6 Mt in 1H13, and in line with 1H12. The average price for our iron ore shipments changed to USD 99.20 from USD 111.70 in 1Q13, as we managed to cushion the effect of the fall of the IODEX 62% Fe to USD 125.95 in 2Q13 from USD 148.40, given the mix of different pricing mechanisms in our sales portfolio. Revenues were sustained at USD 6.1 billion and adjusted EBITDA for ferrous minerals kept steady at USD 4.7 billion, the same level as 1Q13.

Our total debt came to USD 29.9 billion from USD 30.2 billion at the end of 1Q13, despite paying USD 2.25 billion in dividends and investing USD 3.6 billion in 2Q13, thus contributing to sustain our financial leverage at 1.6 times the adjusted EBITDA for the last twelve-month period, a low level for this stage of the cycle.

Cash position was shored up by important improvements in working capital resulting from a series of initiatives to increase efficiency and optimize capital management. The number of days of receivables was shortened to 40.1 in 2Q13 against 50.6 in 1Q13. This has contributed to free cash in the amount of USD 1.3 billion when compared to March 2013. Inventories also fell by USD 378 million in 2Q13 versus 1Q13.

One important milestone was attained in July with the granting by the Brazilian environmental protection agency (IBAMA) of the installation license (LI) for Carajas S11D, the largest, highest quality and lowest cost world-class iron ore project in the global industry. Given the combination of high quality and low operating costs, S11D has the potential to generate sizable shareholder value even in the face of a scenario of low iron ore prices.

We also reached completion of work on several projects to increase the railway capacity on the Carajas railroad (EFC), an important enabler of production growth for the Additional 40 Mtpy project. The license to implement S11D, the improving operational performance of base metals on the back of the successful ramp-up of Salobo, and the strong financial performance supported by lower costs and expenses will uniquely position Vale to be amongst the clear winners in the natural resources industry in the years to come.