On October 26th, Vale released its financial results for the third quarter of 2023. In the current quarter, the adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) generated by Vale's ongoing operations was $4.5 billion, an increase of 12% year-on-year and 8% month on month, respectively.
The financial report shows that the EBITDA of the company's iron ore solution business increased by 18% year-on-year and 13% month on month, respectively, mainly due to the price increase and sales growth of iron ore.
In terms of cost, in the third quarter of 2023, the cash cost of the company's iron ore C1 (excluding third-party procurement) was $21.9 per ton, a decrease of 7% month on month, which makes it expected to reach the cost guidance target of $21.5 per ton to $22.5 per ton for the cost year. In the third quarter of 2023, the operating free cash flow was $1.1 billion, which means the cash conversion rate of EBITDA reached 25%.
In the third quarter of 2023, Vale's capital expenditure will be $1.5 billion, including growth and sustainable investment, with a year-on-year increase of $300 million, mainly due to the continuous promotion of key projects such as the Nanling Mountain 120 (Serra Sul 120 Mtpy), Capanema, Voises Bay Mine Expansion and Salobo III.
During his analysis of the business situation, Vale CEO Bai Anduo stated that the company continues to make significant progress in its strategic and business priority areas. In terms of iron ore solutions, it is expected to achieve the annual production guidance target, with total production increasing so far this year, average quality improving this quarter, and the gap between production and sales narrowing. In terms of energy transition metals, the company is promoting asset evaluation to achieve excellent operations. The continued transition from the Woys Bay mining area to underground operations, along with various maintenance activities, will support sustainable asset performance. In terms of copper business, the successful production of Salobo 3 factory helps to increase total production and reduce unit costs.
We are moving towards the company's long-term goals. The first iron ore crushing plant has started load testing, and we have also signed two new agreements for the development of a giant hub. Our Dick 2 dam has been demolished, and the emergency level of the B3/B4 dam has been reduced to level one, which is in line with the new dam management framework we developed in 2019, "he said.
The iron ore briquetting mentioned by Bai Anduo was developed by Vale after nearly 20 years and announced in 2021. Currently, Vale is the only company with briquetting technology.
In May of this year, the company announced that it had successfully tested a new type of iron ore briquette suitable for direct reduction production routes, which helps decarbonization in steel production processes. Direct reduction is one of the production routes used in steel production, which is cleaner than the blast furnace converter route because it uses natural gas to replace coke (produced from coal), thereby reducing carbon dioxide and other greenhouse gas emissions.
In September of this year, Vale signed an intention agreement with Essar Group to supply iron ore pellet products for the Essar Group's "Arab Green Steel (GSA)" project in Saudi Arabia. Vale will supply 4 million tons of iron ore pellets annually for direct reduction pathways. Among them, the briquetting products will be produced from the giant hub located in Saudi Arabia, and the pellet products will be produced from pellet factories in Oman or Brazil.
In the same month, the company signed a memorandum of understanding with Port Asu to jointly study the development of a giant hub in Rio de Janeiro, Brazil, to produce HBI (hot pressed block iron) through a direct reduction path. The giant hub will initially receive iron ore pellets from Vale, and in the future, an iron ore crushing plant may be built to provide raw materials for the direct reduction plant within the hub.
In an interview with Securities Times reporters in August this year, Bai Anduo stated that Vale has almost the same carbon reduction goals as China. The company's goal is to reduce emissions from Scope 1 and Scope 2 by 33% by 2030, reduce emissions from Scope 3 (indirect carbon emissions from product value chain activities) by 15% by 2035, and achieve carbon neutrality by 2050.
Decarbonization is an irreversible trend, and various parties within the industry, including steel mills and major mining enterprises, are seeking solutions. Direct reduction technology will become mainstream, initially using natural gas and then green hydrogen. We are developing technology to support this steel production route to maximize competitiveness. We have also developed a proprietary technology called cold pressing to replace sintering machines, which are cost-effective and reduce emissions Both have higher efficiency The Director of Global Business and Product Development at Vale told Securities Times at that time.
This quarter's financial report also shows that in September this year, Vale and Petrobras signed an intention agreement to evaluate opportunities for cooperative decarbonization, including the development of sustainable fuels such as hydrogen, green methanol, biofuels, green ammonia, and renewable diesel, as well as carbon dioxide capture and storage technologies.
It is reported that Vale has set a new goal of reducing the average freshwater usage per ton of products by 7% by 2030. Due to a 20% reduction in our freshwater usage, the new target will reduce our freshwater usage by a total of 27% (based on 2018). The new target takes into account the water scarcity situation in the company's region and will implement stricter water resource management processes and organized participation plans.