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Vale S.A. (NYSE:VALE)

Q1 2013 Earnings Call

April 25, 2013 11:00 am ET

Executives

Murilo Pinto De Oliveira Ferreira - Chief Executive Officer, President, Member of Strategic Committee and Member of Disclosure Committee

José Carlos Martins - Executive Director of Ferrous and Member of Executive Risk Management Committee

Luciano Siani Pires - Chief Financial Officer, Executive Director for Investor Relations, Member of Finance Committee, Member of Executive Risk Management Committee and Member of Disclosure Committee

Roger Allan Downey - Executive Director of Fertilizer and Coal

Clovis Torres - Executive Vice President

Analysts

Rodolfo R. De Angele - JP Morgan Chase & Co, Research Division

Felipe Hirai - BofA Merrill Lynch, Research Division

Carlos de Alba - Morgan Stanley, Research Division

Ivano Westin - Crédit Suisse AG, Research Division

Steve Bristo - RBC Capital Markets, LLC, Research Division

Paul A. Massoud - Stifel, Nicolaus & Co., Inc., Research Division

Renato Antunes

Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to Vale's conference call to discuss first quarter 2013 results. If you do not have a copy of the relevant press release, it's available at the company's website at www.vale.com at the Investors link. [Operator Instructions] As a reminder, this conference is being recorded. To access the replay, please dial 55 (114) 688-6312, access code 1463163#. The file will also be available at the company's website at www.vale.com at the Investors section.

This conference call and the slide presentation are being transmitted via Internet as well. You can access the webcast by logging on to the company's website at www.vale.com, Investors section or at www.prnewswire.com.br.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors.

With us today are Mr. Murilo Ferreira, Chief Executive Officer; Mr. Luciano Siani, Executive Officer of Finance and Investor Relations; Mr. José Carlos Martins, Executive Officer of Ferrous and Strategy; Mr. Roger Downey, Executive Officer of Fertilizers and Coal Operations and Marketing; Ms. Vânia Somavilla, Executive Officer of Human Resources, Health & Safety, Sustainability and Energy; Mr. Galib Chaim, Executive Officer of Capital Projects Implementation; Mr. Humberto Freitas, Executive Officer of Logistics and Mineral Research; and Mr. Peter Poppinga, Executive Officer of Base Metals and Information Technology.

First, Mr. Murilo Ferreira will proceed with the presentation, and after that, we will open for questions and answers. It's now my pleasure to turn the call over to Mr. Murilo Ferreira. Sir, you may now begin.

Murilo Pinto De Oliveira Ferreira

Good morning, ladies and gentlemen. I'm very happy to present our results for the first quarter of 2013, with increase in operating income, margins and cash generation.

Operating income was $4.2 billion, 41% and 68% higher than fourth quarter 2012 and first quarter 2012.

Adjusted EBITDA reached $5.2 billion, 18% and 4.8% regarding fourth quarter 2012 and first quarter 2012. It was the second highest figure for the first quarter, lower only than the first quarter 2011 when iron ore, nickel and copper has peaked.

Underlying earnings, net earnings excluding the effect of nonrecurring events, of $3.2 billion were 65% above last quarter but 10% below third quarter 2012.

The lower earnings are explained by higher tax payments and no-cash accounting, changes in the exchange variations in the market-to-mark derivatives.

Above all, the most important things to highlight is about the quality of our financial performance. For the first time in more than 40 quarters, cost from expenses were the main drivers of the business. There was an across the board foreign cost and expenses and these has contributed with $1.5 billion to increase in adjusted EBITDA, more than offsetting the effect of decline of the shipment. Definitely, this is not a one-off event. The progress, so far, arise from several initiatives underway.

Our first group of cost cuts is made possible by the optimization of the scope of our activities, as a consequence of the decision to deploy capital only to higher return business.

Our second group comes from the focus on value and quality. These include the changes in procurement, expected to deliver material OpEx and the CapEx reductions, a deep reassessment of contracts with several suppliers, development of new suppliers, changes in process and the idling of loss making operations.

The opening of new iron ore mining pits, replacing old ones, jointly with the Carajás expansions will be important to lower operating cost. This has yet to come over the next 2 years.

The performance of base metal assets which has been put over the last few years is gaining speed. In addition to the gold stream transaction, which had unlocked substantial hidden value to these assets. Vale New Caledonia, Salobo, and Lubambe, the 3 projects ramping up are running according to the plan.

As a pioneer investment to make use of the technology, VNC traced several problems, but it is very likely to become the first successful large-scale HPAL operation. It produced in the first quarter 5,100 metric tons of nickel, plus 372 metric tons of cobalt. We expect a big improvement in its cash flow this year and to move in a positive cash flow in 2013.

Salobo operated at 65% of its nominal capacity last month and as a consequence, copper and gold output reached all-time high levels. Base metal contributed with 35% of the drop in cost and expenses the first quarter of 2013 against first quarter 2012.

Adjusted EBITDA of base metals, even including the pre-operating, idle capacity and stoppage expenses, reached $757 million, with a margin of 41%, a large improvement of the numbers of the last quarter, and drew up 9.8%.

We invested $3.97 billion in the first quarter, seeing strict discipline in management capital with all the financial rates are consistent with investment rates.

Our main projects are on schedule and budget, and we have made progress -- good progress, simply buying the portfolio which in short term is reflected in the behavior of R&D expenditures.

Gradually, uncertainties are being mitigated. The rulings of the Supreme Court early this month on the foreign companies case eliminated the hereto activity of taxation and the obligation to post guaranty to continue the tax dispute. We remain confident in a favorable outcome.

We strongly believe that the new mining regulation in Brazil is not going to create any constraint to the investment. We believe that we are in the right direction. And we're proud to have delivered on the commitments we have made so far, but it's still the beginning of a long journey. Together with our team, our motivated team, and our world-class assets, we look forward to achieve our goals. Now, I'll pass it to Martins to provide some clarification regarding price.

José Carlos Martins

Well, thank you very much. I'd like to take this opportunity to stress the very fact that the quality of our results improved a lot in this quarter. As we can see, not only iron ore prices improved, but we are able to reduce our cost across the lines -- across all the lines, all products substantially, mainly in base metals. Although we have a cost reduction in all areas, our base metals cost is very good in delivering such a result.

So as far as iron ore price is concerned, I would like to go directly to the Chart #9, where we can see how the prices -- our pricing systems happened in this quarter. As you can see, our prices are moving more and more, not only to daily pricing but also is moving more and more to future prices. There is always, that as we deliver the iron ore near 45 days after we ship, we are adjusting our price system to reflect the situation. So our price is 34% of our sales. It's based in the future price which will be the price where the ore is delivered to, mainly, in China.

The second point is to show that we have around 13% of our price based in the past, which means the quarter lagged price system performance Vale reference price which means that 13% of our sales were based on prices on the quarter starting September and finishing in November. So these 2 facts, future price and past price, have an impact on our average price realizations.

Last quarter, this fact improved our price realization because the future prices were growing but in this quarter, we've pushed down a little bit our price realizations.

On a bigger field, all those impacts will be eliminated because it took 6 months or 9 months average. The price will not be so different from the IODEX average that we are used to compare.

As far as market, we have, in the first quarter of this year, 4% growth in pig iron and VLI production, which are the main users of iron ore. So 4% means addition of 70 million tons of market in the first quarter of 2013 against the first quarter of 2012. We believe that the growth in this year will be around 3% as far as the numbers that's represented by WSA, World Steel Association.

So as far as market, we believe that the markets for iron ore will continue to grow in a sound basis, mainly in China, which is, in this quarter, grew almost 8%.

But going forward, we see some pressure from the supply side, mainly addition of production in the second half of this year, mainly in Australia, which we believe will bring around $30 million to $40 million additional tons to the market in the second half, with some pressure on price.

So taking everything together, we do not believe that the price of iron ore can suffer too much. I don't believe that the price can go below $110 per ton in a sustainable basis. And we believe that the long-term prospects continue to be positive for our product. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mr. Felipe Hirai with Merrill Lynch.

[Operator Instructions] Our next question comes from Mr. Rodolfo De Angele, JPMorgan.

Rodolfo R. De Angele - JP Morgan Chase & Co, Research Division

I have 2 questions. The first one, just want to repeat the question that was discussed in the previous calls because I think it's really important, which is the one on cost. I just wanted you to comment about how sustainable is the cost reductions that were very impressive that we saw result in the first quarter. And my second question is on the Valemax. We've started to see in the press that now, those ships are starting to dock in China. So I just wanted to confirm if that is a fact? And if so, if we can expect some reduction on the freight cost in the coming quarters?

Luciano Siani Pires

This is Luciano. Well, on a short-term basis, cost reductions, they come either from reevaluating the scope of our activities or gaining -- doing the same activities at lower prices. When it comes to scope, we have already made some decisions regarding loss-making operations. So I would say that this first quarter results, they also -- they already reflect some decisions that we made in the recent past. The consumption of materials and the scope of activities in the operations have already been -- being reviewed with results also coming on, on this quarter. There's always a question about maintenance. So one way of achieving cost reduction is to postpone maintenance, and -- but these are short-lived. So we're not doing that and one of the evidences of that is that the account -- the materials account has actually posted an increase when you deduct the volumes. So we're not sacrificing the future in order to achieve short-term gains. Much to the contrary, we took advantage of lower volumes to anticipate some maintenance and repairs. When it comes to the prices that we achieved on contracting services and -- we're still in the early stages of the revamping of our procurement function. So we believe that through consolidation of contracts and better planning of our needs, we can get better conditions with suppliers. When it comes to now outside of costs, when it comes to sales, general, and administrative expenses, they are sustainable for 2 reasons: The first, because now we have a much simpler organizational structure. Because we now have a single company with less projects, less initiatives, more focused, so this is permanent. And we also have cut discretionary expenses in an effort to make a culture of thrift and austerity to pervade the company. R&D expenditures are also now in a more -- in a different level because of the trimming of our exploration activities. So we have removed ourselves from less promising areas and countries, and so we have reduced the scope of our exploration activities. And also because having a smaller product portfolio means that you have less to invest in doing engineering studies, which usually are more than half of the R&D expenditures, so another reason why this is sustainable. Pre-operating expenses have gone down because of the successful ramp-ups, specially of New Caledonia and Salobo. We should continue to go down as we ramp up New Caledonia. However, some -- you should expect on the second half, some expenses -- pre-operation expenses of the new projects, the Plus 40, the Carajás projects, the CLN, so -- Long Harbor -- also, Long Harbor. Also we have already recorded $50 million of pre-operation expenses for Long Harbor. So this was individually the most significant increase, which already on the quarter number and should continue going forward. And finally, other expenses, these were impacted by nonrecurring items in the fourth quarter, which simply didn't happen in the first quarter and shouldn't happen again. So we believe also that other expenses are at a much lower level.

Murilo Pinto De Oliveira Ferreira

Thank you, Luciano. Martins, regarding the Valemax.

José Carlos Martins

Well, our strategy to improve our logistic system continues to develop very well on Malaysia. They see other constructions are evolving very fast and we believe that will be in operation beginning of next year. As you can see in the pictures that representing in the material that we distribute to you. Also we put in operation this month another floating station that we operating in Philippines. And also, we opened new ports for receiving Valemax, mainly in Japan and also in Philippines -- in Mindanao, Philippines. We have discussed in Korea to open new ports for Valemax in Korea also. As far as Valemax in China, we -- there's a Valemax in China in middle of this month. This will alleviate the Valemax with the lower cargo and lower draft to accommodate with the Chinese regulations, so it's not a fully loaded Valemax. But was another important step in this regard. As we are talking about China, I would like to remember Chairman Mao, when he said that to walk the longer march, you have only to give the first step. So I think that those Valemax in China will be a longer march for us, but we are giving our steps according to the possibilities. But anyway, taking our strategy as a whole, developing very well. More and more ports are receiving our Valemax and more and more alternatives are developing to those marvelous vessels.

Murilo Pinto De Oliveira Ferreira

[indiscernible] Philippines [indiscernible].

José Carlos Martins

Yes. As we told earlier, we put the second operation and the third station in Philippines and Murilo asked me to stress this, so now we have 2 floating stations. And those support stations works like a port. They are able to transship 70,000 tons per day from the big Valemax to smaller vessels. So as time goes by, we have become more and more flexible in our strategy and we believe when the time arrives, that we are able to burst those ships in China. We believe that the cost reduction will be even better. As time goes by, the cost of energy is increasing. So for shipping industry -- so the bigger the ship, the lower will be the energy cost. So it's a trend that we believe is the future of the shipping industry. Big vessels and lower energy consumption, lower carbon emission and much more efficient.

Operator

Our next question comes from Mr. Felipe Hirai with Merrill Lynch.

Felipe Hirai - BofA Merrill Lynch, Research Division

So I have 2 questions. The first one is kind of a follow-up on the cost reduction side. So is it possible for you to try to quantify how much of the total cost savings you have done? So in your view, even if it's just like a best guess, if you continue like half of these other cost savings that you could do here, like 70% or 80% or 20%. If you could just try to guess how much of the cost savings will you have done? And the second question is to Martins. I just wanted to clarify a few things on the iron ore selling strategy. The first one is, if there's going to be [indiscernible] significant change in this mix of around 30% of sales, say, from future contracts. And the second one is just to clarify. So this provisional pricing will basically mean that this iron ore, this change in price would never blend in, let's say, China. So should we use like the average of the first half of the following quarter?

Luciano Siani Pires

Felipe, this is Luciano. I will not give you percentages but I'll give you some color on the various stages. I would say that our reductions are more advanced in R&D and SG&A. Still room to do more on those 2, but they are more advanced. On another level, I would say that the cost of goods sold, we are -- we still have, I would say, more homework to do. And also we have, looking at longer-term, more opportunities with the new, more efficient operations coming on stream. And when it comes to pre-operating expenses, this is going to happen in different steps. So as I mentioned, this first year, as we conclude successful the ramp-ups of the base metals projects, there will be a first step of reduction. Then a second step of reduction will require the completion of the major projects since 2014 with the iron ore projects. So -- and then it should stabilize at the lower level for '15 and '16 until -- then we have another wave of bigger projects coming on stream.

Murilo Pinto De Oliveira Ferreira

Felipe, as far as that of our price, I was not able to hear completely your question, so I'm going to address what I understood from them. As far as price is concerned, we believe that the trend for increasing these sales based on the future price is very strong. Because in this case, we are burying the risk price and we are selling almost in line with our competitors. So by doing that, we have -- we don't need it to sell too much on a spot basis. And at the same time, we can keep a more stronger price negotiations with our customers. Because the formula does not have any kind of discounts, as you normally have to give when we go to spot business sales. So going further, we believe that this situation will continue as far as price realization. But I would like to stress that if you consider 2 or 3 quarters together, I will not see a big difference between the price realizations and the average price of you can see in the IODEX.

Operator

Our next question comes from Mr. Carlos de Alba with Morgan Stanley.

Carlos de Alba - Morgan Stanley, Research Division

Just on the iron ore prices, could you please, Martins, tell us how much of these future prices that you have now, the 34% in Q1, is the provisional pricing on a 1-month basis, 2-month basis, 3-month basis? Any color will be helpful as we try to refine our model. And second, could you, Murilo, please comment on the -- any potential asset sales in terms of maybe the logistic business? I don't know if turning some call assets in Australia would also be on the table. But anything that you can comment on that would be appreciated.

José Carlos Martins

Well, as far as this future price, if you look in our presentation on price on Page 10, you can see that these future price are based normally in the last price available in the quarter. As you can see, future pricing in the first quarter, the evaluation in our books are $137, which is the last price available in the quarter.

Murilo Pinto De Oliveira Ferreira

Okay, Carlos. Thank you. I think that we are considering -- and I think that you would be able to finalize the process regarding DRI until the end of May, which is very positive for us, but for the country as well. We strongly believe in the strategy regarding the future of DRI. In regard of North's, we note that they did a very good homework. It was good results regarding the first quarter of the year. But we notice as well that the market is betting against North Segu [ph]. The volume of shortage is very high. I mean, we don't go to the market to sell our shares North, in North Segu, for any price. It's for sure, we needed to see some movement to establish the average that we have seen in the last few years. Thank you very much, Carlos.

Operator

Our next question comes from Mr. Ivano Westin with Crédit Suisse.

Ivano Westin - Crédit Suisse AG, Research Division

My first question refers to the pricing shortage, not on the fiscal sale for the cargoes as Martin has already addressed, but mainly on the financial side. In Q1, you reported nickel derivatives provide a positive cash flow impact of $10 million. You already hedged copper and bunker. So my question is whether you intend to hedge your ironwork sales as well, as the consensus of the market is that price will move downhill. So how do you see these hedge on iron ore, is the first question. And the second question for core division. If you could provide an updated ramp-up guidance of Moatize and the developments on the current quarter, that will be much appreciated.

Luciano Siani Pires

Luciano answering the first question on hedging. The types of hedge that we do for nickel, for instance, they relate to the timing difference between acquisition of some imports, ore and the sale of those transformed products. We avoid to hedge the final price of nickel, copper or iron ore because we understand that the investors provide shares of value want to have exposures to those metals. But if one wanted to do hedge because -- let's suppose I wake up one morning and say, "Look, I believe prices of iron ore are going to fall on the second half and I want to hedge those to secure those $135 per ton." I wouldn't be able to do that because the forward curve has already -- is already reflecting that expectation of a fall for the second half. So therefore, we don't see profitable opportunities nor reasons to do iron ore hedging at this moment.

Roger Allan Downey

Okay. Ivano, just talking greatly on the expansion in Mozambique, the Nacala railway is due to start moving dirt from September 14 and we will basically ramp up that until December with the first shipment sailing from the port in January 15. And we will basically move the capacity of that railway at 20 million tons per annum. And we -- it basically the function of the speed of the trains [indiscernible], and we'll be using it according to our demand.

Operator

Our next question comes from Mr. Steve Bristo with RBC Capital Markets.

Steve Bristo - RBC Capital Markets, LLC, Research Division

Yes. I was just inquiring more about the future pricing on iron ore. And I'm wondering like, in the following quarters, will there be different provisional pricing adjustment that will flow through the income statement? And secondly, if you could provide some kind of a similar breakdown as you have on Slide 9 for iron ore for pellets instead so we can try and figure out what kind of realized pellet price we should be forecasting.

Murilo Pinto De Oliveira Ferreira

As far as the iron ore prices, the adjustments will be done in the next quarter according to the prices that were really -- that you really see when the ore arrives in China. But I'd like to say that if we don't do this way, any trend in price will be anticipated. Because if you don't believe on that based on this mechanism, we have it to go to this cup and sell. So then it put a lot of pressure in the spot. So that mechanism, it kind of compensates this. So that's the reason also that we do not think that we needed to hedge. But any difference between the provision of price and the realized price will be adjusted in the next quarter.

José Carlos Martins

In case of pellets, there is one important difference to say because we don't have too much pellets sold on this future price. China is not a big market for pellets. Pellets we sell mainly in Europe, Japan, Korea, Brazil. So they are not affected by the future price. And what I can tell you is that pellets have a very tough negotiation based on premium, so the iron ore price you can look the iron decks but for the premium, you can consider something around the $30 to $35 as normal practice in the market, depending upon the situation, okay?

Operator

Our next question comes from Mr. Paul Massoud with Stifel, Nicolaus & Co.

Paul A. Massoud - Stifel, Nicolaus & Co., Inc., Research Division

Here's my first question. It's more of a conceptual one. If you look Chinese steel provisions of -- in the last 3 or 4 quarters, the ones that actually reported that margin -- that had been reporting negative margins. And so I guess -- I was hoping you could spend some time discussing what it is that drives the sales, for instance, like iron ore, given that steel pricing really hasn't, in China, hasn't moved to the same degree. And all else being equal, if you could sort of provide a number that you think puts them in a much more -- a lot closer to profitable territory. And then secondly, just on the fertilizer side, given what you've seen and what you've experienced over the last few months, with Rio Colorado, I assume you've done a lot more now on where value potentially is in the market today? I'm just wondering if you're seeing more value in existing operation versus cost you're spending money on new projects?

Roger Allan Downey

This is Roger Downey here. We'll start off -- we'll kick off with the fertilizers -- question in fertilizers. Yes, we had to basically rejig our business plan with the development in Rio Colorado. But we have options that we are looking at. Obviously, we didn't have a plan B as such because we were focused on Rio Colorado, but we do have options in our pipeline, which we are now are working hard on. These options are very good. We do have options like Carnalita to produce potash here in Brazil with very encouraging returns. The other project that I think is something that should be on everyone's radar is what we're doing at -- in Peru, in Bayóvar, that is one of our highest margin segment in the fertilizer business and one that we should be working hard to expand.

Operator

Our next question comes from Mr. Renato Antunes with Brasil Plural.

Murilo Pinto De Oliveira Ferreira

Please. I needed to answer second question about -- the first question about iron ore price and steel makers in China. So if you look at the situation in industry all over the world, I don't think it's only a Chinese phenomena. It's -- you have the same situation all over the world. Margins of steel makers this time are below 2 digits. If they are able to pay for the present price of iron ore, I think the market has the way to adjust it. So the way I see it, is the high cost producers of steel is they cannot pay the price -- the market price for iron ore, they have to cut production -- reduce production. And then less demand will be in the market and then you have adjusted [ph] it. On the other hand, if the price of iron ore was below such, some level, let's say, $100, $110, many high-cost iron ore produces will be out of the market. So I believe that the high cost iron ore producers and the high cost steel producers will establish the limit for the price to fluctuate. So -- and that's the situation. And what's happening, as you can see, is the high volatility of iron ore price. Because depending upon the situation for steel price, iron ore price will have a big impact on demand, and also will have a big impact on prices. So that is the reality that we needed to relieve, the high volatility. And that will stay as long as we have this situation in the market. But I do not see that, as you said, a big problem. I think the market will adjust it. And we are looking, that's happened. Last year, when the price of iron ore went below $90, we had a big reduction in supply and then the price moved up. And when the price of iron ore rose up to a level of $106 to $170, we also can see a lot of blast furnaces being stopped in order to adjust the compact [ph] even without this validity. So that's a problem, but I think the markets has its way to fix it.

Operator

Our next question comes from Mr. Renato Antunes with Brasil Plural.

Renato Antunes

The first question on the close way project, just can you actually give us an update and potentially give us a ballpark of what is the volumes of shipments that we could expect from this project going into 2014? And also, from the Minas Gerais projects -- the Carajas project, that would be great and the second question, just going back to the whole discussion of foreign subsidiaries tax issues. You guys already commented about that on the Portuguese call, but I was basically trying to get a sense, if you could provide us an estimate of Vale's exposure, on a country by country basis, or basically, each and what, if so, is Vale's exposure to these so-called paraisos fiscales or tax havens. Those are the 2 questions.

Murilo Pinto De Oliveira Ferreira

Thank you very much, Renato. First of all, [indiscernible], we spent some few words regarding what's the status of the Plus 40 and the itabirites project.

Luciano Siani Pires

About the additional 40 million tons, the project is almost done. We are starting already the commissioning phase. We hope that in July we are starting operation and that will take few -- 2 or 3 months to achieve the full -- the capacity I believe that at the end of this year, we'll produce something around 5 million tons coming from the -- coming from the additional 40 million tons. The Conceição, the Itabiritos Conceição will start the commission also in July or August. We hope that at the end of this year, we'll have everything done for this project.

Murilo Pinto De Oliveira Ferreira

And Clovis Torres, our legal counsel, regarding the problems that we are facing with the Supreme Court.

Clovis Torres

We don't have a breakdown country by country. We announce mostly because we consolidate in our holding company in Austria. And it's mostly also the marketing activities; they are carried out in Switzerland. And as such, we have income from our projects in Mozambique, for example, Australia, Oman, all of those -- all of the income from those projects are consolidated in Austria. So in this sense, I'll pass to your second question. We -- today, our transactions are done through Austria, which is not a tax haven, and has a double-tax treaty with Brazil. Our marketing activities are carried out in Switzerland, in Saint-Prex, and also it is not a tax heaven. So in this sense, we currently do not carry on transactions -- physical transactions in tax havens. We used to do that in the past in countries that are not really, I would say, primarily tax haven, but are considered by the Brazilian authorities as countries with privileged tax rate. And we're talking about Denmark specifically. But even Denmark, it has a double-tax treaty with Brazil. So we are very confident that the outcome of the courts were taken into consideration. The superiority of the double tax treaty over the domestic laws, which is a constitutional matter, and will certainly be ruled by the Supreme Court

Operator

[Operator Instructions] Our next question comes from Mr. Marcos Assumpção with Itaú BBA.

Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division

I have 2 questions. First one on iron ore. If Martins could comment a little bit about the European demand. Our volumes increased close to 15% on a year-on-year basis and it represented nearly 20% of Vale's total volumes again. I would like to see if these are the first signs of improving demand in the region. Second question to Roger Downey on the performance of the coal assets in Australia, specifically, Carborough Downs had a very strong performance in this quarter. If you could comment a little bit about that and the perspectives as well. And how does Vale consider this asset on their asset optimization strategy?

Roger Allan Downey

Hi, Marc, this is Roger, here. Thanks for your questions. The whole Australian team thank you for your questions. We had a very good first quarter in Australia. It's already a reflection of what's happening there in the turnaround of the business there. As you mentioned, Carborough Downs had a fantastic first quarter. We were above budget and above our plan, and certainly above high -- production was much higher than we've ever seen. So we had a fantastic first quarter. It could have been better if we hadn't had the longwall move at Integra. But nevertheless, it was a very encouraging result, which indicates where we're going. The Australian business is breaking even already and we expect to see better results and, hopefully, better prices as well should help. But even with the sort of prices that we've had recently, the business has been tested and the -- all the work that we have been putting in there has paid off. As you would have seen, production in Australia was 1.7 million tons and that's almost 17% up on the first quarter last year, despite the rainy season in that part of the world as well. So very encouraging, and it did offset some of the disappoints we had in Mozambique. So the coal business is coming together. Thanks very much for your question.

Operator

This concludes today's question-and-answer session.

Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division

Please. Please. The second question.

Murilo Pinto De Oliveira Ferreira

Related to markets in Europe. We see the European markets is very stable. Although we delivered a little bit more in this quarter, I cannot consider it a trend. As the sales are more stable in Europe and we had a drop in total volume this quarter, and then it seems that Europe is increasing its share, but I think it's only statistical effect. I just came from Europe where I have opportunity to visit all our customers in Europe. And the forecast for Europe is a stable market, not better, not worse. If you look at Europe today, they are running around 20% below precrisis level. Pig iron ore production in Europe is running 20% below precrisis level. So -- and that has been in the last 2 years. So there's been no big change on this scenario. But I believe that's not going down. It's already a good sign. We see the market's stable. Customers are performing what they expect to perform. And we don't see any kind of downside in Europe. And we expect that at some point in the second half, we are going to have more improvements in their performance.

Operator

This concludes today's question-and-answer session. Mr. Murilo Ferreira, at this time you may proceed with your closing statement.

Murilo Pinto De Oliveira Ferreira

Thank you very much, again. We are very happy to deliver a quality in our financial performance. And we strongly believe that we -- it's not a one-off event, it's something that came to stay. And we are looking forward in order to reduce the next coming months. Thank you very much.

Operator

This concludes Vale's first quarter 2013 results conference call for today. Thank you very much for your participation, and have a good day.

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