Vale back to profit on iron ore
VALE, the Rio de Janeiro-based mining company, had its first profit in three quarters as the bestperforming major iron ore miner this year cut costs and prices rebounded.
VALE had its first profit in three quarters as the best-performing major iron ore miner this year cut costs and prices rebounded.
Net income in the first three months of the year was $1.78bn compared with a $3.12bn loss a year ago, the Rio de Janeirobased company said yesterday. Adjusted earnings before interest, taxes, depreciation and amortisation rose to $2bn from $1.6bn, beating the $1.5bn average of 12 dollar-based estimates compiled by Bloomberg.
Vale, which makes most of its money from iron ore, is beating more diversified rivals BHP Billiton and Rio Tinto in equity and debt markets this year, as the raw material surges 49% to $61.09 a tonne. The Brazilian miner is also getting a boost from lower freight costs, thanks to oil’s collapse, which reduces its disadvantage to Australian producers that are closer to China. From a year ago, Vale reported a 32% cost reduction in delivering iron to its Chinese customers.
While cheaper inputs and a recovery in prices is helping Vale’s efforts to preserve margins, net debt rose to $27.7bn, from $24.8bn a year ago.
“The quarter has ended in a good mood in March, with prices recovering,” chief financial officer Luciano Siani Pires said.
“But that doesn’t mean we are going to be caught off guard, or that we are going to relax in our relentless quest towards building a more competitive company.”
While the price of iron ore has jumped this year, it was still 22% lower than in the first quarter last year, on average, and some bears are sticking to their guns. Goldman Sachs is forecasting prices will probably slump to $35 a tonne by the end of the year.
Company sales of $5.72bn beat the $5.61bn average dollar estimate. Vale’s average sales price in the quarter increased to $46.50 a tonne from $37.18 in the fourth quarter and $45.71 a year ago.
The company said in February it was open to selling what it described as “core assets”. This marked a shift from a streamlining strategy that focused on selling peripheral units.
Vale expects demand for iron ore to remain strong this quarter amid stimulus from the Chinese government, helping offset a higher seasonal rebound in shipments. “We acknowledge the improvement in iron ore prices, but are cognisant of market volatility, thus remaining committed to strengthening our balance sheet through reduction of our net debt,” Vale said.