Vale SA (VALE:US), the world’s biggest iron- ore producer, said it’s poised to benefit from a price recovery and a balance-sheet cleanup that spurred a record quarterly loss. Shares rose the most in a month.
The miner, based in Rio de Janeiro, is focusing only on projects that bring “big returns,” Chief Executive Officer Murilo Ferreira told analysts on a conference call today. Vale yesterday posted a fourth-quarter net loss of $2.65 billion after writing down the value of some nickel, coal and steel assets, compared with a year-earlier profit of $4.67 billion.
Ferreira is selling assets, cutting investments and writing down unprofitable projects amid falling metal and mineral prices. The company, which in October ceded its place as the world’s second-largest miner by market value to Rio Tinto Group, is also focusing on expanding its profitable iron-ore unit after output fell 0.8 percent in 2012.
“We see initial signs of cost, expenses and working capital reduction,” Goldman Sachs Group Inc. analysts led by Marcelo Aguiar wrote in a note to clients yesterday. The “stock is trading at one of its highest historical discounts to peers on regulatory uncertainty that we view as overdone.”
Vale rose 3.1 percent to 36.55 reais at the close in Sao Paulo today, the most since Jan. 31. The stock was the most traded by value on the benchmark Bovespa Index today at 2.2 times the company’s three-month full-day average. Vale fell 14 percent in the 12 months before today, more than the 13 percent decline in Brazil’s benchmark Bovespa Index.
“We have great confidence that these negative numbers that you see today will become strongly positive,” Ferreira said on today’s conference call. “With discipline, persistence and patience we will bring the results that our investors and analysts expect.”
Adjusted earnings before interest, taxes, depreciation and amortization declined 41 percent to $4.39 billion in the quarter, missing a $4.79 billion average estimate by 14 analysts compiled (VALE:US) by Bloomberg.
“The lower-than-expected Ebitda generation was a combination of realized iron-ore prices being 6 percent less than forecast combined with higher expenses, mostly due to higher freight costs,” HSBC Holdings Plc analyst Jonathan Brandt said in a note yesterday.
The quarterly loss includes $5.66 billion in charges. Vale cut the value of its Onca Puma nickel project by $2.85 billion, took a $1.03 billion charge on Australian coal assets and a $975 million writedown on its stake in aluminum producer Norsk Hydro ASA. (NHY) It also booked a $583 million charge on its share of ThyssenKrupp AG (TKA)’s CSA steel plant in Rio state and a $94 million charge for its oil and gas assets.
The writedowns follow similar decisions by other producers including Rio Tinto and BHP Billiton Ltd., the world’s largest mining company.
Declining metal and mineral prices have triggered more than $60 billion in writedowns in mining and steel companies since early 2012. Failed deals in aluminum and coal caused $14 billion in writedowns at Rio and led CEO Tom Albanese to lose his job. Cost overruns at Anglo American Plc’s flagship Minas-Rio iron- ore project in Brazil were followed by Cynthia Carroll’s announced departure as the company’s top executive. Anglo slashed $4 billion from the value of Minas Rio.
Vale’s net sales dropped 19 percent to $11.7 billion in the quarter after the company sold iron ore at an average $93.70 a metric ton, down from $121.38 last year and more than a $90-a- ton estimate by Banco Santander SA. Nickel’s average sales price fell 4.5 percent and copper slid 2.6 percent.
The fourth-quarter loss is the largest since at least 1997, when the company went public.
The company expects better iron-ore prices in the first half, while prices “may suffer a bit” in the second half of 2013 because of an expected supply increases, Jose Carlos Martins, Vale’s head of ferrous and strategy, said on the conference call. He forecast a “quite healthy” performance in China this year.
Vale shipped 84.8 million tons of iron ore and pellets in the quarter, 5.1 percent more than a year earlier. Pellets are a processed form of iron ore used by the steel industry. Nickel sale volumes dropped 16 percent to 58,000 tons and copper shipments fell by 30 percent to 79,000 tons, the company said.
Iron-ore prices rallied 39 percent in the fourth quarter, capping a 4.6 percent annual gain after tumbling 19 percent in 2011, according to data compiled by The Steel Index Ltd.
“Driven by Chinese steelmakers carrying out restocking and the impact of winter related lower Chinese iron ore production, Vale managed to successfully boost its iron ore sales,” Alan Glezer, an equity analyst at Banco Bradesco BBI SA, wrote in an e-mailed note to clients.
The company, which earlier this year halted works at its $5.9 billion Rio Colorado potash project in Argentina, will discuss options for the venture at a board meeting scheduled for March 11, Ferreira told reporters in a call yesterday. Vale, which aimed to announce the sale of a stake in its general cargo unit VLI by February, will need a few more weeks to make a “final decision” on its possible partners, he also said.
Vale invested $17.7 billion in 2012, or 83 percent of the $21.4 billion initially budgeted for the year, it said. Total debt as of Dec. 31 rose 4.5 percent to $30.5 billion from the previous quarter.
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