Vale tops estimates as iron mine costs fall

Rio de Janeiro - Vale reported earnings that beat analysts’ estimates as the world’s biggest iron-ore miner benefits from lower costs, higher prices and record production.

Third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $3.02bn exceeded the $2.7bn average of nine dollar-based estimates compiled by Bloomberg.

On a net basis, the Rio de Janeiro-based company reported profit of $575m compared with a year-earlier loss of $2.12bn, it said in a statement on Thursday.

Pummelled by the biggest commodities downturn in a generation, Vale is once again generating cash after cutting costs and selling assets as prices recover.

Chief executive officer Murilo Ferreira is betting on new, high-grade deposits in northern Brazil to offset his transport cost disadvantage with Australian mines that are much closer to Chinese steel mills.

Reporting a decline in net debt to $26bn and cash position of $5.5bn, the company is on track to strengthen its balance sheet, chief financial officer Luciano Siani said in a webcast presentation.

Vale has continued to expand as global supply cutbacks and a boost in economic stimulus in China helped spur a 45% rebound in prices of the steel making ingredient this year.

The Brazilian miner reported record output of 92.1 million metric tonnes for the third quarter, including third-party purchases.

Sales were in line with estimates at $7.32bn. Its average sales price in the quarter was $50.90 a wet metric ton compared with $46.50 a year earlier, while its cash cost in local currency terms declined by 10%.

Still, Vale lowered its output forecast for next year as it takes a more cautious approach to ramping up the $14bn S11D project in northern Brazil.

Along with its two main rivals, BHP Billiton and Rio Tinto Group, Vale is focusing on containing costs and protecting margins after a slowdown in demand led to oversupply and slumping prices.

Even after this year’s rally, prices are still down more than 65% from a 2011 peak.

Asset sales

Also one of the world’s biggest nickel producers, Vale is selling assets including coal and fertilizer operations to lower debt accumulated when commodity prices soared. Since Ferreira took the helm in 2011, Vale has raised about $12bn in divestitures in 24 separate transactions, according to data compiled by JPMorgan Chase & Co.

"Vale is much leaner now and we continue to see the company as a deleveraging story," JPMorgan analysts including Rodolfo Angele wrote in a September 28 note to clients after raising their recommendation for the stock to the equivalent of buy from hold.

Shares in the Brazilian company, which have fallen more than its major rivals since the commodities downturn began, have outperformed this year.

Vale has doubled in value in 2016, while BHP and Rio Tinto have gained 28% and 41%, respectively.