Vale expecting better third quarter

Eduardo Bartolomeo jpg, SU

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Brazil’s Vale SA is expecting its results to improve in the third quarter after the company surprised analysts by posting a quarterly loss because of writedowns related to a deadly dam burst in January, its chief financial officer said on Thursday

Vale has been trying to ramp up production after several of its mines were shuttered as prosecutors and regulators scrambled to avoid a recurrence of the collapse of the Brumadinho dam, which killed 248 people.

In late January, the collapse of a Vale tailings dam storing muddy mining waste near the town of Brumadinho killed nearly 250 people, less than four years after a deadly disaster at the company’s Samarco joint venture with BHP Group.

The world’s largest iron ore exporter has since been grappling with the fallout, which has forced it to shake up its board, replace its CEO and made it the target of various criminal and regulatory probes.

“We hope the second quarter was transitional and that we’re going to have quite a strong third quarter to support reparation efforts as well as future shareholder returns,” Luciano Siani told analysts in a conference call.

On Wednesday, Vale reported a $133 million quarterly loss, confounding analysts’ expectations of a $2.84 billion profit for the period.

Shares were down 1.2 per cent in early afternoon trading in Sao Paulo.

Vale’s revenue rose 6.6 per cent from a year earlier to $9.19 billion, shy of a forecast of $9.59 billion, lifted by higher iron ore prices, offset by declining nickel and copper prices.

“The bottom line is that we view today’s results as another weak quarter, though we are encouraged by Vale’s plans to restart additional iron ore capacity,” Clarksons Platou Securities analyst Scott Schier said in a research note, adding that he expected its shares to fall slightly as a result.

Vale shares are down 2.3 per cent for the year to date, although they have rebounded from a sharp drop following the dam burst.

The weak results were in contrast to those of other big mining companies like Rio Tinto and Anglo American, which in recent weeks have reported blockbuster quarters, helped in part by a spike in iron ore prices this year fuelled by Vale’s woes. Both substantially raised their payouts, with Rio Tinto announcing a record one earlier on Thursday.

Vale Chief Executive Eduardo Bartolomeo emphasized during the call that the company was trying to focus on safety and reconstruction and that it was too early to talk about resumption of dividend payments.

Speaking a day after Vale announced $2 billion in charges related to both Brumadinho and the prior dam disaster at Samarco, a joint venture with BHP Group, Siani added that the company hopes to wrap up a global compensation settlement for victims of the dam burst by year-end.

Vale said it took $1.5 billion in writedowns for the cost of environmental measures and agreements related to the Brumadinho disaster, as well as a $257 million charge to shut down its Germano dam. It also set aside $383 million for the Renova foundation, which is supposed to distribute funds to the victims of the Samarco disaster.

Those charges came on top of $4.95 billion in first quarter writedowns for payments to victims and other settlements as well as a plan to shut down dams to avoid a recurrence of the disasters.

It remains unclear whether Vale’s writedowns, which now total some $7 billion, would cover every part of a victims’ settlement, but Siani suggested that further charges would be minimal.

“From a qualitative point of view, we already have a good idea of the scope of reparations and environmental compensation and we’re using our best estimate,” he said.

He reiterated Vale’s prior forecast for a resumption of production at Samarco, closed since 2015, in the second half of next year.

Siani said Vale now has an annual iron ore capacity of between 340 million and 345 million tonnes, and said he expected strong copper and nickel output in the second half of the year.

Nickel, course, is the key metal mined in Sudbury. Vale is Sudbury’s largest employer, with six mines, a mill, a smelter, a refinery and nearly 4,000 workers.

 

sud.editorial@sunmedia.ca

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