(Bloomberg) -- Vale SA, the world’s largest iron-ore producer, reported a second consecutive quarterly loss as prices fell and Brazil’s weakening currency increased debt costs. Shares fell.
Vale’s fourth-quarter net loss narrowed to $1.85 billion, or 36 cents a share, from a record loss of $6.45 billion, or $1.26, a year earlier, the Rio de Janeiro-based company said Thursday in a statement before markets opened.
Vale is boosting iron-ore output to a record, helping to expand a global glut as the top producers squeeze smaller miners for market share amid slowing demand from China. While a declining currency in Brazil and Canada helps Vale cut expenses at its main operations, it boosts the cost of servicing dollar-denominated debt. Foreign exchange and monetary losses curbed profit by $1.26 billion, the company said.
While Vale posted a “solid” performance in its iron-ore unit, the base metals business including nickel and copper operations performed below expectations, Bank of America analysts led by Thiago Lofiego said.
“Base metals posted weak results,” the analysts said in a note to clients Thursday. “A more intense cash-burn due to lower iron ore prices and still-high capex should result in increasing leverage and subdued dividends in the coming years.”
Vale declined 1.8 percent to 18.80 reais at 10:22 a.m. in Sao Paulo, bringing their decline over the past 12 months to 35 percent. The Bloomberg Iron-Ore Mining index of 28 producers, including Vale and Rio Tinto Group, fell 46 percent in the period.
‘Challenging Scenario’
Vale faced “a very challenging scenario of declining commodities prices,” Chief Financial Officer Luciano Siani said in a video posted on the company’s website. “The real devalued strongly, which impacted the value of our gross debt when measured in our functioning currency, which is the Brazilian real.”
Vale sold its iron ore at an average $61.6 a metric ton, 48 percent less than a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization fell 67 percent to $2.19 billion.
Real Decline
Net sales declined 31 percent to $9.07 billion in the quarter compared with the $8.22 billion average of nine analysts’ estimates compiled by Bloomberg. Sales last year dropped to $37.5 billion, the lowest annual net revenue since 2009.
The real lost 7.9 percent against the dollar in the quarter, the fourth-worst performer among 16 major currencies tracked by Bloomberg. The company’s net debt rose to $24.7 billion at the end of December, compared with $24.3 billion three months earlier. About 96 percent of the miner’s gross debt was issued in dollars.
Vale’s net loss is the third in the past five quarters, according to data compiled by Bloomberg.
Vale shipped 90.8 million tons of iron ore and pellets in the quarter, 7.1 percent more than a year earlier. Pellets are a processed form of iron ore used by the steel industry. Nickel sales volumes were stable at 69,000 tons and copper shipments dropped by 16 percent to 37,000 tons, the company said.
The price of ore with 62 percent iron content delivered to the Chinese port of Qingdao has dropped 47 percent in the past year to $62.37 a ton Thursday, close to the lowest levels since May 2009. Prices hit a peak of $191.70 on Feb. 17, 2011.
Price Weakness
“Vale is a well-managed company but exposed to short-term iron ore price weakness,” BTG Pactual analysts Leonardo Correa and Caio Ribeiro said in a note to clients Wednesday. “A more aggressive daily move in iron-ore prices could more than compensate for a year of successful cost-cutting by management from an earnings perspective.”
(Vale is holding two conference calls with investors Thursday in Portuguese and English at 8 a.m. and 10 a.m. New York time, respectively.)
To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at [email protected]
To contact the editors responsible for this story: James Attwood at [email protected] Robin Saponar
FMG Price at posting:
$2.48 Sentiment: Hold Disclosure: Held
(20min delay)