Vale profit rises on back of cost-cutting
Miner's profit beats expectations thanks to higher copper sales and cost reductions
Vale, the world's largest iron ore miner, reported profit that beat analysts' estimates for the first time in two years as cost reductions and higher copper sales offset lower prices for the steel ingredient.
First-quarter net income of US$3.11 billion, or 60 US cents a share, compared with a loss of US$2.7 billion, or 52 US cents, in the previous three-month period, according to a statement after the close of trading on Wednesday.
Vale was expected to post per-share profit excluding items of 55.8 US cents, the average of 13 analysts' estimates. Net income fell from US$3.79 billion, or US 74 cents, in the same period last year.
Vale, the worst-performing major mining stock this year, is seeking to bolster investor confidence by putting lower-return projects on hold, selling assets and cutting costs. The company's profit, boosted by the partial booking of a gold deal with Silver Wheaton in February, is the first quarter-on-quarter increase since the first three months of 2011.
"They did a very effective job cutting costs during the quarter," said Garrett Nelson, an equity analyst at BB&T Capital Markets. "Vale has started these efforts several months ago and now we are starting to see that in their financial results."
Net sales fell 5.3 per cent to US$10.9 billion in the period after Vale sold its iron ore at an average US$111.69 per tonne, 5.4 per cent less than a year earlier. That was below the US$121 per tonne average of three estimates. Vale shipped 65.1 million tonnes of iron ore and pellets, a processed form of the mineral, during the quarter, little changed from the previous year.
Costs and expenses shrank by US$900 million in the quarter compared to a year ago and by US$2.5 billion versus the fourth quarter of last year, said chief financial officer Luciano Siani after the release.
"When you look at the cost side of our operations, the results were extraordinary," he said. "Costs are going down on a sustainable basis."
Vale, the world's third-largest mining company, advanced 0.7 per cent to 32.10 reais at the close in Sao Paulo yesterday. The stock has lost 23 per cent in the past 12 months, compared to an 11 per cent decrease in Brazil's benchmark Ibovespa Index. BHP Billiton and Rio Tinto, the largest miners, lost 9.6 per cent and 12 per cent respectively during the same period.
Net income surpassed analysts' expectations by 20 per cent, the first positive surprise in eight quarters, according to data. The company booked US$244 million in pre-tax profits following a US$1.9 billion gold deal with Silver Wheaton in February, it said.