Brazilian mining giant Vale posted its first net loss in 10 years in the fourth quarter after taking US$5.66 billion (HK$43.91 billion) in charges for underperforming mines and other mills, a loss twice as big as expected.
Vale lost US$2.65 billion (HK$20/56 billion) in the three months ending December 31, compared with a profit of US$4.67 billion (HK$36.23 billion) a year earlier, according to a securities filing on Wednesday. It was the company’s first quarterly loss since the third quarter of 2002.
The result was bigger than the US$1.27 billion (HK$9.85 billion) average loss estimated in a Reuters survey of analysts. Vale, the world’s second-largest mining company, is the largest producer of iron ore and second-largest producer of nickel.
The price of iron ore fell by 15 per cent and nickel by 7.5 per cent compared with a year earlier, adding to the impact of the one-time writedowns.
“The year last year was a challenging one for the global economy,” the company said. “In this context our financial performance was affected disfavourably.”
Lower prices brought weaker revenue. Net sales, or sales minus sales taxes, fell 19 per cent compared with a year earlier to US$11.72 billion (HK$90.92 billion), close to the US$11.30 billion (HK$87.66 billion) net sales outlook in the analysts’ survey.
Earnings before interest, taxes, depreciation and amortization, fell 97 per cent from a year earlier to US$257 million (HK$1.99 billion), aided by the impact of the writedowns.
As commodities prices fell, Vale chief executive Murilo Ferreira moved in recent months to slash investment and sell, write down or delay underperforming projects, particularly in nickel and aluminium. Global mining rivals such as BHP Billiton and Rio Tinto are making similar moves.
While a loss was expected on one-time items, increased efficiency through cost cutting and recovering commodities prices improved operating results, compared with the third quarter Ferreira said.
EBITDA, not including the one-time charges, was US$4.39 billion (HK$34.06 billion) in the quarter, an 18 per cent improvement over EBITDA in the third quarter.
“We believe that investors are conscious of the losses that the company is going to provision and the impact that will have on the results,” Luis Caetano, a mining analyst with Planner Corretora, a Sao Paulo brokerage, said in a report to investors before the result was announced.
He suggested that such an improvement could cause Vale shares to rise on Thursday when trading resumes in Sao Paulo and New York.
In December, Vale said it would take an impairment charge of US$4.2 billion (HK$32.58 billion) on its Onga Puma nickel mine in Brazil’s Amazon state of Para as well as a writedown on its 22 per cent stake in Norwegian aluminium company Norsk Hydro.
On Wednesday Vale also said it wrote down the value of its 27 per cent stake in the Cia. Siderurgica do Atlantico (CSA) steel mill near Rio de Janeiro by US$583 million (HK$4.52 billion) and that it would take a mark-to-market charges of US$1.03 billion (HK$7.99 billion) on its Australian coal assets.
Germany’s ThyssenKrupp AG, which owns the rest of the CSA mill, has put its stake in the troubled and money-losing mill up for sale.
These and other adjustments to writedowns announced in December, brought total impairment charges to US$5.66 billion (HK$43.91 billion), or 67 per cent more than Vale’s average profit of US$3.22 billion (HK$24.98 billion) in the previous four quarters.
Vale also took US$448 million (HK$3.48 billion) in charges it announced only days earlier to settle Swiss and Brazilian tax disputes.