Vale’s profit fell 40.5% to $3.55 billion in the 1st quarter

Vale reported net profit of $3.55 billion in the first quarter of this year, a decrease of 40.5% compared to the same period last year, due to the heavy rains that affected the operations and to the lower iron ore prices, the company said on this Wednesday.

The world’s largest producer of iron ore said that, in addition to the regular seasonal effects caused by adverse weather conditions, due to summer in the southern hemisphere, especially in Brazil and Australia, and of the winter in Canada, abnormal rains this year at iron ore sites in Brazil have created challenges for production and logistics, restricting the shipments.

Compared to the fourth quarter of last year, the profit fall was 19.6 percent.

The iron ore prices in the international market – about 20 percent lower than the prices charged a year earlier – also affected the result.

Vale’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $4.65 billion in the first quarter, falling about 31 percent, according to the company.

The heavy rains in Brazil contributed not only to reduce shipments, but also to raise costs, the company said.

The company also informed that additional corrective maintenance and dredging services were required to deal with the effects of heavy rain on its open pit mines.

In parallel, the number of Vale’s employees rose to 82,892 in March 2012, compared to 79,646 in December 2011 and 71,975 in March 2011, causing an increase in costs of $40.24 million compared to the end of last year.

Sales

Vale’s sales of iron ore in the first quarter of 2012 reached 54.79 million tons, compared to 57.74 million tons in the same period last year. There was an increase of stocks.

The company said last week that the iron ore production reached almost 70 million tons in the first quarter, a drop of 2.2 percent compared to the 71.5 million tons a year earlier.

Vale said that on January 11, 2012, the mining company declared force majeure due to the rains, which caused a negative effect on the Southern and Southeastern Systems due to the shutdown of mine and railroad operations.

The nickel production was 63,200 tons, 5,300 tons less than in the previous quarter but 7.5 percent above the first quarter of 2011.

Our nickel mining operations in Sudbury suffered a temporary suspension in February for reassessment of the security conditions, and the production resumption was slower than expected, the company said.

Better days

On the other hand, the company said it has already seen in March an improvement in the iron ore shipments, its main product.

The rainy season has ended, the iron ore shipments have significantly increased in March and we are confident that we will deliver the sales volumes planned for this year, the mining company said.

In addition, the company expects to have a market with a strong demand.

The global mineral and metal market should stay warm and we remain well prepared to explore the opportunities for value creation, Vale said in a statement.

According to the company, the worse for China’s economy is gone, and a reacceleration of growth is already taking shape.

Falling in line with expectations

Under US GAAP, the Vale’s profit totaled $3.8 billion, decrease of 43.9 percent compared to the same period last year.

The fall was very close to the expectation of analysts consulted by Reuters, who predicted a 45 percent reduction in profit for the mining company.

The result reflects the combination of rainfalls stronger than the regular index, the accident on a bridge in Carajás and the increased costs due to the entry into operation of new company projects, the vice president of Mining and Steel for Latin America at Goldman Sachs, Marcelo Aguiar said before the result was announced.

Investments

Vale’s investments in the first quarter, excluding acquisitions, totaled $3.7 billion, an increase of 34 percent over the same period of 2011.

Salobo, the copper project of the company with a capacity of 100,000 tons, will begin operations in the coming weeks.

Simultaneously with the completion of Salobo, we are investing in the project Salobo II, with the same estimated nominal capacity, Vale said.

Other strong Vale’s projects are being developed in ramp-up process, with prospects to make it pay to the company in the near future. Some examples are Moatize (coal in Mozambique), Onça Puma (nickel in Brazil) and Bayóvar (fertilizer in Peru).

They are new platforms for value creation, whose potential should materialize in the near future, it added.