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Vale back in black with US$1.78B Q1 profit amid forex gains, higher EBITDA

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Vale back in black with US$1.78B Q1 profit amid forex gains, higher EBITDA

Vale SAon April 28 posted a net income attributable to shareholders of US$1.78 billion,or 34 cents per share, returning from a loss of US$3.12 billion, or 61 cents pershare, booked in the year-ago period.

The mining giant's income was lifted by higher EBITDA, whichamounted to US$2.01 billion, rising by 44% from the fourth quarter of 2015, as wellas US$2.10 billion noncash gains due to end-to-end appreciation of the Brazilianreal against the U.S. dollar and other currencies.

"That was achieved with record production for the firstquarter in iron ore, in nickel, in copper [and] with record competiveness, the landedcost in China for our main products, iron ore had reduced to US$28 from US$31 pertonne and also it was achieved with reduction in expenses," Vale's CFO LucianoSiani Pires said in a same-day video statement.

On average, the company lowered costs by 20% compared to thefinal quarter of 2015, Pires added.

The company's net operating revenue dropped 5.5% on a yearlybasis to US$5.72 billion during the quarter, while quarter-over-quarter net operatingrevenue fell by 3.1% from US$5.90 billion due to seasonally lower sales volumesof iron ore fines, base metals and fertilizers, which were partly offset by highersales prices of iron ore fines.

Operating profit rose to US$1.15 billion from US$733 millionin the prior-year quarter.

CapEx during the quarter totaled US$1.45 billion, from US$2.21billion, while sustaining CapEx fell to US$529 million from US$694 million a yearago. Meanwhile, investments in project execution totaled US$920 million with spendingon the S11D ironore project in Brazil accounting for 69% of this amount.

As of March 31, the company's net debt was US$27.66 billion,up 1.7% from US$24.80 billion a year earlier, mainly driven by the impact of theexchange rate on the translation of Brazilian real-denominated debt into U.S. dollarand negative free cash flow in the first quarter.

Vale recently reported its highest first quarter of in the historyof the company, with 77.5 million tonnes produced in the first quarter, up 0.2%year over year. The miner also posted record output of nickel, copper and gold,while reporting lower overall coal production for the quarter.

"We are now approaching a potential inflection point forVale; the recently announced settlementbetween Samarco, Vale, BHP BillitonGroup and the Brazilian government regarding environmental and socialdamages for the Samarcotragedy has removed the uncertainty overhanging from this issue," Bernsteinanalysts commented in a same-day note. "Henceforth, it is therefore all aboutrepairing the balance sheet and reducing the net debt to EBITDA position of thecompany. Vale has already executed several asset disposals, and the deleveragingattempts from this point onwards will also focus on asset sales."

Vale said in its earnings statement that it will remain focusedon maximizing margins by leveraging its iron ore supply chain flexibility to have"a responsible and sustainable reaction to various market conditions."Elaborating on the environment for iron ore, the miner said it acknowledges therecent improvement in iron ore prices but is cognizant of market volatility andwill therefore remain "fully committed" to strengthening its balance sheetthrough the reduction of net debt.

"We remain focused on our operating and capital allocationdiscipline and on progressing our divestment and asset optimization program,"Vale noted.