Iron Price Helps Vale Navigate “Challenging Issues”

By Glenn Dyer | More Articles by Glenn Dyer

Brazilian mining giant, Vale can thank the surge 2019’s global iron ore prices it helped generate through a mine dam wall collapse at one of its iron ore mines 13 months ago for posting what turned out to be a solid financial result for the financial year to December.

The surge in iron ore prices after the January 25 mine dam wall collapse, helped by higher gold, copper and nickel prices for much of the year, helped Vale to ride out some significant asset impairments, fines and other costs associated with the tragedy (nearly 300 people are dead or still missing) and at its nickel mining operations in New Caledonia and coal mines in Mozambique.

Following the January 25 collapse (and aided by the impact of a cyclone and mining and shipping problems in the Pilbara which hit Rio Tinto and BHP) iron ore prices soared to six-year plus highs around $US125 a tonne before easing back to a range of $US80-$US88 a tonne in the closing months of 2019. Prices have since rebounded to well above $US92 a tonne with more production and shipping cuts by Vale and Rio Tinto in early 2020.

Nickel, gold and copper prices also ran up sharply for part of 2019. Gold remained above $US1,400 an ounce (and is now close to $US1,650 an ounce), copper has fallen back under $US2.60 a pound and nickel eased. Coal prices – especially for thermal coal – fell over 2019 and are still weak in early 2020.

Vale revealed late last week posted a loss (after write-downs and other one-off charges) of $US1.68 billion in 2019, compared to a net income of $US6.860 billion in 2018.

The $US8.5 billion difference in 2019’s results 2018 was mostly driven by provisions and expenses related to the Brumadinho dam wall collapse as well as the surprise nickel and coal asset impairments in the three months to December.

That was on a 2.5% rise in total revenue to $US37.570 billion from $US36.575 billion, a rise due mostly to the run-up in iron ore prices.

That came on a 19% fall in iron ore and pellet sales to 312.4 million tonnes from just over 384 million tonnes in 2018. Iron ore prices jumped by around 39% in 2019 which more than helped Vale withstand the damage to its earnings from the dam wall tragedy and the writedowns in nickel and coal.

That surge in iron ore prices saw Vale’s earnings before interest, tax depreciation and amortisation in its iron ore business rise 16% to $US16.997 billion from 2018.

The main factor was higher iron ore prices which added $US6.1 billion), which were offset by lower volumes ($US2.463 billion) and higher costs ($US885 million), following dam wall collapse in January.

The company reported a $US1.56 billion net loss in the December quarter.

That was largely due to a $US2.51 billion impairment at its nickel mine in New Caledonia, where Vale has revised down expected production levels due to “challenging issues” related to “production and processing.” These have been ongoing now for several years.

Vale also recognised a $US1.69 billion charge at a coal mine in Mozambique for similar reasons and a previously announced $US671 million charge to “decharacterise” some Brazilian iron ore tailings dams similar to the one that burst last year.

“We have… an effective reparation program, relevant governance and operational improvements, and a decharacterization – a process by which the structure of a dam is reincorporated into the relief and the environment – plan for our upstream tailings dams under accelerated implementation” CEO Eduardo Bartolomeo said in the media release.

“We are de-risking Vale. We are paving the way to make our business better, safer and more stable,” he said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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