viewVale SA (ADR)

Vale delivers on 2018 profits but slashes iron ore sales estimates after January dam collapse

As a result of the tragedy, iron ore prices have risen nearly 25% during the year to date

iron ore trucks
The mining giant estimated that it would sell about 75 million tons less iron ore this year

Vale S.A. (NYSE:VALE), the Brazilian behemoth, announced Thursday that it had slashed sales estimates for iron ore in 2019 after several mining operations were put on hold following the deadly dam collapse in January.

The mining giant estimated that it would sell about 75 million tons less iron ore this year, nearly 20% less than earlier sales forecasts.

In a call with analysts, Vale’s Chief Financial Officer Luciano Siani said that in the best-case scenario, 2019 iron ore sales would decline by about 50 million tons.

Siani stressed that resuming production was not Vale’s main priority after the dam collapse, instead focusing on the safety of its operations and people affected by the tragedy.

In January, the Brumadinho tailings dam collapsed, killing nearly 300 people. Along with the incredible human toll of the tragedy, Vale’s chief executive officer Fabio Schvartsman and several other executives resigned from the company.

The miner then voluntarily shut 10 of its iron ore mines, or around 40 million tons per annum production (Mtpa), to minimize the risk of additional upstream tailings dam failure.

Brazil's regulatory authorities then ordered the company to shut its second-largest iron ore mine, resulting in a combined production loss of 70Mtpa, representing about 6% of global consumption.

Even with the interruption to Vale’s operations earlier this year, the worst-case sales reduction of 75 million tons would still put 2019 sales at 307 million tons, a substantial decrease from the company’s original 382 million ton sales forecast.

Ore on the rise

Iron ore prices have risen nearly 25% year to date, now trading around US$85 per pound.

That may spell good news for junior companies advancing iron ore projects such as Black Iron Inc, a Toronto-based junior with a significant asset in Ukraine.

"While analysts have mixed projections on how long the iron content benchmark price will stay at elevated levels, there is consensus that prices of iron content products - more specifically iron ore pellets - will increase for at least the next few years as the industry responds to lower supply,” Black Iron said in a statement in February.

“As a result, premium 68% iron pellet feed product, as planned to be produced by Black Iron, is expected to sell for a significantly higher price than benchmark iron ore for at least the next two to three years.”

4Q results

Vale also released its fourth-quarter and year-end 2018 financial results on Thursday, doing little to clarify the ultimate cost of the Brumadinho disaster. The company announced a series of writedowns including $124 million related to the Corrego de Feijao mine where the dam collapsed.

For 4Q 2018, the miner had a nearly five-fold increase in profit to US$3.8 billion or $0.73 per share, surpassing analyst estimates of $0.62.

Giles Gwinnett also contributed to this report

Contact Angela at [email protected]

Follow her on Twitter @AHarmantas

Quick facts: Vale SA (ADR)

Price: 11.51 USD

Market: NYSE
Market Cap: $59.05 billion

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