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MarketScreener Homepage  >  Equities  >  Bolsa de valores de Sao Paulo  >  Vale S.A.    VALE3   BRVALEACNOR0


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Vale Swings to a Loss After Impairment Charges on Mines -- Update

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02/20/2020 | 07:28pm EDT

By Jeffrey T. Lewis

SÃO PAULO -- Brazilian iron-ore miner Vale SA posted a net loss in the fourth quarter after writing down investments in troubled mines in New Caledonia and Mozambique and taking charges related to the deadly dam accident in the Brazilian town of Brumadinho at the start of last year.

Vale reported a fourth quarter loss of $1.56 billion, compared with income of $3.79 billion a year earlier and income of $1.65 billion in the third quarter of 2019. Adjusted earnings before interest, taxes depreciation and amortization reached $3.54 billion, down from $4.47 billion a year earlier.

Revenue rose to $9.96 billion from $9.81 billion in the fourth quarter of 2018.

The company said in November it was analyzing the performance of the nickel mine in the Pacific Ocean island of New Caledonia. Vale took an impairment charge of $2.5 billion on the operation in the fourth quarter, citing challenging issues during 2019 mostly related to production and processing.

The company wrote down another $1.7 billion in the quarter for the coal mine in Mozambique and recorded $898 million in charges and $243 million in incurred expenses related to the tailings dam collapse in the small, rural town of Brumadinho in January of last year.

"Even though the company had already signaled that the impairment charges would hit the fourth quarter figures, the numbers were worse than expected," said Pedro Galdi, an analyst at São Paulo-based brokerage Mirae Asset.

Vale is still working to reopen some mines that were shut down after the dam failed, sending a wave of thick sludge over nearby offices and a Vale lunch facility and killing 270 people. Shortly after the tragedy, the company closed operations near similar dams around Brazil, while authorities ordered the closing of more of Vale's mines.

Some of those mines restarted last year, and Vale said it expects more to open this year. Vale produced 312.5 million metric tons of iron ore and pellets in 2019, squeaking past the upper end of its guidance of 307 million metric tons to 312 million tons. It forecast output of 340 million tons to 355 million tons this year, after reducing its guidance for the first quarter.

"They say they'll catch up in the following quarters," said Yuri Pereira, an analyst at XP Investimentos in São Paulo. "But even if the company can deliver the production, we think sales will come in a bit less" than the increase in output because Vale will also be replenishing stocks it ran down in the aftermath of the disaster in Brumadinho.

Vale said last week that production in the fourth quarter came in at 78.3 million metric tons, vs 101 million tons in the final three months of the previous year. Unexpected maintenance operations led to a decline from the 86.7 million tons produced in the third quarter of last year. Heavy rains in some parts of the country hit production in the first quarter, slowing mining and loading operations, leading Vale to cut its guidance for the period.

The full effect of the coronavirus outbreak on China's economy, and on demand for iron ore, remains to be seen. The news of factories and iron ore mines shutting down in the Asian country is already priced in, according to analysts. But the decline in demand from China could be balanced out by the shutting down of the country's mines, said Christopher LaFemina, an analyst at Jefferies in New York.

"The supply shock appears to be offsetting the demand shock," he said, adding it might take some time before the Chinese mines resume operations. "It will be costly for them to reopen, and a lot of their workers have returned to their homes in other provinces. So there will probably be a lag before they restart."

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com


Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) -0.05% 5.7459 Delayed Quote.27.13%
GOLD -0.02% 1592.99 Delayed Quote.3.99%
SILVER 1.43% 14.1799 Delayed Quote.-21.68%
VALE S.A. 3.47% 43.22 End-of-day quote.-18.91%
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Financials (USD)
Sales 2020 33 762 M
EBIT 2020 10 900 M
Net income 2020 6 611 M
Debt 2020 2 906 M
Yield 2020 2,12%
P/E ratio 2020 5,44x
P/E ratio 2021 4,85x
EV / Sales2020 1,34x
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Capitalization 42 370 M
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Average target price 12,69  $
Last Close Price 8,26  $
Spread / Highest target 98,5%
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