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Vale Posts Record Quarterly Profit on Higher Iron Ore Production, Prices

Vale SA (VALE5), the world’s largest iron-ore producer, posted a record quarterly profit as revenue doubled, fueled by higher sales of metals such as nickel and copper.

First-quarter net income rose to $6.83 billion, or $1.29 a share, from $1.6 billion, or 30 cents, in the year-ago period, Rio de Janeiro-based Vale said late yesterday in a filing. Vale was expected to post per-share profit of $1.11 on an adjusted basis, the median of 12 estimates compiled by Bloomberg.

Vale, which is replacing its chief executive officer after criticism from Brazil’s government, benefited from a doubling of iron-ore prices in the quarter as demand from China and India increased. Net sales climbed to $13.2 billion as Vale, which has sought to diversify in recent years, also increased output of nickel and copper.

“The performance of the base-metals unit surprised positively,” Rafael Weber, an equity analyst at Geracao Futuro Corretora, said in a telephone interview from Porto Alegre, Brazil. “Structurally, this business remains quite attractive, particularly copper, given the supply and demand balance for the next two years.”

Copper and nickel sales volumes surged 71 percent and 67 percent, respectively, while prices for those metals rose by at least a third, Vale said. The gain helped offset iron-ore sales volumes that were little changed as adverse weather and natural disasters hindered shipments, the company said.

Government Influence

Vale gained 14 centavos, or 0.3 percent, to 44.61 reais in Sao Paulo trading today at 9:25 a.m. New York time after adding as much as 1.6 percent. Before today, the stock had lost about 8.3 percent this year, compared with an 8.5 percent decline for the benchmark Bovespa Index.

The shares have been affected by concerns about government influence on Vale’s investment decisions and investor skepticism about the duration of iron-ore peak prices, Banco Santander SA analysts led by Felipe Reis said in a note to clients today.

“The short-term overhang will continue to hinder the stock’s ability to catch up with its strong medium-term fundamentals,” they said.

Prices for the iron-ore sold by Vale averaged $126.19 per metric ton during the quarter, almost double a year earlier.

Vale posted a $1.5 billion gain in the quarter after it sold its bauxite and alumina assets to Norwegian aluminum producer Norsk Hydro ASA in February.

Base-Metals Boost

Vale produced 71.5 million metric tons of iron ore in the three months through March 31, up 3.6 percent from a year ago, the company said. Nickel production climbed 78 percent to 59,000 tons and copper output more than doubled to 70,000 tons.

“Base-metals operations are expected to continue to enhance their contribution to our financial performance,” Vale said in the statement. “Given the demand prospects and the tightness in supply, with no major projects coming on stream in 2011 and 2012, we expect iron-ore prices to remain hovering around a high plateau.”

Global steel production may rise 7 percent this year, spurred by demand in the world’s fastest-growing major economies, Ernst & Young LLP said in a report this week.

“Last year Vale had quite strong figures and cash generation and this year it will be even higher,” Leonardo Alves, an equity analyst at Link Investimentos, said May 4 in a telephone interview from Sao Paulo. Alves, who rates the stock an “outperform,” expects Vale to break its record for revenue and profit this year on higher iron-ore prices and a larger contribution from the base metals business.

Record Profit

Vale had net income of $17.3 billion last year, which the company said was the most ever for the mining industry. Vale is expected to post annual profit of $27.6 billion on an adjusted basis this year, according to the average of 16 analysts in a Bloomberg survey. BHP Billiton Ltd. (BHP), the world’s biggest miner by market value, had net income of $17.1 billion in the last calendar year, according to data compiled by Bloomberg.

Total iron-ore sales remained little change at 57.7 million metric tons while pellet sales rose 32 percent in the quarter to 10.3 million metric tons. Sales of both minerals to China increased 2.2 percent to 28.2 million metric tons, or about 41 percent of Vale’s iron-ore and pellets sales in the period.

Vale’s board approved three projects in the quarter, including the Rio Colorado potash project in Argentina, which will require a total investment of $5.9 billion. Vale delayed the start of the project to the first half of 2014, from a previously planned startup in the second half of 2013.

Delayed Projects

Three other projects, including Vale’s Totten nickel and copper mine in Canada, had their starting date postponed because of development setbacks. “Delays on project development, civil engineering works and environmental licensing are causing some rearrangement of the project execution schedule,” Vale said.

Shares of Vale in Sao Paulo are trading close to their lowest levels in about seven months amid fears of political interference with the company and a recent plunge in commodities prices.

Murilo Pinto de Oliveira Ferreira will replace Chief Executive Officer Roger Agnelli on May 22 after the government, which holds direct and indirect stakes in Vale, repeatedly criticized the company for not spending more on domestic steel and fertilizer output to generate jobs. After the ouster, the miner agreed to buy a stake in the hydro-power project Belo Monte and invest about 2.3 billion reais ($1.4 billion).

Vale may invest more in Brazil because of government pressure, Link’s Alves said.

“With the current iron-ore outlook, I don’t think that will have a big impact on the company,” he said.

The earnings report was released after the close of regular trading.

(Vale will host a conference call with investors tomorrow at 11 a.m. New York time.)

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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