Vale Profit Misses Analyst Estimates, Plans Extra Dividend

Vale SA (VALE3), the world’s largest iron- ore producer, posted second-quarter profit that missed analysts’ expectations and said it will pay an extra dividend of $3 billion as it seeks to boost returns to shareholders.

Net income rose to $6.45 billion, or $1.22 a share, from $3.71 billion, or 70 cents, a year earlier, the Rio de Janeiro- based company said today in a regulatory filing. Vale was expected to post per-share profit of $1.39 on an adjusted basis, the average of 13 analyst estimates compiled by Bloomberg.

Vale is profiting from higher iron-ore prices as China, the biggest consumer of the steelmaking ingredient, invests in projects including low-income housing. The company, which announced in a separate statement today it will pay an extra dividend of 57.7 cents a share, is joining rivals BHP Billiton Ltd. and Rio Tinto Group in returning capital to shareholders.

“With high volumes and high prices, this should be a banner year for Vale,” Jordi Dominguez, an equity analyst at Societe Generale SA in New York, said in telephone interview on July 22. Dominguez, who has a “buy” recommendation on the stock, said he expects Vale to generate $28.8 billion in net income this year, a 66 percent increase from the prior year.

Chinese demand and startup production difficulties at iron- ore projects will cause a market imbalance for as long as seven years, Vale Chief Financial Officer Guilherme Cavalcanti said July 5.

“The delivery of new iron-ore capacity involves huge challenges, with a large potential to cause delays in execution and higher production and investment costs,” Vale said today in a statement.

Project Budgets

A weaker dollar combined with increased engineering and construction costs prompted Vale to boost its capital- expenditure budget for three projects, the company said in today’s statement. Vale increased planned spending by 12 percent to $3.17 billion for its Onca Puma nickel mine, 29 percent to $2.33 billion for its Salobo copper project and 25 percent to $878 million for its Estreito hydroelectric plant.

Net sales surged 55 percent to $15 billion in the quarter, helped by iron-ore, nickel and copper production increases. Vale invested $4.04 billion excluding acquisitions, about 17 percent of its record $24 billion planned for 2011.

Production

Vale produced 80.3 million metric tons of iron ore in the three months through June 30, 5.8 percent more than a year earlier, the company said. Nickel production climbed by more than half to about 56,000 tons and copper output increased 57 percent to 63,000 tons, it said.

Prices for iron-ore sold by Vale averaged $145.30 per ton in the quarter, an increase of 58 percent from last year.

BHP, the world’s largest mining company, boosted its iron- ore output by 14 percent to 35.5 million tons in the quarter, the company said July 20. Rio Tinto, the world’s third-largest mining company by market value after BHP and Vale, said July 14 that its iron-ore output climbed 12 percent to 48.9 million tons in the quarter.

Vale gained 42 centavos, or 0.9 percent, to 46.27 reais in Sao Paulo trading. The stock has dropped 4.6 percent this year, compared with a 15 percent drop for the benchmark Bovespa Index.

The earnings report was released after the close of trading.

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.