Vale Plans $3 Billion Dividend as Profit Misses Estimates

Vale SA, the world’s largest iron-ore producer, posted second-quarter profit that missed analysts’ estimates 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, Vale said yesterday in a regulatory filing. Vale was expected to post profit on an adjusted basis of $1.39 a share, the average of 13 estimates compiled by Bloomberg. The result came in below Espirito Santo Investment Bank’s $1.28 forecast, the lowest of the estimates.

“It’s still a reasonably strong earnings figures, but we are at a stage where costs are rising faster than revenue,” Tony Robson, an analyst at BMO Capital Markets Ltd., said yesterday in a telephone interview from Toronto.

A weaker dollar combined with higher engineering and construction costs prompted Vale to boost its capital-expenditure budget for three projects, the company said late yesterday. The company 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.

“We continue to face challenges to implement our projects, such as delays in environmental licensing, project development and civil engineering works,” Vale said yesterday.

Extra Dividend

The Rio de Janeiro-based company, which also announced in a separate statement yesterday 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 investors. Vale plans as much as $11 billion of buybacks and dividends in 2011.

Vale fell 79 centavos, or 1.7 percent, to 45.48 reais in Sao Paulo trading at 9:48 a.m. New York time, after earlier declining as much as 2 percent, the most since May 23. The stock has fallen 6.1 percent so far in the year, less than the 16 percent loss for the Brazilian benchmark Bovespa index.

In the first six months of the year, Vale spent about 28 percent of the record $24 billion it planned to invest in 2011.

“It looks to be that they won’t spend anything like $24 billion for this year,” BMO’s Robson said. “They are returning cash to shareholders instead, but it also suggests that some of the projects are continuing at a slower pace.”

The company will make a $3.8 billion legal payment in Brazil related to a tax dispute with the government, Vale said in yesterday’s statement, adding that the charge won’t hurt profit as it was previously set aside.

Chinese Demand

Vale is profiting from higher iron-ore prices as China, the biggest consumer of the steelmaking raw material, invests in projects including low-income housing. Chinese demand and startup production difficulties at iron-ore projects will cause a market imbalance for as many as seven years, Vale Chief Financial Officer Guilherme Cavalcanti said July 5.

Chief Executive Officer Murilo Ferreira, 58, replaced Roger Agnelli on May 22 after the Brazilian government criticized the company over the past two years for not spending more on domestic steel projects and for buying ships in China when the country was setting up its own yards. Since taking over, Ferreira scrapped a plan to sell shares of the fertilizer unit in an initial public offering and cut its long-term iron-ore output forecast by 10 percent.

Net sales surged 55 percent to $15 billion in the quarter, helped by iron-ore, nickel and copper output increases, Vale said. 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. Nickel production climbed by more than half to about 56,000 tons and copper output rose 57 percent to 63,000 tons.

‘Disappointed’ With Prices

Prices for iron-ore sold by Vale averaged $145.30 a ton in the period, an increase of 58 percent from 2010. The price of ore with 62 percent iron content delivered to China, which has almost doubled in the past two years, rose 0.1 percent to $175.5 a ton today, according to Steel Business Briefing Commodities Research.

“We were disappointed with the iron-ore price realization in the quarter,” Leonardo Correa, an analyst at Barclays Capital in Sao Paulo, said in a note to clients late yesterday. “Negative carryover effects, mix and quality adjustments should explain the difference.”

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.

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