Vale Cuts Investment to $16.3 Billion as Iron Falls on China

Vale SA's CEO Murilo Ferreira
CEO Murilo Ferreira is selling assets, looking for partners and writing off unprofitable projects after Vale shares slumped to the lowest in almost three years in September on slowing demand from China and Europe. Photographer: Jin Lee/Bloomberg

Vale SA, the world’s largest iron-ore producer, plans to invest the least in three years in 2013 as lower prices and slowing demand erode profit. Shares fell for the first time in three days.

Vale will invest $16.3 billion next year, down from a revised $17.5 billion this year, the Rio de Janeiro-based company said in a regulatory filing. That compares with a $15.3 billion average estimate of nine analysts compiled by Bloomberg.

“The prospects for a moderate expansion of global demand for minerals and metals in the medium term require rigid discipline in capital allocation and a stronger focus on maximizing efficiency,” Vale said in the statement today.

Chief Executive Officer Murilo Ferreira is selling assets, looking for partners and writing off unprofitable projects after shares slumped to the lowest in almost three years in September. The investment reduction is the biggest since 2009, when Vale announced a 36 percent mid-year reduction in capital expenditure to about $9 billion.

Iron-ore output will drop to 306 million metric tons in 2013 from 312 million tons this year, while nickel production is expected to decline 13 percent to 260,000 tons, Vale said. Copper production is forecast to grow 19 percent to 365,000 tons next year, while coal output will decline to 12.4 million metric tons, it said.

Vale slid 0.1 percent to 36.68 reais at the close in Sao Paulo today. The stock lost 3 percent this year.

Price Slide

Vale, the world’s third-largest mining company by market value, is cutting capital expenditures next year by 6.9 percent after saying today it won’t reach the $21.4 billion initially budgeted for 2012, the second consecutive year the company misses its annual investment target. The company will spend about 47 percent of the 2013 budget on the ferrous business, its most profitable unit, it said.

“We are at the end of the supercycle, we are living a new moment in the mining industry,” Ferreira said today during a presentation to investors at the New York Stock Exchange. “The new scenario requires stricter discipline in capital allocation.”

Vale may sell as much as 70 percent of its VLI logistics unit after receiving “huge interest” from potential partners in its general cargo business as it seeks to divest lower return assets, Ferreira said. The company, which is also looking for partners at its Nacala railway and port project in Mozambique, will send a proposal to sell its oil and gas assets to the company’s board, he said.

Norway, Argentina

Vale may also consider selling its 22 percent stake in Oslo-based Norsk Hydro ASA, Europe’s third-largest aluminum producer, Chief Financial Officer Luciano Siani said today during the same event. The company is additionally in “formal talks” with an undisclosed potential partner for its $5.9 billion Rio Colorado potash project in Argentina, said Roger Downey, Vale’s fertilizers & coal head.

Before today, Vale lost 2.5 percent for investors in dollar terms including dividends in the past year, compared with a 2.7 percent loss for Melbourne-based BHP Billiton Ltd., the biggest mining company, and a 9.5 percent for London-based Rio Tinto Group, according to data compiled by Bloomberg. Vale trades at 8 times reported earnings, compared with 12 at BHP and 24 at Rio.

Slowing Growth

Iron ore with 62 percent content delivered to the Chinese port of Tianjin fell 0.3 percent to $115.3 a dry ton today, the lowest since Oct. 19, according to data from The Steel Index Ltd. The price declined 17 percent this year.

Ferreira, who succeeded Roger Agnelli in May 2011 amid government criticism that Vale wasn’t investing enough, this year cut output of premium pellet products, suspended projects and sold assets for about $1.2 billion as demand wanes in China and Europe, the company’s two biggest markets.

China’s economic growth probably will slow to 7.7 percent this year from 9.3 percent last year, according to the average of 56 economists’ estimates compiled by Bloomberg. The asset sales included a thermal-coal project in Colombia.

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