Vale’s Nickel IPO Chances Wane as Fires, Shutdowns Hurt Output

A fire in Canada, disruptions in Indonesia and shutdowns in Brazil and New Caledonia: it was tough getting nickel out of the ground last quarter for Vale SA.

Output of the metal at Vale, the world’s largest producer, missed estimates for a second consecutive quarter. The lower-than-expected production comes as a plunge in metal prices makes the Rio de Janeiro-based company’s plan to sell as much as 30 percent of the unit in an initial public offering less likely.

Vale said in its second-quarter output report Thursday that nickel production rose less than 9 percent to 67,100 metric tons, missing a 73,900-ton average forecast by seven analysts surveyed by Bloomberg. The result, called “poor” by BMO Capital Markets in a research note, puts production for the first half at 136,000 tons, or less than 45 percent of the company’s annual target of 303,000 tons.

Operations in the quarter were affected by a fire at its operations in Sudbury, Ontario, which reduced nickel and copper production by 5,000 tons each, furnace maintenance in Indonesia and a “brief shutdown” for plant improvement at the Onca Puma project in Brazil, Vale said. The miner is planning to close facilities at Sudbury and Thompson in August for maintenance, it said.

“Sudbury operations continue running below potential as a result of non-recurring operational issues,” Banco BTG Pactual SA analysts Leonardo Correa and Caio Ribeiro said in a research note. “A base-metals IPO looks challenged under this pricing scenario.”

Vale’s press office declined to comment on the company’s nickel operations.

IPO Prospects

In December, Vale told investors in New York that it was considering selling a minority stake in its base-metals operations, the largest generator of revenue after iron ore. The miner was forecasting increased profit and output at the unit after years of setbacks including strikes in Canada, furnace design defects at Brazil plants and an acid spill in New Caledonia.

At the time, Vale projected base metals earnings before interest, taxes, depreciation and amortization, or Ebitda, of $4 billion to $6 billion this year from $2.5 billion in 2014. Ebitda is now forecast at $3.1 billion to $4.6 billion based on a $14,500 to $21,000 a ton nickel price scenario and a $5,800 to $6,800 copper price outlook.

Nickel for delivery in three months declined 0.3 percent to settle at $11,430 a ton on the London Metal Exchange on Thursday, expanding its losses in the past 12 months to 40 percent. Copper for delivery in three months declined 1.7 percent to $5,272.50 a ton in London.

Vale will only go ahead with the IPO if nickel and copper prices reach “appropriate” levels, Investor Relations Director Rogerio Nogueira said June 24, echoing similar comments from company executives since December.

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