Vale Delivering More Profits on Reduced Costs: Corporate Brazil

Vale SA is poised to deliver its first quarterly profit increase in more than two years after costs declined and iron-ore prices beat analysts’ forecasts.

The world’s largest iron-ore producer on Nov. 6 will post third-quarter net income of $2.8 billion, data compiled by Bloomberg show. That would be 70 percent more than a year earlier and the first increase since the second quarter of 2011. Vale’s 96 percent estimated increase in year-on-year earnings per share is the most among 14 global peers, according to Bloomberg Industries.

Vale, a supplier of iron-ore for steelmakers from ArcelorMittal to China Steel Corp., cut $1.65 billion of costs in the first half and is benefiting from rising demand from steel mills in Asia. Iron-ore prices averaged $132.5 a ton in the third quarter, 18 percent more than last year and above the $121 a ton forecast expected by analysts when 2013 started.

“There are better realized prices and an improved performance in terms of costs,” Goldman Sachs Group Inc. analyst Marcelo Aguiar said by telephone from Sao Paulo. “We expect an increase in the production of the company’s three main businesses: iron-ore, nickel and copper.”

Shares in Vale, the world’s third-largest mining company, have lost 18 percent in Sao Paulo trading this year before today, underperforming its biggest rivals BHP Billiton Ltd. and Rio Tinto Group. While Melbourne-based BHP gained 1.2 percent, Rio Tinto lost 9.3 percent in London.

Vale advanced 2.3 percent to 34.22 reais in Sao Paulo today to close at its highest level since March 12.

Dividends, Buybacks

Vale, based in Rio de Janeiro, probably will report that third-quarter earnings per share excluding extraordinary items increased to 61.8 cents from 31.5 cents a year earlier, according to the average estimate of 13 analysts in a Bloomberg survey. Vale will release earnings after the close of regular trading hours.

For the full year, Vale’s net income will total $11 billion, according to the average of 15 analyst estimates compiled by Bloomberg. That would be double last year’s profit. Rio Tinto is forecast to post $7.51 billion net income in 2013 while BHP’s fiscal-year profit is estimated at $14.4 billion, according to the analysts.

Vale paid $4.5 billion in dividends this year, 13 percent more than initially planned, as prices for the steelmaking ingredient remain above analysts’ consensus on higher-than-expected Chinese consumption. The company paid $6 billion in dividends last year, half the record $12 billion returned to shareholders during 2011, which included share buybacks.

China Outlook

“A powerful combination of higher iron-ore sales volumes, higher iron-ore prices, weaker Brazilian real, and controlled costs should propel Vale’s operating performance,” Banco Santander SA analysts Felipe Reis and Alex Sciacio said in a note to clients Oct. 10.

The outlook in China, the biggest buyer of iron ore and source of 32 percent of Vale’s operating revenue, improved more than expected, Chief Executive Officer Murilo Ferreira told reporters on Sept. 24. Imports of the raw material by Chinese steel mills rose to 75 million tons in September, a record, driving prices to the highest in almost two months.

Vale has been delivering iron-ore to China for 40 years and the conditions for the incoming months are improving, Ferreira, who was in the Asian country last week, told reporters in Brasilia on Nov. 1.

“We may have a favorable trend in the next few quarters” he said, declining to comment on Vale’s earnings. “I see a very positive political environment in China.”

The company’s press office in Rio didn’t answer an e-mail seeking comments on earnings ahead of the quarterly release.

Bull Market

BHP, the world’s largest mining company, raised its full-year iron-ore production forecast on Oct. 22 after first-quarter output of its biggest earning unit jumped 23 percent. Rio Tinto, the biggest iron-ore shipper after Vale, on Oct. 15 reported record ore production at its mines in Australia’s Pilbara region.

Iron ore entered a bull market in July as users in China replenished stockpiles that shrank in March to the lowest level since 2009. Prices at Tianjin measured by The Steel Index Ltd. have rallied 23 percent from this year’s low on May 31 to $135.30 a ton on Nov. 1, the highest level since Sept. 5.

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