Vale Exceeds Iron Estimates, Keeping Annual Record in Reach

Updated on
  • Global production was 86.8 million tons in the second quarter
  • Brazil-based miner lowers its guidance for 2017 production

Vale SA, the world’s biggest iron-ore miner, reported output that exceeded analysts’ estimates, keeping a new annual production record in sight.

Second-quarter iron-ore output was 86.8 million metric tons including third-party purchases, the Rio de Janeiro-based company said Thursday in a statement. That beat the 86 million tons estimated on average by five analysts surveyed by Bloomberg.

Iron-ore output slipped from a second-quarter record 89.3 million tons a year earlier. Last year’s numbers included output resulting from synergies between Vale’s Samarco joint venture and some of the company’s southeastern mines. Samarco has been shut since a deadly dam breach in November.

Vale is maintaining its production guidance for 2016, forecasting output to hit the lower end of its range of 340 million to 350 million tons for the year. The company broke its annual production record in 2015 with 345.9 million.

Vale’s expansion goals include the ramp up of the industry’s biggest development project, the S11D mine in Carajas, in the second half.

’Cautiously Optimistic’

The company might still break its annual record despite its conservative guidance, according to Andreas Bokkenheuser, an analyst at UBS Securities LLC in New York.

“Carajas is on schedule, some of the components are ahead of schedule,” Bokkenheuser said in a phone interview. “If they can push volumes out of S11D by the fourth quarter they could effectively end up in the higher end of their guidance. I would be cautiously optimistic on that.”

Vale lowered expectations for 2017, citing supply-chain issues. The company said in Thursday’s report that it will produce less than the 380 million to 400 million tons originally forecast for next year.

Staying Ahead

The ramp up at S11D, which is scheduled to begin production later this year, should be key to Vale’s chances of staying ahead of competitors Rio Tinto Group and BHP Billiton Ltd., which both released their quarterly production numbers this week. London-based Rio increased second-quarter output 7 percent to 85.3 million tons, which was less than analysts estimated. BHP’s numbers fell 7 percent from a year earlier to 55.6 million tons amid disruptions caused by a maintenance program for its Australian railroad network.

Vale rose 3.9 percent to 14.16 reais as of 12:20 p.m. in Sao Paulo. The shares have gained 38 percent this year.

Vale fell short of setting a new quarterly record because of interruptions related to Samarco. The shut mine caused its southeastern mining hub to produce 4 million tons less than the year before, the company said.

Timing ‘Uncertain’

The company also said Samarco, a joint venture with BHP, plans to resume operations in 2017, “although the timing is uncertain.” The company had previously hoped to restart by the end of this year.

Meanwhile, the company hit a new second-quarter record in its northern system, where Carajas is located, due to improved weather and the start of one of its mines there, Vale said in its statement.

Benchmark iron ore with 62 percent content rose 2.6 percent to $57.17 a dry metric ton on Thursday, according to Metal Bulletin Ltd. data. It touched $70.46 a ton on April 21, the highest since January 2015. Iron ore may drop to $40 a ton in the fourth quarter, according to Goldman Sachs Group Inc., while Morgan Stanley’s outlook for the same period is $35.

After producing record levels of industrial metals last year, Vale reported nickel output of 78,500 tons in the second quarter, up 17 percent from a year earlier. Copper output was 107,400 tons, up 2.4 percent from a year earlier.

Vale is scheduled to release its earnings report before the start of regular trading on July 28.

(Updates with comment from analyst in sixth paragraph.)
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