Vale: A Look at the Recent Results

Vale (VALE) recently announced its results that were not up to the mark. The company’s revenue was down 7.6% sequentially, while it declared a net loss of $2.12 billion as compared to a net income of $1.67 billion in the second quarter of 2015. Moreover, its net loss widened year-over-year to $1.44 billion.

The company reported declines in both its top and bottom lines due to a weak global commodity pricing environment. But, there are positives about Vale that investors should not miss.

A look at the positives

Vale is trying to control its non-core expenditure and costs over last year which will boost the company’s cash position.

More importantly, the company’s sales volume for iron ore, pellets and nickel grew year-over-year to 11.3%, 4.3% and 1.4% respectively.
However, the sales volume for copper and gold fell 3.2% and 2.2% respectively. The increased nickel production is a result of superior operational performance in New Caledonia and Indonesia. Gold production achieved peak 100,000 oz during the third quarter and driven by excellent Salobo production.

Coal production was recorded at 2.1 Mt in the third quarter of 2015, up 2 percent from the second quarter of 2015 and mainly due to impressive production performance at Moatize, producing 1.322 Mt allowed by the performance gains at the coal processing facility. However, copper production was recorded at 99,300 tons in the third quarter of 2015, down 5.3% compared to production levels in the second quarter of 2015 and owing to the strategic maintenance closures in Sudbury.

The key pellet production by Vale at 9M15 was a record 35.8 Mt, allowed by the beginning of the Tubarão 8 pellet plant and the outstanding performance of the Vargem Grande, Fabrica and Oman pellet plants.

There’s mixed production performance of Vale with some metals illustrating healthy year-over-year growths in production while production curtailments witnessed with some of them including, copper and nickel. The sales volume has also depicted mixed performance with increase in sales volume for iron ore, pellets and nickel while decline in the sales volume for gold and copper. Still, Vale has managed to control its non-core expenditures through shutting down the non-performing facilities and curtailment of the future expansion plans.

Optimistic about the future

In spite of the poor global economic conditions, Vale is quite optimistic about the steel demand in China and primarily supported by the fact that the steel consumption in China has still not achieved its peak and is believed to have significant growth potential.

Going forward, the key Brazilian miner is expected to be bullish on the significant demand for steel in China which is still believed to have enough room to grow. Moreover, Vale is committed towards returning a majority of the invested capital to its key stakeholders through timely dividend offerings.

Moody's Investors Service has reiterated a “Baa2” rating for Vale S.A. and primarily driven by the company’s well-diversified geographic footprint, allowed by various strategic acquisitions in Australia, Canada and elsewhere. The rating is also supported by Vale’s extensive portfolio of long-lived assets, aggressive cost position, robust liquidity position and a highly-diversified product base.


Thus, there are a mix of positives and negatives about Vale that investors should watch closely. However, waiting for a turnaround in iron ore pricing will be a smart move as this will allow Vale to get better. So, despite the improvements in certain areas, investors should watch Vale from the sidelines.

Published on Oct 30, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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