Brazilian mining company Vale SA plans to sell underperforming assets in a push to control costs and boost profits, executives said on Thursday, a day after reporting weak earnings and a halt to work on a giant iron ore mine in Guinea, West Africa.
Vale’s annual investment in new projects will likely peak this year at $21-billion (U.S.), chief financial officer Luciano Siani said on a conference call with analysts. Because of the slowing world economy, a 10-year boom in the world’s raw materials market, led by China, may be over, he said.
“Efforts to control costs are underway in a major way at all levels of the company,” Mr. Siani said, adding that investors “should expect the sale of some assets.”
Shares of Vale, the world’s No. 2 mining company, rose 4.2 per cent to 35.73 reais ($17.52 Cdn) in Sao Paulo trading, on track for its biggest one-day gain since Sept. 6.
The cost control efforts will help Vale claw back iron ore market share from Australian rivals such as BHP Billiton Ltd. and Rio Tinto Ltd., Mr. Siani said.
Delays in environmental licensing in Brazil, and Australia’s proximity to China, the largest iron ore market, have helped make Vale’s share of the world iron-ore market shrink to a little more than a quarter from more than a third a decade ago.
Iron ore is needed to make the steel used to build everything from ball-bearings and bridges to skyscrapers and washing machines.
A slowdown in China, though, has resulted in a plunge in iron ore prices and a decline in Vale revenue.
Iron ore, responsible for about 90 per cent of Vale’s profit, averaged $112.12 a tonne in the quarter, 36 per cent less than a year earlier. The price of iron ore fell to a three-year low of $86.70 (U.S.) a tonne on Sept. 5.
Vale’s iron ore output fell 4.5 per cent from the third quarter last year.
Lower prices and output drove a 66-per-cent decline in profit to $1.67-billion, Vale’s worst performance in nearly three years, the Rio de Janeiro-based company said late Wednesday.
While iron ore rebounded on Thursday to $120 a tonne, a three-month high, Vale does not expect it to rise much in 2013.
Vale expects prices to remain at current levels next year. It will likely trade in a range as high as $150 a tonne and even fall below $100 a tonne again, Jose Carlos Martins, the head of Vale’s iron ore division, said on the conference call.
Investments will be focused on the company’s giant new mine expansion programs at its Carajas complex in Brazil’s Amazon and in Brazil’s central highland state of Minas Gerais where Vale has the rail and port infrastructure to keep prices and costs low.
They will also be focused on the company’s Moatize coal mining project in Mozambique, Mr. Siani said.
The Carajas project is expected to deliver some ore to its ports for as little as $15 a tonne Mr. Siani said. That’s 12.5 per cent of the current price.
Among the projects being put on hold are the Simandou high-grade iron ore deposit in Guinea. Vale is reviewing investments in several of its nickel and other base metals projects as well, Mr. Siani said.
The $1.3-billion Zogota mine at Simandou was to have started output by year end, but Vale said the mine’s scope and timetable are now under review and gave no start-up date. It also lacks the rail and port links needed to ensure the mine’s competitiveness.
Reuters reported on Sept. 26 that the company might suspend the project.
By putting off investment at Zogota, Vale will save $131-million in 2012, it said. This year, Vale agreed to pay $2.5-billion for 51 per cent of the Simandou project from London-based Israeli businessman Beny Steinmetz’s BSG Resources Ltd., but the overthrow of Guinea’s military government and public concern about foreign investment caught Vale off guard.
The company said it closed several exploration and research offices as part of its effort to bring its cash flow in line with the drop in iron ore prices, which accounts for 90 per cent of the company’s revenues.