By Paul Kiernan
RIO DE JANEIRO--Brazilian mining giant Vale SA reported a net
loss in the fourth quarter as iron-ore prices fell by nearly half,
the local currency weakened and impairment charges continued to
pile up.
Vale, the world's largest iron-ore producer, reported a
fourth-quarter loss of $1.85 billion, compared with a year-earlier
loss of $6.45 billion. Six analysts surveyed by local newswire
Agência Estado had expected a narrower loss of $740 million.
Other key barometers of Vale's business health continued to
deteriorate as the company's efforts to increase output of key
commodities like iron ore, nickel and copper could only partially
offset falling prices. Slowing economic growth in China has weighed
on global demand for metals, while major mining firms have
continued to ramp up production from projects they planned at the
height of the commodity boom.
In a video posted to the company's website, Chief Financial
Officer Luciano Siani described "a very challenging scenario." Vale
sold its iron ore for an average price 45% less than a year
earlier.
Vale's sales fell 31% to $9.07 billion, even as it churned out
record volumes of several commodities. Earnings before interest,
taxes, depreciation and amortization, or Ebitda, tumbled by
two-thirds to $2.19 billion due to lower prices and dividends from
affiliates, and as cost-cutting efforts stalled.
Further hurting results, Vale wrote off almost $2 billion in
fertilizer, iron-ore, coal and nickel assets during the quarter.
Some of the write-offs, such as $1.05 billion charge on Vale's
fertilizer business in Brazil, were attributed to weaker markets,
while another was related to a revoked mining concession in Guinea.
The write-downs were partially offset by a $1.62 billion impairment
reversal at the Onça Puma nickel facility in Brazil.
For all of 2014, Vale's Ebitda fell 41% to $13.35 billion, the
lowest figure since the 2009 global recession. Because cash flow
wasn't enough to cover Vale's $4.2 billion in dividend payments and
$11.98 billion in capital expenditures, the company has been
seeking to cut costs, find partners and sell assets.
Mr. Siani said those efforts will intensify going forward.
"For 2015 we have optimized and revised down our capex plan and
are intensifying our corporate simplification and cost cutting
efforts, while accelerating the divestment and partnership
initiatives to unlock value and build the foundations for strong
free cash flow generation by 2017 onwards," Mr. Siani said.
In recent quarters, Vale's management has vowed not to budge on
two key goals: keeping debt low and staying the course with a
massive expansion of its Carajás iron-ore complex and related
infrastructure in the Brazilian Amazon.
The latter project, known as S11D, promises vast quantities of
ultra-high-quality iron ore and is seen as key to Vale's long-term
competitiveness against rival miners in Australia--located much
closer to Chinese customers. But S11D won't reach full capacity
until the end of 2018 and is expected to cost $16.36 billion, a
hefty price tag considering the current environment.
"The S11D project in the south range of Carajás is untouchable,"
Chief Executive Murilo Ferreira said in a conference call with
journalists. "We need to do it. We like the project for its
quality, for its volumes, for its conditions. But we want to be
recognized world-wide as the company that brings the best ore to
the market."
Ratings agency Standard & Poor's last month downgraded Vale
to BBB+ from A-, with a stable outlook. Days later, the company
slashed its annual dividend payment to $2 billion, an eight-year
low, in a bid to preserve cash amid the uncertain outlook for
prices.
Analysts say the company could face more tough choices in the
months ahead.
Paul Gait, an analyst at Sanford C. Bernstein in London, said
low commodity prices will make it harder to get a good value from
the asset sales and partnerships Vale hopes to close this year.
There will be fewer potential buyers, and the proceeds will likely
be lower and "therefore less helpful in closing the free-cash-flow
gap."
"All other things being equal, they have to take on more debt,"
Mr. Gait said. "And the actions that they can take to prevent that
happening look increasingly challenging."
Mr. Siani said that at current iron-ore prices around $64 per
ton, Vale will have enough cash to make it through 2015 thanks to a
deal it closed in December to transfer a share of its Mozambique
coal and logistics projects to Japan's Mitsui & Co. That
transaction is expected to allow Vale to avoid cash outflows of up
to $3.65 billion.
Mr. Ferreira said Vale will have additional opportunities to
sell assets this year, including one potential deal in March. He
didn't provide further details.
"I would say we're confident," he said.
Write to Paul Kiernan at paul.kiernan@wsj.com
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