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Brazil's Vale Feels Pinch of Global Uncertainty, Reviews Plan

--Miner Vale reviewing investment plans amid gloomy global outlook --Company expects to release 2013 strategic plan in November --Iron ore, base metal prices expected to rebound in second half By Jeff Fick RIO DE JANEIRO--Declining profits and a gloomy global outlook are forcing Brazilian mining heavyweight Vale SA (VALE, VALE5.BR) to review its investment plans and mining operations, despite expectations for a rebound in iron ore and base metals prices in coming months. In a series of conference calls Thursday, Vale Chief Executive Murilo Ferreira said a "challenging" second quarter marked by lower prices for the company's products and troubles at nickel and coal mines explained the nearly 60% year-on-year drop in net profits. "We are working with a scenario of lower prices than what was expected for this year," Mr. Ferreira said. The world's largest producer and exporter of iron ore and blast-furnace pellets registered a nearly 30% decline in prices from the second quarter of 2011, while nickel prices fell as well. Investors initially punished Vale's shares for the weaker-than-expected second-quarter earnings, sending locally traded shares down more than 3% in early trade. The shares later recovered to end about 0.4% higher in Sao Paulo and up 1.4% in New York. But the shares remain down 9.8% for July and nearly 18% over the past 12 months. "In general, the mining sector has had its shares penalized as a function of the decline in commodities prices," said outgoing Chief Financial Officer Tito Martins in explaining the recent tumble. The share slide is likely to continue as Vale's earnings will remain under pressure from weak steel and mining markets, as well as potential royalties liabilities, perhaps forcing the market to re-evaluate the company's performance this year, analysts at Credit Suisse said. "We believe [second-quarter 2012] results may trigger 2012 earnings revisions and drag the stock further down," Credit Suisse said. The uncertainties have made Vale turn a closer eye to its planned $21.4 billion investment budget for 2012, with a "continuous review" underway, Mr. Ferreira said. The company expects to release its 2013 strategic plan in November, when investor days are planned for New York and London, the executive added. Vale needs to exert greater "capital discipline" after receiving preliminary environmental approval for its $8 billion, 90-million-ton S11D project, also known as Serra Sul. The company expects final approval in 2013, but holds out hope that it could still obtain the license this year, Mr. Ferreira said. The world's No. 2 nickel producer is "fine tuning" its investments, but CFO Martins later told reporters that no big changes are likely. "There won't be any significant revisions, either to increase or to reduce [investments]," Mr. Martins said. Most likely, the company will trim costs from projects under development, the executive added. Troubled startups at nickel mines in Brazil and New Caledonia are also causing Vale to take a look at base metals operations, but executives said it was "premature" to talk about divestments. "Base metals are a Vale business," said Peter Poppinga, head of the division. "We need to answer some of the short-term questions in order to grow in the long term." The mining company doesn't want to make any hasty decisions about reducing investments now, executives said, because the global scenario could change quickly via government stimulus measures, especially in China. "We are moderately optimistic," said Mr. Martins. "Adjustments are being made and in the second half [of 2012] we expect a recovery in both demand and prices." -Write to Jeff Fick at jeff.fick@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stock News for Companhia Vale Do Rio Doce (VALE)
DateTimeHeadline
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