By Paul Kiernan
RIO DE JANEIRO--Mining giant Vale SA, the world's top producer
of iron ore, reported Wednesday its smallest annual profit since
being privatized in 1997.
Impairment charges from a star-crossed potash project in
Argentina and a multibillion-dollar settlement with Brazilian tax
authorities forced the company to post a record $6.45 billion loss
in the fourth quarter. That left Vale with $584 million net profit
for 2013, its lowest in dollar terms since Brazil's government sold
the company to private investors nearly two decades ago.
Vale attributed its weak bottom line to the nonrecurring items,
which also included the "noncash impact" of a depreciation in the
Brazilian real that made its dollar-denominated debts look bigger.
Chief Financial Officer Luciano Siani pointed to the company's
still-strong cash generation, as measured by its $22.68 billion in
earnings before interest, taxes, depreciation and amortization, or
ebitda, which rose 18% from 2012.
But company management made similar arguments after coughing up
$5.66 billion in write-downs for 2012, when Vale's net profit
tumbled 76% year-over-year. The repeated drop-off underscored the
severity of the global mining industry's hangover from the
so-called "supercycle" of the early 2000s, when breakneck economic
growth in China sent commodities prices soaring to unprecedented
heights.
Mining majors in the last decade filled their portfolios with
overpriced assets and ambitious projects, such as Vale's Rio
Colorado potash mine in Argentina. Initially budgeted at $6
billion, the venture's costs had reportedly doubled when Vale
decided to suspend it in early 2013. The company booked a $2.3
billion impairment charge against the asset in the fourth
quarter.
Vale's nearly $10 billion tax settlement with Brazilian
authorities in November also validated investor worries about the
risks of doing business in Brazil, where the left-leaning
government is viewed by many investors as verging on antibusiness.
Reflecting those concerns, Vale's shares have underperformed their
foreign peers, falling 33% over the last two years, compared with a
7.6% decline in rival Rio Tinto PLC.
Still, Vale, the No. 2 company on Brazil's stock market by
weight in the benchmark index, says it is on firm footing for the
future. Vale sold $6 billion in noncore assets during 2013 and
implemented an austerity program that saved $2.8 billion, Mr. Siani
said, all while achieving record sales of iron ore, coal and
copper.
"We are focused on shareholder value creation and committed to
using our free cash flow to appropriately reduce our debt levels
and distribute increasing dividends to our shareholders," Vale
said.
Write to Paul Kiernan at paul.kiernan@wsj.com
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