Vale Gains as Cost Cuts End Two Years of Profit Disappointment – by Juan Pablo Spinetto – ( – April 25, 2013)

Vale SA (VALE) rose the most among major iron-ore producers after profit beat analysts’ estimates for the first time in two years on cost reductions and higher copper sales that offset lower prices for the steel ingredient.

Shares in the world’s third-largest mining company rose for a fifth straight day, gaining 2.2 percent to 32.82 reais at 10:41 a.m. in Sao Paulo. BHP Billiton Ltd. and Rio Tinto Group, the largest miners, both rose 0.7 percent in London.

First-quarter net income of $3.11 billion, or 60 cents a share, compared with a loss of $2.7 billion, or 52 cents, in the previous three-month period, according to a statement after the close of trading yesterday. Vale was expected to post per-share profit excluding items of 55.8 cents, the average of 13 analysts’ estimates compiled by Bloomberg. Vale, the worst- performing major mining stock this year, is seeking to bolster investor confidence by putting lower-return projects on hold, selling assets and cutting costs.

“Vale reported a much stronger-than-expected 1Q13, driven by lower costs and expenses and a stronger performance from the base metals business,” Goldman Sachs Group Inc. analysts Marcelo Aguiar and Diogo Miura wrote in a note to clients. “These drivers should provide a strong catalyst to consensus earnings upgrades and reduce the bearish sentiment towards Vale.”

Iron Prices

The company’s profit, boosted by the partial booking of a gold deal with Silver Wheaton Corp. (SLW) in February, is the first quarter-on-quarter increase since the first three months of 2011. Net income fell from $3.79 billion, or 74 cents, in the year-ago period.

Net sales fell 5.3 percent to $10.9 billion in the period after Vale sold its iron ore at an average $111.69 per metric ton, 5.4 percent less than a year earlier. That was below the $121 per ton average of three estimates compiled by Bloomberg. Vale shipped 65.1 million metric tons of iron ore and pellets, a processed form of the mineral, during the quarter, little changed from the previous year.

Costs and expenses shrank by $900 million in the quarter compared to a year ago and by $2.5 billion versus the fourth quarter of 2012, Chief Financial Officer Luciano Siani said in a video posted on the company’s website after the release.
“When you look at the cost side of our operations, the results were extraordinary,” he said. “Costs are going down on a sustainable basis.”

Vale lost 23 percent in the 12 months through yesterday, compared with an 11 percent decrease in Brazil’s benchmark Ibovespa Index. BHP Billiton and Rio Tinto lost 9.6 percent and 12 percent respectively during the same period.

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