UPDATE 3-Vale vows spending austerity as metals price outlook improves – by Jeb Blount and Guillermo Parra-Bernal (Reuters U.S. – February 28, 2014)


RIO DE JANEIRO/SAO PAULO Feb 27 (Reuters) – Vale SA , the world’s largest iron ore producer, will continue reining in costs this year even as the outlook for prices and sales volumes is improving, its chief executive officer said on Thursday.

“We plan to continue with austerity,” Murilo Ferreira, the company’s CEO told investors at a conference call to discuss fourth-quarter earnings.

The company will also continue efforts to sell underperforming units and control investments as it sharpens its business focus on iron ore, responsible for about three-quarters of revenue and nearly all of its profit.

His remarks come as Vale reported a net loss of $6.45 billion in the quarter, its largest since Brazil’s government sold control to investors in 1997 and more than twice the shortfall of the year-earlier period. The loss was due to non-recurring events such as a one-time income tax settlement and the write-off of an abandoned potash project in Argentina.

Despite the non-operational losses, Ferreira managed to cut costs, write off bad investments and wring more cash from its mines, railways, processing plants, ports and ships while focusing more on Vale’s main iron-ore business.

“Vale is doing a good job controlling costs,” said Edmo Chagas, mining company analyst at Grupo BTG Pactual in Rio de Janeiro in a client note.

The company’s adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, a measure of the company’s ability to generate cash from operations, rose 50 percent in the quarter to $6.64 billion. The result beat the average analyst estimate of $5.85 billion. The EBITDA result was the third-highest in the company’s history.

Vale preferred shares, the company’s most-traded class of stock, closed the day up 1 percent at 29.31 reais in Sao Paulo.

With the stock underperforming its peers about 20 percent over the last 12 months, we believe most of the relative risks are priced in and we remain constructive on the name,” Chagas said. He has a “buy” recommendation on the stock.

Fourth-quarter results highlighted Ferreira’s success in controlling the size of a company that was growing too big, Chagas said. While the current trends in iron ore and slower growth in China offer risks for Vale, a potential fall in prices should be mild, Chagas and other analysts said.

However, Vale sees almost no risk for iron ore sales volumes and prices, although 2014 is unlikely to show prices as high as in 2013, Jose Carlos Martins, the company’s head of ferrous metals, said on a conference call with investors on Thursday.

Vale is working with a “nearly 100 percent chance” of meeting output targets for iron ore during the next two years, he said. He added that ore quality will again become a defining element in pricing, helping boost the value of Vale’s high-grade iron ore in China, its main market.

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