Vale Posts Quarterly Loss Amid Declining Iron-Ore Prices – by Juan Pablo Spinetto (Bloomberg News – February 26, 2015)

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(Bloomberg) — Vale SA, the world’s largest iron-ore producer, reported a second consecutive quarterly loss as prices fell and Brazil’s weakening currency increased debt costs. Shares fell.

Vale’s fourth-quarter net loss narrowed to $1.85 billion, or 36 cents a share, from a record loss of $6.45 billion, or $1.26, a year earlier, the Rio de Janeiro-based company said Thursday in a statement before markets opened.

Vale is boosting iron-ore output to a record, helping to expand a global glut as the top producers squeeze smaller miners for market share amid slowing demand from China. While a declining currency in Brazil and Canada helps Vale cut expenses at its main operations, it boosts the cost of servicing dollar-denominated debt. Foreign exchange and monetary losses curbed profit by $1.26 billion, the company said.

While Vale posted a “solid” performance in its iron-ore unit, the base metals business including nickel and copper operations performed below expectations, Bank of America analysts led by Thiago Lofiego said.

“Base metals posted weak results,” the analysts said in a note to clients Thursday. “A more intense cash-burn due to lower iron ore prices and still-high capex should result in increasing leverage and subdued dividends in the coming years.”

Vale declined 1.8 percent to 18.80 reais at 10:22 a.m. in Sao Paulo, bringing their decline over the past 12 months to 35 percent. The Bloomberg Iron-Ore Mining index of 28 producers, including Vale and Rio Tinto Group, fell 46 percent in the period.

‘Challenging Scenario’

Vale faced “a very challenging scenario of declining commodities prices,” Chief Financial Officer Luciano Siani said in a video posted on the company’s website. “The real devalued strongly, which impacted the value of our gross debt when measured in our functioning currency, which is the Brazilian real.”

Vale sold its iron ore at an average $61.6 a metric ton, 48 percent less than a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization fell 67 percent to $2.19 billion.

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