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Vale gets little relief for $15.5 bln tax debt from court ruling – by Jeb Blount (Reuters U.S. – April 11, 2013)

http://www.reuters.com/

RIO DE JANEIRO, April 11 (Reuters) – A Brazilian Supreme Court ruling on Wednesday will trim global miner Vale SA’s 30.5 billion real ($15.5 billion) disputed tax liability by about 5 percent while leaving the bulk of the debt up to future decisions by Brazil courts, company documents show.

The court’s complex and incomplete decision on the constitutionality of Brazilian tax rules for foreign subsidiaries only resolved related Brazilian tax assessments on Vale for the 1996-to-2001 period.

That period makes up most of a 1.5 billion real tax bill, plus interest and penalties, that Vale received in 2007 for the profits at foreign units in 1996-2002, according to Vale filings with securities regulators.

The rules being challenged came in effect in 2001 and cannot be applied retroactively, the court said. Vale general counsel Clovis Torres called the decision a “great victory” late Wednesday. He said it would make a significant dent in the company’s tax liability.

The other 29 billion real of Vale liabilities under the 2001 regulations remain unresolved by the courts after more than a decade of litigation. And while Vale has the biggest tax debt under the 2001 rules, other companies also face assessments.

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Iron Ore Bear Market Looms as Supply Swamps Demand: Commodities – by Phoebe Sedgman (Bloomberg.com – April 4, 2013)

http://www.bloomberg.com/

Iron ore is heading toward its first surplus in at least a decade as output expands and Chinese steel mills, the biggest buyers, boost production at the slowest pace in five years.

Seaborne supply will advance 9.1 percent and demand 8.3 percent in 2013, led by exporters from Perth-based Fortescue Metals Group Ltd. (FMG) to Vale SA (VALE5), Morgan Stanley forecasts. A surplus will emerge in 2014 and keep widening until at least 2018, the bank predicts. Prices will slump as much as 34 percent to $90 a ton by the end of December, according to the median of seven analyst estimates compiled by Bloomberg.

Exports of the biggest seaborne cargo after oil are surging the most since 2010 after prices jumped as much as sevenfold in the past nine years. Goldman Sachs Group Inc. expects China’s imports to climb 4 percent in 2013, the least in three years. Its steel output will expand 2.6 percent as the nation’s economy grows at the second-slowest pace in the past decade, according to estimates from Morgan Stanley and economists surveyed by Bloomberg.

“We’ve got a steady lift of supply, mainly out of Australia,” said Tom Price, the Sydney-based analyst at UBS AG who has covered the market for about a decade. “We’ve observed for a couple of years now moderation in demand growth in China. A combination of those two is why we’re bearish.”

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Voisey’s Bay heading underground – Deal includes $100 million from Vale over next three years – by Ashley Fitzpatrick (St. John’s Telegram – March 30, 2013)

http://www.thetelegram.com/

Vale is taking its mining operation in Voisey’s Bay underground. Construction work for the underground mine is slated to start in 2015, with first ore expected by 2019.

The commitment to the mine extension came as part of a new deal struck between Vale Newfoundland and Labrador and the provincial government.

The deal assures the current mining at Voisey’s Bay can continue uninterrupted while the company’s new, $4.25-billion processing facility at Long Harbour is completed.

It means mining operations at Voisey’s Bay can continue until at least 2035. “It’s an important mine and extending it is important for us and the industry, generally. It’s a fabulous win-win,” said Gerry O’Connell of Mining Industry NL, who spoke with The Telegram immediately following the announcement of the deal.

“(And) with these kinds of mines, you never know. I meant they could go on for — Sudbury’s been going for 100 years,” he said.

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NEWS RELEASE: [Newfoundland and Labrador] Government Secures Commitment from Vale for Underground Mine

Executive Council
Natural Resources
March 28, 2013

A commitment to an underground mine at Voisey’s Bay is the centerpiece of amendments to the Voisey’s Bay Development Agreement announced today by the Government of Newfoundland and Labrador and Vale Newfoundland & Labrador Limited (Vale).

“The commitment secured by our government with Vale will ensure more jobs and benefits are created right here in Newfoundland and Labrador for our people,” said the Honourable Kathy Dunderdale, Premier of Newfoundland and Labrador. “The new mine will provide many hundreds of construction jobs after sanction in 2015, and even more operational employment than the current mine after first ore is achieved in 2019. This is another example of this government’s continued commitment to ensuring that Newfoundlanders and Labradorians benefit from the development of our natural resources.”

The Provincial Government extracted extra value with other improvements including enhanced industrial and employment benefits and additional revenue to the Provincial Government of approximately $100 million over three years.

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Truckless $20 Billion Venture Seen Key to Vale Revival: Freight – by Juan Pablo Spinetto (Bloomberg.com – April 2, 2013)

http://www.bloomberg.com/

Vale SA (VALE5) is replacing trucks with 23 miles of conveyor belts and building a second railway through the Amazon to cut costs and retake the title of world’s second- largest mining company by value from Rio Tinto Group (RIO).

Vale’s Serra Sul project, part of the Carajas mining complex in northern Brazil, is the industry’s most expensive project ever at almost $20 billion. It will also be the first major iron-ore venture to fully replace in-mine trucks with conveyor belts, according to the miner. The project, which has absorbed $1.8 billion in investment so far, will allow Vale to reduce mine-to-port costs at Carajas to about $15 per ton, half the company’s current operational cost.

Vale, the world’s third-largest miner by value, is seeking to recover ground in the seaborne iron-ore market that it has lost to Australian rivals since 2007. The Serra Sul project will aid Vale shares as it cut costs per ton by tapping richer grades with improved technology, said Jonathan Brandt, an equity analyst at HSBC Holdings Plc.

“It’s quite an impressive project,” Brandt, who visited the venture in September, said in an interview from New York. “It should substantially lower their average cost per ton.”

Brandt, the second-most-accurate Vale analyst on the Bloomberg Absolute Return Rank (VALE), estimates the company will be able to extract, process and deliver ore to the Ponta da Madeira port for export at $20 to $23 per ton once all costs are included. That would be among the cheapest iron-ore operations in the world, he said.

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So who got hosed? [Canadian mining foreign takeovers] – by Eric Reguly (Globe and Mail – March 29, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Yes, Canada lost a lot of head offices in the foreign takeover binge, but we sure sold out at the right time

The $165-billion merger of AOL and Time Warner in 2000 was so disastrous that it was celebrated as the biggest, stupidest deal ever, one that will be studied for decades by MBA students with a taste for financial gore (all currency in U.S. dollars). The copycat calamities in other industries, if on somewhat smaller scales, will make for fun reading too.

In banking, one of the biggest debacles came in 2007, when the carve-up of Dutch bank ABN Amro helped wreck the Royal Bank of Scotland (it had to be nationalized by the British government after the 2008 financial crisis). The mess is now bringing down Italy’s Monte dei Paschi di Siena, which bought the Italian arm of Amro at an outlandish price. In mining, Rio Tinto, one of the world’s largest mining companies, bought Montreal’s Alcan at the peak of the market in 2007 (a bad year, that one) for an eye-watering $38 billion. Since then, Rio has written down Alcan’s value by about $30 billion. For his sins, Rio CEO Tom (Honey, I Shrunk the Equity) Albanese was fired this past January.

Albanese was not alone in the bonehead department. Many foreign takeovers of Canadian companies made between 2006 and 2008 – the bubble years – have come to grief, with writedowns galore. Indo-European steel giant ArcelorMittal vastly overpaid for Hamilton’s Dofasco.

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Voisey’s Bay underground mining deal reached – CBC News North (March 28, 2013)

http://www.cbc.ca/north/

Vale, Dunderdale reveal details on extending life of massive Labrador nickel find

In return, the government will allow Vale to export more Voisey’s Bay ore for the next three years without it being processed inside the province.

The government will get financial compensation of $100 million for the exemption involving nickel extracted from the mine on Labrador’s northern coast.

The agreement significantly extends the commercial life of the Voisey’s Bay mine, which is considered one of the world’s largest nickel finds. Former owner Inco shipped its first concentrate from the Voisey’s Bay mine in 2005. Two freelance prospectors working for Vancouver-based Diamond Fields Resources discovered the massive deposit of nickel, cobalt and copper in 1993.

Until now, production has focused solely on the surface of the mine. Vale had estimated that it can run the surface phase of the mine for about 14 years. The agreement on opening the underground mine effectively extends the life of Voisey’s Bay by another 15 years.

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BSG Says Guinea Preparing to Strip Rights to Vale Mine Venture – by Jesse Riseborough (Business Week – March 25, 2013)

http://www.businessweek.com/

BSG Resources Ltd., a company controlled by Israeli billionaire Beny Steinmetz, said the government of Guinea is preparing to strip its joint venture with Vale SA (VALE5) of the rights to its mining assets in the country.

A new government agency, Comite Technique de Revue des Titres et Conventions Miniers, or CTRTCM, has “been entrusted with the task of preparing the expropriation of VBG’s assets,” closely held BSG said today in a statement, referring to its venture with Vale, the world’s biggest exporter of iron ore.

The venture is planning a $10 billion iron ore mine in the country at Simandou and the dispute with the government comes amid a review into the agreements signed with mining companies. The company’s president was recently barred from entering the country “on baseless grounds of domestic security,” it said today. “The denial of entry is only the latest of a number of illegal acts by the Government of Guinea,” including the creation of CTRTCM, BSG said.

It’s “the latest example of an illegitimate government resorting to harassment to make it impossible for BSG Resources, and its VBG joint venture, to exercise their contractual rights legitimately awarded in Guinea,” the company said.

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‘There will be more nickel needed’ – by Carol Mulligan (Sudbury Star – March 21, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

There’s good news and bad news emerging from China when it comes to nickel production, says a mining analyst with a keen interest in Sudbury.

The bad news is Chinese nickel production is at a record high as the country imports cheap sources of laterite and converts it into low-percentage nickel, said Terry Ortslan. “Nickel pig iron (NPI) production we speak,” said the Montrealbased analyst. “And it’s not any mom and pop operation. It’s been very sophisticated, high-technology operations with big furnaces, and serious investments have gone into it.” The good news is the nickel being made in China is costing $6 or $7 a pound because of the cost of power to convert the ore and the cost of raw materials.

Because of the amount of stainless steel needed for expansion and development in China, nickel pig iron can only “contribute so much nickel to the whole equation. There will be more nickel needed in China and elsewhere,” and that could benefit Canadian producers such as Vale, said Ortslan. He has long been outspoken about the high cost of capital and operating costs at nickel operations in Sudbury, “but what we’re seeing now with the Chinese costs is they aren’t very low, as well,” he said.

That causes Ortslan to speculate on the need for “major expansion plans in the traditional areas” such as Sudbury where nickel is produced. Vale Ltd. has been focused on cutting costs at its operations around the world, including Canada, laying off 30 non-union employees this week in the latest round of belt-tightening.

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30 jobs axed at [Sudbury] Vale – Star Staff (Sudbury Star – March 20, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Vale is cutting 30 non-union support jobs in Sudbury as part of its ongoing effort to reduce costs. The news was contained in a letter Kelly Strong, Vale’s vice-president of Ontario and U.K. operations, sent to employees on Tuesday.

A copy of Strong’s letter was obtained by The Star. In an email statement, Vale said the cuts are necessary, given the weak metals market. “In the face of volatile market conditions and operating cost challenges affecting the broader mining sector, work began last year to reinvent the business model for Vale’s base metals organization,” the company said.

“This review has clearly demonstrated the need to reduce fixed costs. Unfortunately, this includes a reduction in workforce levels, particularly in support and service functions both here in Ontario and around the world.”

In his letter, Strong said the company has been working to reorganize its Ontario operations in an effort to cut costs, but it has not been enough.

“In the spirit of transparency, however, I want to inform you that (Tuesday), we reduced our employee complement in Sudbury by 30 employees in various support and service areas,” Strong said in the letter.

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Suspension of Vale’s Argentinean Project is an Opportunity for emerging Potash Players – by Alessandro Bruno (ProEdgeWire.com – March 13, 2013)

http://www.proedgewire.com/

The Brazilian mining giant Vale SA has decided to suspend its USD$ 6 billion potash project in Argentina – the Rio Horizonte project. The announcement was not surprising as work at the project stopped last December and as the Argentinean government has adopted policies generating an increasingly unfavorable investment climate.

As a final consideration leading to the suspension, Vale said that it had not received the requested tax relief from the Government of Argentina, which would raise development costs, which would have included a mine and an associated railway, to over USD$ 11 billion. The markets have welcomed the decision as Vale has been dealing with a number of cost cutting measures; however, the move is a big blow for Argentina, which would have become one of the leading potash producers in the world through this project.

Apart from the evident benefits to the community surrounding the mine, Argentina was counting on its own indigenous potash supply to help boost agriculture. More significantly, as far as the potash market is concerned, the decision carries important consequences for Brazil’s potash supplies. Brazil, which has the largest agricultural industry in the world relative to its population, imports some 90% of the potash it requires from outside sources and mostly from Canada and Russia. Brazil is the world’s third-largest potash consumer and uses much of it for the production of sugar cane.

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Vale Says Suspended Argentina Project to Cost $11 Billion – by Michelle Yun & Juan Pablo Spinetto (Bloomberg.com – March 18, 2013)

http://www.bloomberg.com/

Vale SA (VALE5), the world’s biggest iron- ore producer, said the cost to develop its suspended potash project in Argentina had almost doubled to near $11 billion amid a dispute with the nation.

Inflation and exchange rate fluctuations led the cost of the Rio Colorado project in Mendoza province to surge from the budgeted $5.9 billion, Murilo Ferreira, chief executive officer of Rio de Janeiro-based Vale, said today at the Credit Suisse Asian Investment Conference in Hong Kong.

Vale has joined BHP Billiton Ltd. (BHP) and Rio Tinto Group in shelving projects or cutting spending on expectations a decade- long mining boom has peaked as growth slows in China. Vale said March 12 it mothballed the potash project after the government refused to give it tax breaks. Argentina said last week it will strip Vale of licenses for the project if it fails to resume work.

“We’ve tried to reach some agreement with the government for many and many months, in fact, since the beginning of May 2012,” Ferreira said. “We didn’t receive until the end of 2012 any answer about our demand, and our demand was precisely because of the gap we have in terms of the investment of the project.”

Vale gained 0.3 percent to 33.70 reais in Sao Paulo today, its highest close since March 12.

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Vale $15 Billion Tax Verdict Seen Fueling Gain: Corporate Brazil – by Juan Pablo Spinetto, Raymond Colitt & Ney Hayashi (Bloomberg.com – March 15, 2013)

http://www.bloomberg.com/

Vale SA (VALE5) investors stand to benefit as a decade-long court battle over $15 billion in back taxes that’s been weighing on the miner’s stock nears an end.

The Supreme Court is set to rule by June on a similar case brought by Coamo Agroindustrial Cooperativa, a farming group from the southern state of Parana that’s suing tax authorities to avoid levies on profits from foreign units. A ruling in favor of the group would be in line with the legislation of most other countries, according to Peixoto & Cury Advogados, a legal firm that specializes in corporate law, including tax issues.

The case is being watched as a benchmark for Brazil’s biggest exporters — from Vale to beermaker Cia. de Bebidas das Americas to steelmaker Gerdau SA (GGBR4) — who are fighting a combined $44 billion in tax claims. A win would be a boon for Vale because investors have already priced in much of the tax losses, said Empiricus Research’s Roberto Altenhofen.

“The market is overreacting a bit about the chances of Vale having to pay all the taxes that are being claimed,” the analyst at the Sao Paulo-based consulting firm said in a phone interview. “It’s almost impossible to predict the outcome of this trial, but what we can say is that Vale seems to be willing to negotiate with tax authorities so a deal can be reached. Vale may end up paying something, but not the full amount.”

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Profits Drop at Big Five Miners – by Reuters (New York Times – February 12, 2013)

http://www.nytimes.com/

MELBOURNE — Global mining companies are set to unveil their biggest profit decreases in more than a decade and are clearing the decks with multibillion-dollar write-downs on poorly performing assets as they bring in new chief executives.

A sharp drop in commodity prices is likely to have driven down profits for the second half of last year by 40 percent to 50 percent at the top five mining companies when compared with the same period in 2011, forcing them to shelve expansion projects, slash costs and sell assets.

For the top three — BHP Billiton; Vale, based in Brazil; and Rio Tinto — iron ore earnings are likely to cushion losses in coal, aluminum and nickel for the period.

Chief executives are being punished for splurging in the boom years on projects and acquisitions instead of rewarding shareholders more generously, and investors are calling for Rio Tinto and BHP to rethink their policies.

One of the 10 largest shareholders in BHP and Rio Tinto’s Australian-traded stocks said his fund had been pressing both to pay out more of their profit to shareholders. The shareholder, Ross Barker, the managing director of Australian Foundation Investment, said that the companies were not paying higher dividends to shareholders so they could use the funds for investments that would deliver attractive returns.

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Vale’s results better than they appear: Prof – by Carol Mulligan (Sudbury Star – March 12, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Vale SA may have had its worst fourth-quarter in a decade, losing $2.65 billion from October to December last year, but a Sudbury economist says the company still made $5.5 billion in 2012, a healthy profit.

That’s despite the fact Vale earnings fell from $4.67 billion in the fourth quarter of 2011, and that this was the company’s first quarterly loss since the third quarter of 2002.

Jean-Charles Cachon teaches in the faculty of management at Laurentian University and is chair of the Small Business Research Group at the university. Cachon said he found it strange that a company “that’s flush with money would report a loss. So, I wanted to go to the bottom of things, and I did.”

He read Vale’s fourth-quarter report thoroughly and determined its results are not all doom and gloom. When a company’s operations aren’t as profitable as expected, it’s allowed to take impairment charges. Those charges don’t “cost you a penny,” said Cachon, but they allowed Vale to write off about $5.6 billion.

It’s a complicated formula for many to understand, but the bottom line is Vale still made billions in 2012 and was still able to give “a hefty dividend to their shareholders,” said Cachon.

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