UPDATE 2-Vale to write down nickel, aluminum assets by $4.2 bln

Thu Dec 20, 2012 10:17pm EST

* Mining company Q4 writedowns rise to $4.65 bln

* Writedowns on Onça Puma mine, Norsk Hydro stake

* Vale taking legal action vs Onça Puma supplier

RIO DE JANEIRO, Dec 21 (Reuters) - Brazil's Vale SA , the world's No. 2 mining company, has decided to take a $4.2 billion write-down on its nickel and aluminum assets, the company said, increasing its fourth-quarter write-downs to $4.65 billion.

The world's largest iron ore producer and No. 2 nickel miner said in a securities filing late on Thursday it would book the non-cash, pre-tax charges in the fourth quarter. The writedowns are nearly three times the company's third-quarter profit.

Vale also reduced its estimate of the market value of its 22 percent share of Norwegian aluminum producer, Norsk Hydro ASA , by $1.3 billion to below the book value of its investment, which will impact fourth-quarter net earnings.

A decline in iron ore prices to three-year lows in September and prospects for a slowing world economy forced Vale to scale back investment, cut spending and seek to sell assets.

On Dec. 2 it cut estimated 2013 capital spending 24 percent to $16.3 billion from planned 2012 spending. Iron ore, which has rebounded since September to about $135 a tonne, is expected to be in the $110 to $140 a tonne range in the coming year.

The writedowns are part of efforts to clean up the company's balance sheet, determine which businesses are performing best and allocate increasingly limited capital to its most profitable businesses.

VALE REBUILDING FURNACE

The main project affected by the write-down is the Onça Puma nickel project in the Amazonian state of Pará, which has been having trouble with its smelting operation and needs to rebuild one of two furnaces at the project site.

The smelting problems forced the shutdown of operations at Onça Puma in June 2012. The rebuilding will cost $188 million in 2013 and the company expects to restart operations in the fourth quarter of 2013, Vale said.

The trouble is the result of "problems with the basic engineering project", Vale's press office said. It declined to explain the nature of the problems but said it is taking legal action with its supplier.

Vale said that, given the current market environment for ferronickel, it had decided on a pre-tax impairment charge on Onça Puma of $2.848 billion, which is 75 percent of the nickel project's total book value as reported on September 30.

Ferronickel is a iron-nickel alloy used as a raw material in stainless steel.

Vale said on Wednesday it would take charges of about $448 million against earnings in the fourth quarter after settling tax disputes in Switzerland and Brazil.

Vale said the "downward volatility of aluminum prices and the macroeconomic uncertainties about the European economy" had contributed to reducing the market value of its share of Hydro.

"Based on Hydro share prices at September 30, 2012, we are recognizing an impairment charge before tax of $1.3 billion, which will impact our fourth quarter 2012 net earnings," the company said in its filing.

But the writedowns will not affect its cash flow, it added.

"Despite these charges, we remain confident on the long-term market fundamentals of the global nickel market," it said.

Vale will report fourth-quarter earnings on Feb. 27, 2013.

Net income in the three months ending Sept. 30 was $1.67 billion, down two-thirds from $4.94 billion a year earlier.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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