UPDATE 1-Vale says higher iron price, gold output to lift results

Thu Feb 28, 2013 11:23am EST

Related Topics

* CEO Ferreira expects greater cost dilution this year

* Massive fourth-quarter loss due to one-time charges

* Gold output, ore price recovery to bolster revenue (Recasts, adds background, details from call, trading)

By Reese Ewing and Sabrina Lorenzi

SAO PAULO, Feb 28 (Reuters) - Brazil's Vale, which reported a massive fourth-quarter loss a day earlier, expects higher iron ore prices and gold output to bolster profit this year, executives said on Thursday.

As more of the company's projects start up in 2013, Vale's costs would be diluted over a greater stream of revenue, which will improve earnings, Murilo Ferreira, chief executive of the world's biggest iron ore miner, said on a conference call with analysts.

"The metals and minerals scenario is turning positive," Ferreira said.

Gold prices have slumped 19 percent over the past year and a half to $1,554 an ounce, but Chinese landed iron ore prices .IO62-CNI=SI have jumped 75 percent since early September to $151 a tonne.

Iron ore accounts for nearly 90 percent of Vale's revenue stream and the company is starting production from the southern project of its massive Carajas mine in the Amazon, which will help offset declining ore qualities from the company's other ageing mines. The company also said it saw improved results at its pellet furnaces due to cheaper coal prices.

On Wednesday, Vale reported a $2.65 billion fourth-quarter net loss, the company's first in more than ten years, and more than double the $1.27-billion average loss forecast by analysts in a Reuters survey.

The loss came in the wake of heavy one-off write-downs of some of Vale's mines and plants in the quarter.

Despite the write-downs, Chief Financial Officer Luciano Siani said Vale's working capital position remained strong due to higher ore prices, which make up the bulk of its revenue.

Vale's fourth-quarter charges follow similar actions by the company's peers such as Rio Tinto and Anglo American , as the mining sector braces for a volatile year and slower growth from China, a key driver of demand for metals.

In trading Thursday, Vale shares erased early losses and were up 2 percent at 36.17 reais. Still, the stock is down 14 percent so far in 2013.

Executives at the world's second-largest diversified mining company said Vale's New Caledonia nickel project would reach 50 percent of its output capacity later in 2013. The so-called Goro nickel project has become the poster child for problems associated with a concentration technology known as HPAL that Vale and its partners Sumitomo and Mitsui have adopted.

"Fixed costs will be diluted with ramp-ups of new projects that will create a large swing in revenue," Ferreira said.

The company's Onca Puma nickel project in the Amazon would also restart its furnaces in the third quarter, after an error forced the plant to shut down in early 2012. Vale is also the second-largest producer of nickel.

Roger Downey, director of fertilizers and coal, said the company would continue with its policy of seeking buyers for its non-core or underperforming assets, such as its thermal coal mines in Australia.

The company has taken no definitive position on whether to go ahead with its Rio Colorado potash project in the Argentine Pampas, but Ferreira said that issue would be discussed on March 11 when management presents the board with the main outstanding problems of the project.

"The project needs to retain an attractive and foreseeable cash flow," Ferreira said, adding that the company was still in open talks with the Argentine government over the terms of the project. (Additional reporting by Esteban Israel, Gustavo Bonato and Roberto Samora; Editing by Bernadette Baum)

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