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UPDATE 3-Vale's first loss in 10 years clears decks for volatile 2013
February 28, 2013 / 2:57 AM / 5 years ago

UPDATE 3-Vale's first loss in 10 years clears decks for volatile 2013

* Loss due to one-time tax, mine and steel mill writedowns

* CEO: Cost-cutting, better prices, improved results vs Q3

* Vale better prepared to face volatile 2013, analyst says (Recasts lead, adds analyst, company comment, share price outlook)

By Jeb Blount

SAO PAULO, Feb 27 (Reuters) - Brazilian mining giant Vale SA posted its first quarterly loss in 10 years, taking $5.66 billion of writedowns on money-losing mines as it follows rivals in cutting costs and bolstering finances in the face of a volatile world economy.

The world’s biggest iron ore miner, whose fortunes has been tied to China’s explosive growth over the past decade, said it now expects only moderate growth in the Chinese steel market this year.

Vale lost $2.65 billion in the fourth quarter, compared with a profit of $4.67 billion a year earlier, according to a securities filing on Wednesday. It was the company’s first quarterly loss since the third quarter of 2002.

The result was more than double the $1.27 billion average loss outlook in a Reuters survey of analysts. Vale, the world’s second-largest mining company, is also the second-largest producer of nickel.

“Last year came as a shock to Vale and other miners and this year looks challenging too,” said Pedro Galdi, energy and commodities analyst at SLW Corretora, a Sao Paulo brokerage.

Iron ore and nickel prices tumbled to three-year lows in 2012, prompting Vale Chief Executive Murilo Ferreira and global competitors such as BHP Billiton Plc and Rio Tinto Plc to slash investment and sell, write down or delay underperforming projects.

“Vale is cleaning up its balance sheet to prepare for problems that could crop up in the United State, Europe and China,” Galdi said.

Miners are likely to face a tough year or two, and weaker economic activity in the world’s largest economies could cause prices to plunge as they did in 2013, making it harder fund investment and crimping profit, Galdi said.

Jose Carlos Martins, Vale’s head of ferrous metals, dismissed suggestions of a major slowdown in China, and said the country’s steel market, which buys about 50 percent of Vale’s iron ore, will likely grow “moderately” this year.

Prices for iron ore, the main ingredient in steel, will “remain volatile”, generally improving in the first half of 2013 and generally falling in the second half, Martins told reporters on a conference call. He declined to forecast an average price.

Although iron ore prices have risen strongly from their lows in September last year, Vale’s fourth-quarter result was also hurt by weaker metal prices. The price of iron ore .IO62-CNI=SI fell by 15 percent and nickel by 7.5 percent compared with a year earlier.

OPERATIONAL IMPROVEMENTS

Lower prices brought weaker revenue. Net sales, or sales minus sales taxes, fell 19 percent compared with a year earlier to $11.72 billion, close to the $11.30 billion net sales outlook in the analysts’ survey.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, fell 97 percent from a year earlier to $257 million, aided by the impact of the writedowns.

While a loss was expected on one-time items, increased efficiency through cost cutting and recovering commodities prices improved operating results, compared with the third quarter, Ferreira said.

EBITDA, which does not include the one-time charges, was $4.39 billion in the quarter, an 18 percent improvement over the third quarter.

Analysts said Vale’s writedowns and other steps could support its shares when trading resumes on Thursday in Sao Paulo and New York.

Vale preferred shares fell 0.9 percent on Wednesday in Sao Paulo before the results were announced. The shares gained 19.7 percent in the fourth quarter but have fallen 17 percent since the beginning of the year.

“I think Vale may open lower (on Thursday), but rise after the conference calls planned with investors,” SLW’s Galdi said.

“Impairment was bigger than expected, but after Vale explains how the company is now stronger, it could rise.”

BALANCE SHEET CLEANING

Vale said in December it would take an impairment charge of $4.2 billion on its Onça Puma nickel mine in Brazil’s Amazon state of Para as well as a writedown on its 22 percent stake in Norwegian aluminum company Norsk Hydro ASA.

On Wednesday, the miner also wrote down the value of its 27 percent stake in the Cia. Siderurgica do Atlantico (CSA) steel mill near Rio de Janeiro by $583 million, and took a $1.03 billion charge on its Australian coal assets.

Germany’s ThyssenKrupp AG, which owns the rest of CSA, has put its stake in the troubled and money-losing mill up for sale.

These and other adjustments to writedowns announced in December, brought total impairment charges to $5.66 billion, or 67 percent more than Vale’s average profit of $3.22 billion in the previous four quarters.

Vale also took $448 million in charges it announced only days earlier to settle Swiss and Brazilian tax disputes. (Additional reporting by Sabrina Lorenzi in Rio de Janiero; Editing by David Gregorio, Tim Dobbyn and Richard Pullin)

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