Vale posts $2bn loss on currency, iron ore slump

Vale (VALE) is jumping Thursday morning, following its third-quarter earnings report.

At first blush, the report doesn’t look encouraging, with the company reporting a loss $2.12 billion, 47% wider than a year ago, or 41 cents a share on revenue that fell 28% to $6.5 billion.

Lower sales, a function of sinking prices for iron ore and other commodities, were partly to blame.

He pointed to the company’s record iron ore production in the quarter as evidence of good operational health. Rising production in backdrop of weak demand is expected to widen the worldwide oversupply of seaborne iron ore to 437 million tons in 2018, from a surplus of 184 million tons in 2015. The firm’s market cap is $24.38 billion.

That helped offset the decline in the prices. With a $US17 billion price tag, it is seen as vital for securing Vale’s future but is weighing on results at present. In terms of production, we have the lowest cost in the world.

Shares gained 2.7 percent to 14.72 reais at the close in Sao Paulo Wednesday, trimming a decline in the past 12 months to 36 percent. That exceeded the $45.50 average of eight analyst estimates compiled by Bloomberg. The outlook for Chinese property sales is improving along with credit conditions, setting the stage for global steel recovery in 2016, it said.

“The company itself is becoming ever more competitive, with the lowest cash cost in the industry”, he said in a video posted on the company’s website. As a result, Vale recorded foreign exchange and monetary variation losses of $5.117 billion and currency and interest rate swap losses of $1.196 billion. Despite the currency-related, non-cash loss, Mr Siani said Vale’s total debt in dollars actually decreased over the period. Vale sold its iron ore for an average price of $US46.48 per ton in the third quarter, down from $US68.02 a year earlier. Citi analysts called the $US2.3 billion debt reduction a bright spot for the quarter. Two analysts have rated the stock with a hold rating and three have assigned a buy rating to the company’s stock.

On top of a falling iron ore price, now just a quarter of a 2011 high of almost $200, Vale said it lost $6.2bn due to the weakening Brazilian real against the dollar and other currencies. Vale estimates that lower iron ore fines and pellets prices lowered the gross operating revenues by approximately $355 million and lower nickel and copper prices had a negative impact of approximately $136 million and $98 million respectively, compared to Q2 2015.