Soaring iron ore prices boost Vale Q1 profit

Tailings’ filtration plant at Vargem Grande complex, delivered in March 2021. (Image courtesy of Vale’s Q1 2021 Financial Report.)

Brazil’s Vale (NYSE: VALE), the world’s top iron ore producer, has beat first quarter profit estimates, as prices for the steel-making ingredient continue to hit record highs.

The miner, which is also the no.1 nickel producer, posted net income of $5.6 billion, above market estimates of $5.06-billion. The figure is also significantly higher than the $239 million posted in the first quarter of 2020, which was affected by factors such as fines and compensation to victims of the deadly 2019 Brumadinho tailings dam disaster.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached $8.4 billion in the three months to March 31, up from $2.9 billion a year earlier.

Vale said seasonally lower production volumes, announced last week, were partially offset by higher commodity prices, with 62% iron ore fines fetching an average 25% more than the previous quarter.

Fastmarkets MB’ index for iron ore 62% Fe fines rose by $1.73 per tonne or 0.9% on Tuesday, the second straight day the commodity hits a fresh high.

“I am confident that our positive financial results reflect our consistency in delivering our promises in de-risking Vale,” chief executive officer Eduardo Bartolomeo said in the performance review.

Among the accomplishments of the period, Bartolomeo named the $7 billion Brumadinho global settlement, completing the sale of Vale New Caledonia and the recently announced share buyback program.

RBC Capital Markets analyst Tyler Broda said the buyback would be “well covered” by the $5.8 billion in free cash flow generated in the first quarter.

“The key question in our view is how management will allocate next quarter’s cash flow, and the next,” he wrote.

Vale reiterated its bullish short-term stance on iron ore, copper and coal, but warned of a “small surplus” in the nickel market amid “resilient production” in China and Indonesia.

It forecast a “small surplus” in the nickel market this year, but said its long-term outlook for metal remained very positive as demand from the EV sector rising steadily and cost of ownership nearing parity with internal combustion engine vehicles.

“Global sales of electric vehicles are on track to increase by over 80% from 1Q20 led by robust growth in China and moderate increases in Europe and North America,” Vale said.

The Rio de Janeiro-based mining giant had a positive near-term view on copper, thanks to robust demand and supply concerns, as containing the latest wave of covid-19 is proving to be difficult, particularly in Latin America.

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