By Jeb Blount and Sabrina Lorenzi
RIO DE JANEIRO Nov 6 Brazil's Vale SA
, the world's second-largest mining company, reported
on Wednesday that its third-quarter net income more than doubled
from a year earlier, beating analysts' expectations as iron ore
prices and sales volumes rose.
Net income for the three months ended Sept. 30 soared 114
percent to $3.50 billion from $1.64 billion in the same period a
year earlier, the company said. The result was 6 percent higher
than the $3.3 billion average profit estimate of seven analysts
surveyed by Reuters.
Iron ore prices averaged about a fifth higher in the third
quarter of this year than in the same quarter of 2012, according
to Thomson Reuters.
Net sales, or total sales minus sales taxes, rose 11 percent
from a year earlier to $12.7 billion, beating the average
analyst estimate of $12.5 billion. The volume of iron ore sales
rose 11 percent to 73.4 million tonnes.
"We expected strong volumes, given the robust Brazilian iron
ore export figures for July-September, but shipments still
exceeded our expectations," mining analysts Garrett S. Nelson,
Mark A. Levin and Nathan P. Martin of BB&T capital markets in
Richmond, Virginia said in a report to investors.
"Vale's results were largely a reflection of iron ore prices
that have remained 'higher for longer' in the face of widespread
oversupply concerns," they added.
Vale's preferred shares, the company's most-traded class of
stock, closed at an eight-month high of 34.44 reais in Sao Paulo
on Wednesday before the results were announced.
The result comes a year after Vale moved to sharply cut
costs and refocus expansion on its main iron-ore business. The
spending diet came in the face of flagging demand and plunging
prices in China for the raw material, the main ingredient in
steel. China was responsible for 50.2 percent of Vale iron-ore
sales in the period.
China is the world's biggest steel producer and largest
importer of iron ore. Vale is the world's largest producer of
the mineral, accounting for between a quarter and a third of
world's seaborne iron ore exports. It is also the No. 2 producer
of nickel and a major miner of copper, gold, coal and potash.
While iron ore prices have recovered from the three-year
lows of August 2012, executives of Vale and its main rivals,
Australia's BHP Billiton Ltd and Rio Tinto Ltd
, have said that a decade-long, China-led commodities
boom is likely over. Resulting lower growth expectations
prompted them to rein in investment and prospecting budgets.
The effort led to the mothballing or cancelling of new
projects, the closing of money-losing mines and sale of assets
or stakes in existing businesses. Investment in the first nine
months of 2013 was $11 billion, 9.8 percent less than in the
same period of 2012.
China's strong housing market, though, is keeping demand for
steel and iron ore strong, Vale said in the statement. It will
keep it strong in the near term as steelmakers and distributors
have cut their stocks in the face of China's otherwise slowing
"The Chinese economy should grow more moderately than it did
in the third quarter, but despite this we expect the price of
iron ore to remain stable," Vale said. It added that iron ore
should average about $130 a tonne in the coming months.
On Wednesday, iron ore rose 0.2 percent in
the Chinese spot market to $137.10 a tonne, 58 percent above the
August 2012 lows that prompted Vale's cost-cutting efforts.
ACROSS THE BOARD COST CUTS
That retrenchment helped boost results even more. Vale cut
costs across the board in the quarter. Sales, general and
administrative costs fell 39 percent to 315 million reais while
research and development fell 43 percent to 205 million.
The cost of goods sold, a category that includes salaries
and equipment used to mine Vale's products, fell 3.4 percent to
$6.55 billion despite rising output and sales.
This helped boost adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) by 37 percent to $5.88
billion, beating the average analyst's estimate of $5.71
billion. EBITDA is a measure of a company's ability to generate
cash profits from operations.
Lower costs, though were also aided by a 10 percent decline
in the value of Brazil's real against the U.S. dollar in the
third quarter compared to the same quarter in 2012.
The weaker real meant that each 100 reais of Vale's
Brazilian expenses cost $5.16 dollars less in the quarter this
year than last year.
While its main mines and operations are in Brazil, nearly
all of Vale's sales are in dollars and most of its expenses are
Most other products sold by Vale also saw increases in sales
Metallurgical coal output jumped 51 percent to 1.73 million
tonnes. Nickel output rose 13 percent to 62,000 tonnes. Copper
jumped 17 percent to 103,000 tonnes. Gold output surged 77
percent to 85,000 ounces while silver output rose 18 percent to