Vale reports first loss in a decade

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Vale, the world’s largest producer of iron ore, reported its first quarterly loss in a decade as the Brazilian company became the latest miner to write down assets in the face of lower commodity prices.

The Rio de Janeiro-based company posted a pre-tax loss of $2.65bn in the fourth quarter – twice as big as analysts expected – compared to a net profit of $4.67bn in the same quarter the previous year. Falling metal and mineral prices hit sales while also forcing Vale to write down the value of its assets and investments by a total of $5.66bn in the quarter, leading to its first loss since the third quarter of 2002.

“This year has brought various challenges for the company,” said Murilo Ferreira, Vale’s chief executive. “Iron ore prices became much more volatile, showing large downward volatility particularly in the third quarter of the year.”

The price of the metal, which accounts for about 90 per cent of Vale’s profits, fell to a three-year low of $86.70 a tonne in September as growth slowed in China and crisis-hit steelmakers in Europe and the US reduced purchases.

Vale’s net revenue dropped 19 per cent to $11.72bn in the fourth quarter but rose 9 per cent from the third quarter as prices recovered from the September low.

José Carlos Martins, Vale’s head of ore and strategy, said on Wednesday that he expected iron ore prices to remain volatile in the first quarter but still trade above $130 a tonne – the average price of the metal since 2008.

However, he said the price may dip in the second quarter as more production, mainly from Australia, comes on stream.

Earnings before interest, taxes, depreciation and amortisation, or ebitda, fell 97 per cent from a year earlier to $257m in the fourth quarter.

Vale attributed its loss to a series of impairment charges, mainly writedowns of $2.85bn on its Onça Puma nickel mine in Brazil, $1bn on its Australian coal assets and $975m on its 22 per cent stake in the Norwegian aluminium company Norsk Hydro.

Like other miners worldwide, Vale has responded to the slowdown in commodity markets by reversing its recent acquisition strategy and cutting costs.

As well as slashing investment to the lowest level in three years, Vale has also moved to sell peripheral assets, such as stakes in its oil blocks, and suspend some projects.

Vale put its vast Simandou iron ore development in Guinea on hold in October and announced last month that it had suspended work indefinitely at its $5.9bn potash project in Argentina.

Vale’s loss comes only two weeks after Rio Tinto, the Anglo-Australian mining group, posted a net loss of $3bn for 2012 – the biggest loss in its history – as a result of $14.4bn in impairments charges and lower commodity prices.

The following day, Anglo American announced a $239m pre-tax loss for last year – its first since 1999 – following $6.2bn in writedowns. Barrick Gold, the world’s largest gold producer, and Kinross Gold have also reported full-year net losses because of impairment charges.

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