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Vale Issues Production & Sales Update for Fourth Quarter

Zacks Equity Research

Despite the setbacks caused by the Brumadinho dam disaster at Vale S.A. ’s VALE Corrego do Feijao iron ore mine in Brazil, the company has been making serious efforts to mitigate the consequent damages.

Ever since the dam disaster, which took place on Jan 25, 2019, the company is involved in providing necessary assistance to the worst-hit people and the recovery work of the area, affected by the dam burst. While Vale is on track to determine the reasons behind this dam break, it also ensures the safety of its existing upstream dams at the same time.  In the wake of a tailings dam break, Vale’s iron ore annual production was impacted by around 92.8 Mt per year.

Notably, during fourth-quarter 2018, Vale achieved total iron ore production of 101 Mt, which in turn, reflects an 8.2% increase year over year. However, production was 3.8% lower sequentially due to weather-related seasonality. Last year, Vale’s iron ore production was 384.6 Mt, in line with its production guidance of 390Mt. Pellet production summed 15.8 Mt during the fourth quarter, indicating a 22.6% rise year over year, mainly owing to the restart of the three pellet plants. The annual pellet production of 55.3 Mt in 2018 matched the production projection.

Iron ore and pellets sales totaled 96.5 Mt in the final quarter with 4% contraction in the iron ore sales volume to 80.5 Mt as compared to the level in third-quarter 2018. Pellet sales during the reported quarter rose 17.7% year over year to 16 Mt, driven by the ramp-up of three pellet plants and the commercial initiatives to use an excess of the pellet feed production. Evidently, the share of premium products on total sales was 84% in the fourth quarter and averaged 82% in 2018.

Finished nickel production totaled 244,600 tons in 2018, down 15.1% from the 2017-level. Copper production declined 9.8% year over year to 395,500 tons in 2018, reflecting Vale’s strategic decision to trim the nickel production profile, which induces lower copper by-products.

In 2018, coal production met the 2017 output due to some bottlenecks aggravated by heavy rains in first-quarter 2018. Therefore, the company is implementing initiatives to achieve a sustainable coal production from 2019 through higher mine productivity, development of mine capacity and increased plant yields.

Coming to the price performance, shares of the company have gained around 4.6% in a year, in line with the industry’s growth during the same time period.

Vale has been steadily lowering its debt level and closed the third quarter of 2018 with a net debt of $10.7 billion, thereby hitting an all-time low since third-quarter 2009. The company is close to its target of $10 billion net debt. Further, it announced a $1-billion share buyback program last July 2018, to be executed within a year’s time.

The company has already executed around 49% of the repurchase program during the third quarter, purchasing 36.8 million shares on average price of $13.27 as of Sep 30, 2018. Lower interest expense on the back of debt repayment and share repurchases will be accretive to Vale’s earnings in the fourth quarter of 2018.

VALE S.A. Price and Consensus

VALE S.A. Price and Consensus | VALE S.A. Quote

Zacks Rank & Other Stocks to Consider

Vale currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the Basic Materials sector are Ingevity Corporation NGVT, Innospec Inc. IOSP and Materion Corporation MTRN, each sporting Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has an expected earnings growth rate of 17.9% for 2019. Shares of the company have surged 49.2% over the past year.

Innospec has a projected earnings growth rate of 3.5% for the current year. The stock has rallied 21.2% in a year’s time.

Materion has an estimated earnings growth rate of 12.6% for 2019. The stock has gained 13.8%, in the past year.

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