Vale SA forecasts it will miss base metals output targets for a second year, fueling calls from analysts for the company to sell at least part of the business plagued by strikes and sinking prices.
Vale's base metals assets may be worth as much as USD 30 billion, Bank of America Corporation estimates. The unit contributed less than 5 percent to second quarter adjusted earnings before interest, taxes, depreciation and amortization.
CEO Mr Murilo Ferreira, who led Vale's USD 18.2 billion takeover of Canadian nickel producer Inco Limited in 2006 as head of base metals, said last month the Rio de Janeiro based miner is studying options for the unit. Vale SA CEO Mr Murilo Ferreira told analysts that "Base metals still has to deliver the results not presented in the past."
Mr Rogerio Zarpao, an analyst at Banco J Safra SA, said that Vale, the world's second largest mining company, is refocusing on its more profitable iron ore business. Mr Zarpao said that "Vale will become a company with contained growth in those business areas. The diversification will continue, but is not the priority that it used to be."
Mr Bank of America analysts led by Mr Felipe Hirai in Sao Paulo said in a July 26th 2012 note to clients that "Divesting base metals could generate significant value for Vale. We believe these assets are not currently up for sale, but we think continued weak results could prompt management to revisit this strategy."
Nickel prices have declined by about 50% from an average of USD 31,200 per tonne in November 2006, when Vale acquired Inco. Nickel for delivery in three months fell 1.5% to USD 15,500 a tonne in London, extending this year’s decline to 17%. Nickel is a key element for the production of stainless steel.
Vale, the world's second largest nickel producer, this year halted operations at two of its base metals projects following production ramp-up incidents.
Vale declared force majeure in its VNC New Caledonia nickel operations after a plant accident, according to a May 10 statement. The plant, which in the first half of 2012 produced 4,000 tonnes out of a 60,000 tonne capacity, is expected by the company to resume operations in the fourth quarter.
In northern Brazil, Vale's Onca Puma nickel plant stopped producing in the second quarter after furnace problems and will probably be out of operation for a few months, according to a July 18th 2012 company statement. Onca Puma, which the company said has an estimated capacity of 58,000 tonnes, had output of 6,000 tonnes of nickel in the first six months.
As a result, Vale produced 124,000 tonnes of nickel in the first half of 2012, 41 percent of its annual target, prompting the company's executive officer of base metals Mr Peter Poppinga to say on July 26th 2012 the annual goal won't be met. Vale will also miss its copper output target this year, he said, after completing 42% of this year's objective.
Vale sold its nickel at an average USD 17,761.90 a tonne in the second quarter, 30% less than last year and the lowest realized prices in three years. The average selling price for copper declined 15% in the period to USD 7,566 per tonne.
Production of the metal used to prevent corrosion in stainless steel reached 242,000 tonnes in 2011, missing the company's 2011 target by 18 percent and still below the annual record of 275,000 tonnes in 2008.
Vale missed the targets due to delays in the VNC and Onca Puma ramp up, together with operational problems in its Indonesia mines and difficulties in resuming production in Canada after the strike.
Source - Bloomberg
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