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VALE Posts Mixed Q2 Production Result, Updates Iron-Ore View

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Premium mining company, Vale S.A. (VALE - Free Report) reported mixed second-quarter 2017 production results. Aggregate output of iron ore, pellets, coal and cobalt improved on a year-over-year basis, but productivity of manganese ore, nickel, copper and gold descended from the respective year-ago tallies.

Over the last one month, Vale’s shares yielded a return of 12.72%, underperforming 16.58% growth recorded by the Zacks classified industry.

Inside the Headlines

In the reported quarter, the company’s iron ore output reached a new record high at 91.8 million tons (Mt), up 5.8% year over year. The upside was stemmed by robust ramp-up accrued from the company’s S11D iron ore mine in the Northern System.

However, Vale noted that it anticipates to produce iron-ore at the lower end of the 360–380 Mt guidance range in 2017. The company stated that this estimation is in sync with its margin expansion strategy.

Aggregate output of pellets totaled 12.2 Mt, up 21.5% year over year. The upside was driven by the resumption of the Fabrica plant (Jul 2016) and absence of maintenance-related stoppage of many major mines.  

Gross output of coal came in at 3 Mt, significantly up from 1.3 Mt recorded in the year-ago period. This remarkable upside was stemmed by record productivity of the company’s Mozambique mine.

Total output of cobalt during the quarter was 1,412 tons, up 7.7% year over year. The year-over-year increment was fueled by solid productivity of the company’s Long Harbour processing plant.

Nonetheless, during the quarter, aggregate productivity of manganese ore, nickel, copper, and gold fell short of the year-ago tallies by 8.2%, 16.1%, 4.4% and 11%, respectively. Lesser availability of good quality ores, weaker-than-expected mining productivity and planned maintenance shutdown of certain mines were some factors playing spoilsport.  

Why a Poor Zacks Rank?

Declining iron-ore prices have been hurting the revenues and profits of mining companies like BHP Billiton Limited (BHP - Free Report) , Rio Tinto plc (RIO - Free Report) and Denison Mines Corp. (DNN - Free Report) . Over the last three months, iron-ore prices declined nearly 7.67% to $65.79 per ton.

An excess supply situation in the market has also been marring iron-ore prices. Further slump in prices would continue to thwart the company’s results in the quarters ahead as well.

Vale currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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