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Mining giant Vale reports steep drop in earnings

RIO DE JANEIRO–Brazilian mining giant Vale SA VALE, +4.43% reported Thursday a steep drop in its third-quarter earnings as prices for its main product, iron ore, declined from a year earlier and the local currency weakened drastically.

Vale posted a net loss of $2.12 billion, 47% larger than its loss in the year-ago quarter. Earnings before interest, taxes, depreciation and amortization, or Ebitda, plunged 38% in the July-September period to $1.875 billion.

Lower sales, a function of sinking prices for iron ore and other commodities, were partly to blame. Vale’s net revenue fell 28% in the third quarter from a year earlier to $6.505 billion.

But a weaker Brazilian real also brought heavy losses to Vale’s bottom line. The local currency weakened to BRL3.97 at the end of September from BRL3.10 at the close of the second quarter, causing Vale’s debt burden to swell and prompting derivatives losses of $1.2 billion.

Gross debt fell 2.4% in the third quarter from a year earlier to $28.675. But due to a plummeting cash flow, this amounted to 3.6 times Vale’s long-term adjusted Ebitda, up from 1.6 in the third quarter of 2014.

On a positive note for Vale, Brazil’s weaker currency sent its costs, particularly in iron ore, sharply lower. Including expenses like freight and royalties, Vale said it could deliver iron ore to China, its main market, at a total cost of $34.20 per metric ton in the third quarter, down from $58.50 a year earlier.

That helped offset the decline in the prices. Vale sold its iron ore for an average price of $46.48 per ton in the third quarter, down from $68.02 a year earlier.




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