VALE: Profit Falls 98% In Q2 Amid Impairments And Weak Real

(RTTNews) - Brazil's miner Vale net profit in the second quarter decreased dramatically compared to the same quarter a year ago, pressured by a weaker real, the impairment on assets from discontinued operations and a write-down of mining assets in Canada.

Vale's net income totaled US$ 16 million in the second quarter, a 98.55% reduction compared to the US$ 1.106 billion gain in the second quarter of last year. Analysts expected a US$ 785.6 million profit. Underlying earnings, which exclude non-recurrent events, rose 21%, to US$ 949 million.

Results were affected by the negative impact of foreign exchange (US$ 610 million), related to the depreciation of the Brazilian real compared to the U.S.dollar and a US$ 414 million impact from impairments and write-downs, which include the mark-to-market of Mosaic shares (US$ 268 million) and a reduction in the residual value of mining assets in Canada (US$ 133 million).

Investments in the period fell by 31.23%, to US$ 894 million. "With additional reductions in investments in S11D and other major maintenance projects, such as AER nickel emission reduction in Sudbury, we can aim to further reduce CapEx by 2018. Vale's free cash flow can continue to rise even in a low-price environment," said the company's CFO, Luciano Siani Pires.

During a conference call, Vale's president, Fabio Schvartsman, stated that the company wants to bring its total net debt - currently at US$ 22 billion - to the US$ 15 billion to US$ 17 billion range in 2017.

"Net debt will drop to US$ 15 billion sometime, maybe next year, and we will continue to aim for lower numbers," said Schvartsman, adding that the company's debt level should be the smallest possible since Vale has a strong dependency on iron ore, a raw material with high price volatility.

He reiterated the company's commitment to cut costs and diversify its activities, highlighting the Vale's interest in producing copper. "Everything we do relating to copper turns out to be very profitable."

Schvartsman also said that the miner would do whatever it can to keep increasing stockholders compensation.