Vale Production Drops in all Segments in Q1

By Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazilian mining company Vale is in bad shape. After experiencing the disastrous dam collapse at Brumadinho at the beginning of the year, the company is confronted with lawsuits, lower production and a significant loss of reputation.

Only a few days ago the miner got dumped by a prominent institutional investor. The Kommunal Landspensjonskasse (KLP), Norway’s largest pension fund, has excluded the company from its investment portfolio as a result of the collapse of the Córrego do Feijão dam at Brumadinho.

According to KLP, the accident “constitutes an unacceptable risk” contributing to “serious human rights violations and serious environmental damage.”

And today the Rio based giant had to announce disappointing results. Iron ore production totaled 72.9 Mt in 1Q19, 28 percent and 11 percent lower than 4Q18 and 1Q18, respectively, mainly as a result of the impacts following the Brumadinho dam rupture and the stronger than usual weather-related seasonality.

Pellet production totaled 12.2 Mt in 1Q19, 23 percent and 5 percent lower than 4Q18 and 1Q18, respectively, mainly due to stoppages of pellet plants, following the Brumadinho dam rupture, as well as scheduled maintenances carried out in Tubarão and Oman.

Iron ore fines and pellet sales volume was 67.7 Mt in 1Q19, 30 percent and 20 percent lower than in 4Q18 and 1Q18, respectively.

The decrease, when compared to 4Q18, was a result of the following effects:

(i) the usual weather seasonality (14 Mt);

(ii) the impact of production stoppages following the Brumadinho dam rupture (7 Mt);

(iii) new inventory management procedures at Chinese ports, which impacted the timing of sales revenue recognition (6 Mt); and

(iv) abnormal rains affecting shipments from the Ponta da Madeira port in the Northern System (5 Mt); which were partially offset by inventory drawdowns from Chinese ports in 1Q19 (3 Mt).

Regarding the inventory management procedures mentioned above, according to previous practices, once a commercial agreement was reached, ownership of the product at our blending facilities was transferred to the customer and revenue was recognized, irrespective of retrieval of the ore by the customer.

Consequently, the ore sold had to be segregated at the port awaiting retrieval, and therefore port operational capacity was constrained due to lack of stockyard flexibility.

The share of premium products² in total sales was 81 percent in 1Q19, remaining practically in line with 4Q18.

Iron ore fines and pellet quality premiums reached US$ 10.7/t[3] in 1Q19 vs. US$ 11.5/t in 4Q18, mainly due to lower market premiums for Carajás fines, which were partially offset by the positive impact of new contract terms for pellets sales.

Production of finished nickel reached 54,800 t in 1Q19, 14.4 percent lower than 4Q18 and 6.5% lower than 1Q18. The decrease was mainly due to lower production from:

(i) PTVI, due to the scheduled maintenance shutdown at the Matsusaka refinery, in Japan;

(ii) VNC, due to the scheduled maintenance at the Dalian refinery, in China; and,

(iii) Sudbury, due to timing differences in the nickel processing chain.

Copper production reached 93,800 t in 1Q19, 14.6 percent lower than 4Q18 and in line with 1Q18. Production decreased mainly due to lower feed grades and lower plant throughput at various operations.

Coal production totaled 2.2 Mt in 1Q19, 29 percent and 9 percent lower than in 4Q18 and 1Q18, respectively, as a result of extremely severe rains throughout the quarter.