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Vale posts loss after US$ 5.66 billion writedowns

World Coal,

Brazilian mining giant, Vale, slipped to a Q4 loss of US$ 2.65 billion after taking writedowns of US$ 5.66 billion, including a US$ 1.03 billion writedown on its Australian coal assets. For the year, Vale’s underlying earnings reached US$ 11.2 billion, down from US$ 23.2 billion in 2011. Adjusted EBITDA was US$ 19.1 billion, down 43.3%.

Mining companies have been struggling with weak commodity prices and asset writedowns, with profits falling across the sector.

In response, Murilo Ferreira, Vale’s CEO, told analysts that the company was focusing only on projects that bring “big returns”, as well as working to cut costs and sell non-core assets, in an effort to clean up the company’s balance sheet. But the company admitted this would not happen overnight: “Initiatives to produce a lower cost structure, on a permanent basis, are being actively pursued though some time will be needed to show a material difference from the past,” it said in a statement.

Coal: Q4 results

In Q4 2012, revenues from sales of thermal coal were US$ 21 million, equal to Q3, with even volumes and a slight increase in average sale price to US$ 93.57/t from US$ 90.91/t in the previous quarter.

Quarterly revenues from metallurgical coal were US$ 181 million, 11.5% lower than Q3. The decrease was due to the lower average price of US$ 132.49/t, compared to US$ 177.97/t in Q3.

Q4 adjusted EBITDA for the coal business was -US$ 172 million, excluding the writedown on its Australian coal assets, against -US$ 66 million in Q3.

Coal: annual results

Coal revenues reached a record of US$ 1.092 billion in 2012, a record, but EBITDA remained in the red at -US$ 274 for the year (excluding writedowns). 

Total coal shipments were also up, reaching almost 8 million t on the back of increasing volumes in metallurgical coal from Mozambique. On the back of this, metallurgical coal revenues reached US$ 834 million in 2012, compared to US$ 548 million in 2011. However, the average price fell to US$ 171.38/t from US$ 235.27/t in2011.

Thermal coal sales volumes fell to 3.134 million t from 5.342 million t in 2011, following the sale of the company’s assets in Colombia. The average sale price fell to US$ 82.39/t, down from US$ 95.54/t in 2011.

Coal shipments from Mozambique have struggled this year. The company declared force majeure on a number of coal sales contracts in the country due to heavy rainfall that created serious challenges to the Linha do Sena railway. According to company estimates, this will result in a loss of approximately 250,000 t in metallurgical coal shipments.

Logistical issues forced Rio Tinto to take a US$ 3 billion writedown of its assets in Tete province, where Vale’s mines are also located.

Written by Jonathan Rowland

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