Vale SA (ADR) (NYSE:VALE) posted second-quarter earnings that beat Wall Street estimates marking a second consecutive quarter of earnings gains amidst the uncertainty that has hit the mining industry. Cost cuts complimented by increased shipments of the steelmaking ingredient allowed the Brazilian iron ore maker to overcome a slump in iron ore prices and post a profit of $1.68 billion. That was a 17.3% increase from last year’s same period levels.
Reduced Production Costs
Chief Executive Officer, Murilo Ferreira, believes the company could have posted better results had it not felt the effects of currency fluctuations especially on operations outside the US. However ongoing cost cuts, as well as improved iron ore quality, should help underpin profit margins going forward. During the quarter, Vale SA (ADR) (NYSE:VALE) reduced its costs for producing a tonne of iron ore to $15.8 per tonne from a high of $18.3 tonne in the first quarter.
Vale SA (ADR) (NYSE:VALE) registered a strong performance in terms of iron ore production that came in at 85.3 million tons. The highest production for second quarter and second highest in the company’s history. Vale is, however, concerned that its margins could be affected as it moves to reduce its production capacity, which could see it produce less than 376 million tonnes it had initially projected.
Vale Future Plans
Mining companies have been forced to focus on reducing costs to survive the onslaught in the sector that has seen iron ore plunge by nearly half the value they were trading at last year. Vale SA (ADR) (NYSE:VALE)’s divestment program is nearing its conclusion the company having already struck deals worth $1.65 billion. The company is looking to use funds from the divestment to pursue an iron ore mine in the Amazon considered to be the largest in its history.
Vale SA (ADR) (NYSE:VALE) is also planning to carry out a dividend offer worth $1 billion in the second half of the year. However, a decision has not yet been made by the board and will depend on the amount of free cash flow available according to the CEO.
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