Vale Q3 Iron Ore Output Up 35% Q/Q, To Recover 50 Mt by 2021

Vale S.A.’s VALE third-quarter 2019 iron ore production improved 35.4% on a sequential basis to 86.7 Mt courtesy of resumption of Brucutu operations and partial resumption of the dry processing operations at the Vargem Grande Complex. Enhancement in operational performance in the Northern System, which had been impacted by unusual weather conditions in the second quarter of 2019, also contributed to growth.

Consequently, iron ore fines and pellet sales volume rose 20.2% to 85.1 Mt. Operational improvements at Ponta da Madeira port operations also aided the increase in sales volumes. Premium products accounted for 86% of total sales in the third quarter of 2019.

Nickel, Manganese Production Up Q/Q

Finished nickel production totaled 51,400 tons in the third quarter, up 14.2% from the second quarter. Operations have resumed regular rates over the course of the third quarter, following scheduled and unscheduled maintenance at the refineries in the North Atlantic and Asia. In Brazil, the judicial authorization to resume mining and processing operations at Onça Puma was also acted as a catalyst. Nickel sales volumes were down 11.5% sequentially to 50,900 tons.

Copper production remained flat at 98,300 tons in the third quarter compared with the second quarter as improved numbers at Salobo were negated by lower production from Sudbury and Sossego. Sales volumes of copper reached 92,000 tons in the third quarter, down 3.2% on a sequential basis.

Cobalt production reached 1,009 tons in the July-September period, 2.2% lower than the second quarter as increase in production from VNC was offset by lower production across other operations.

In the third quarter, manganese ore production totaled 443,000 tons, 39.3% higher than the second quarter as the company returned to regular levels of production following operational improvements and maintenance conducted at the Urucum mine in 2Q19. Manganese ore sales volumes were 15,000 tons, 63% higher sequentially.

Coal production came in at 2.3 Mt in the third quarter, on par with the second quarter. Vale’s coal operations remain challenged with lower productivity at the processing plants, thanks to a decrease in equipment availability.

Maintains Guidance

Vale maintained 2019 iron ore and pellets sales guidance at 307-332 Mt. Management also stated that it expects sales volume will move toward the mid-point of the range. On Sep 26, 2019, Vale revised pellets production guidance to 43 Mt from previous 45 Mt, in a bid to adjust its product portfolio according to temporary market conditions and align with its margin over volume strategy.

Expects to Resume 50 Mt of Lost Production by 2021

Following the Brumadinho dam rupture on Jan 25, 2019, Vale suspended various operations, either voluntarily or as a result of revocation of licenses or court orders. The company expects to recover 50 Mt of lost production by 2021. In 2020, Vale expects to produce around 30 Mt from the halted operations related to the Brumadinho tragedy, with 7 Mt coming from the resumption of the dry processing operations at the Vargem Grande Complex in 2019 and the remaining from Fábrica, Timbopeba dry processing operations and others. For 2021, it anticipates to add the remaining production of approximately 25 Mt, mainly stemming from wet processing operations at Timbopeba and Vargem Grande Complex.

Coming to the price performance, shares of the company have declined 25.1% in a year, in line with the industry.

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #3 (Buy).
 
Some better-ranked stocks in the Basic Materials sector are The Scotts Miracle-Gro Company SMG, Royal Gold, Inc RGLD and Agnico Eagle Mines Limited AEM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Scotts Miracle-Gro has an expected earnings growth rate of 21.3% for fiscal 2019. The company’s shares have surged 40% in the past year.

Royal Gold has a projected earnings growth rate of 82.1% for fiscal 2020. The company’s shares have rallied 59% in a year’s time.

Agnico Eagle has an estimated earnings growth rate of 158.6% for the current year. Its shares have moved up 39% in the past year.

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