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Vale's (VALE) '20 Iron Production Dips on COVID-19 Impact

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Vale S.A.’s (VALE - Free Report) iron ore production for 2020 was 300.4 million tons (Mt), in-line with the guidance of 300-305 Mt. Notably, the company registered higher production levels for nickel and cobalt in 2020, while production of iron ore, copper, manganese and coal were down. This can be mainly attributed to the impact of the COVID-19 pandemic, which rendered operations at certain mines unfeasible. Backed by the start-up of the new iron ore assets, the company expects to achieve 350 Mt capacity by 2021-end and 400 Mtpy by the end of 2022.

Iron ore production in 2020 was down 0.5% year over year. Gains from resumption of halted operations such as Vargem Grande and Timbopeba, ramp-up at S11D mine and Alegria site running at full operation were offset by constraints in tailings disposal in Itabira and Brucutu, delays in opening new mining fronts in Serra Norte, a four-month stoppage of Fazendão site and COVID-19 related setbacks. The company ended 2020 with 322 Mt of production capacity.

The Brazilian miner’s production output has been impacted by the Brumadinho tailing dam disaster in January 2019 and then the pandemic in 2020. Vale had produced 385 million tons in 2018. Following the disaster, Vale’s iron ore production declined to 302 Mt. Achieving the capacity of 400-million tons will help the beleaguered miner reclaim the title of world’s biggest producer that it lost to Rio Tinto plc (RIO - Free Report) .

Vale’s pellet production was down 29% year over year to 29.7 Mt in 2020 due to lower pellet feed availability from its sites and production adjustments according to market conditions. Sales volumes of iron ore fines and pellets were 286.1 Mt in 2020.

Copper production for the year was 360 kt in 2020, 5.5% lower than 2019. Lower production on account of the pandemic, and limited Canadian mill production due to lower mining rates offset strong performance in Sossego, which had increased mill processing rates and higher copper grades.

Manganese ore production was 740 kt in 2020 and coal production was 5.9 Mt, reflecting a slump of 53% and 33%, respectively, due to the COVID-19 impact. The coal business resumed its maintenance activities in November 2020, which are expected to be completed during the ongoing quarter, followed by the commissioning activities of new and revamped equipment. Mine and plant ramp-up is expected to start by second-quarter 2021 ,Vale expects to achieve a production run-rate of 15 Mtpy in the back half of 2021.

Production of nickel improved 3% year over year to 214.7 kt in 2020 aided by improved performance from Onça Puma and increased source ore from Indonesia, partly negated by COVID-19 impact. Cobalt production reached 4,672 metric tons during 2020, up 7% from the prior year.

A Peek at Q4 Production Numbers

In fourth-quarter 2020, iron ore production increased 7.9% on a year-over-year basis to 84.5 Mt. Pellets production was 7.1 Mt, reflecting a slump of 24% year over year. Sales volumes of iron ore fines and pellets increased 3% year over year to 91.3 Mt in the quarter. Sales to China in the quarter was a record 64 Mt.

Nickel production reached 55.9 kt, down 1.4% year over year. Copper production was 93.5 kt in the quarter, 3.5% higher year over year. Cobalt production reached 1,042 metric tons in the quarter under review, down 9.1% from the prior-year quarter. Manganese ore production totaled 119 kt, 74% lower than the prior-year quarter. Coal production came in at 1.23 Mt in the fourth quarter, down 34% from the prior-year quarter. Coal sales in the quarter totaled around 1.5 Kt, highlighting a plunge of 25% year over year. Gold production was down 9% year over year to 120,000 troy ounces in fourth-quarter 2020.

Following the lackluster numbers from Vale, iron ore prices jumped above $155 per ton. Iron ore prices have gained in the second half of 2021 on strong demand from China primarily owing to the country’s infrastructure and property boom. The steel-making ingredient hit a nine-year high of $172 per ton in January 2021. However, the rally had cooled off recently following China's announcement about its plans to curb crude steel production in 2021 as part of its 14th Five-year Plan.

Price Performance

Shares of Vale have gained 33.1% in a year, compared with the industry’s rally of 36.2%.

Zacks Rank & Other Stocks to Consider

Vale currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the basic materials space are Fortescue Metals Group Limited (FSUGY - Free Report) and BHP Group (BHP - Free Report) . Both of these stocks flaunt a Zacks Rank #1.

Fortescue has a projected earnings growth rate of 75.5% for the current fiscal. The company’s shares have soared 134% in the past year.

BHP has an expected earnings growth rate of 59.5% for the current fiscal. The company’s shares have gained around 28% in the past year.

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