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Vale's 2019 Iron Output Drops 22% Due to Brumadinho Disaster

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Vale S.A.’s VALE latest report reveals that production declined for all metals barring gold. While the Brumadinho disaster and its aftermath impacted iron ore production for the company, weather and maintenance at the Uricum mine put pressure on the manganese production. Nickel production was lower owing to maintenance shutdowns, while lower production hurt copper production.

2019 iron ore production plunged 21.5% on a year-over-year basis to 302 Mt, primarily due to the operational disruption. This was preceded by the Brumadinho disaster and stronger-than-usual weather-related seasonality in the first half of 2019. Sales volumes of iron ore fines and pellets were 312.5 Mt in 2019, in line with the company’s guidance of 307-312 Mt.

In the fourth quarter, Vale’s iron ore fines production came in at 78.3 Mt in the fourth quarter, 9.6% lower than the prior quarter, primarily due to unscheduled maintenance stoppages carried out at Northern range’s crushers and beneficiation plant. Further, suspension of tailings disposal at the Itabiruçu and Laranjeiras dams, sourced by the Conceição and Brucutu plants, respectively, while the dams’ geotechnical characteristics were being assessed, led to the downfall.  Vale’s iron ore fines and pellets sales amounted to 88.9 Mt in the fourth quarter, 4.4% higher sequentially.

Nickel, Manganese & Copper Production Down in 2019

Finished nickel production totaled 208 kt in 2019, down 15% from 2018 mainly due to reduced feed from third parties, lower source ore from Thompson and VNC. Operations had also been impacted due to maintenance shutdowns at the refineries. These operations have been resumed and are now operating at regular rates. Nickel sales were at 205.7 kt, down 13% year-over-year due to lower production levels.

In the fourth quarter, nickel production reached 56.7 kt in 4Q19, 10.3% higher sequentially primarily due to resumption of regular production at Onça Puma and the ramp-up in production at the Copper Cliff and Clydach refineries after maintenance activities. In the fourth quarter, nickel sales came in at 47 kt, down 7.7% sequentially owing to management's decision to retain inventory awaiting better market conditions.

Copper production was at 90.3Kt in the fourth quarter, 8.5% lower than the third quarter primarily owing to the unscheduled maintenance shutdown at the processing plant in Sossego. The site is now in operation. Sales volumes of copper reached 87.8 kt in the quarter, down 4.6% on a sequential basis mainly blamed on lower South Atlantic production volumes. This was partly offset by the timing of customer deliveries and higher production in Canadian operations in the quarter.

In 2019, copper production was 381.1 kt, down 3.6% from 2018, mainly due to lower production from Sossego, which was partly offset by the all-time record production of copper concentrate from Sudbury. Copper sales for the year fell 3.6% year over year to 365.2 kt due to lower production levels.

Cobalt production reached 1,140 metric tons in the October-December period, up 13% sequentially. In 2019, Vale produced 4,376 metric tons of cobalt, 14.1% lower than the prior year.

In the fourth quarter, manganese ore production totaled 450 kt, 1.7% higher than the prior quarter. Manganese ore sales volumes were 570 kt, 280% higher sequentially. The drop in the numbers were due to operational improvements and maintenance conducted at the Urucum mine in the second quarter and unusual weather-related conditions in the first half of 2019. In 2019, manganese production declined 14% year over year to 1,576 kt, while sales dipped 32.4% to 1,063 kt.

Coal production came in at 1.9 Mt in the fourth quarter, down 19% sequentially. In 2019, production was down 24% to 8.8 Mt from 2018 thanks to lower productivity at the processing plants throughout the year. Vale has thus reviewed business plan in 2019 and implemented two initiatives — a new mining plan and a new operational strategy for the processing plants. These are expected to produce sustainable results.

Gold production was up 0.6% in 2019 and up 8.2% sequentially in the fourth quarter.

Guidance for 2020

Vale’s iron ore fines production guidance for 2020 is at 340-355 Mt.  The company has halted capacity of 40 million tons annually and plans to start 15 million tons of annual capacity in 2020, followed by 25 million tons in 2021. The annual guidance for pellets production is at 44 million tons. The company expects to produce nickel between 200 and 210 kt in 2020. The company expects to resume normal production levels for manganese in 2020. Following the implementation of the new mining plan, Vale expects to produce coal between 8 Mt and 10 Mt in 2020.

Coming to the price performance, shares of the company have fallen 0.7% in a year compared with the industry’s decline of 0.8%.

Zacks Rank & Stocks to Consider

Vale currently sports a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Daqo New Energy Corp DQ, Agnico Eagles Mines Limited (AEM - Free Report) and Impala Platinum Holdings Limited IMPUY, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has a projected earnings growth rate of 326.3% for the current year. The company’s shares have surged 95% over the past year.

Agnico Eagles Mines has an estimated earnings growth rate of 99.8% for fiscal 2020. Its shares have rallied 43% in the past year.

Impala Platinum has an expected earnings growth rate of 465.5% for fiscal 2020. The company’s shares have soared 205.1% in a year’s time.

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