Vale ( VALE3 ) reported 3Q13 profit of US$2.836 billion, down 36% but beating expectations; Ebitda below expectations

Vale ( VALE3 ) reported net income (attributable to shareholders) of $2.836 billion in Q3 2023. A year earlier, revenue was US$4.455 billion. Thus, the annual drop was 36%. Compared to the second quarter of this year, however, there was an increase of 218%.

The performance came in above analysts’ estimates consulted by Lseg, formerly Refinitiv, of US$2.55 billion.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was US$4.177 billion, up nearly 14% year-over-year, while it was up 7.8% from Q2.

However, the figure was below the consensus estimate of US$4.724 billion. The net result was mainly affected by the deterioration of the financial result.

Adjusted EBITDA margin was 39%, up from 37% a year ago, but down from 40% in the second quarter of this year.

Pro-forma Ebitda, in turn, reached US$4.482 billion compared to US$4.002 billion in the same period last year, an increase of almost 12%. Compared to the second quarter, Ebitda increased by 8.13%.

After the results, Vale’s ADR earnings fell 0.31%, reversing a bullish signal shortly before the results were released.

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Vale results

On the operations side, Vale’s net income was R$10.623 billion in the third quarter, up nearly 7% year-on-year and nearly 10% quarter-on-quarter.

However, revenue also came in below expectations, according to Lseg’s poll of analysts, which came in at US$10.98 billion.

Last week, the mining company published an operational overview, in which it reported a drop in production by 3.9%. The data was viewed as mixed by the market, which led to a fall in stocks amid a reduction in copper production forecasts.

Expenses

Vale reported operating costs and expenses (excluding Brumadinho and dam decharacterizations) of US$6.921 billion, down from Q3 2023 (-2.8%) and Q2 this year (- 7.7%).

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Brumadinho and decharacterization costs were US$305 million, compared to US$336 million in the same period last year and US$271 million in the prior quarter.

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On balance, C1 iron ore, excluding third-party purchases, fell 7% q/t to US$21.9/t, “on track to reach a target of US$21.5/t 22.5/t for year”.

Free cash flow from operations was $1.126 billion in Q3, down $1.038 billion year-over-year, primarily due to the negative impact of working capital ($963 million lower) from higher sales volume and changes in accounts payable.

Weil added that there was a negative change in working capital of US$186 million in the quarter, which impacted cash flow, driven by higher sales in reserves, “as a result of higher preliminary iron ore prices at the end of the quarter and higher the volume of reserve sales of iron ore (16.4 million tons in the 3rd quarter of 2023 against 14.7 million tons in the 2nd quarter of 2023)”.

Debt, financial results and investments

Vale’s net debt at the end of the third quarter was US$10.009 billion, up from a year earlier (US$6.980 billion) and the previous quarter (US$8.908 billion). According to the mining company, the quarter-on-quarter increase mainly reflects interest on capital paid out to shareholders during the period.

Therefore, at the end of September/23 September, the ratio of net debt to adjusted EBITDA was 0.6 times, compared with 0.3 times a year earlier and 0.6 times at the end of the second quarter of this year. “Vale’s net debt expansion target is US$10-20 billion,” the mining company detailed.

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The net financial result was negative at USD 385 million, reversing a positive balance of USD 2.347 billion in the same period of 2022 and increasing by less than USD 157 million compared to the 2nd quarter of this year.

According to Vale, the financial result worsened by US$2.732 billion year-on-year, which directly affected the reduction in annual profit due to the adjustment of exchange rate fluctuations accumulated in 2022 and the market value of the bond participation.

The deterioration in the financial result was due to higher expenses for derivative financial instruments and exchange/currency changes on a year-on-year basis.

Investments, in turn, totaled $1.464 billion, compared to $1.230 billion a year earlier and $1.208 billion in the previous quarter.

According to Vale, the increase of US$300 million year-on-year was driven by the continued progress of key projects such as Serra Sul 120 Mtpa, Capanema, the Voisey’s Bay mine expansion and Salobo III.

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VALE3 publishes balance sheet and dividends

Earlier, before the market closed, the mining company announced a profit distribution to shareholders in the gross amount of R$2.331661567 per share, with R$1.565890809 per share as dividends and R$0.765770758 per share as interest on equity. The total cost is about 10.58 billion reais.

The company also announced a new share repurchase program to purchase up to 150 million shares of common stock and related ADRs, representing approximately 3.5% of the outstanding shares, depending on the current stockholder.

The announcement was made before the close after the information was leaked to the press, causing a break in the negotiations and suspending trading of the asset until the material fact is revealed.

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