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Vale (VALE) Reports 10% Sequential Dip in Q4 Iron Ore Output

Vale S.A. VALE reported iron ore production of 80.9 million tons (Mt) for the fourth quarter of 2022, which was down 10% sequentially and 1% year over year. Production at the Northern System was impacted by higher rainfall and lower output at Serra Norte. The Southern system production was impacted by seasonally higher rainfall in the Minas Gerais region. Southeastern performance was affected by planned maintenance at Alegria’s mining equipment, whereas Southern System results were impacted by lower third-party purchases.

Despite the lower production in the quarter, iron ore fine sales were up 24% sequentially, as the company sold the inventories from the third quarter. Total sales volumes of iron ore fines and pellets were around 90 Mt, which represented a 22% sequential increase. Compared with the fourth quarter of 2021, sales were down 2%. Pellet production was 8.3 Mt in the quarter under review, up 0.1% from the third quarter and down 9% year over year.

In the fourth quarter of 2022, Vale produced 66.3 kt of copper, which marked a 14.5% year-over-year decline and 11% sequentially. Vale sold 71.6 kt of copper, which was down 2.8% from the last-year quarter but up 1.6% from the third quarter of 2022. Production of nickel dropped 1.3% year over year and 8.5% sequentially to 47.4 kt in the October-December period. Nickel sales were up 30% year over year and 31% sequentially to 58.2 kt.

Vale Production Numbers for 2022

Vale’s total iron ore production was around 308 Mt in 2022, which was down 1.6% from the 2021 levels and also below the company’s guidance of 310 Mt. The weaker-than-expected performance was mainly due to licensing delays at Serra Norte and jaspilite waste processing, and operational performance at S11D. However, continued production ramp-up at Vargem Grande and higher dry processing production at Brucutu, along with higher third-party purchases, somewhat negated the impact.

Production of nickel was up 6% year over year to 179 kt in 2022. The resumption of operations at Sudbury following the labor strike in 2021 and strong performance at the Onca Puma led to improved performance. However, this was partially offset by lower feed availability, owing to the PTVI furnace rebuild and the later ramp-up of VBME. Nickel sales were down 0.5% year over year to 180.8 kt.

Copper production for 2022 was down 14.7% year over year to 253 kt in the quarter due to extended maintenance at the Sossego mill during the first half of the year, and additional maintenance carried out at both Sossego and Salobo. Higher output in Canada due to the stabilization of Sudbury mines and the recovery of copper from copper precipitates in Thompson somewhat offset the decrease. Copper sales declined 14.3% year over year to 243.9 kt.

Guidance for 2023

The company provided iron ore production guidance for 2023 at 310-320 Mt. The copper production guidance for 2023 is 335-370 kt. VALE expects nickel production in 2023 between 160 kt and 175 kt. Pellets production is projected to be between 36 Mt and 40 Mt in 2023.

Vale’s peer, Rio Tinto Group RIO recently reported a 6% increase in fourth-quarter 2022 iron ore production to 89.5 Mt. Iron production was 324 Mt in 2022, 1% higher than the prior year, aided by performance improvement efforts and record second-half performance across the mine and rail system.

RIO expects Pilbara iron ore shipments (100% basis) of 320-335 Mt in 2023. The mid-point of the range indicates a year-over-year rise of 2%.

BHP Group’s BHP iron ore production improved 2% year over year to 132 Mt in the first half of fiscal 2023 (ended Dec 31, 2023). Record levels were attained at Western Australia Iron Ore (WAIO), reflecting strong supply-chain performance, including higher car dumper utilization, as well as lower COVID-related impact than the prior-year period. BHP witnessed year-over-year improvement in output for copper and metallurgical coal, while energy coal and nickel were down.

BHP’s iron ore production guidance for fiscal 2023 is 249-260 Mt. WAIO's production is expected between 246 Mt and 256 Mt (278 Mt and 290 Mt on a 100% basis), indicating the tie-in of the port debottlenecking project (PDP1) and the continued ramp-up of South Flank.

Price Performance

 

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Shares of Vale have gained 15.4% in a year compared with the industry's 14.2% growth.

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the basic materials space is Steel Dynamics, Inc. STLD, which  currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for STLD's current-year earnings has been revised 0.4% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Steel Dynamics’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of  11.3%, on average. STLD has rallied around 114% in a year.

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