Vale SA (VALE)

[DewDiligence]

VALE Pares 2012 Cap-Ex, Forecasts Second-Best Year Ever

[For archival purposes—this newswire was issued on 11/28/11. The timing of the release coincides with the appointment of VALE’s new CFO.]

http://www.reuters.com/article/2011/11/28/vale-idUSN1E7AR0AY20111128

›By Reese Ewing and Steve James

SAO PAULO/NEW YORK, Nov 28 (Reuters) - Brazilian mining giant Vale slashed its capital spending budget for 2012 by 11 percent and pushed back its largest iron ore project by two years in the face of falling commodities prices and environmental delays.

The company's new financial chief meanwhile said he expects big profits for this year and next, and Vale sees Chinese economic growth increasing again next year, driving the demand for iron ore.

Asked by Reuters at a press conference at the New York Stock Exchange for an estimate of this year's earnings, Chief Financial Officer Tito Martins gave no figure, but said: "We are optimistic. 2011 is an exceptional year for Vale despite setbacks and we expect 2012 will also be a great year."

Pressed further, he said a Wall Street analyst told him he expected 2012 to be the "second-best year in Vale's history -- and 2011 was best!" Martins, a 25-year veteran of Vale, who previously headed the company's Canadian operations and was named CFO last week, stressed it was the analyst's opinion, although he did not contest it.

During the press briefing, Jose Carlos Martins, who heads Vale's iron ore division, declined to say specifically where he saw the price of the steelmaking ingredient headed.

"What I can say is that the price of iron ore will not go below $120 per tonne. The price will be high as China demand recovers, so the scenario ... is moderate to good."

Afterwards, he told Reuters he saw the price staying in the range of $120 to $180 per tonne in the short term.

The price of iron ore has fallen more than 20 percent this year, nickel has lost nearly a third of its value, and copper is down nearly 25 percent. Vale is the world's largest iron ore exporter and a major and growing producer of copper and nickel.

Earlier, Vale announced the spending cut for new projects, research and improvements to existing mines and facilities, reflecting a new cost-conscious approach at the world's second-largest mining company, which has pleased investors.

Chief Executive Murilo Ferreira, who took the helm seven months ago, has scaled back the aggressive plans of his predecessor, Roger Agnelli, as metals prices slumped.

Vale plans capital spending of $21.4 billion in 2012, the company said in Brazilian regulatory filing, compared with $24 billion earmarked for 2011 by Agnelli, an aggressive dealmaker who turned Vale into a global powerhouse through takeovers.

Analysts welcomed the lower investment figure but said they would have preferred an even more conservative approach.

"It's strange they only cut a little more than $2 billion with all of the delays suffered this year," said Luis Fornare at Barclays Capital. "On the bright side, the company didn't cave to government pressure and invest more in steel mills."

Through September, Vale spent only $11 billion, less than half of its 2011 capital budget. Analysts do not expect the company to spend more than $6 billion to $7 billion in the remaining three months of the year. If their estimates prove accurate, 2011 spending will be at least 25 percent less than originally budgeted.

Lower-than-expected spending is in part the result of slow environmental licensing for projects and labor shortages.

The 2012 budget allocates $12.9 billion to new projects and $2.4 billion to research and development. An additional $6.1 billion will go to maintaining existing projects.

The budget is roughly in line with market expectations, which anticipated Vale management would be more selective about new projects.

SERRA SUL

According to the new investment plan, Vale has pushed back the start-up of its largest iron ore project yet, the Serra Sul mine at its prized Carajas concession in Para state. The start-up has been pushed back by two years until late 2016.

The 90-million-tonne-a-year project, expected to eventually get $8 billion in investments, has suffered delays in securing environmental clearance. The mine site in Brazil's Amazon region is home to sensitive rainforest areas and has caves containing ancient archeological sites and potentially endangered species.

Vale said it expects iron ore output of 312 million tonnes next year, which appears to be a modest assessment of its potential.‹