Replies to post #970 on The Rising Influence of Rising Affluence

[DewDiligence]

VALE’s longstanding CFO has left the company for “personal reasons”:

http://www.reuters.com/article/idAFN285110320100628

CFO’s are often the canary in the mine that signifies undisclosed corporate problems, so I’m somewhat concerned about this development.

[DewDiligence]

VALE 2Q10 Profit Soars on Higher Pricing and Volume

[The strong 2Q10 numbers were in line with VALE’s own forecasts (#msg-50759477), and they show how consequential the change to quarterly pricing is for the Big-3 iron miners (#msg-48543418). See #msg-52646447 and #msg-53042143, respectively, for near-term and long-term iron-ore forecasts, and also see the chart in #msg-52806138 that shows global steel production.]

http://www.reuters.com/article/idAFN2911534120100729

›By Brian Ellsworth and Denise Luna

RIO DE JANEIRO, July 29 (Reuters) - Brazilian mining giant Vale's second-quarter profits soared more than four-fold from a year earlier on higher iron prices and a new pricing system that let the company get higher prices for its ore.

Vale (VALE), the world's largest iron ore producer, in the second quarter boosted prices for its ore by moving to a quarterly pricing system after the aging annual benchmark mechanism unraveled amid quarrels with China -- the world's largest buyer of the metal.

"The implementation of the quarterly system of prices for iron ore and pellets was reflected in the revenues of the second quarter of 2010," the company said in a statement. Global iron prices are now mostly set each quarter [#msg-48543418] based on the spot prices of the previous three months. [Actually, the formula VALE uses is based on the three months ending one month *prior to* the final month in the preceding quarter.] Spot market iron prices topped $180 per tonne earlier this year but have fallen to near $135 as concerns about global growth pushed commodities down.

The benchmark system, in which steelmakers agreed on iron prices with top global miners Vale, BHP Billiton (BHP) and Rio Tinto (RTP), collapsed after the rise of a spot market spurred by Chinese buyers.

With the two existing side-by-side, speculators for months were able to buy cheap ore on the benchmark and resell it on the spot market, costing the miners billions of dollars and spurring Vale's charge to move toward quarterly pricing.

Benchmark talks unraveled in 2009 after China arrested, and later convicted, Rio Tinto employees on charges of accepting bribes and stealing state secrets.

Profit jumped to 6.64 billion reais ($3.77 billion), an increase of 344 percent from 1.49 billion reais in the same period a year earlier, roughly in line with the average forecast of six analysts polled by Reuters showing profits of $3.83 billion.

Earnings before interest, taxes, depreciation and amortization, a key cash-generation indicator known as EBITDA, rose 203 percent to 10.43 billion reais, versus the year earlier period.

Average sale prices for iron ore -- a key indicator watched by investors -- was $91.93 per metric tonne, compared to $64.76 in the first quarter and $55.86 in the fourth quarter of 2009. Iron ore production rose around 32 percent to 75.9 tonnes as Vale was able to restart operations that had been stalled in 2009 in the wake of the global financial crisis.

New projects in the pipeline include a 30 tonne per annum expansion of the Carajas mine slated for the first half of 2012 and the Carajas Serra Sul project with capacity to produce 90 million tonnes per year with expected startup in the second half of 2013.

Nickel production fell 37 percent over the previous year due to a strike by workers at Vale's Inco unit in Canada that continued through the second quarter.

Workers at the Sudbury and Port Colborne nickel operations ended a strike in July, though the company has not reached a deal with workers at the Voisey's Bay facility.‹