Vale S.A
VALE
has trimmed its iron ore production guidance for 2020 to a range of 300 to 305 million tons (Mt) — the third time this year. The company had earlier expected iron ore fines production in 2020 to come in at the lower end of its previously-provided range of 310 Mt to 330 Mt. Vale had produced 302 Mt of iron ore last year, which was mainly impacted by the Brumadinho tailing dam disaster in January 2019. Notably, prior to the disaster, Vale had produced 385 million tons in 2018.
In the first nine-month period ended Sep 30, 2020, Vale produced 215.9 Mt of iron ore. This marked a year-over-year decline of 3.5%, reflecting lower production in the earlier part of the year on account of unscheduled maintenance, weather-related conditions, impact of the COVID-19 pandemic, to name a few. The company has to produce at least 84.1 Mt of iron ore in the fourth quarter to meet the lower end of its new guidance. This suggests a sequential as well as a year-over-year decline of 5%.
Vale maintains its pellet production guidance at 30-35 Mt for 2020. Copper production for the year has been affirmed at 360,000-380,000 tons and nickel production guidance remains between 180 kt and 195 kt.
For 2021, the company has set a target of iron ore production of 315-335 Mt. The mid-point of the range suggests a 7% rise from the mid-point of the 2020 guided range. From the current capacity of 320 Mtpy (million tons per year), Vale expects to achieve 400 Mtpy run-rate by the end of 2022. The company has a long-term target of achieving 450 Mtpy. The company expects iron Ore C1 cash cost (without 3rd party purchase costs) at $13.60 per tons in 2020 and at $10.50 -$12.00 per ton once it attains the production level of 400 Mtpy.
The miner expects copper production at around 390,000 ton of copper in 2021. For the 2022-2024 timeframe, copper production is projected to average 455,000 tons before reaching a level of 500,000 tons in 2025. Nickel production is expected to average 200,000 tons over 2021-2023 and 220,000 tons in 2024-2025.
From a projected capital spending of $4.2 billion this year, Vale expects capital spending to rise to $5.8 billion in 2021 and average $5.5 billion in subsequent years. The company expects to record an additional provision of around $670 million for the execution of the decharacterization plan and improve safety of dams, which brings the total to $2.7 billion for 2020.
Vale expects to end this year with an expanded debt (considering 100% cash flow distribution) of $11 billion and lower it further to $9.6 billion in 2021. The company targets to reach the debt level of $6.8 billion by 2023.Following this lowered output expectations from Vale, iron ore prices hit a seven-year high of $136.75 per ton on emerging fears of a shortage in early 2020. Iron ore prices have clocked a 49% year-to-date gain on anticipations that steel demand in China would be robust, mainly owing to the nation’s infrastructure and property boom.
While Vale shares dipped 2% on news of the trimmed guidance, high iron prices led shares of
BHP Group
BHP
,
Rio Tinto plc
RIO
and
Fortescue Metals Group Ltd.
FSUGY
to gain 4.12%, 3.97% and 2.76%, respectively, on Dec 2.
Notwithstanding the current dip, Vale’s share price has appreciated 34.7% in the past three months compared with the
industry
’s gain of 37.3%.
Vale currently carries a Zacks Rank #3 (Hold). While Fortescue Metals and BHP carry a Zacks Rank #2 (Buy), Rio Tinto holds a Zacks Rank of 3. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
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