Vale's profits are expected to recover after two consecutive quarters of losses due to dam break

Vale (Vale) released its latest second-quarter report, which showed a loss of $133 million in the second quarter after paying $1.5 billion for the dam break, but profits will gradually recover after one-off payments as production resumes in the dam-break area.

In the second quarter of 2019, Vale EBITDA (profit before interest, tax, depreciation and amortization) totaled $4.6 billion, an increase of $529 million over the previous quarter, excluding the expected and ongoing repair costs resulting from the Brumadi New Dam break. The increase was mainly due to increases in sales prices ($822 million) and ferrous metals sales ($742 million), which were partially offset by increased sales losses ($644 million), related outages in Bloomadiu and unconventional logistics costs ($204 million).

However, as a result of the dam break, Vale lost money for the second quarter in a row, with net income of minus $133 million in the second quarter of 2019, mainly due to: (1) Brumadi New Dam break ($1.5 billion); (2) Germano Dam decommissioning ($257 million); (3) Renova Foundation ($383 million).

Mr. Eduardo Bartolomeo, Chief Executive Officer of Vale, commented: "as we move towards a comprehensive and effective restoration, the second quarter of 2019 became a business transition. The Broomadi dam break continues to affect production and sales, as well as costs and expenses, but our response has begun to show results in ensuring the safety of personnel and company operations, reducing uncertainty and achieving sustainable performance through the supply of a quality product portfolio, which will be reflected in the next quarter. "

In the first quarter of 2019, Vale stopped producing 93 million tons of iron ore. In the second quarter of 2019, substantial progress was made in the recovery of production. The resumption of production in the Brukutu mining area on 22 June enabled the restoration of 30 million tons of production capacity in the, Vargem Grande mining area, which was partially restored by the dry cleaning method, an additional capacity of about 12 million tons (of which 5 million tons were restored in 2019). Of the remaining capacity of about 50 million tons, about 20 million tons of dry separation capacity is expected to recover gradually from the end of the year, while the remaining 30 million tons of wet separation capacity is expected to recover in the next two to three years.

In the second quarter of 2019, cash generation was $2.2 billion, allowing us to continue debt reduction and further strengthen our balance sheet. Net debt fell to $9.7 billion in the quarter from $12 billion in the previous quarter.

The total debt as of June 30, 2019 was $15.8 billion, down $1.3 billion from the debt level as at March 31, 2019, mainly due to debt repayments through new credit lines in the first quarter.

Despite the impact on costs and costs of abnormal rainfall in the northern system and the follow-up to the Brumadi dam break, Vale's ferrous metals business EBITDA reached $4.2 billion in the second quarter, an increase of $621 million over the previous quarter.

Of this total, the quality premium for iron ore and pellets was US $11.4 / ton, an increase of US $0.7 / ton over the previous quarter, mainly due to the increase in the proportion of pellets. The C1 cash cost of iron ore powder was US $17.6 / tonne, an increase of US $3.60 / tonne over the previous quarter.

The EBITDA break-even point for iron ore powder and pellets was US $36.80 / tonne, an increase of US $6.50 / tonne over the previous quarter, mainly due to the increase in C1 cash costs and the increase in expenses related to Brumadinius, but was offset by an increase in the proportion of pellets and lower shipping costs.

For other metals, Vale's basic metals business EBITDA was $465 million in the second quarter, down $40 million from the previous quarter, mainly due to lower copper prices and lower fixed cost dilution due to lower factory production in New Caledonia. these factors were partly offset by higher real prices of nickel and higher factory performance in Indonesia.

The real price of nickel was $12677 per tonne in the second quarter, up $306per tonne from the previous quarter and $111per tonne higher than the average price on the London Metal Exchange for the same period. The actual price is 105 per cent of the London Metal Exchange price, compared with 101.6 per cent in the previous quarter.

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