Vale (VALE3): “Extraordinary dividends will depend on the second semester scenario”

Vale (VALE3) held its earnings conference call late this Friday morning (29). After numbers considered not very encouraging, the company tried to bring a message of more optimism and said that extraordinary dividends are still on the radar.

“If the market improves above expectations, there will be extraordinary dividends in the second half of the year,” said Eduardo Bartolomeu, the company’s executive director (CEO). “We are the most disciplined in the industry at this point, but we need to analyze the market condition. Volatility is strong in ore, but seasonality is usually better from here to the end of the year”.

Gustavo Pimenta, the mining company’s financial director, followed the same path, arguing that the company intends to continue acting in its standard way, “returning value to shareholders”. This return, however, is intrinsically linked to cash generation.

Company executives assumed that the past quarter was more challenging. The average price of iron ore fell, on a quarterly basis, by US$ 28.1 per ton, to US$ 113.3. On the other hand, the cash cost per ton increased by US$ 2.2, to US$ 20.9, and freight costs were US$ 3.2 higher, reaching US$ 21.3.

On this last front, Vale expects to be able to reduce expenditures in the near future. “Cash cost should fall in the second half, mainly due to our project to reduce expenses by US$ 1 billion”, said Marcelo Spinelli, director of Ferrous and Coal, in relation to the plan presented in November last year. .

Ore price volatility

Part of the drop in spending is due to recent divestments. Just yesterday, the mining company announced, for example, the sale of the Pecém steel plant, for US$ 2.2 billion, completely leaving the steel sector.

“This month we concluded the sale of the ferrous system in the Midwest. We have already sold nine businesses in five countries”, commented the CEO. “We will continue to look for ways to improve our portfolio, but we have already completed a good part of the reformulation we wanted”, added Spinelli.

In addition, Vale also expects to see part of the spending diluted, with an increase in production coming from the North in the near future. “Projeto Gelado, in Pará, is almost complete, and we expect to start operating in the fourth quarter, with the main restriction on licenses. For the Carajás S11D Iron Project, we obtained a license to install the Serra Sul 120”, said Spinelli.

When the subject is the dilution of expenses, Vale executives claim that this is directly linked to the volumes produced, which are linked to market conditions.

“We may have more volume adjustments according to the sector’s conditions”, explained the director of Ferrous and Coal. “The resumption of investments in infrastructure in China should benefit iron ore and we should, in any case, have an improvement in demand on an annual basis, as there are no established energy goals or Olympics, which interrupted consumption of the commodity last year and earlier this year”.

Vale sees the delays in stimulus in China as a risk for the market, as well as the specter of Covid-19 and the lockdowns in the Asian giant. The energy issue, which is global, is also seen as a threat to the price of ore and, consequently, to the distribution of earnings.

Vale does not rule out base metals arm IPO

The mining company’s executives did not hide their enthusiasm when it came to talking about base metals, despite the problems registered in the first half, which had longer-than-expected maintenance. On a semi-annual basis, the fall in production from January to June was 10.3% in nickel and 25% in copper.

“In the short term we have challenges, we know what is happening in the sector. Sossego had a punctual stop for four months, after we had postponed it for two years. But they are specific problems”, commented Eduardo Bartolomeu. “The apples of my eye are base metals. We have the best nickel assets in the world, in Canada, Indonesia and Onça Puma. We also have the best copper growth projects, and at the right time. We are confident”.

The directors defended that Vale has “enormous potential to explore on this front”, surfing the dynamics of changing the energy matrix and recalled that, last week, the company signed a contract with Ford to help the automaker advance in front of electric cars. .

As for the difficulties in maintaining the assets, the executives do not rule out, if the problems continue, the search for partners. “I’m not worried about the turnaround in base metals. We’re going to extract value one way or another. Nor that we have to bring partners to operate”, defended Bartolomeu.

To boost this front, the company does not rule out, in the near future, carrying out an initial public offering (IPO).

“We don’t know if it will be through an IPO, but we want to boost the business and have governance dedicated only to base metals. It’s a different operation from ore and we have a lot of growth to see. Furthermore, it is something that can also unlock shareholder value. We believe that something that supports us on this front makes sense,” said Pimenta.

For the second half, Vale sees copper production returning to higher levels. Nickel, however, should continue to be hampered by the maintenance of mines in Canada.

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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