On July 29, Brazilian mining giant Vale S.A. (Vale) announced its results for the second quarter of 2009, posting a sharp fall in net profit. Vale's second quarter results of Vale would appear to show that Vale's recovery from the effects of the global economic crisis still has some way to go.
According to the statement released by Vale, the world's largest producer and exporter of iron ore and pellets, in the second quarter of 2009 the company's net profit decreased to $790 million, down 84.2 percent compared to a net profit of $5.009 billion in the year-ago period, and down 42 percent compared to $1.363 billion in the previous quarter of the current year.
Vale said that the depreciation of the US dollar had "neutralized" its cost-cutting efforts. In the last quarter of last year, Vale shut down older, less profitable mines while it cut 1,300 jobs. The second quarter results reflected ‘a transition to a phase of reaction to the global financial crisis, that has begun to bear fruit,' said Vale in its statement.
The iron ore giant, which is also the world's second largest nickel producer, said that in the second quarter of 2009, its operating revenue dropped by 53.3 percent to $5.084 billion, compared with $10.897 billion in the same quarter of the previous year, while the company registered $5.421 billion in operating revenue in the first quarter of 2009.
Even though the fall in profits was much worse than expected, Vale's revenue was in line with forecasts. According to a Dow Jones survey carried out by five investment banks, the average estimation for Vale regarding the second quarter was $1.55 billion for net earnings and $5.049 billion for net revenues.
In the quarter in question, Vale's operational earnings before interest, taxes, depreciation and amortization (EBITDA) decreased to $1.725 billion, down 72.3 percent compared to $6.218 billion in the second quarter of 2008 and down 24.4 percent compared to $2.281 billion in the previous quarter of 2009. In addition, its operational EBIT margin, a key profitability measure, decreased to 19.7 percent in the second quarter, compared to 49.4 percent in the same quarter of the previous year and compared to 31.6 percent in the previous quarter of the current year.
On the other hand, the company reported its production results under US Generally Accepted Accounting Principles (US GAAP) as follows:
Product (1,000 mt unless stated otherwise) | 2Q 08 | 1Q 09 | 2Q 09 | H1 08 | H1 09 | % Change | % Change | % Change |
76.196 | 46.754 | 57.656 | 148.908 | 104.410 | 23,3 | -24,3 | -29,9 | |
Pellets | 8.714 | 1.736 | 2.700 | 17.414 | 4.437 | 55,5 | -69,0 | -74,5 |
Manganese ore | 658 | 113 | 550 | 1.198 | 662 | 387,9 | -16,5 | -44,7 |
Ferroalloys | 128 | 48 | 27 | 260 | 76 | -43,0 | -78,6 | -71,0 |
Nickel | 69 | 65 | 59 | 130 | 124 | -9,4 | -14,5 | -4,3 |
Metallurgical coal | 768 | 511 | 513 | 1.418 | 1.024 | 0,4 | -33,2 | -27,8 |