Vale writes down Australian coal

AFTER flagging impairments of $US4.2 billion ($A4.1 billion ) in December, Vale today reported write-downs of $5.6 billion, including $1 billion on its Australian coal assets.
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Image courtesy of Vale

Kristie Batten

The result comprised a $2.8 billion write-down on the Onça Puma nickel project in Brazil, which was announced in December.

Issues with two furnaces at the project caused the operation to be halted in June.

Vale decided to rebuild one of the furnaces at an estimated cost of $188 million. It will be commissioned in the fourth quarter of 2013.

The book value of Onça Puma was $3.8 billion at September 30, 2012.

What wasn’t expected was the $1.03 billion write-down on the Australian coal assets.

The impairment came as the company posted record revenue of $1.09 billion for its coal division with volumes approaching 8 million tonnes, thanks to the ramp-up of Moatize.

As previously announced, Vale reduced the market value of its 22% stake in Norsk Hydro to a level below the book value of its investment due to the “downward volatility of aluminium prices and the macro-economic uncertainties about the European economy”

Rather than the $1.3 billion impairment charge flagged, the charge was $975 million, though the company also posted a $583 billion write-down on its 28.7% stake in ThyssenKrupp CSA.

The company described 2012 as a challenging year for the global economy which prevented the company from building on its record 2011 results.

Underlying earnings slumped to $11.2 billion from $23.2 billion and though adjusted earnings before interest, tax, depreciation and amortisation was down 43.3% to $19.1 billion, it was still the third highest result in the company’s history.

Lower commodity prices impacted EBITDA by $13.8 billion.

Revenue was $46.4 billion, comprising $24 billion from the iron ore division alone, thanks to record shipments of 303.4Mt.

The company said it would maintain a disciplined approach in 2013.

Vale has previously announced it would cut capital expenditure for 2013, with 2011’s spend of $18 billion the peak of investment.

The expected $16.3 billion spend this year is also lower than the forecast $17.5 billion last year.

The company expects to produce 306 million tonnes of iron ore, as well as 43Mt pellets, 12.4Mt coal, 8.5Mt phosphate rock, 550,000 tonnes of potash, 365,000t copper and 260,000t nickel in 2013.