Truck Strike Fails to Dent Vale’s Iron Output

The world’s largest iron ore producer, Vale (NYSE:VALE), has posted record production in Q2, the company announced on Monday (July 16). 

12 days worth of disruptions due to a truck strike in Brazil did nothing to rain on Vale’s record-breaking quarter, with the Rio de Janeiro-headquartered company reporting it produced 96.8 million tonnes of iron ore at a time other companies in Brazil declared force majeure.

“Vale overcame these adversities using the flexibility of its supply chain, with transfers of supplies between sites, alternative use of railways to transport inputs, adjustment in mining methods and production plans and change in mill process parameters,” the company boasted, saying that it came through the crisis “almost unscathed”.

“A side effect of the strike was the devaluation of the Brazilian real against the US dollar, which compensated minor cost impacts related to our efforts to mitigate the above mentioned adversities.”

The total for Q2 represents a 5.3 percent increase on Q2 2017, when Vale produced 91.9 million tonnes of iron ore.

In the update, the company detailed the characteristics of the iron ore produced as having lower silica content and lower alumina content “compared to other market participants”, mainly as a result of further ramping up of the S11D Eliezer Batista complex in Pará state —which Vale touts as the largest single mining complex in its history.

S11D can produce 90 million tonnes of iron ore annually grading 66.7 percent, according to Vale, which began mine earthworks in 2014, and began operations in 2016. The ‘Northern System’ of mines, of which S11D is a part, contributed almost half of the total iron ore produced at 46.2 million tonnes.

Overall across the companies producing iron assets, iron content was down because of the truck strike and heavy rains that hampered production in April.

“Production average iron content was exceptionally reduced to 63.8 percent in 2Q18 from 64.4 percent in Q1 2018,” the company said.

Sales were also up, with the company selling 86.5 million tonnes of iron ore and pellets, up by 4.8 million tonnes year-on-year.

“Vale’s sales mix improved substantially year-on-year, as a result of the S11D ramp-up and the decision to progressively reduce low grade ore production. The share of premium products increased to 77 percent in Q2 2018 from 68 percent of total sales in Q2 2017 maximizing the benefit of rising market premiums.”

The company also said that it took advantage of a strong position in the quarter to resume a buildup of offshore inventory. Vale has nickel assets in Canada, Indonesia and New Caledonia.

Outside iron ore, Vale saw decreases in the production of manganese, coal, copper and cobalt year-on-year and increases in nickel and gold on the same metric.

Compared to Q1 2018 though, only manganese and cobalt production are down, with the company’s mines producing 1,302 tonnes of cobalt in Q2, representing a 7.8 percent reduction year-on-year and a 1.9 percent reduction compared to Q1 2018.

On the New York Stock Exchange on Monday, Vale was trading at US$12.99, down 1.14 percent.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.