Vale profits drop in third quarter – by Brian Ellsworth and Brad Haynes (Sudbury Star – October 27, 2011)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

RIO DE JANEIRO (Reuters) – Brazilian mining giant Vale’s third-quarter profit dropped 18% from a year earlier, missing analysts’ estimates as a tumble in Brazil’s currency caused losses on derivatives and boosted its foreign debt load.

Offsetting stronger revenue from iron sales, Vale lost $2.8 billion as it was forced to adjust the value of its foreign debt and derivatives contracts set up to protect it from a strengthening real — which dropped sharply in the quarter. Looking forward, the company said it expected the iron ore market to remain hot as a result of growth in emerging market economies.

That outlook comes on the heels of a drop of nearly 30% in iron ore prices this month, stern warnings from steelmakers of grim months ahead and evidence of a slowdown in China, Vale’s main market.

“The depreciation of the Brazilian real against the U.S. dollar produced a non-cash accounting effect on earnings before taxes,” Vale said in an earnings release. Two-thirds of Vale’s long-term debt is foreign.

The world’s top iron ore miner’s profit fell to $4.94 billion in the quarter, well short of the median estimate of $6.49 billion in a Reuters survey of nine analysts.

The real’s decline has caught many companies off-guard following four straight quarters of currency gains. Brazilian firms boosted foreign debt by 50% in the past two years on record-low interest and as a rising real made it cheaper to pay debt in foreign currency.

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