Oct 30 (Reuters) – Vale posted a surprise $1.44 billion loss, and its shares tumbled to a 5-1/2-year low as investors worried about the cost of the Brazilian miner’s expansion plans and a possible cut to its dividend in a new era of lower iron ore prices.
Vale SA cited low iron ore prices and a weak local currency for the third-quarter loss. A Reuters poll of seven analysts had forecast quarterly net profit of $956 million. A year earlier, Vale had a net profit of $3.5 billion.
Shares in Vale, the world’s largest producer of iron ore, fell as much as 4 percent on Thursday even as Brazil’s benchmark Bovespa stock index rose 2 percent.
Vale is attempting to boost production and cut costs as it competes with Australian rivals Rio Tinto Ltd and BHP Billiton Ltd at a time when slack demand from steel makers has pushed iron ore prices near five-year-lows.
Vale, and Brazil in general, enjoyed years of rapid growth as Chinese demand for commodities boomed. But Chinese growth has begun to slow, pressuring commodity prices and hurting Vale as well as the wider Brazilian economy.
Vale mined a record amount of iron ore during the quarter, but the slight production rise was not enough to offset the plunge in price. Rivals Rio and BHP have added capacity and cut costs more quickly.
Analysts were disappointed by higher iron ore cash costs, while Vale said the weakening Brazilian real wiped nearly $2 billion off its earnings by increasing the cost of dollar-denominated debt.
The spot price of iron ore .IO62-CNI=SI has fallen more than 40 percent this year as vast new production from Australia coincided with slower growth in China. In the third quarter alone, prices fell 18 percent.
The extent of the price drop has taken miners by surprise. As recently as April, Vale’s iron ore chief Jose Carlos Martins said the price would recover in the “coming months” from $105 per tonne at the time.
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