Vale takes $1b hit on coal assets
BRAZILIAN mining giant Vale has taken a $US1 billion write-down against the value of the Australian coalmines it acquired in 2007, blaming softening coal prices.
On Wednesday, Sao Paulo time, Vale reported a net loss for the December quarter and a 76 per cent slump in net earnings to $US5.5 billion in 2012, dragged down by $US5.7 billion in impairments, including the charge against the Australian coal assets that were bought from AMCI for $835 million plus net debt.
Vale's coal and fertilisers chief, Roger Downey, blamed the Australian write-downs on weak market conditions including "lower prices than we had when those assets were acquired".
Vale operates the Carborough Downs mine, and part-owns the Isaac Plains mine, in Queensland's northern Bowen Basin, and operates the Camberwell/Integra mine in the Hunter Valley.
Analysts expect all three mines would be marginal at current coal prices. Metalytics data shows the mines' total production costs, including rail to port and loading on board a ship, at Carborough Downs are about $160 a tonne; at Isaac Plains they are $142/t and at Camberwell - probably the most profitable asset - $125/t.
UBS predicts hard coking coal prices will average $160/t during the next 12-18 months, while PCI coal will fetch $140/t, semi-soft coking coal $120/t and thermal coal $95/t.
UBS analyst Tom Price said producers were typically conservative in their outlook for commodity prices. He expects coal prices to decline over the next five years due partly to increased supply.
Mr Price said the BHP Billiton Mitsubishi Alliance (BMA), Rio Tinto, Xstrata and Anglo American had been "flat out for five years now, pumping record metcoal volumes". If they could not trim costs including for labour and higher strip ratios, he said, there was "a risk they'll have to close some assets down".
After record profitability in 2011, Vale's revenues fell 23 per cent in 2012, and underlying earnings more than halved, due to lower commodity prices. Vale described 2012 as a "challenging year for the world economy" that led to a "generalised decline in minerals and metals prices, with the exception of gold". It expected a "less volatile market" in 2013.
Vale's coal division reported record output as its Moatize mine in Mozambique ramped up production. Vale is the world's largest iron ore miner and shipped a record 303 million tonnes last year.
Vale said the writedowns were lower than those unveiled by Rio Tinto and BHP Billiton. Others included $US2.85 billion against its Onca Puma nickel project in Brazil.