BRAZILIAN mining giant Vale has taken a $US1 billion write-down against the value of the Australian coal mines 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 New South Wales Hunter Valley.
Analysts expect all three mines would be marginal at current coal prices. According to Metalytics data, the mines' total production costs - including rail to port and loading on a ship - at Carborough Downs are about $160 a tonne, at Isaac Plains are $142 a tonne and at Camberwell - probably the most profitable asset - are $125 a tonne.
UBS predicts hard coking coal prices will average $160 a tonne over the next 12 months to 18 months, while lower-grade PCI coal will fetch $140 a tonne, semi-soft coking coal $120 a tonne and thermal coal $95 a tonne. 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, Rio Tinto, Xstrata and Anglo American had been "flat out for five years now, pumping record met coal volumes".
If they could not trim costs, 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".
Vale's coal division reported record output as its Moatize mine in Mozambique ramped up production.
The group is the world's largest iron ore miner and shipped a record 303 million tonnes last year. It said the write-downs were lower than recent ones from peers Rio and BHP.
Other write-downs included $US2.85 billion against its Onca Puma nickel project in Brazil and $US975 million against its Norsk Hydro stake.