Page 46: of Maritime Logistics Professional Magazine (Q2 2012)

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V ale do Rio Doce, the second largest mining company in the world, is facing various challenges in 2012.

These include low iron ore prices in the international market, logistics and casualties involving its iron ore trans- port trains and ships. If that wasn’t enough, the company now fi nds itself going through a judicial battle with the Brazilian

Internal Revenue offi ce (Receita Federal), primarily revolv- ing around taxes imposed on profi ts that Vale earned through international transactions. Most observers agree that Vale is in no position to pay those additional taxes.

The new president of Vale, Murilo Ferreira, took over the company just one year ago. His fi rst main hurdle was to calm investors who feared that Vale would be eventually come to be controlled by the Brazilian Government. The company’s fi nances are said to be signifi cantly infl uenced by federal pen- sion funds and the federal investment bank (BNDES); both of which are major Vale shareholders. Ferreira’s efforts in this regard have yielded some early successes, but this aspect of his leadership represents just one of his many headaches.

Vale by the Numbers

Record income and profi ts were presented by Vale in 2011, but performance declined during the fourth quarter, due mainly to lingering effects from the global economic crisis. Accord- ing to numbers released in mid February 2012, operational revenues last year reached R$105.5 billion (around USD $50 billion), a 23 percent increase over 2010. Vale’s profi t reached

R$38 billion in 2011, also a 25 percent increase over 2010 numbers. Declining iron ore prices had a major impact on the company, as iron ore is its main product. “The results of the last quarter of 2011 were strong, but in- ferior in dollars to the last quarter of 2010 due to lower (iron- ore) prices caused by the European recession and the negative expectations caused by the Euro zone debt crisis”, said Vale in a media release.

Many market analysts had (correctly, as it turned out) fore- cast a profi t decrease of between 20% and 22% in 2011. Un- fortunately, Vale’s fourth quarter numbers could be the harbin- ger of even weaker results in 2012, especially if the European economy continues its downward trend. A similar situation in China is also weighing on the company’s future prospects.

Signifi cantly, Vale reported record iron ore and pellet sales last year, reaching a total volume of 299 million tons; slightly more than its output in 2010.

Murilo Ferreira puts an optimistic spin on Vale’s perfor- mance, “Our fi nancial performance was excellent, the best of all time. We broke various records, even with a challenging economic environment.” He attributes this to what he charac- terized as a disciplined execution of strategy, benefi ting from strong global minerals and metals demand.

According to Vale, the capital return for shareholders hit the record high of $12 billion, made up of the distribution of dividends reaching $9 billion, equivalent to $1,735 per ordinary share and by the $3 billion program to re-acquire shares, which was completely executed. For 2012, Vale has announced minimum dividends of $6 billion. In 2011 Vale’s investments reached $18 billion, excluding acquisition costs.

Of this total, $13.4 billion was spent through project opera- tions and research/development initiatives.

Transport Risk

Vale continues to face serious challenges in transporting iron ore and minerals; both on land and at sea. In the fi rst three months of 2012 alone, Vale experienced two train acci- dents. The second casualty occurred in the north of the coun- try, which left the Carajas railway shut down for fi ve days, incurring steep losses for the company.

BRAZIL

Photo cr edit: Dalian

Valemax next to a Capesize ship at Dalian Shipyard. 46 I Maritime Professional I 2Q 2012

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