Despite the negative surprise in costs, Vale (VALE3) remains optimistic for 2024

Vale’s results for the first quarter of 2024 (VALE3) frustrated the market a little in terms of costs, which were higher than expected. Despite the drop in shares this Thursday (25), however, the company’s executives defended during the results conference call that they remain optimistic about this and other factors in the year

According to Vale itself, in its balance sheet published the day before, the cash cost (C1) of production rose US$2.70 per ton in the quarterly comparison and remained stable in the annual comparison, at US$23.50 per ton. Vale recorded lower demurrage costs and greater dilution of fixed costs, with production growing on an annual basis, but the advances were offset by the negative impact of the appreciation of the real in the quarter.

At this point, Gustavo Pimenta, CFO of the mining company, argued that the first quarter is usually contaminated by seasonality. “The dilution of expenses is lower between January and March. However, next year, we are confident of achieving what we set out. Challenges that we manage in costs are in factors such as freight and exchange rate, but we have a hedge,” he explained.

Vale, in the middle of last year, established a guidance of reaching a C1 between US$ 21 and US$ 23. With the increase in production at the beginning of 2024, there was the prospect that the company could further dilute expenses and deliver slightly larger margins.

Vale sees China resilient

On the ore premium side, Pimenta mentioned that earnings are a little tighter due to the market, especially what is seen in China, but argued that Vale remains optimistic.

“We see China in the same way, bringing what we call Chinese resilience, with a market similar to last year. Despite the real estate problem, manufacturing is growing a lot, as is the energy transition industry. We also consider steel exports, which are booming, with inventories lower than last year”, added iron ore director Marcelo Spinelli.

Vale’s directors, however, also brought a tone of moderation in their speeches. Despite the high volumes produced on an annual basis, with the ramp up of some units (such as the S11D system), for now they defended that they do not intend to change the production guidance for 2024.

“If we decide to revisit the guidance, it will be later on. We had a good first quarter, and a good second half last year, but we are waiting. We have our seasonality plan, hydrology in our mines and so on. For now, however, we will maintain it”, said CEO Eduardo Bartolomeo.

Vale also maintained a certain cautious tone regarding the distribution of extraordinary dividends. Pimenta explained that potential distribution depends on several elements, and that although the ore market has improved and is resilient, extra distribution depends on factors such as minimum cash and provisions. “It’s a little early to talk about it, but it is being evaluated,” he explained.

As for the provisions for Mariana, the mining company’s directors stated that they remain committed to reaching an agreement in the remediation process. “We want a resolution that is good for everyone and we see that by mid-year we will achieve this”, defended the CFO.

Finally, comments regarding the merger of BHP with Anglo American were also highlighted in the conference call. Eduardo Bartolomeo explained that the mining company is digesting the news, which involves two competitors, but does not see any major impacts.

“We don’t see any impact on Minas-Rio. Our partnership with Anglo will be respected whatever comes later”, he explained, about the partnership he has with one of those involved in the M&A. “We believe we have a unique position in the industry. We will add 50 million tons of high-quality, low-cost ore. We also have the best reserves of base metals. We always look for opportunities, but a movement in the market does not change our strategy”, he concluded.