Vale swings back into the black on soaring iron ore prices

Brazil's Vale (NYSE:VALE), the world's No.1 iron-ore producer, profited from a sharp surge in iron ore prices that helped the company swing to a net profit of $525 million in the fourth quarter from a $8.6bn loss for the same period a year earlier.

The Rio de Janeiro-based company logged a net profit for the full year of $3.98 billion, a significant recovery from a loss of $12.13 billion it reported for 2015, the biggest in the miner's history.

Vale sees iron ore prices staying strong, down only to about $80 per tonne from the over $91 a tonne they are currently trading at.

"With strong production and the recovery in prices, it was forecast we'd have a strong quarter and finish the year strongly. And that's exactly what happened," Vale's Chief Financial Officer Luciano Siani said in a video on the company's website.

Unlike several analysts and even companies that predict iron ore prices are set fall sharply in the medium-term, Vale sees the steelmaking material staying strong, down only to about $80 per tonne from the over $91 a tonne is currently trading at.

The modest price correction will be the result of increasing steel demand and reduced fresh output coming into the global market this year, Peter Poppinga, Vale’s executive director of ferrous minerals said in a call with investors and press.

According to the executive, 2017 will see only 45 million tonnes of new iron ore supply being pumped into the market, down from 70 million tonnes last year. About 50% of that total, he noted, will come from Vale’s new S11D mine, located near Carajas in the state of Pará.

The company, which cut the ribbon on the massive operation in December, said the mine should be operating at full tilt next year. By then, the amount of iron ore being dug will be enough to fill 225 Valemax ships — the largest cargo carriers in the world.

Just to put that in perspective and quoting Breno Augusto dos Santos, the geologist who helped discover the mine, the massive asset will enable Vale to remain the iron ore market leader for at least a century.

And that is only considering the “D” block of the deposit. There are three other blocks at S11 that can be exploited later: A, B and C.Vale swings back into the black on soaring iron ore prices

The entire S11 deposit has a mineral potential of 10 billion tonnes of iron ore, while blocks C and D have reserves of 4.2bn tonnes, Vale said last month during the mine opening.

S11D, also known as Serra Sul, will add 90m tonnes of annual capacity to Vale’s output by 2020, or about 20% of its expected output for that year.

Iron ore prices climbed around 80% last year following near-decade lows of $38 a tonne in December 2015. The commodity has carried last year’s bullish momentum into the start of 2017, with prices rallying amid speculation that China’s demand for overseas ore will hold up even as the world’s largest miners, such as Vale, bring on new capacity.