Vale S.A VALE recently announced that it has temporarily suspended production of copper concentrate at its Salobo mine in Brazil after a fire partially affected a conveyor belt. The company stated that other activities, including mine and maintenance operations, are running as usual. The impacted site is currently undergoing an assessment, and the company expects to resume operations by the end of this month.
Vale’s Salobo mine, located in Marabá, in the southeast of Pará, is the largest copper deposit ever discovered in Brazil. The low-cost copper-gold mine began operating in 2012. In October 2018, the company announced the approval of the Salobo III mine expansion, which is currently in progress. Start-up is expected in 2022 and the expansion is expected to increase capacity by 30-40 kt per year.
In 2020, Vale produced 360.1 kt of copper with Salobo contributing 172.7 kt, or 48% of the total output. In the first half of 2021, the company produced 179 kt of copper. Of this, Salobo’s contribution was 83.5 kt. In the second quarter of 2021, copper production in Salobo was 38.7 kt, 13.5% higher than the first quarter, due to the ramp-up of mine maintenance activities. Movement at Salobo mine has been improving with increased availability of equipment as the ramp-up of the mine maintenance workshop continues. Total mine movement at Salobo has increased 31.2% in the second quarter compared to the first quarter. Improvement in mine movement is expected to have continued in the third quarter as well.
This news comes on the heels of Vale’s announcement that it has halted all activities at Onça Puma mine, Brazil, following the suspension of its operation license by a State Agency on allegations that the company has failed to comply with conditions for licensing. Vale is currently evaluating the direct impact of the shutdown on total production. Onca Puma accounted for 7.5% of the company's total nickel production in 2020.
Vale’s Base Metals business, which includes exploration efforts related to nickel, copper, cobalt, PGMs and gold and silver, has gone through a broad safety review of the operational process, resulting in comprehensive overhaul of maintenance standards, procedures, training and oversight. It anticipates improvements from maintenance activities to materialize throughout the business this year. The company anticipates to attain 500 ktpy (kilo tons per year) with projects — Salobo III, Alemao and Cristalino — already in pipeline. Carajas is expected to act as a key catalyst in copper growth. Vale uncovered 1.9 Mt of copper equivalent in the last two years that will support growth in the future. The long-term outlook for copper is positive as copper demand is expected to improve, partly driven by electric vehicles and renewable energy and infrastructure investments, while future supply growth remains challenged on account of declining ore grades and the lack of major discoveries.
So far this year, shares of Vale have fallen 16.2%, compared with the industry’s decline of 17.9%.
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The drop in Vale’s share price this year can primarily be attributed to the recent plunge in iron ore prices due to weak demand in China on account of its intensified curbs on steel production. In the third quarter of 2021, iron ore plummeted 49% — the first quarterly loss since the first quarter of 2020. Copper prices have dipped lately on a stronger dollar and easing supply disruption threat in Peru, the world's second largest producer of mined copper.
Zacks Rank & Key Picks
Vale currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the basic materials space include Nucor Corporation NUE, Methanex Corporation MEOH and The Chemours Company CC. While Nucor and Methanex sport a Zacks Rank #1 (Strong Buy), Chemours carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nucor has an estimated earnings growth rate of 537.4 % for the ongoing year. So far this year, the company’s shares have appreciated 82.9%.
Methanex has a projected earnings growth rate of 409.3 % for 2021. The company’s shares have gained 6% so far this year.
Chemours has an estimated earnings growth rate of 86.4% for the current year. The company’s shares have increased 23.7% year to date.
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